It is one of the most extraordinary crimes of Putin-era Russia, has seen the deaths of some of those who have tried to inquire into it, and has led to new laws in the US and elsewhere that have added to geopolitical tensions. And now some of the stolen proceeds involved appear to have travelled through bank accounts with Bank of Ireland and AIB.

The plotting for the audacious $230 million Russian tax refund fraud, began sometime in April 2007 when members of a criminal gang in Russia, including members of the interior ministry, flew to Larnaca in Cyprus.

Among those who travelled were Artem Kuznetsov, then a lieutenant colonel in the ministry, and Dmitry Klyuev, a convicted fraudster and owner of the Russian bank, Universal Savings Bank (USB). They travelled by private jet.

In Larnaca, they met Paven Karpov, then a major in the interior ministry, and husband and wife lawyers, Andrey Pavlov and Yulia Mayorova, who travelled to Cyprus on Aeroflot.

According to a filing by the US government in a civil case taken in New York in 2015, the following month, May 2007, Olga Stepanova, the head of the Moscow Tax Office No. 28, and her then husband Vladlen Stepanov, travelled to Larnaca and met up with the fraudster/banker Klyuev.

A month later, on June 4th, 2007, Lt Col Kuznetsov led a 25-officer team on a raid of the Moscow offices of the Hermitage fund, one of the largest and most successful investment funds in Russia at the time. The officers seized the firm’s computer server, computers, records and documents. Later the same day the fund’s legal representatives, Firestone Duncan, was also raided.

The items seized included company seals and tax certificates. Some of these items were then used to fraudulently change the ownership of companies linked to the massively valuable Hermitage operation to a Russian company nominally owned by a former Russia sawmill operator, Victor Markelov. The directors of the companies were also replaced, so that executives with HSBC bank were dismissed, and their places taken by a number of low-level Russian criminals.

Although outrageous and obviously fraudulent, such manoeuvres, known as “raider” operations, are widespread in post-Soviet Russia

Although outrageous and obviously fraudulent, such manoeuvres, known as “raider” operations, are widespread in post-Soviet Russia.

Sham lawsuits were brought against the Hermitage companies in Moscow, St Peterburgh and Kazan (capital of Tatarstan), where the companies were represented by the lawyers Pavlov and Mayorova. Full liability for the claims before the courts were accepted.

Judgments

As a result, according to the US government’s submission, judgments totalling $973 million were awarded against the Hermitage companies. These judgments were then used to apply for a tax refund on the basis that they negated profits made the previous year on which tax had been paid.

The heads of the two tax offices that dealt with the claims were Stepanova and another member of the gang, Yelena Khimina. The tax refunds sought in December 2007 were for 5.4 billion rubles, or $230 million. On the same day – December 24th, 2007 – that most of the refund claims were received, they were approved by Stepanova and Khimina, according to the US government filing.

“On information and belief,” the US Government said, the claims “amounted to the largest known tax refunds in Russian history”.

A lot of the money ended up in the West. Some of it, it now appears, may have flowed through Ireland

Two days after the repayments were approved – December 26th – the money was paid from the Russian Treasury to bank accounts in the name of the Hermitage companies that were, in fact, controlled by the criminal gang. What happened thereafter was that the funds flowed through an enormously complex web of bank accounts and offshore companies. A lot of the money ended up in the West. Some of it, it now appears, may have flowed through Ireland.

In October 2007, Hermitage learned about the lawsuits taken in St Petersburgh. Among those acting for Hermitage who began to investigate was Russian lawyer Sergei Magnitsky. By December criminal complaints were filed naming interior ministry officers Kuznetsov and Karpov. But the reaction of the authorities was a further cause for concern.

In one instance, Karpov was assigned to investigate. In May 2008, his interior ministry colleague Kuznetsov approved a crime report against two Hermitage lawyers who had filed complaints against him. The lawyers fled the jurisdiction.

In November 2008, the interior ministry appointed Kuznetsov to investigate the Hermitage tax fraud even though he had been named by Magnitsky as a key perpetrator. On November 24th, 2008, Kuznetsov’s team arrested Magnitsky. A number of other Hermitage lawyers, who the ministry wanted to arrest, fled the jurisdiction.

“Magnitsky was kept in pre-trial detention for almost one year,” according to the US government submission. “He died on or about November 16th, 2009, in Matrosskaya Tishina Prison, in Moscow, Russia.” He was 37 years old.

According to reports on his death, on the day he died he was beaten by eight guards with rubber batons, and the ambulance crew that were called for him was kept outside his cell while he lay dying, for one hour and 18 minutes. They were let in when it was too late.

Bogus directors

By this time Markelov, the sawmill operator, had pleaded guilty to the $230 million tax fraud. One of the bogus directors appointed to the Hermitage companies also pleaded guilty to the crime. In their rulings the courts found that the tax officials had been fooled and were not complicit in the crimes. Another of the bogus directors was found dead in Boripsol, Ukraine.

In 2012, following lobbying by Hermitage founder, Bill Browder, the US government introduced the Magnitsky Act, which targeted those involved in the Hermitage crime. Among those named were Karpov, Kuznetsov, Khimina, and Stepanova. The law restricted the travel of those named, and targeted their assets.

Meanwhile, Browder has been on the trail of the stolen money. While he set out to establish the final destination of the $230 million, what he has stumbled upon, in his own view, is the pipeline through which commingled funds from not just the Hermitage fraud but other instances of gross Russian corruption, have flowed into the West.

When the $230 million tax refund was paid out, some of the money went into USB, the bank owned by Klyuev. The bank went into voluntary liquidation in 2008. The Russian Interior Ministry has stated publicly that it cannot trace the proceeds of the Hermitage fraud, as the relevant documents from UBS “were burned in a truck crash”, according to the US government.

