Corporate Debt Review

The Energy Connection: Laundering Russian Money into Real Estate

Cash on the Oil Barrel Head

Something I learned quickly in over two decades of intelligence work. Follow the money. In some instances, I would later collide with that truism personally.

Years ago, I acquired property in the Bahamas as part of a yacht club venture. What happened next was eye opening. “Clients” started showing up to buy units in the residential facilities, some of them wanting to acquire several at once.

Well, that sounded like good news, especially if you had been recently shoved onto a board overseeing the location’s financing and budget. There was only one matter that caused some personal concern.

Most of these multiple purchases did not require finance. They were transacted in cash… often carried into the office in an attaché case or suitcase. In other words, cash transactions amounting to piles of currency.

Many were made by Russians or agents representing Russians. Some would then rapidly flip. Others would rarely if ever be used. Their collateral value, it seemed, was already being put to work for different purposes.

Under Bahamian law at the time, it was illegal to inquire into the source of funds being used in a property purchase. In short order, real estate in the Caribbean had become a preferred way of laundering all types of shady money.

These days, the approaches are more sophisticated. But in many respects the venues remain the same.

From Russia With Money Laundering

Several pieces have appeared in publications like The New York Times, The New Yorker, and New Republic chronicling the use of real estate investments as a primary element in Russian money laundering.

Sounds familiar.

This certainly is a matter of interest to law enforcement officials intent on tacking suspect money. However, it also has a bearing on current matters more political in the US.

Of primary interest in the publications mentioned is the central position of buildings which are or were in the Trump portfolio: Trump Towers in New York, Chicago, Miami (Sunny Isles), and Panama; the Taj Mahal in Atlantic City; the Soho project; and locations elsewhere where apparently the Trump name had been simply rented.

In the case of the New Republic piece, the Russian connection was initially one directed specifically to Trump Tower in Manhattan, extending thereafter to other properties in the “Trump empire.”

Diversification to Make a Saudi Proud

Yet our interest in today’s ECRG Intelligence involves the energy connection in what is a complicated web of Russian money moves globally. I had discussed some of this back in September right here (“A Hot Moscow Money Trail,” Sept 6, 2017). At the time, I wrote the following:


I have run into several examples of [using energy finance proceeds to advance a nationalist political agenda] over the past decade.

In each case, there have always been two common elements. First, these situations involve a government funding off-budget projects with redirected proceeds from foreign oil or gas sales. Second, that “non-booked” money would be run through foreign financial entities controlled by the home government.

Russia is one of those producing countries that has been financing projects and external operations off budget. Anecdotal evidence (supported by personal contacts who follow such matters closely) points toward a significant chunk of oil and natural gas export proceeds lodged abroad without ever first moving through central budgetary accounts.

In all, about 40% of government expenditures for the entire range of domestic and international activities conducted by the Kremlin are run off budget, the clear majority paid for by oil and gas revenue not accounted for in any traditional accounting manner.

The point sources for both the retention of proceeds abroad and the disbursement of funds are based in London and Switzerland.

But there is now a new wrinkle.

Gazprom Marketing and Trading (GM&T) is headquartered in London. It also has offices in Houston, Manchester, Paris, Singapore, and Zug (Switzerland). This last office is at the same address as the administrative center for both Nord Stream and Nord Stream II – the natural gas pipelines between Russia and northern Germany. Nord Steam II is now in the cross-hairs of enhanced U.S. sanctions.

On the oil side, state major Rosneft has financial firms in several locations abroad, notably in Switzerland and Ireland (Rosneft International Finance Ltd, RIFL). It has been involved in a series of unusual bond and credit issuances and is already under U.S. sanctions.

The Kremlin has regularly used both GM&T and RIFL, as well as a network of holdings serving as conduits for the use of export sales proceeds from both companies. Among other interests, these holdings include financing outlets deigned to invest in real estate.

Here is what my intel sources have been telling me:

Beginning almost a decade ago, first Gazprom and then Rosneft employed intermediary interests to provide funding for real estate ventures in the U.S. and elsewhere connected to targeted U.S. individuals. These included a high nine-figure eleventh-hour bailout of a major high rise in Chicago, along with other high-end residential and high profile office projects located in New York City; Jersey City, New Jersey; and a Palm Beach, FL mansion, among other sites.

The investments were funneled through Russian high net worth individuals who served as either venture silent partners or actual purchasers of all or some of the holdings involved. All funds were Gazprom and/or Rosneft export sale proceeds or had those proceeds used as collateral in the deals.


That was written a bit less than five months ago. Here is what my sources are now adding.

First, when it comes to money movement in general – and real estate investment in particular –  what had initially been a network of private individual money launderers (some high net worth global players), has been transformed into a labyrinth of LLCs. Many of these are located within the nations where the transfers are to take place.

Second, principals of these limited liability corporations are disproportionally Russian nationals, often residing outside Russia. A number of the LLCs are run from the same address, often little more than a mail drop or an attorney’s office. Further, “parent organizations” in the hierarchy tend to be domiciled in Cyprus or other locations to which Russian funds have easy access.

This structure is hardly new. Some twenty years ago (1997-1998 to be more exact) a project in which I was involved identified 162 entities operating out of three addresses in San Francisco. None had any business operations or employees but controlled significant funding flows.

And each one of them had a Russian or Ukrainian national as party of record.

The issue then was some strange (and huge) acquisitions of stock in newly privatized aeronautical and defense contractors back in Russia. The issue today is real estate.

Third, my sources have confirmed a matter which is known to US investigators. LLCs having a direct connection to investments in real estate properties of political interest in the US have as principals those who are, or are related to, figures in the management of or have at one time been employed by, this place:

London

This is the headquarters of GM&T at 20 Triton Street in London, a location I know quite well. It is from here that Gazprom structures finance for future consignments of Russian national gas exports. After a deal with international oil and commodities trader Glencore, it now does collateralization of oil/gas deals in other market sectors. These sectors include real estate.

Gazprom has for years been rumored to have Vladimir Putin as a “silent beneficiary.” Meanwhile, Putin is long suspected of having a financial position in Glencore. Both have been used as corporate venues for Russian policy.

When the proverbial material hits the rotary oscillator, outlets moving Russian energy proceeds or finance will have a preeminent position.

About the Author

KentMoors

Dr. Kent Moors is an internationally recognized expert in oil and natural gas policy, risk management, emerging market economic development, and market risk assessment.

He serves as an advisor to the highest levels of 27 countries, including the U.S., Russian, Kazakh, Chinese, Iraqi, and Kurdish governments, to the governors of several U.S. states, and to the premiers of two Canadian provinces. He’s served as a consultant to private companies, financial institutions and law firms in 29 countries, and has appeared more than 2,300 times as a featured radio-and-television commentator. He appears regularly on ABC, BBC, Bloomberg TV, CBS, CNBC, CNN, NBC, Russian RTV, and the Fox Business Network.

A prolific writer and lecturer, his six books, more than 2,700 professional and market publications, and over 650 private/public sector presentations and workshops have appeared in 47 countries.