By Gareth Vaughan
Equity Trust International Ltd, a New Zealand trust and company service provider and recipient of a formal anti-money laundering warning from the Department of Internal Affairs, has clients who've been named in an alleged US$2.9 billion international money laundering operation known as the Azerbaijani Laundromat.
Eight New Zealand companies feature in the Azerbaijani Laundromat. Interest.co.nz has established that at least four were clients of Equity Trust International, including two said to have contributed a combined US$142.5 million to the Laundromat. A fifth was part of a company network created for clients by the Taylor family, who are infamous company incorporators.
However, the Department of Internal Affairs (DIA) has told interest.co.nz it didn't review the customer files of Jetfield Networks Ltd, the NZ company with the biggest role in the Azerbaijani Laundromat and an Equity Trust International client, during an on-site inspection of Equity Trust International's Auckland premises earlier this year.
The NZ links to the Azerbaijani Laundromat once again highlight our soft touch company registration regime, even softer touch oversight of company agents, and the box ticking approach to anti-money laundering regulation.
'Serious, ongoing and extensive'
The DIA on Tuesday issued a press release saying the civil liability acts in which Equity Trust International has engaged were serious, ongoing and extensive. This coincides with revelations from the Organized Crime and Corruption Reporting Project (OCCRP), a global network of investigative journalists, about Jetfield Networks and other Equity Trust International customers.
An OCCRP story, prepared in collaboration with a series of other media organisations, lifts the lid on what's said to be a complex money-laundering operation and slush fund that handled US$2.9 billion. This alleged Azerbaijani Laundromat was active over a two-year period from 2012 to 2014 through four shell companies registered in the UK with leaked banking records detailing more than 1600 transactions, the OCCRP reports. The four UK companies are named as Polux Management LP, Hilux Services LP, Metastar Invest LLP, and LCM Alliance LLP. Azerbaijan's government has denied the OCCRP reports.
Jetfield Networks is described as the third-largest contributor to the Laundromat, contributing US$105 million. The OCCRP describes Jetfield Networks as an offshore company "with direct connections to the Azerbaijani regime and ties to a major corruption case involving a former Italian MP who prosecutors say was paid to work on behalf of Azerbaijan’s interests."
Meanwhile, interest.co.nz has discovered that Larkstone Ltd, the seventh biggest contributor to the Laundromat at US$37.5 million, is also a NZ company. Larkstone's jurisdiction is listed as unknown by the OCCRP. Now removed from the NZ Companies Register, Larkstone was an Equity Trust International client from September 2011, according to Companies Office records. That was when Equity Trust replaced Glenn Smith of the Company Net Trust as Larkstone's NZ agent.
This, below, is from the OCCRP.
The third-largest contributor to the Laundromat, to the tune of $105 million, is Jetfield Networks Limited. According to Italian prosecutors, a company with the same name was used by Elkhan Suleymanov, an Azerbaijani parliamentarian who represents the country in the Parliamentary Assembly of the Council of Europe (PACE), to pay Luca Volonte, a former member, for his efforts to improve Azerbaijan’s image abroad.
Jetfield Networks Ltd was incorporated on February 11, 2009 with paperwork submitted by Glenn Smith of the Company Net Trust. It has subsequently been removed from the NZ Companies Register. Nonetheless Companies Office records show its director as Inta Bilder of Riga, Latvia. The shareholder is listed as fellow NZ registered company Interhold Ltd. From July 2011 Jetfield Networks used level 4, 44 Khyber Pass Road, Grafton in Auckland as its registered office address and address for service. According to Companies Office records, Jetfield Networks' NZ agent was Equity Trust International from July 2011.
In August 2012 then-Registrar of Companies Neville Harris included Jetfield Networks in a list of companies to be removed from the Companies Register because they had ceased to carry on business. The company was dissolved on September 14, 2012. However, numerous transactions involving Jetfield Networks that feature in the OCCRP's data dump date from after the company was deregistered in NZ.
