Former Governor of the Central Bank of Cyprus, Panicos Demetriades, examines in his article for EUobserver Cyprus’ role in the ongoing Muller inquiry.
This article was first published by EUobserver on 15 August 2018, and can also be read here.
As the first trial arising from special counsel Robert Mueller’s investigation into possible Russian interference during the US presidential election draws to a close, now is a good time to reflect on what has come to light so far.
The trial in question is the first of two centering on Paul Manafort, the Republican lobbyist who helped run Donald Trump’s election campaign, who faces charges of financial fraud, money laundering and violating a federal lobbying disclosure law.
The charges relate to Manafort’s work for Ukraine’s pro-Russian former president Viktor Yanukovych, who fled to Russia following a popular uprising in 2014.
When the news of Manafort’s latest indictment surfaced on Twitter in June, many – myself included – were curious to discover the extent of Cyprus’ involvement.
Although aware that the authorities in Cyprus were cooperating with the Mueller investigation, reports in the Cypriot media tended to make it sound rather insignificant.
An article published in March 2017 by NBC suggested that Manafort’s 15 or so bank accounts were closed “just before a 2012 government takeover of the bank in the midst of a banking crisis”.
From this, it seemed logical that Manafort had been banking with Laiki – the bank that was bailed out in mid-2012.
I was rather pleased to learn that Manafort’s accounts had been closed as part of an attempt to strengthen banking supervision, including the central bank’s anti-money laundering unit, put in place soon after I became governor of the Central Bank of Cyprus on 3 May 2012.
During 2008-2012 Cyprus was clearly at the heart of Manafort’s dubious financial transactions. Manafort was generating tens of millions of dollars of income from his political activities in Ukraine and avoided paying taxes by disguising his income as alleged “loans”.
In the process, he was using “nominee offshore corporate entities” and “foreign accounts”. In total, 12 out of the 15 foreign entities that Manafort used were incorporated in Cyprus and were set up during August 2007 to March 2012.
The Party of Regions – a pro-Russia political party in Ukraine – retained Manafort in 2006. The two other foreign entities that he used were created in Grenadines in August 2011 and United Kingdom in April 2013. The third one was also a Grenadines-based entity with an unknown creation date.
More juicy details surfaced during the trial.
Rick Gates, Manafort’s former right-hand man who has pleaded guilty and is cooperating with Mueller, revealed the names of the Ukrainian oligarchs who wired money into Manafort’s Cyprus accounts.
He also explained that the payments to various US vendors, including antique and clothing stores, car dealers, art galleries, contractors and real estate companies, ran through a Cyprus law firm where he worked with a lawyer known as “Dr K.”
Media reports, including New York Times, suggest that it was the same law firm that had helped Manafort to set up the Cypriot shell companies in the first place, following a recommendation by Oleg Deripaska, a Russian oligarch for whom he had worked in the past.
Like many successful law firms in Cyprus it is a politically-connected one – it belongs to Dr Kypros Chrysostomides who has a long career in Cypriot politics, which includes periods serving as minister of justice in two different governments.
It seemed that up to 2012, Manafort was using Cyprus exclusively to carry out his dubious financial affairs. Wires from other countries start in 2013. I initially assumed that this was because Manafort’s Cyprus accounts had been closed in 2012.
But I was surprised to see that the indictment itself lists two wires from Cyprus in 2014 and 2015, amounting to $0.9 million [€0.79m] and $1.0 million, respectively, which were disguised as loans.
This was puzzling. How could such large transactions go under the anti-money laundering radar of any bank?
How could they happen after all the improvements made in 2012-13? How was that even possible if Manafort’s bank accounts in Cyprus had been closed in 2013?
A big plus of such a high-profile trial, besides providing the juicy details behind the charges, is that it encourages investigative journalists to probe into questions like these.
An article published in the Wall Street Journal on 7 August 2018 throws new light on what happened after 2012, although it doesn’t quite answer all the questions.
