By Craig Shaw for TheBlackSea.eu and European Investigative Collaborations

How do you set up an offshore bank account when your business is connected to the most powerful political figure in Turkey?

This was the dilemma facing the Turks behind a Maltese company, Pal Shipping Trader One Ltd, which in 2013 required an account to deposit VAT refund cheques from a secret oil tanker business.

In April of that year, Pal Shipping approached its representatives at Credence Corporate Advisory Services, a Maltese law firm “specialising in complex structures for a predominantly international clientele”.

The lawyers were willing helpers.

Credence made enquiries to some of the top banks operating in Malta, such as IIG, the National Bank of Greece (NBG) and the Bank of Valletta.

Although Credence reps provided bank references and photocopies of the passports for Pal Shipping’s Turkish directors, the response from the banks was unanimous: we need more information.

According to e-mails obtained by the European Investigative Collaborations (EIC) and The Black Sea as part of the #MaltaFiles project, a Senior Relationship Officer at Malta’s Bank of Valletta told Credence: “It would be appreciated if you could provide us with email addresses to confirm the references since there are no contact details.”

Credence, apparently, declined to send these.

A few weeks later, the advisory’s staff received a similar response from the Maltese branch of NBG:

“In terms of our regulatory requirements,“ wrote an assistant manager at NBG, “the hereunder due diligence processes need to be completed to enable us to proceed with the opening of an account for a corporate [entity].” The manager requested additional documents, including declarations by the shareholder and ultimate beneficial owner, as well as financial statements.

The bank needed to be sure who was behind the company, and the source of its cash.

This compliance is a legal obligation of reputable banks, accountants, law firms and other financial institutions. The process is designed to combat international money laundering, terrorism financing, organised crime and corruption.

For Credence and its Turkish clients, this corporate responsibility was too burdensome. it seems they wanted to answer as few questions as possible.

Credence’s Portfolio Manager, Georgina Kristic-Ficur, explained the problem to a senior partner, Andrew Cefai, an accountant by trade and treasurer of the Maltese-Spanish Chamber of Commerce:

“I have explored all the banks that we normaly [sic] bank with and it seems that the due diligence procedure in all of them became almost identical,” she wrote. “For that reason, it is very unlikely that we can open a bank account for Pal Shipping Trader One, to deposit their VAT cheques in the name of the company.”

Why would an honest business be reluctant to supply the required evidence to a bank?

Kristic-Ficur explained further. The clients, she wrote, “will abonden [sic] an idea of the account since collecting, certifying and sending all the required documents will cost them time and money that they are not ready to spend at the moment.”

But the banks might also have been concerned had they learned that Pal Shipping is beneficially owned by the family of Recep Tayyip Erdoğan – Turkey’s controversial prime minister at that time, and now its controversial president.

One director and the stated owner is Ziya Ilgen. A former schoolteacher, Ilgen is the brother-in-law of Erdoğan and is understood to have taken over the Turkish leader’s business interests when he entered politics. The second director is Bahaddin Ayan, the 20-something son of one of Erdoğan’s closest friends, and who remains on the companies today.

Charmed circle of Erdoğan

The existence of the Erdoğans’ offshore network was first revealed by The Black Sea and its partners at the EIC network in May this year as part of its reporting on the #MaltaFiles.

Through offshore companies in the Isle of Man and Malta, the Erdoğans secretly owned an oil tanker worth nearly $25 million called the Agdash.

Using both public documents and Credence’s internal files, obtained by EIC, this investigation details how the Erdoğans appear to pay nothing towards the Agdash.

The honour of footing the $25 million bill went to two businessmen from Turkey, according to EIC’s investigation.

One of them is Mübariz Mansimov, the Turkish-Azeri president of Palmali Group, a shipping enterprise headquartered in Istanbul. Much of Mansimov’s business is located in Malta, where tax laws are friendly to the maritime industry.

The other is Sitki Ayan, a childhood chum of Erdoğan, who is close enough to call the President by his first name. Ayan was accused in 2013 of paying Erdoğan millions in bribes for a three billion USD “state incentives” package on a pipeline deal.

In late November 2017, a political scandal erupted in Turkey prompted by the release of banking documents by the leader of the opposition party (CHP), Kemal Kılıçdaroğlu. They appear to show $15 million in payments to members of the Erdoğan clan, including Ziya Ilgen, Mustafa and Ahmet Burak Erdoğan, the president’s brother and eldest son, Osman Ketenci, father-in-law of Ahmet Burak, and Mustafa Gundogan, one of Erdoğan closest friends, said to have once been his private secretary.

These secret millions were transmitted from the Turkish HalkBank account of an Isle of Man shell company called Bellway Limited to the Erdogan clan over the course of several weeks in December 2011 and January 2012. Bellway is the ‘ultimate controlling party’ of Pal Shipping Trader One, the $25 million Agdash oil tanker, and two other companies in the offshore structure: Bumerz Limited, also in the Isle of Man, and Bumerz Denizcilik in Istanbul. They were set up by the Erdoğan family and friends around 2007 and 2008.

The secret bank account

But how did Erdoğan’s family conduct offshore business without scrutiny for nearly ten years? The answer is not surprising.

Firms like Credence – and international service provider Equiom, which controlled Bumerz and Bellway in the Isle of Man – ignored their responsibilities.

A client’s unwillingness to provide due diligence should have been a red flag for Credence, which is bound by Maltese, EU and other global anti-money laundering laws to investigate any suspicious behaviour, political connections and potential criminality of the companies it administers.

When Malta’s banks requested more documentation from Pal Shipping in spring 2013, Credence advisor Kristic-Ficur offered a worrying solution. She suggested to company partner Andrew Cefai that Credence use its own bank account to accept Pal Shipping’s cheques.

