In July 2012, a shell company registered in the British Virgin Islands wired $20 million to an investment vehicle in the Cayman Islands that was controlled by a large American hedge fund firm.
The wire transfer was the culmination of months of work by a small army of handlers and enablers in the United States, Europe and the Caribbean. It was a stealth operation intended, at least in part, to mask the source of the funds: Roman Abramovich.
For two decades, the Russian oligarch has relied on this circuitous investment strategy — deploying a string of shell companies, routing money through a small Austrian bank and tapping the connections of leading Wall Street firms — to quietly place billions of dollars with prominent U.S. hedge funds and private equity firms, according to people with knowledge of the transactions.
The key was that every lawyer, corporate director, hedge fund manager and investment adviser involved in the process could honestly say that they weren’t working directly for Mr. Abramovich. In some cases, participants weren’t even aware of whose money they were helping to manage.
Wealthy foreign investors like Mr. Abramovich have long been able to move money into American funds using such secretive, roundabout setups, taking advantage of a lightly regulated investment industry and Wall Street’s willingness to ask few questions about the origins of the money.
Now, as the United States and other countries impose sanctions on those close to President Vladimir V. Putin of Russia, hunting down these fortunes could pose significant challenges.
Last week, the Internal Revenue Service asked Congress for more resources as it helps to oversee the Biden administration’s sanctions program along with a new Justice Department kleptocracy task force. And on Capitol Hill, lawmakers are pushing a bill, known as the Enablers Act, that would require investment advisers to identify and more carefully vet their customers.
Mr. Abramovich has an estimated fortune of $13 billion, derived in large part from his well-timed purchase of an oil company owned by the Russian government that he sold back to the state at a massive profit. This month, European and Canadian authorities imposed sanctions on him and froze his assets, which include the famed Chelsea Football Club in London. The United States has not sanctioned him.
Mr. Abramovich’s assets in the United States include many millions of dollars of real estate, such as a pair of luxury residences near Aspen, Colo. But he also invested large sums of money with financial institutions. His ties to Mr. Putin and the source of his wealth have long made him a controversial figure.
Many of Mr. Abramovich’s U.S. investments were facilitated by a small firm called Concord Management LLC, which is led by Michael Matlin, according to people with knowledge of the transactions who were not authorized to speak publicly.
Mr. Matlin declined to comment beyond issuing a statement that described Concord as “a consulting firm that provides independent third party research, due diligence, and monitoring of investments.”
A spokeswoman for Mr. Abramovich didn’t respond to emails and text messages requesting comment.
Concord, founded in 1999, didn’t directly manage any of Mr. Abramovich’s money. It acted more like an investment adviser and due diligence firm, making recommendations to the directors of shell companies in Caribbean tax havens about potential investments in marquee American investment firms, according to people briefed on the matter.
Big Wall Street banks like Credit Suisse, Goldman Sachs and Morgan Stanley often introduced Concord executives to hedge funds, according to people with knowledge of those meetings.
Over the years, Concord arranged more than 100 investments in different hedge funds and private equity firms, according to an internal document prepared by one Wall Street firm. They included funds managed by Millennium Management, BlackRock, Sarissa Capital Management, Carlyle Group, D.E. Shaw and Bear Stearns, according to people briefed on the matter and the document.
Concord kept a low profile. It didn’t have a website. It is not registered with U.S. regulators. One of the few times it surfaced in public was in 2020, when Concord applied for and received a Paycheck Protection Program loan worth $265,000 during the pandemic. (Concord repaid the loan, a spokesman said.)
Concord’s secrecy made some on Wall Street wary.
In 2015 and 2016, investigators at State Street, a financial services firm, filed “suspicious activity reports” alerting the U.S. government to transactions that Concord arranged involving some of Mr. Abramovich’s Caribbean shell companies, BuzzFeed News reported. State Street declined to comment.
American financial institutions are required to file such reports to help the U.S. government combat money laundering and other financial crimes, though the reports are not themselves evidence of any wrongdoing having been committed.
But for the most part, American financiers had no inkling about — or interest in discovering — the source of the money that Concord was directing. As long as routine background checks didn’t turn up red flags, it was fine.
Paulson & Company, the hedge fund run by John Paulson, received investments from a company that Concord represented, according to a person with knowledge of the investment. Mr. Paulson said in an email that he had “no knowledge” of Concord’s investors.
Concord also steered tens of millions of dollars from two shell companies to Highland Capital, a Texas hedge fund. Highland hired a unit of JPMorgan Chase, the nation’s largest bank, to ensure that the companies were legitimate and that the investments complied with anti-money laundering rules, according to federal court records in an unrelated bankruptcy case.
JPMorgan cleared the investment. Highland never learned the ultimate source of the money, the court records show.
Big hedge funds might have accepted the money even if they realized it belonged to Mr. Abramovich. At the time, the oligarch hadn’t been sanctioned.
