Exposing Russian Oligarch Wealth: The Untold Story
Superyacht Lady M owned by Alexei Mordashov
Governments proudly take credit for instantly slapping powerful restrictions on Russian billionaires and their assets. But how did the governments know where these assets are? Ironically these governments knew of the assets in spite of those governments’ efforts to vigorously and viciously prosecute employees of banks, accounting and law firms — and even government departments — who exposed how their employers facilitated or ignored tax evasion for the super rich of the world, including for our discussion today, the Russian elite.
The governments, that is the senior bureaucrats in regulatory positions who wanted to be able to get lucrative jobs with the entities that they regulated when retiring from government, and the politicians who depended on ultrahigh net worth political donors, had a problem. The ruling wealth class of every nation, including Russia, were able to confidently avoid paying a fair share of taxes by using a complex structure of corporations and trusts dispersed through a maze of secrecy jurisdictions. This methodology was first developed by the drug lords, and because of its resounding success was quickly adapted by the financially privileged. And both thrived in a comfortable, well-hidden monetary parallel universe for some decades.
As blatant bank complicity in money laundering for drug lords was being exposed, for example, Wachovia and HSBC assisting the Sinaloa drug cartel in getting their hard currency into the safety of the electronic global financial system, the regulators had to devise regulations that might catch the drug lords but would not reveal their affluent patrons’ tax dodges.
- If you want more on how when banks were caught knowingly laundering billions for drug lords, the US Department of Justice’s office created the too-big-to-fail defence to protect them from serious consequences, see the section, The Real Power Over Bank Criminal Activity in Bank Fraud Will Continue Without Effective Punishment.
However, some employees of these enablers were causing a disturbance in the tax secrecy world. They were leaking troves of data revealing names and information by which a tax department could trace an ultrahigh net worth individual’s assets that were not disclosed on their tax returns. You won’t know most of these whistleblower names because they are made non-persons with the cooperation of the media and with a thoroughness that must make Vladimir Putin envious.
The U.S. Takes the Lead
You may have heard of the first, a US citizen, Bradley Birkenfeld, a former employee of UBS Switzerland, Switzerland’s largest bank.(On its website it says that its initials do not stand for United Bank of Switzerland, but it doesn’t say what they do stand for.) In 2006, when the US government passed a provision to give whistleblower protection for anyone who gave information of tax evasion and a 30% cut in the take, Birkenfeld naïvely believed that he would get whistleblower protection.
How the US government uses whistleblower statutes to identify whistleblowers and prosecute them when, after nothing is done to rectify the illegal activity, the employee goes to the press, is, as the Russians say, “another opera”. Those interested can review the story of Thomas Drake, who years before Edward Snowden, complained through proper channels that the NSA was violating the law by the surveillance of American citizens. All intelligence agencies had been prohibited from doing this since the days of J Edgar Hoover and the FBI, who used that information to potentially blackmail politicians and harm leaders whose political opinions they disagreed with. Drake’s fate was one of the reasons Snowden knew the NSA would deep-six any complaint, and if he later leaked the information, the NSA would know who did it.
Birkenfeld came to America to give the Department of Justice (DOJ) a taste of the evidence he could provide on a ‘queen for a day’ immunity agreement. He told the DOJ he had more, but would not reveal it without a subpoena as a subpoena would protect him from prosecution by the Swiss government for breaking Swiss secrecy laws.
The DOJ refused to give that subpoena. Birkenfeld arranged with a Senate committee to summons him and gave this information at a Senate hearing. It included all the details of his golden goose client: Igor Olenicoff, a Russian oligarch transplanted into California and operating as a successful real estate developer.
Birkenfeld’s revelations resulted in recoveries for the US government of $780 million dollars in civil fines and penalties paid by UBS bank, and over $25 billion dollars in collections from some 4,900 4.900 US taxpayers who had illegally undeclared offshore accounts in Switzerland and other countries.
Those readers who have some insight into the working of the US government will now be alarmed for Birkenfeld and will anticipate what could happen to him for doing such a thing to members of America’s actual ruling class.
The DOJ learned of the Senate testimony regarding Olenicoff and claimed Birkenfeld did not give it to the DOJ; so he was in breach of the immunity agreement. The DOJ charged him and the court gave him 40 months in ja, of which he served every second.
Of high relevance to our subject, the Russian oligarch got a sweetheart dea: a fine and no jail — which set a precedent that tax evader defence counsel could quote, and that became known as the Olenicoff defence: no jail for multi-million dollar tax evasion in the US.