'Jetfield Networks Ltd was not one of the Equity Trust customer files we reviewed'
As supervisor of trust and company service providers, the DIA says it issued a warning to Equity Trust International on June 27 under the Anti-Money Laundering and Countering Financing of Terrorism Act (AML/CFT Act).
"The Department conducted an on-site inspection of Equity Trust on 12 April 2017. The on-site inspection identified that Equity had failed to establish, implement and maintain an adequate AML/CFT programme. In particular Equity Trust had failed to conduct customer due diligence as required, failed to adequately monitor accounts and transactions, and failed to keep adequate records in accordance with the AML/CFT Act," the DIA said.
"The Department required Equity Trust to take immediate action to rectify all areas where it was non-compliant with its AML/CFT obligations. It will continue to monitor Equity Trust and consider further enforcement action if it engages in conduct that does not comply with the Act."
A DIA spokesman told interest.co.nz DIA's interest in Equity Trust International was prompted by its ongoing failure to comply with the AML/CFT Act, rather than the activities of Jetfield Networks.
"Jetfield Networks Ltd was not one of the Equity Trust customer files we reviewed in our on-site inspection on 12 April 2017," the DIA spokesman said.
Interest.co.nz also asked whether the DIA had reviewed the customer files of Larkstone Ltd, Streamford Worldwide Ltd and LGS Commerce Ltd, the other Equity Trust International clients to feature in the Azerbaijani Laundromat.
"The named companies [Larkstone, Streamford Worldwide and LGS Commerce] did not feature in DIA’s review. The on-site inspection involved a random sample of customer files rather than seeking out particular companies," the DIA spokesman said.
Raw data covering the thousands of payments made between June 2012 and the end of 2014 to and from the four UK registered companies at the centre of the Azerbaijani Laundromat has been made public by the OCCRP. The other NZ companies to feature are Sandler Expert Ltd, Balora Holdings Ltd, TSBT Ltd and Nerox Most Ltd. OCCRP does say, however, that the database may contain legitimate business transactions, and that the presence of any name in this dataset does not necessarily imply any intentional wrongdoing.
The top 10 contributors to the Laundromat are detailed in the table below, with Jetfield Networks third on the list and Larkstone seventh.
Cyprus & Panama
Jetfield Networks' parent, Interhold Ltd, has also been deregistered. It is/was also an Equity Trust customer. Its director is listed as Manti Effrosyni of Nicosia, Cyprus and its shareholder as another NZ company, Genhold Ltd. Also now removed from the Companies Register, Genhold Ltd's director is listed as Fernando Enrique Montero De Gracia of Panama. Its NZ agent is given as Equity Trust, and its shareholder is Trust (NZ) Holdings Ltd.
Larkstone also has Bilder listed as its director. And its ownership runs through Interhold to Genhold and ultimately Trust (NZ) Holdings.
Trust (NZ) Holdings is a live, currently registered entity. Its director is listed as Eduard Patkevych who, as reported by interest.co.nz in 2015, appears to be an Auckland-based personal trainer. The shareholder is listed as Liliya Soboleva. Companies Office records show Equity Trust International was originally established as Star Chamber Ltd in May 2008 with Soboleva as director and shareholder. Its name was changed in October 2008. Soboleva ceased being a director in November 2013. She was replaced as shareholder by World Solutions Ltd in May 2015.
Colourful lawyer Evgeny Orlov, who featured in this 2015 NZ Herald article, is understood to be Soboleva's husband. Orlov also had a stint as an Equity Trust International director between January 2010 and June 2011. Interest.co.nz understands Orlov and Soboleva relocated to Panama last year. They're now listed as senior figures at a company named Panama Wealth Advisers.
Curiously World Solutions has been deregistered from the Companies Register even though its parent company, Symonds Street Assets Ltd and Equity Trust International, both remain registered. Attempts to get comment from barrister and solicitor George Bogiatto, whose Parnell office serves as the registered office and address for service for Symonds Street Assets, and the company's director and shareholder Wayne Pettett of Waitara, have thus far proven unsuccessful. We've also sought comment from Equity Trust International's director, Mayya Budyukina.
