Some Ukrainian firms used the services of Tormex, a phantom shell company that was involved in suspicious money transfers globally.
When driver Albert Maslakov was offered money to sign some English documents and hand over his passport details a few years ago, he evidently jumped at the chance to earn some extra cash.
Soon – he says without his knowledge – the 44-year-old Russian had become the director of a New Zealand-registered firm that had hundreds of millions of dollars flowing in and out of its accounts. A chunk of that money was coming from Ukrainian firms.
Maslakov had unwittingly become head of Tormex Limited, a phantom company that investigators suspect laundered money on a global scale, including for Mexican drug cartels. It also actively worked with various Ukrainian businesses, including a state-owned weapons trader.
For Ukraine, much more is at stake than suspect money transfers here and there.
The most disturbing part of the case of Tormex may, in fact, be how common such business practices are.
Ukraine is a nation in which billions of dollars a year escape abroad in offshore tax havens, both through legal and illegal schemes. Some say at least $3 billion a year is lost through Cyprus alone, an island nation with whom Ukraine has a dubious “double-taxation” treaty – meaning if a company pays taxes there, it doesn’t have to pay taxes in Ukraine.
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Cyprus also makes it difficult to learn the identities of a company’s beneficiary owner, allowing other complex offshore schemes to flourish in many nations.
The amount of money leaking offshore is not small change for a nation with a $40 billion budget and that is dependent on foreign loans, including from the International Monetary Fund and Russia, to stay afloat financially.
Global money laundering and tax evasion is a global system built on hundreds, maybe thousands, of phantom companies. These firms exist on paper only and appear to be run by scores of common folks, who are, in fact, simply proxies.
Many, like Maslakov, may be unaware that their names appear in official documents as the human face of a company. Others are naive or don’t care.
Instead of cracking down on such widespread abuse, law enforcement officials in Ukraine and the region appear to be turning a blind eye, possibly because influential powerbrokers are in on the deals.
The case of Tormex
Tormex first came to light in early 2010 when a report by the Canadian government’s analytical center, Fintrac, cited allegations that the firm laundered “Mexican drug proceeds from the Sinaloa [drug] cartel using Latvian bank accounts” and the London branch of U.S. banking giant Wachovia.
Wachovia was charged by U.S. authorities in March of 2010 with failure to maintain proper anti money-laundering procedures.
According to the U.S. attorney in the Southern District of Florida, the money laundering charges against Wachovia, one of the leading U.S. banks, were caused by its “willfully failing to maintain” an anti-money laundering program from May 2003 to June 2008, referring to more than $420 billion in transactions from Mexican private financial institutions.
Latvian Economic Minister Daniels Pavluts is dismayed by lax oversight.
The charges specifically related to $13 million wired from one such institution – a currency exchange house – to the Wachovia branch in Miami in 2005 to pay for the purchase of airplanes to be used for cocaine shipment.
That transaction resulted in a settlement deal also struck in March 2010.
According to the deal, Wachovia, which had been acquired in 2008 by financial powerhouse Wells Fargo, agreed to pay a $160 million fine. It was the highest penalty ever imposed under the U.S. Bank Secrecy Act, which requires financial institutions to assist in detection and prevention of money laundering.
Tormex had dealings with Kostyantyn Zhevago’s KrAZ firm.
Additionally, Canada’s Fintrac named Tormex as one the four New Zealand firms that had “allegedly laundered Mexican drug proceeds using Latvian bank accounts and Wachovia’s London branch,” in a different case also linked to the Wachovia settlement.
Viesturs Burkans, head of the Money Laundering Prevention Service at the Latvian prosecutor’s office, declined to comment on Tormex Limited or any other specific case.
An investigation by the Organized Crime and Corruption Reporting Project, an investigative journalism organization and partner of the Kyiv Post, traced transactions involving Tormex through Chisinau, Moscow, Kyiv, Riga, Bucharest, London and Auckland.
These cities have become hubs in a huge network of banks, proxies, financial consultants and offshore companies that allegedly launder money and hide stolen assets.
Tormex account statements at Riga-based Baltic International Bank were obtained from the Moldovan police investigating the case involving the alleged disappearance of more than $400,000 belonging to a Romanian businessman.