The IRS did its part pursuant to the part of the whistleblower statute under its jurisdiction and paid Birkenfeld his 30% ($104 million). For this, and other effective enforcement results, the IRS budget is slashed by Republicans at every opportunity. With the reduced budget, the IRS cannot allocate resources to breaking through these complicated asset hiding schemes. Staff will be relegated to concentrating on small American taxpayers and businesses.
In getting Birkenfeld imprisoned, the DOJ did its part in preserving the pathway for its senior members to transition from government service to the law firms that service the corporate banking industry they once regulated — with the attendant seven-figure partner salaries.
- If you would like more on Wall Street control of the DOJ and other government departments, here’s a link to my earlier article, How Washington Became Controlled by Wall Street — but it could only deal with the tip of this iceberg.
The War on Whistleblowers Continues
Despite the success in making Birkenfeld an example, a series of similar revelations followed shortly.
In 2008, Herve Falciani, formerly of HSBC’s Swiss subsidiary, leaked a trove of data to Christine Legarde, then of the French government.
In 2008, Rudolph Elmer, a former auditor for the Cayman Islands branch of the Swiss bank, Julius Baer, leaked documents to WikiLeaks so the information would become public.
In 2014, Anton Deltour and Raphael Halet, of accounting firm PwC’s Luxembourg office, leaked data to journalist Eduard Perrin.
The various governments involved also tried to make examples of these whistleblowers as effectively as the US government had done with Birkenfeld by bringing the full weight of government prosecutorial power to bear on them and if not able to jail them, then to bankrupt them by forcing them to incur enormous legal fees.
Additionally, their former employers hired detectives to investigate their past. Public relations firms were hired to smear their names, calling them opportunists looking to make personal profit, rather than whistleblowers. They were black listed and their careers destroyed.
But then a great breakthrough in whistleblower protection came about. A couple of decades earlier, some reporters decided to break free of the wealth-controlled media and formed an independent organization with the, albeit mind numbing, name of the International Consortium of Independent Journalists (ICIJ),dedicated to reporting on subjects that were taboo in their former jobs, such as tax evasion.
They built a network of similar minded journalists across the globe and began developing software that could unscramble these corporate structures, whose complexity resembled the riggings of the mast of an 18th century schooner that silently sweeps through the world’s secrecy jurisdictions. They connected names to assets. More importantly, they arranged effective encryption messaging to hopefully protect whistleblowers from government prosecution.
The Russian Connection Surfaces
Then in 2016, their great and spectacular endeavor splashed in headlines around the world as the Panama Papers. (English majors note the allusion to the and the persecution of Daniel Ellsberg.) The Panama Papers were followed by the Paradise Papers and the Pandora Papers. They achieved their aim of not only making public the names and assets of the wealthy tax fugitives — but protecting whoever leaked the massive data troves to them.
At the time of the Panama Papers, I recall that former Swiss bank auditor Rudolph Elmer, mentioned above, told me that Swiss bankers believed the leak was by a CIA hacker because there were few US citizens on the list. I told him that the rumors circulating here in the financial industry were that, after Birkenfeld, knowledgeable Americans had already moved their assets through Delaware corporations to newly attractive home-secrecy-jurisdictions of Nevada and Wyoming. Later, the Pandora Papers exposed South Dakota, Nevada and Wyoming, and more, are yet to come.
These privileged American elite could no longer trust the once-impenetrable Swiss vault, but they could have confidence that their banker enablers in recent years had quietly gained such full control of the US Department of Justice and the Treasury Department after these departments response to the 2008 Crisis, that their assets were now safer at home — and all this completely without any awareness of the American public.
The Panama Papers and reports of subsequent leaks contained a surprising number of Russian names. The ICIJ reports estimate that 20% of Russia’s wealthis stashed in offshore jurisdictions including the United States.
My readers likely don’t frequent the posh oligarch playground in London, England where many of these types prefer to live and enjoy Western culture and may be unfamiliar with the names of the Russian elite class; so I won’t repeat the names. For those interested, ICIJ’s Spencer Woodman gives a list of some prominent Russian billionair revealed by the Papers in his, As the West takes aim with Russian Sanctions, here’s what we know about oligarchs’ secret finances.