Meanwhile, Streamford Worldwide, which has also been removed from the Companies Register, also has Inta Bilder listed as its director and Manti Effrosyni as director of its also removed parent companies, Maxhold Ltd, Unihold Ltd and the previously mentioned Genhold Ltd.
The OCCRP lists the seven entities named as NZ companies in a combined 196 Azerbaijani Laundromat transactions with Jetfield Networks involved in the lion's share. Larkstone accounts for another 65 transactions, mostly as payer to Metastar. Four Jetfield transactions feature below.
The Geoffrey Taylor connection
Sandler Expert Ltd has also been removed from the Companies Register. Nonetheless its director is listed as Nesita Manceau of Port Vila, Vanuatu. Its shareholder is none other than Vicam (Auckland) Ltd. This is the company that was incorporated by Geoffrey Taylor's GT Group and also named as parent company of SP Trading Ltd, the NZ registered company found in December 2009 to have chartered a plane attempting to fly 35 tonnes of North Korean weapons to Iran in contravention of United Nations sanctions.
LGS Commerce Ltd has also been removed from the Companies Register, its director is listed as Petr Zika of Nicosia, Cyprus. The shareholder is Brithold Ltd. Also now deregistered, Brithold Ltd's parent company is Genhold Ltd. Like its parent, Brithold was an Equity Trust International client.
The other NZ companies featuring in the Azerbaijani Laundromat don't appear to have any association with Equity Trust International. One is Nerox Most. Now removed from the Companies Register, Nerox Most's director is listed as Marianna Gemenitzi of Cyprus. The shareholder is listed as Corporate Sureties Ltd, whose directors and shareholders include Michael Gannaway of Auckland chartered accountants Gannaway Mercer Ltd.
Gannaway told interest.co.nz Gannaway Mercer did due diligence on the client, Gemenitzi, at the time. Nerox Most was registered in November 2008.
"We were asked to form a company down here that was going to be a trustee of a New Zealand trust. I think she [Gemenitzi] might have been looking at moving to New Zealand looking at the notes, which we did," Gannaway said.
"But regarding the setting up of the trust the details never came through...She probably just lost interest in moving down here. But it looks as if she was also caught up with the banking crisis they had in Cyprus. We had very little communication with her at all. We didn't open any bank accounts, there was nothing to do with any bank accounts being opened. It was basically just a shell company that eventually we got struck off," added Gannaway.
Nerox Most was deregistered in 2015.
'We know nothing'
Balora Holdings Ltd has also been removed from the Companies Register. Its directors and shareholders are listed as having been Peter Luigi Buffalora and Peter Milan Buffalora of Mt Albert, Auckland.
"Our company Balora Holdings ceased trading in the late 90s and was taken off the register in 2000. We know nothing about, and are in no way associated with, this supposed mentioned company [in the Azerbaijani Laundromat]," Peter Milan Buffalora told interest.co.nz.
TSBT Ltd, the only one of the NZ companies featuring in the alleged Azerbaijani Laundromat that remains registered, has Gerrard Sayes as its director, Gerrard and Fiona Sayes plus Trustee Advisors Ltd as shareholders. Interest.co.nz has sought comment from them, but is yet to receive any.
Sandler Expert Ltd features in three transactions in the alleged Azerbaijani Laundromat through which it received a total of US$3 million from Polux Management LP said to be "to the contract for equipment." Streamford Worldwide features in eight transactions with LCM Alliance LLP, seven as the payer and one as the beneficiary receiving US$1 million. It allegedly sent about US$2.76 million to LCM Alliance in a series of transactions cited as being for construction materials.