The manner in which one hedge fund received Mr. Abramovich’s money in the summer of 2012 shows the challenges facing U.S. and European authorities who hope to track down the assets of Mr. Abramovich and other oligarchs.
The manager of the fund, which oversaw billions of dollars but wasn’t a big name on Wall Street, provided a detailed accounting of his involvement on the condition that neither he nor his firm be named.
In 2012, a New York-based wealth manager at Credit Suisse, Gerald McGinley, contacted the fund manager on behalf of what he said was a wealthy family. Mr. McGinley said Concord was representing the family and was interested in investing tens of millions of dollars with the hedge fund.
The fund manager said Credit Suisse told him that in order to receive the investment, he would have to set up a special financial vehicle in an offshore jurisdiction, so that the investment wouldn’t incur U.S. taxes. The hedge fund would receive a small percentage of the total investment as a fee, and Credit Suisse would get 20 percent of that fee.
Accompanied by one of Mr. McGinley’s colleagues at Credit Suisse, the fund manager traveled to Concord’s offices in a drab building in the New York City suburb of Tarrytown. Thick metal doors hid its offices from other occupants of the building. Inside, the walls were devoid of artwork or decorations.
The fund manager didn’t know who Concord’s client was, and he didn’t ask.
Mr. McGinley, who now works at the Swiss bank UBS, didn’t respond to questions about his work with Concord. A Credit Suisse spokeswoman declined to comment.
After initially meeting with the fund manager, Concord executives referred him to HighWater, a firm based in Grand Cayman that specialized in providing “corporate governance services” to investment managers.
For $15,000 a year, plus other fees, HighWater would provide an employee to sit on the board of the financial vehicle that the fund manager was expected to launch to accept the wealthy family’s money, according to emails between the fund manager and a HighWater executive reviewed by The New York Times.
The fund manager also brought on Boris Onefater, who ran a small U.S. consulting firm, Constellation, as another board member. Mr. Onefater said in an interview that he couldn’t remember whose money the Cayman vehicle was managing. “You’re asking for ancient history,” he said. “I don’t recall Mr. Abramovich’s name coming up.”
The fund manager hired Mourant, an offshore law firm, to get the paperwork in order for the Cayman vehicle. The managing partner of Mourant did not respond to requests for comment.
He also hired GlobeOp Financial Services, which provides administration services to hedge funds, to ensure that the Cayman entity was complying with anti-money-laundering laws and wasn’t doing business with anyone who had been sanctioned by the U.S. government, according to a copy of the contract.
“We abide by all laws in all jurisdictions in which we do business,” said Emma Lowrey, a spokeswoman for GlobeOp, which is now part of SS&C Technologies, a financial technology company based in Windsor, Conn.
John Lewis, a HighWater executive, said in an email to The Times that his firm received four referrals from Concord from 2011 to 2014 and hadn’t dealt with the firm since then.
“We were aware of no links to Russian money or Roman Abramovich,” Mr. Lewis said. He added that GlobeOp “did not identify anything unusual, high risk, or that there were any politically exposed persons with respect to any investors.”
The Cayman fund opened for business in July 2012 when $20 million arrived by wire transfer. The expectation was that tens of millions more would follow, although additional funds never showed up. The Cayman fund was run as an independent entity, using the same investment strategy — buying and selling exchange-traded funds — employed by the fund manager’s main U.S. hedge fund.
The $20 million was wired from an entity called Caythorpe Holdings, which was registered in the British Virgin Islands.
Documents accompanying the wire transfer showed that the money originated with Kathrein Privatbank in Vienna. It arrived in Grand Cayman after passing through another Austrian bank, Raiffeisen, and then JPMorgan. (JPMorgan was serving as a correspondent bank, essentially acting as an intermediary for banks with smaller international networks.)
A spokesman for Kathrein declined to comment. A spokeswoman for JPMorgan declined to comment. Representatives for Raiffeisen did not respond to requests for comment.
The fund manager noticed that some of the documentation was signed by a lawyer named Natalia Bychenkova. The Russian-sounding name led him to conclude that he was probably managing money for a Russian oligarch. But the fund manager wasn’t bothered, since GlobeOp had verified that Caythorpe was compliant with know-your-customer and anti-money-laundering rules and laws.
He didn’t know who controlled Caythorpe, and he didn’t ask.
In early 2014, after Russia invaded the Ukrainian region of Crimea, markets tanked. The fund manager made a bearish bet on the direction of the stock market, and his fund got crushed when stocks rallied.
The following year, Caythorpe withdrew its money from the Cayman fund. Caythorpe was liquidated in 2017.
The fund manager said he didn’t realize until this month that he’d been investing money for Mr. Abramovich.
Susan C. Beachy and Kitty Bennett contributed research. Maureen Farrell contributed reporting.
Source: NY Times