“We might even ask the bank to credit the amount to our account and authomatically [sic] transfer the funds to Pal-Shipping account abroad,” she added.

She would caution, however, that “this procedure was not allowed in other banks”.

The subsequent e-mail discussion between Cefai and Kristic-Ficur is not contained within EIC’s files.

Other documents reveal, however, that only a few months later Pal Shipping had an account at the Bank of Valletta. It was not in its own name, however, It was a “client account” registered to Credence.

“The unwillingness of the parties to provide the necessary documentation to a bank is a red flag,” said Burke Files, from Financial Examinations & Evaluations, a U.S. offshore investigations and risk management firm, which teaches due diligence procedures to financial institutions around the world, including banks in Malta.

“The banks in Malta did exactly what they were supposed to do. Exactly,” he added. “For the law firm to then step in and offer the services of a ‘Financial Intermediary’ is breathtakingly dangerous for the financial health of the firm’s partners.”

“This type of creeping relationship, growing from an arm’s length to entwined interests and ignored conflicts, is exactly what international financial regulators have warned about for 20 years,” said Burke.

Credence efforts not only helped the Turks with their due diligence problem, but protected the Erdoğans from potentially unwanted attention by financial regulators and compliance officers.

The Malta Financial Service Authority, which regulates the business and banking industry there, told The Black Sea that should a client be unwilling or unable to provide due diligence when asked, providers like Credence “shall not carry out any transaction through the [bank] account… establish the business relationship or carry out an occasional transaction and shall terminate the business relationship with the customer.

“In addition [Credence] shall consider filing a STR [Suspicious Transaction Report] with the ‘Financial Intelligence Analysis Unit’” - the Maltese government agency responsible for combating money laundering.

Credence told The Black Sea that it did not breach any of its legal obligations, saying that the company had no reason to suspect that its clients were involved in anything illegal.

The secret bank account #2

Credence saw no problem in helping Pal Shipping open a new bank account when asked in 2015. Even though the request came from an employee of Sitki Ayan.

It was Credence who confirmed the existence of a bank account offshore. When responding to questions from The Black Sea about the status of the “client account”, a representative said that Pal Shipping “has in fact opened an account with a Maltese credit institution”.

The admission that Pal Shipping secretly runs an offshore bank account in Malta is likely to create further scandal for the Erdoğans in Turkey, as opposition groups fight to prove the family is acting inappropriately, and have hidden assets offshore.

Credence did not disclose which bank holds the account, or if the proper due diligence was provided this time around.

By then the offshore paper trail had changed.

In late 2015, Ziya IIgen was no longer listed as a director of Pal Shipping, nor of the other Erdoğan companies which exist in Turkey and the Isle of Man.

Ilgen was replaced by Sitki Ayan’s son, Bahaddin (aka Bahattin). Ilgen, however, was still involved in the business. Everyone appears to have been working on his behalf.

Credence opened the bank account at the request of another Turkish citizen, Yusuf Alapan.

Alapan was authorised to deal with Credence through a letter signed by Ilgen on 25 August 2014. In this letter Alapan notes his address as the offices of Som Petrol, a petro-trading company which is part of Ayan’s ASB Group. Alapan, who described himself as a “Business Development Specialist” for ASB, was only the latest in a line of Ayan’s employees who dealt with Credence. All of whom were authorised in writing by Ilgen.

Erdoğan brother-in-law: Not “politically exposed”

During the bank account discussions in October 2015, Alapan raises the issue of the service agreement between Credence and Pal Shipping.

He refers to a document signed by Ziya Ilgen on 14 November 2011 that permits Credence to act for the company in Malta.

A copy of this, obtained by EIC and The Black Sea, reveals further evidence that the Erdoğans were deliberately avoiding scrutiny - and that Ilgen appears to have broken EU and U.S. money laundering laws.

In short: Ilgen, the “ultimate beneficial owner” of the Pal Shipping Trader One, declares himself not a ‘Politically Exposed Person’, also known as a ‘PEP’.

In offshore parlance, a PEP is a term used to describe individuals at “high risk” of being involved in corruption. The legal definition in Malta, and most of the rest of the world, includes “immediate family members, or… close associates” of senior government officials. In other words, people like Ilgen, the Erdoğans and perhaps even the Ayans.

Credence did not deny knowing Ilgen’s connection to Turkey’s first family, and told The Black Sea that they did not consider him – as a brother-in-law – politically exposed. Not that it matters. Credence’s internal mechanisms, they said, “do not peremptorily prohibit the on-boarding or servicing of customers who may be politically exposed persons but predicate the need for enhanced due diligence measures to be undertaken in such cases.”

U.S expert Burke Files disagrees.

“It is not just family members, but close, and I add unrelated, natural persons can be PEPs,” he said. “Their definition for a PEP is sorely dated and goes back to guidance I know to be stale and unhelpful.”

In fact, on his Credence service agreement, Ilgen lists his address as Gurgen Street in the Burhaniye Quarter on the Asian side of Istanbul. Though it does not mention a specific property, this is the location of the Erdoğan family home until he was elected prime minister in 2003.

Even if Credence did not know any of this, the structure of the Erdoğans’ business led to Bumerz Limited in Isle of Man, and then to Bumerz Denizcilik in Istanbul. At the time the family took over Pal Shipping in 2008, the whole operation was owned by Ziya Ilgen, Mustafa and Ahmet Burak Erdoğan, Ketenci and Gundogan.

These are the people who, a few weeks after Ilgen signed his service agreement in 2011, would allegedly receive $15 million from this structure, as revealed by the CHP last month.