TSBT features once as beneficiary of a US$5,929 payment from Hilux Services LP. Nerox Most Ltd features as the payer of US$272,585 to MetaStar Invest LLP for "textile." Balora Holdings Ltd features as the recipient of US$180,000, said to be for building materials from MetaStar. LGS Commerce Ltd features in two transactions worth a combined US$620,000 from Hilux, described as being "to the contract."
Danske Bank 'turned a blind eye'
Meanwhile, the OCCRP reports that Denmark's Danske Bank "turned a blind eye to transactions that should have raised red flags." OCCRP says Danske Bank's Estonian branch handled the accounts of all four Azerbaijani Laundromat companies, allowing the billions "to pass through it without investigating their propriety."
"From 2012 to 2014, even as the Azerbaijani government arrested activists and journalists wholesale, members of the country’s ruling elite were using a secret slush fund to pay off European politicians, buy luxury goods, launder money, and otherwise benefit themselves," OCCRP says.
Here's more from the OCCRP;
A majority of the payments went to other secretive shell companies similarly registered in the UK, indicating that the full extent of the scheme may be much larger than is currently known. Large amounts also went to companies in the UAE and Turkey. (Some of the transactions involve companies in the Russian Laundromat, a vast money laundering scheme previously exposed by OCCRP.)
The subsequent flow of much of these funds is unknown. But the records reveal that millions of dollars ended up in the accounts of companies and individuals across the world, including luxury car dealerships, football clubs, high-end travel agencies, and hospitals. Many of these recipients would not have understood the problematic nature of the transfers, and cannot be accused of doing anything improper. But their involvement reveals the many uses to which the scheme’s operators put their money.
And here's the response from Azerbaijan's government;
"Neither the president, nor members of his family have any relation to the charges contained in the report by the Organized Crime and Corruption Reporting Project."
Below is a picture of Equity Trust International's Khyber Pass office, which featured in this 2015 interest.co.nz article.
And here's the DIA press release in full.
Formal warning to Equity Trust International Ltd
The Department of Internal Affairs has issued a formal warning to an Auckland-based reporting entity under the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (AML/CFT Act).
Equity Trust International Limited (Equity), company number 2136248, provides trust and company services to overseas-based customers. The warning was issued on 27 June 2017 under section 80 of the AML/CFT Act
Internal Affairs is the supervisory agency that monitors trust and company service providers for compliance with their obligations under the AML/CFT Act.
The Department conducted an on-site inspection of Equity on 12 April 2017. The on-site inspection identified that Equity had failed to establish, implement and maintain an adequate AML/CFT programme. In particular Equity had failed to conduct customer due diligence as required, failed to adequately monitor accounts and transactions, and failed to keep adequate records in accordance with the AML/CFT Act.
The Department required Equity to take immediate action to rectify all areas where it was non-compliant with its AML/CFT obligations. It will continue to monitor Equity and consider further enforcement action if it engages in conduct that does not comply with the Act.
This is the second formal warning to be published as a summary. Since the AML/CFT Act came into force on 30 June 2013, the Department has issued 21 non-public formal warnings, either for failure to meet particular risk assessment or AML/CFT programme obligations or for failing to submit an annual AML/CFT report.
Questions + Answers
Q. What is the Anti-Money Laundering and Countering Financing of Terrorism Act (the Act)?
A. The Act seeks to detect and deter money laundering and terrorism financing, contribute to public confidence in New Zealand’s financial system, and bring New Zealand into line with international anti-money laundering and countering financing of terrorism (AML/CFT) standards. The Act places obligations on New Zealand’s financial institutions and casinos, known as reporting entities, to detect and deter money laundering and financing of terrorism (ML/FT).
Q. What is a reporting entity required to do to comply with the Act?
A. A reporting entity is first required to undertake an assessment of the risk of ML/FT that it may reasonably expect to face in the course of its business. A reporting entity is then required to establish, implement and maintain an AML/CFT programme which includes adequate and effective procedures, policies and controls for managing and mitigating the ML/FT risk. The requirements of an AML/CFT programme include staff training and vetting, customer due diligence, account monitoring and suspicious transaction reporting, as well as obligations relating to record keeping, review, audit and submission of an annual report.