More than $680 million a year was pouring through Tormex’s accounts. For more than a year, thousands of transactions and commissions from all over the world circulated through the Tormex bank account in Latvia before they were diverted to other offshore companies.
But Tormex didn’t really exist. It was a phantom. It had no offices or employees.
Its director was Russian citizen Maslakov, whose passport details and signature were used to set up a bank account at the Baltic International Bank. When contacted by the Organized Crime and Corruption Reporting Project, Maslakov claimed to not even know that Tormex existed.
Many of Tormex transactions appear to be small and mid-sized commercial deals at first glance.
They have descriptions and even associated contracts, reporters were told when they called the companies involved. Mostly, the contracts were cancelled after the transaction and the companies made a refund for their order through a different offshore company.
“It is about business deals that never took place. Most of the Moldovan companies involved received the money back from Tormex or from some other offshore companies,” said Vladislav Caruceru, the prosecutor who investigated the Tormex money transfers in Moldova.
Officials at Russia’s Central Bank went further in their description of Tormex activities.
“Between 2007 and 2011 Tormex [along with a number of other foreign and Russian businesses] was on numerous occasions ‘detected’ as conducting suspicious transactions,” said Vladimir Khrustov, deputy head of the Central Bank’s external communications department. “These transactions were done with the purpose of moving the money out of the country.”
Ukrainian connections
Tormex’s banking account analysis revealed numerous dealings that this questionable firm had in Ukraine between 2007 and 2008 — all of which could be legal and legitimate.
Banking records show that Tormex was making transfers to SpetsTechnoExport, a state-owned enterprise specializing in arms trade with India, Algeria, Malaysia, Bangladesh and other countries. Its website states that the company specializes in upgrading and supply of tanks, overhaul of military aircraft, engineering systems and personnel training for army, air force and the navy.
Tormex banking records show that on several occasions it was making transfers to SpetsTechnoExport. On Oct. 12, 2007 Tormex wired the weapons trader $8,778.10. A few months later, on Jan. 23, 2008, SpetsTechnoExport received a further $10,729.18 from Tormex. The string of payments to the state-owned weapons reader was followed up by four payments of smaller amounts over the next five months.
SpetsTechnoExport refused to comment on transactions with what other countries have described as a controversial business partner. SpetsTechnoExport did, however, deny having any ongoing business relationship with Tormex.
Another Ukrainian firm connected with Tormex is Donix, a scientific production company based in the eastern Ukrainian city of Donetsk. On Oct. 23, 2007 this company, specializing in development of steel industry products and technologies, wired $299,975.77 to Tormex’s account in the Baltic International Bank.
Contacted by a reporter, Donix’s general director Oleksandr Manshylin faxed a collateral agreement with Tormex dated Feb. 1, 2008. According to the agreement, Tormex was to return nearly $300,000 it received from Donix in October of 2007 for 15 tons of ferronickel that it was unable to supply.
Several more Ukrainian and locally operated international companies show up on Tormex’s banking statements.
Kremenchuk-based foreign trade firm KrAZ, an export subsidiary of AvtoKrAZ, a Ukrainian manufacturer of heavy duty and special purpose vehicles, in February of 2008 transferred to Tormex $380,751.94.
On its website, AvtoKrAZ describes itself as an industrial arm of the Finance & Credit financial and manufacturing group. Kostyantyn Zhevago, a Ukrainian businessman and lawmaker estimated by Forbes to be worth $2.4 billion has admitted to owning the group.
A senior official at AvtoKrAZ said in a fax to the Kyiv Post that his company never had any contracts or financial transactions with Tormex. But Natalya Napadovska, a spokeswoman for Finance and Credit Bank, which holds banking accounts of foreign trade firm KrAZ, contradicted this. She said ordinary transactions occurred and were related to a vehicles-supply contract with CDA New Dehly Ltd, Napadovska said.
The U.K. Company Registry lists CDA New Dehly Ltd. as a London-based company incorporated in 2005 and dissolved in 2007. CDA New Dehly was represented by Hungarian citizen Zsolt Adam Vajgel. The Hungarian was director of 138 companies in the United Kingdom.