Some of the money went to a bank in Moldova in the names of two companies there. Money went to banks in Latvia and Switzerland

The funds started to travel though a series of Russian banks. Some of the money went to a bank in Moldova in the names of two companies there. Money went to banks in Latvia and Switzerland, including to accounts of offshore companies in fact owned by Stepanov, the then-husband of Stepanova. The couple are also understood to have bought property in Dubai worth millions of dollars.

“The tax returns for Stepanov and Stepanova from 2006 to 2009 report an average combined annual income of just $38,381,” the US government’s court submission notes.

Money went from Banco Di Economii in Moldova to an account in Switzerland in the name of Prevezon Holdings, a company registered in Cyprus. Some of this money was wire-transferred through New York and was the subject of the court case based on the US government complaint referred to above. Some of the money lodged to the Prevezon account travelled on to Holland, and was used to buy companies there that owned property in Germany.

More of the money travelled through an intermediary called Castlefront LLP, a UK company, which had an account with Estonian bank AS Sampo. Castlefront was in turn owned by a British Virgin Islands company called Ireland & Overseas Acquisitions, a company linked with a number of companies linked to the money-laundering maze uncovered by Browder. The company does not appear to have any particular link with or interest in Ireland, despite its name.

Important disclosures

Some of the stolen money travelled through accounts in Switzerland in the name of a company called Quartell Trading. Important information about the role played by the company was revealed when a Russian financier, Alexander Perepilichny, moved to the UK and made important disclosures.

In 2012 he collapsed and died while out jogging in Surrey and there were disputed reports about a mysterious plant-based poison, known to cause cardiac arrest, being found in the stomach of the healthy 44-year-old.

Some of the money that went to Prevezon was invested in property in New York, which was subsequently targeted by the US government under its money laundering laws. The case was settled last year, for $6 million, with both sides claiming victory. Similar cases in France, Switzerland, Spain, Cyprus, the Baltic States, Belgium, the Netherlands, Poland and Luxembourg have seen approximately $40 million being frozen.

“The connection of the suspected money laundering on the Irish accounts to the Magnitsky case means that a thorough investigation of the matters set out in this report is plainly in the public interest,” the report to Garda HQ stated

Hermitage has now written to acting Garda Commissioner Donall O’Cualain asking that transactions involving Irish accounts be investigated.

“The connection of the suspected money laundering on the Irish accounts to the Magnitsky case means that a thorough investigation of the matters set out in this report is plainly in the public interest,” the report to Garda HQ stated.

It outlines transactions to and from a British Virgin Islands company called Sonafin Commercial Company Ltd, which had an account with UKIO Bankas in Lithuania. The Sonafin account is being investigated by the Lithuanian authorities and is, according to Hermitage, “used by the Klyuev Organised Transnational Money Laundering Network”, the “pipeline” that Browder believes is used to bring the proceeds of corruption in Russia into western banks and property.

The report to Garda HQ highlights transactions totalling $1.7 million to Sonafin from the AIB account of Irish company Ipsos Central Eastern Europe Ltd, which was at the time, 2008, involved in market research in Russia.

The Irish company is part of the French-headquartered Ipsos group, and its deputy chief executive Laurence Stoclet has described the claim in the Hermitage report as “bizarre”. The company will co-operate with any inquiry, she said, but it was not involved in money laundering.

Bank records

The report also cites the Lithuanian bank records of Sonafin as showing 10 transfers totalling £1.4 million during 2008 going to the Bank of Ireland account of Diamond Innovations International Sales, a Dublin subsidiary of the Sandvik group in Sweden, which specialises in mining and tooling. A request for a comment from that company met with no response.

Hermitage wants the authorities to investigate these alleged transactions to see whether they actually occurred or whether the names of the Dublin companies were being used as part of a money-laundering operation.

A third Irish bank account cited in the report is with AIB and was in the name of Celtic Properties DOO, a company in Montenegro that was involved in apartment development there. Efforts to contact businessman Vincent Coughlan, of Ballydehob, Co Cork, who was involved in the venture along with the late Jerry Coughlan, also from Cork, were unsuccessful.

There is no suggestion intended that the sale of an apartment was anything other than a legitimate transaction from the point of view of Celtic Properties

According to the Hermitage report, in July 2009 €275,000 was transferred to the Celtic Properties account from the Sampo bank account in Estonia of a BVI company called Everfront Sales LLP, for the purchase of an apartment in Przno, Montenegro.

There is no suggestion intended that the sale of an apartment was anything other than a legitimate transaction from the point of view of Celtic Properties.

According to the Hermitage report to Garda HQ, the turnover of the Everfront account in Estonia totals more than $1.16 billion. This includes money from the Hermitage tax fraud and other crimes. The Klyuev money laundering operation “has been operational since at least 2002 and has been used to launder and conceal payments to Russian government officials, including a close associate of Russia’ President Putin”, according to the report.

In the wake of the US introducing the Magnitsky Act, the Kremlin responded by banning the adoption of Russia babies by US citizens. When the Oireachtas was considering introducing a measure similar to the Magnitsky Act here in 2013, the then Russia ambassador warned that there could be consequences for Russian-Irish trade, and a ban on Irish people adopting Russia babies. The law was never introduced.

Browder thinks Ireland should look at the matter again. In his view, Vladimir Putin is one of the richest men in the world, and much of his wealth is held in the West in the name of nominees. If the West wants to put pressure on Putin, then it should target his money.

“This is Putin’s Achilles hell. He can only be savage up to a point, which is the point at which his money is at risk.”