Q. Who monitors reporting entities for compliance with their obligations under the Act?
A. The Act has three supervisory agencies in New Zealand, the Reserve Bank, the Financial Markets Authority (FMA) and the Department of Internal Affairs (DIA).
The Reserve Bank supervises registered banks, life insurers and non-bank deposit takers. The FMA supervises issuers of securities, licensed supervisors, fund managers, brokers and custodians, financial advisers, derivatives issuers, DIMS providers and peer to peer lending and equity crowd funding service providers. The DIA supervises casinos, non-deposit taking lenders, money changers, money remitters, payroll remitters, debt collectors, factors, financial leasors, safe deposit box vaults, non-bank credit card providers, stored value card providers and cash transporters, and any other reporting entities not supervised by the Reserve Bank or the FMA.
Q. What is customer due diligence?
A. Customer due diligence (CDD) is a cornerstone of an AML/CFT programme. CDD is the process through which a reporting entity develops an understanding about its customers and the ML/FT risks they pose to their business. CDD involves gathering and verifying information about a customer’s identity, beneficial owners or representatives, as well as other information depending on the nature of the business relationship and the level of risk involved.
Q. What is account monitoring?
A. Account monitoring involves reviewing a customer’s account activity and transaction behaviour. This requires a risk based approach and consideration of the reporting entity’s knowledge about a customer, their business, transaction history and the type of CDD undertaken when the relationship was established. Account monitoring must allow a reporting entity to identify grounds for suspicious transaction reporting (to the New Zealand Police Financial Intelligence Unit).
Q. What is a formal warning issued under section 80 of the Act?
A. Formal warnings can be issued when a supervisory agency has reasonable grounds to believe that a reporting entity has engaged in conduct that constitutes a civil liability act. These civil liability acts are specified in section 78 of the Act.
Q. Why has a formal warning been issued to Equity Trust International Limited?
A. The formal warning has been issued on the basis that the Department has reasonable grounds to believe that Equity Trust International Limited has:
· Failed to conduct customer due diligence as required by subpart 1 of Part 2 of the Act (section 78(a) of the Act).
· Failed to adequately monitor accounts and transactions (section 78(b) of the Act).
· Failed to keep records in accordance with the requirements of subpart 3 of Part 2 of the Act (section 78(e) of the Act).
· Failed to establish, implement, or maintain an AML/CFT programme (section 78(f) of the Act).
Q. How many formal warnings has DIA issued under section 80 of the Act?
A. Since the Act came into force on 30 June 2013, DIA has issued 21 non-public formal warnings. These have been issued either for failure to meet particular risk assessment or AML/CFT programme obligations or for failing to submit an annual AML/CFT report.
The formal warning is the second for which DIA has published a summary.
Q. Why has DIA published a summary of the formal warning to Equity Trust International Limited?
A. The civil liability acts in which Equity Trust International Limited has engaged are serious and have been ongoing and extensive. The Department uses a graduated and proportional range of measures to help reporting entities meet their compliance obligations. We base decisions on an assessment of how to best minimise harm and maximise benefit, while promoting sustained compliance. The decision to publish the formal warning, naming the entity, was taken because it was proportionate to the seriousness of the compliance issues and it sends a strong message to this sector and others about how the Department responds to serious non-compliance.
Q. What other action can be taken if a reporting entity does not comply with the requirements of the Act?
A. Where reporting entities engage in conduct that does not comply with the requirements of the Act, supervisory agencies have various enforcement actions available to them. This includes civil or criminal action, which could result in (but is not limited to) the imposition of:
- Civil penalties of up to $200,000 in the case of an individual, and $2 million, in the case of a body corporate; and
- Criminal penalties of imprisonment for up to two years or a fine of up to $300,000, in the case of an individual, and $5 million in the case of a body corporate.
DIA currently has two reporting entities before the High Court seeking a financial penalty.
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