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THE SAINT PETERSBURG–based Bank Rossiya, described by the U.S. Treasury as “the personal bank for senior officials of the Russian Federation,” sits at the center of these Putin-related Mossfon companies. Bank Rossiya executives methodically created a web of offshore companies with Mossfon during Putin’s second term as president, from 2004 to 2008. The activities of these companies crisscrossed the globe, with home bases in places like the BVI and Cyprus and bank accounts held in Switzerland and Luxembourg.
Putin’s relationship with Bank Rossiya dates to July 1991, when, in his first week running the newly formed Committee for Foreign Liaison, he directed the Leningrad municipal government to enter into a joint venture with the bank. The bank was owned by the local Communist Party at the time, but that was about to change. By the end of the year, the Soviet Union had collapsed, and Russia ceased to be ruled by the Communist Party.
Yuri Shvets, a former KGB officer, testified before Congress about the scramble for riches that ensued. For KGB officers, the number one priority was to establish new businesses or penetrate existing ones, including banks, he said. Soviet accounts held overseas disappeared, only to reemerge as personal fortunes. “Wide-scale infiltration of the Western financial system by Russian organized crime started right on the eve of the collapse of the Soviet Union,” he testified. “The main players of the game were high ranking officials of the Soviet Communist Party, top KGB leadership and top bosses of the criminal world. The primary objective of this brotherhood was to accumulate maximum personal wealth and build safe havens abroad before Russia plummeted into financial chaos.”
The bulk of the Communist Party’s shares of Bank Rossiya were transferred to a group of Saint Petersburg businessmen, among them Yury Kovalchuk, a physicist-turned-banker, and Nikolai Shamalov, a representative for the German-based multinational firm Siemens, who had originally trained to be a dentist. Using his government position, Putin helped legalize the transfer from state asset to private hands.
The Rossiya shareholders and Putin, their government benefactor, maintained dachas together in a gated community on the eastern shore of Lake Komsomolskoye, outside Saint Petersburg. How Putin managed to afford the summer house on a municipal salary is a mystery. The men formed a cooperative society for the compound’s occupants, which they called Ozero (the Lake). The cooperative kept a communal bank account into which any of the members could deposit or withdraw money, a possible model for the activity found decades later in the Mossfon files, where the same men are connected to companies that serve multiple interests and masters.
Another early investor in Rossiya was Gennady Petrov. Law enforcement sources now identify him as a leader of the Tambovskaya, a Saint Petersburg–based criminal gang. In 1995, Mossfon created a company on behalf of USA Corporate Services with a director of the same name. It’s unclear if the owner was the crime boss or what the company did before it disappeared three years later. The Organized Crime and Corruption Reporting Project has linked Ivan Malyushin, a Putin ally and the Kremlin’s former head of the Department of Presidential Affairs, as a business partner of Petrov dating to those early Saint Petersburg days. Malyushin himself had a company with Mossfon. Petrov has additional links to Putin’s inner circle, as the Russian intelligence service has a long history of working in cooperation with the Russian mafia for help in extralegal activities. Similar activities continue today with cybercriminals.
Petrov is not the only Russian mafia figure with links to the Mossfon files. Associates of Semion Mogilevich, known at one point as “the boss of bosses” for his criminal reach, have multiple companies with the Panamanian firm. U.S. prosecutors believed that one of the Mossfon companies, Rosebud Consultants, was paying $20,000 a month to the crime boss for reasons unknown. There are also links in the files to the Brothers’ Circle, a transnational gang with Russian roots that the U.S. Treasury believes acts as a coordinating body for multiple criminal networks.
While the Bank Rossiya shareholders and Putin supported each other in the 1990s, greater riches awaited once Putin vaulted to power. In 1996, Putin’s boss, the mayor of Saint Petersburg, lost his election. What seemed like a setback became an opportunity. Pavel Borodin, who ran the Kremlin’s Presidential Property Management Directorate, tapped Putin to be his deputy. Under President Boris Yeltsin, Russia was a smorgasbord of corruption, but it still had a freewheeling media, and commentators called the directorate “the Ministry of Privileges” for its role in Yeltsin’s patronage network.
Borodin’s subsequent troubles earned him a mention in the Mossfon files. Around the time Putin moved to Moscow and started work, Borodin signed a contract with a Swiss construction company to renovate the Grand Kremlin Palace. More contracts with sister companies followed. The rash of projects generated about $30 million in kickbacks for Borodin to distribute, according to a calculation by Swiss authorities. The money flowed through well-trodden routes: a Cyprus shell company, bank accounts in Geneva and Lugano, and foundations in Liechtenstein and Panama. Borodin made sure Yeltsin received a taste. The Swiss company paid credit card bills for the Russian president, his wife, and two daughters.
An independent prosecutor, Yury Skuratov, investigated. Despite the release of a sex tape featuring someone who looked a bit like him, Skuratov refused to get the message and back down, so Yeltsin dismissed him. Yeltsin had named Putin to head the Federal Security Service, the successor to the KGB, a year earlier, in 1998. Putin’s loyalty to Yeltsin then won him the post of prime minister. Yeltsin resigned on December 31, 1999, right before the Swiss issued an arrest warrant for Borodin, and Putin became acting president. Among Putin’s first acts was to pardon Yeltsin and name Borodin the state secretary of the Union of Russia and Belarus, a position that came with diplomatic immunity. Mossfon first became aware of Borodin in 2009, nearly ten years later, when the firm discovered that one of Borodin’s bankers—a Mossfon client—had been indicted in a Swiss court on charges of money laundering in the Borodin case. The banker protested his innocence. Mossfon resigned from his companies anyway.