According to Napadovska, in 2005, CDA New Dehly made a down payment to buy KrAZ brand vehicles and spare parts. But the company never received the goods and in 2007, it transferred the ownership rights over the purchase to Tormex. In 2008, Tormex received the money from KrAZ back.
The endless fight?
In the aftermath of the Wachovia scandal, New Zealand authorities acted swiftly.
Alastair Stewart, communications advisor with New Zealand Ministry of Economic Development, said that as a result of a multi-agency investigation, authorities removed Tormex and 1,800 more companies from the New Zealand Companies Register.
All of them were established by the GT Group,a business registration firm based in Auckland, New Zealand. It is a company registration agent that appears to specialize in setting up untraceable offshore companies, fronted by proxies. Stewart said that GT Group principal Geoffrey Taylor indicated that he would cease to operate in New Zealand.
“The New Zealand government is aware that some individuals have misused New Zealand companies to commit crimes overseas,” said Stewart. “The primary responsibility for investigating those crimes sits with the overseas authority, although New Zealand law enforcement agencies provide assistance as they can.”
Did a crime occur in the transactions involving Ukraine?
Have local authorities investigated this possibility?
As so often happens when large lumps cash and complicated webs of companies are involved, there are few who dare and can figure it all out.
The State Committee for Financial Monitoring and State Security Service, Ukraine’s agency in charge of monitoring potential money laundering and financial corruption activities, refused to comment on Tormex’s activities with domestic companies.
Politician Valentyn Nalyvaychenko, who headed Ukraine’s SBU state security agency from 2006-2010, at a time when Tormex had dealings in Ukraine, also declined to comment.
The SBU’s press service found a unique way of avoiding questions about Tormex’s relations to Ukrainian companies. In a written response, the SBU’s press service said that records of investigations are based on the names of “individuals,” not companies. As a result, the SBU said it could not answer questions about relations Tormex had with AvtoKraz, SpetsTechnoExport and Donix.
Valeri Belokon, the majority shareholder of the Baltic International Bank, was also tight lipped when asked by an Organized Crime and Corruption Reporting Project Reporter to comment on the activities of Tormex and other New Zealand companies holding accounts at his bank.
“If the things done by an individual cause any suspicions at the bank, then the information is investigated by contacting or transferring information to the relevant law enforcement institutions,” Belokon said. “Even if the people and companies, which you listed in your questions, had been clients of the bank, we have no right to offer comments to third parties.”
Speaking with Ukrainian journalists this week, Latvia’s Economy Minister Daniels Pavluts was asked about how his country – with its lax banking and company activity oversight – was increasingly being used by Ukrainian officials and businessmen as a gateway into offshore hideaways.
The case of Tormex was not specifically mentioned. But he called upon Ukraine to boost investigations, adding that from his side he was ashamed that Latvia was increasingly being used in “obvious offshore schemes.”
With so few authorities across so many borders willing to investigate such alleged financial funny business, it’s no wonder that the success rate figures of combating money laundering worldwide give no reason to be optimistic.
An obvious question: Are top authorities in many of the countries themselves complicit?
“One of the main findings is that 20 to 25 percent of opiates which are being produced worldwide are being seized…. When it comes to money laundering, we are talking about an order of magnitude of0.2 percent,” said Thomas Pietschmann, of the United Nations Office on Drugs and Crime Studies and Threat Analysis Section.
Overall, about $1.6 trillion, or 3 percent of the world’s gross domestic product was laundered in 2009, according to UNODC.
Kyiv Post staff writer Vlad Lavrov can be reached at [email protected].
This story is part of investigative project The Proxy Platform, organized by the Organized Crime and Corruption Reporting Project — a consortium of investigative centers, journalists and media organizations throughout the Balkans and Eastern Europe. Journalists Mihai Munteanu (Romania), Roman Anin (Russia), Arta Giga (Latvia), Inga Springe (Latvia), Valerie Hopkins (Bosnia and Herzegovina), Stevan Dojcinovic (Serbia), Graham Stack (Ukraine) and Miranda Patrucic (Bosnia and Herzegovina) contributed to this report.
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