One curiously wealthy Russian that does not make Woodmen’s list is a virtuoso cellist and orchestra conductor named Sergei Roldogin, who ICIJ software connects to $2bn of offshore assets. How can one man be so amazingly talented in two areas that usually involve quite contradictory temperaments, art and investing? He is the long time friend of, and godfather to the daughter of, Vladimir Putin.
When the Trump administration considered levying sanctions against Russian oligarchs in response to the Russian invasion of the Crimea, astonishingly, its list of targets contained no original research. Most of the names were from the ICIJ revelations and a few public sources. No credit was given to the role of the whistleblowers who risked persecution by governments and corporations to make this information available. Also not mentioned was the role of the U.S. and other governments that tried vigorously to punish these people of conscience.
The Role of the U.S. Treasury
A separate discussion is needed of an important leak with the offputting name of, The FinCen Leaks — who’s going to read an article about whatever that incomprehensible term means. It refers to the Financial Crimes Enforcement Network of the US Treasury Department. One of its employees saw that the department was ignoring mountains of evidence of probable money laundering facilitated by the large global banks. Here’s the ICIJ commentary on the documents:
“They show banks blindly moving cash through their accounts for people they can’t identify, failing to report transactions with all the hallmarks of money laundering until years after the fact, even doing business with clients enmeshed in financial frauds and public corruption scandals:
After reviewing the documents, Paul Pelletier, a former senior US Justice Department official and financial crimes prosecutor, commented, “they [the banks] operate in a system that is largely toothless.”
And why would you expect anything other than that from the US Treasury Department, given its incestuous relationship with the big banks?
Insightful journalists dubbed the Treasury Department “Government Sachs” not only because three Treasury Secretaries in as many decades: Steve Mnuchin, Hank Paulsen, and Robert Ruben, came from that bank; but the bureaucracy is packed with Goldman Sachs alumni who get to return to Wall Street as a reward for their willful blindness as civil servants.
The hiring of these former bankers is justified by the saying that the best people to regulate Wall Street are people from Wall Street. The contrary is true. The Wall Street culture is sociopathic and they have no twinge of conscience in money laundering for the most cruel of drug lords, terrorists or political tyrants. They brought that culture to the Treasury Department. So any politician who wanted to clean the swamp in Washington would begin by ferreting out these snakes in the Treasury Department. That department should be prohibited from ever employing any former banker.
With that context we return to our whistleblower. Imagine what she saw going on and what happened to her complaints within that system. But she made an unfortunate mistake which all future whistleblowers can learn from. She leaked to BuzzFeed News. The government was able to crack its encryption, identify her, prosecute her, and jail her. Note to whistleblowers: neither the government nor businesses have been able to crack the ICIJ encryption.
Now you have probably never heard of her name, Dr. Natalie Edwards, nor will you. An important part of the government defense is always to have the corporate media cooperate in making persons of conscience into non-persons so they will get no recognition or support for the sacrifice of their career and life savings to expose corruption in a government department.
Although the news headlines following this leak focused on names of political leaders and celebrities, relevant to our topic, her information connected Paul Manafort to Russian interests and identified more Russian oligarchs.
What Can We Do?
The ability of Russian oligarchs to take advantage of the corruption in the government that protects the wealthy may be an opportunity for reform.
The first reform must be true protection of whistleblowers. If they have reported illegal or improper behavior through the mandatory internal channels and nothing is done within six months to effectively correct the behavior and they leak to the press, they should be given a complete whistleblower defense and an acknowledgment of their service to the public in fighting corruption within the government and business.
Any retaliatory effort by their employers should be severely penalized.
The power of Wall Street over the DOJ and Treasury Department should be broken. Senior members of both departments should be absolutely prohibited from taking a job upon retirement with any of the entities that they regulate or the law or accounting firms that serve them.
The Treasury Department should be prohibited from hiring any former bankers — no exceptions. The Secretary of Treasury should never be a former banker.
Seem radical? These reforms simply demand that very well compensated people put their loyalty to their government above their loyalty to their paycheck.
Jan D. Weir
uthor: Jan D. Weir is a trial lawyer who has advised international corporations, banks, accounting firms and Lloyds of London that insured auditors. He has taught business law at the University of Toronto, and is the co-author of The Essential Concepts of Canadian Business Law (available on KOBO). He discusses how the superrich use unrecognized methods for the upward transfer of wealth in the tax, corporate and banking areas on https://janweirlaw.medium.com/, and Twitter@JanWeirLaw.