It turns out that in 2014 and 2015 Manafort was still banking with Bank of Cyprus, the island’s largest bank that took over Laiki at the peak of the financial crisis in March 2013.
Bank of Cyprus closed his account as late as 2015, apparently after its software flagged Manafort’s finances as suspicious.
Compliance officers at the bank recognised that he was high risk as a political campaign consultant. They also discovered that while he was still banking at Laiki he had flatly refused to ask questions about the source of his funds and who ultimately owned the companies the money moved through.
Although the bank took the right action in 2015, the question remains why it took so long to discover what Laiki had already discovered in 2012 that prompted it to close what must have been most, albeit not all, of Manafort’s accounts.
The Wall Street Journal article wants us to believe that this had something to do with Wilbur Ross – then a private investor, now US secretary of commerce – becoming the bank’s largest shareholder in 2014.
Ross, we are told, began forcing Russian members off the Bank’s board, including a former KGB officer who had worked with the president of Russia, Vladimir Putin.
The Russians became major shareholders in the bank in March 2013, as part of the bank’s resolution that involved a “bail-in” of investors, which converted uninsured deposits (about half of which were Russian) into equity.
I find this the least persuasive part of the story. Even setting aside the allegations made in Forbes magazine on 7 August about Ross being a “serial grifter”, I very much doubt that the Cypriot government would want him there if they had thought he might have been a threat to the “special relationship” between Cyprus and Russia.
In fact, the Wall Street Journal article suggests that it was Cypriot politicians, who flew to New York, that convinced Wilbur Ross to invest in Bank of Cyprus.
It is no secret that several successful Cypriot politicians, not just “Dr K”, happen to be lawyers whose family law firms have significant business interests in Russia and other former Soviet republics.
Prior to the Cypriot crisis of 2013, these firms were, in fact, the catalysts of foreign capital inflows into Cyprus, often acting as “introducers” of wealthy clients to the island’s banks.
In fact, one of the first to enter the Russian market was the law firm belonging to the family of the current president of Cyprus, Nicos Anastasiades.
Even setting aside possible financial interests, Cypriot politicians have consistently seen Russia as a close political ally.
Anastasiades himself has been described by the Cyprus Mail as “too subservient to Mr Putin”, noting that he was the only EU leader who attended the 70th anniversary celebrations of the end of World War Two, which were boycotted by all other EU leaders because of Russia’s annexation of Crimea.
It is inconceivable therefore that Cypriot politicians would want to attract Wilbur Ross to Bank of Cyprus, if they believed he would be a threat to the “special relationship” between Cyprus and Russia.
If anything, actual developments suggest Ross was no such threat. His arrival at Bank of Cyprus in mid-2014 coincided with a more high profile Russian oligarch, Viktor Vekselberg, buying out the shares of “ousted” Russians (who never wanted to be shareholders in the first place).
Vekselberg, a close ally of Putin, is currently at the center of allegations relating to Russian interference in the 2016 US elections.
He is one of seven Russian oligarchs sanctioned by the US Treasury in April 2018 as among “those who benefit from the Putin regime and play a key role in advancing Russia’s malign activities.” Vekselberg currently owns 9.3 percent of Bank of Cyprus, which makes him one of the bank’s largest shareholders.
It is hard to believe that the simultaneous presence of Ross and Vekselberg as major shareholders of Bank of Cyprus from mid-2014 (soon after I left Cyprus to return to my academic position in the UK) was a coincidence.
Their co-existence appears to have been organised and deliberate.
According to the Financial Times, Ross, who became vice president of Bank of Cyprus, nominated Josef Ackermann to become non-executive chairman of the bank.
Ackermann, who was the former Deutsche Bank chief executive, was also a non-executive director at Renova, the Swiss holding company of Vekselberg.
If indeed it is true that Cypriot politicians went to New York to convince Ross to invest in Bank of Cyprus, it is much more likely that they were acting as “marriage” brokers between Russian and American interests.
Manafort’s Cyprus connections may well turn out to be just a prelude.