As readers will by no doubt be aware already, the International Consortium of Investigative Journalists (ICIJ) and the Organized Crime and Corruption Reporting Project (OCCRP) have collaborated with hundreds of journalists around the world to publish data from a vast leak of documents obtained from Mossack Fonseca, a Panamanian offshore services provider.

The Guardian's Luke Harding explains how this network appears to have been used to move Russian state funds out of the country and back into Putin's inner circle.

Considerable media attention has already been directed at revelations concerning Sergei Roldugin , a professional cellist and "best friend" of President Vladimir Putin, who has been revealed as the owner of three offshore companies at the heart of an extensive network, spanning from Russia to Cyprus, Belize and the British Virgin Islands (BVI).

A network of secret offshore deals and vast loans worth $2bn has laid a trail to Russia's president, Vladimir Putin. An unprecedented leak of documents shows how this money has made members of Putin's close circle fabulously wealthy.

Roldugin was the owner, from 2007 until 2012, of the BVI-registered Sonnette Overseas, in which he was represented by two Saint Petersburg businessmen, Oleg Gordin and Aleksandr Plekhov. These two men, in turn, owned shares in another BVI-registered entity, Sandalwood Continental.

Sandalwood Continental made a total turnover, between 2009 and 2012, of around 2 billion US dollars, the source of which was, as the OCCRP puts it, "simple stock and contract manipulation of Russian state companies."

For example, in 2010 Rodulgin’s Panamanian company, IMO, agreed to buy Rosneft shares from another offshore company (Dino Capital S.A.). The lawyers handling Roldugin’s business sent two contracts to Mossack Fonseca on the same day. One was for the purchase of stock, and the other cancelled the first contract. According to the contract, Rodulgin would earn US$ 750,000 if the deal did not go through, which he in fact did since both contracts were executed at the same time. There were similar deals with other companies affiliated with Roldugin according to email exchanges in the Mossack Fonseca data. These operations allowed the president’s old friend to make millions of dollars out of thin air. The technique is a tried-and-true scam used in Russia for years to launder money, pay bribes or reward friends. (Curiously, a similar approach, non-performance of contracts for purchase and sale of shares, was used by the fraudsters in the Magnitsky case, to create fictional obligations and then steal the profit tax from the budget). In some cases the agreements did not involve a cancellation penalty but a stock trade, but in every one of these cases reviewed by Novaya Gazeta, the cellist earned a profit from the trade, which is highly unusual. His company bought stock in Russian companies and the next day sold the same stock back to the same people, but at a serious profit, which allowed them to make $400,000-500,000. Roldugin’s contracting partners always lost in these operations. Roldugin’s managers seemed to know ahead of time how the market would act, and how the price of a stock would change. But it wasn’t due to their skill. Novaya Gazeta talked to experts who said that, in reality, many of these deals may not have ever been done. Instead, deals like this are often just fake paper trails to explain payments from other sources. Some of these companies were initially connected to the Troika Dialog investment fund, which was controlled and run by Sberbank after the bank bought the Troika Dialog investment bank. Troika and Sberbank declined to comment.

One of the most strikingly corrupt transactions was the issuing of a credit line for at least $650 million to Sandalwood by the Cypriot RCB bank, which is controlled by Russia's state-owned VTB.

From the OCCRP report:

The documents say that from 2010 through 2012, a credit line for a minimum of US$ 650 million was opened for Sandalwood Continental. The deal gave the offshore almost unlimited access to cash for any purpose. At the same time, credit agreements were signed in such a way that even Mossack Fonseca lawyers pondered the question of whether the bank would get that money back. Mossack Fonseca employees exchanged worried emails questioning whether such a contract should be signed especially when there was no clear understanding of the purpose of the loan and no collateral was put up. “These Loans do not seem to have a commercial background. There is no adequate security mentioned, something that normally would be written in the agreement,” said financial crime expert Pieth. In most of the loan contracts in the data, there’s no mention of security or collateral for the loans. Roldugin’s company, without any risk, received hundreds of millions of dollars from a subsidiary of a Russian state bank.

As Luke Harding writes, these funds found themselves back to Russia:

Some of the cash obtained from RCB was also lent back onshore in Russia at extremely high interest rates, with the resulting profits siphoned off to secret Swiss accounts.

A $6m yacht was purchased by Sandalwood and shipped to a port near St Petersburg. Cash was also handed over directly to the Putin circle, this time in the form of very cheap loans, made with no security and with interest rates as low as 1%. It is not clear whether any loans have been repaid. In 2010 and 2011, Sandalwood made three loans worth $11.3m to an offshore company called Ozon, which owns the upmarket Igora ski resort in the Leningrad region. Ozon belongs to Kovalchuk and a Cypriot company. Putin is the resort’s star patron and a reputed resident. Eighteen months after the loans, the president used Igora as the venue for the wedding of Katerina. Her groom was Kirill Shamalov, the son of another of Putin’s old St Petersburg friends. News of the ceremony, from which cameras were banished, only emerged in 2015.

Guardian graphic

Andrei Kostin, CEO of VTB, told Bloomberg news today that the report that his bank had not made unsecured loans to Rodulgin, claiming that the journalists working on the story "don't have the information on financial transactions."

He also called suggestions that President Putin himself was involved in the schemes "bullshit."