Jürgen Mossack maintained a healthy fear of doing business directly with the Russians. “After the collapse of the Soviet Union, assistant managers of factories were becoming oligarchs,” he explains. “It was not normal—anybody could see that.”
John Gordon of USA Corporate Services teased Mossack that he should lighten up, the Cold War was over. Regardless of Mossack’s apprehension, the vast amounts of Russian money flowing into Cyprus and Switzerland via tax haven–based offshore companies, foundations, and trusts made it all but impossible to avoid. Russians obtained Mossfon companies through their lawyers and bankers in the hundreds, if not thousands. The Bank Rossiya network itself came to Mossfon through Swiss attorneys who had a prior relationship with the Panamanian law firm.
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IN A COUNTRY without a functioning legal system and a lurching economy, Russians who had the opportunity to safeguard their money did so. Russia experienced a total net capital outflow of about $550 billion between 1999 and 2015, according to the Russian government, although some suspect it could actually be higher than $1 trillion. Offshore companies were common vehicles to spirit cash out of Russia.
Sometimes, though, even these precautions were insufficient, as Mossfon discovered when someone illegally tried to tamper with one of its Panamanian registered companies. The beneficial owner was a Russian spice importer. The culprits had enlisted a local lawyer and translator to gain control over the company by illegally changing its directors. When Mossfon discovered what was happening, it put a stop to the scheme. A lawyer in Austria who dealt with Mossfon on behalf of the Russian importer was unsurprised. “This kind of taking over companies is now in fashion, practiced in Russia every day,” he told the firm in an email. “You can lose your company over night.”
For those favored by Putin, state spoils could be obtained legally. Gennady Timchenko was part of Putin’s network back in Saint Petersburg. He was also a sh
areholder of Bank Rossiya. Timchenko earned billions through an oil-trading firm called Gunvor and through state-sponsored infrastructure projects. The U.S. government further asserted that Putin personally had a piece of Gunvor. Timchenko sold his shares in Gunvor the day before the United States announced sanctions against him.
According to the U.S. Treasury Department, Timchenko was linked to a Mossfon company registered in the BVI named Southport Management Services Limited. It was created by a Liechtenstein-based firm, Sequoia Treuhand Trust, which had an exclusive Eastern European clientele and a close and profitable working relationship with Mossfon. Sequoia masterfully layered companies and foundations together to guarantee its clients total anonymity. It created at least 222 companies with Mossfon, but the Panamanians had no idea to whom most of them belonged. Despite Mossfon’s requirement that all clients make such information available, Sequoia stubbornly resisted imparting pertinent information on who owned its companies. Sequoia even declined to sign the agreement Mossfon sent to clients, according to meeting notes found in the files. “They do not want to disclose details of beneficial owners/end users to us,” the notes stated.
Unlike Sequoia’s black-box operation, the Bank Rossiya network of companies is laid bare in the Mossfon files. An executive with Bank Rossiya contacted the Swiss law firm Dietrich, Baumgartner, to create a shell company. The firm enlisted Mossfon, and in March 2006 the Panamanians registered Sandalwood Continental in the BVI. Over the next seven years, as much as $2 billion flowed through the shell company. Sandalwood sucked money from the Russian Commercial Bank of Cyprus (RCB)—which was partially owned by Russian state bank VTB—engaged in questionable loan arrangements, and consistently benefited from curiously advantageous share deals. There are approximately a hundred separate transactions involving Sandalwood and four additional companies created as part of the Bank Rossiya network. Altogether, they chronicle a Candyland trail of secret interests, payoffs, and preferential loans.
In order to hide its dealings, the Bank Rossiya executive who set up the network requested Mossfon’s nominee directors for Sandalwood and the other companies. The names of Sandalwood’s directors—Allen, Alexander, Wong—are on dozens of loans and share deal documents, offering another layer of concealment—at least in theory. Every official company record that required signatures of the nominee directors had to pass through Mossfon’s Panama office, where they were filed away in the firm’s archives.
On paper, Oleg Gordin, the designated owner of Sandalwood Continental, was a small-time businessman who described himself on an account-opening form with RCB as having a background in “law enforcement agencies.” The Bank Rossiya executive who created Sandalwood and directed its activities would have been hard pressed to find someone more innocuous than Gordin. Yet for someone with such a low profile, he had access to a staggering amount of capital. Between 2009 and 2012, RCB offered Sandalwood lines of credit up to $800 million. The bank made this money available to a man with no track record and a company with no discernible business model.
Even the partners in Panama noticed that something was off about Sandalwood’s relationship with RCB. One of RCB’s first loans to Sandalwood was for $103 million. The size of the loan and the unanswered questions surrounding it raised red flags for the Panamanians. There was nothing in the loan document that detailed what rate of interest would be charged, when the loan would be paid back, or the purpose of the outlay.
“I believe this is delicate,” wrote Jürgen Mossack in Spanish in an email to the partners. Mossack often employed the word delicado when confronted with suspicious activity. The word functioned as a linguistic yellow traffic light—an opportunity to pause and recalculate the amount Mossfon charged to ensure the sum was commensurate with the risk to which the firm was exposed.
Mossack explained that if Mossfon’s nominee directors signed for such a large loan without the requisite detail, the firm “could be in the presence of payments of a doubtful origin and a doubtful destination.” It didn’t want to be held culpable later if the loan turned out to be improper. Christoph Zollinger concurred, responding that the firm shouldn’t sign without first obtaining a letter of indemnity, releasing it from responsibility.
With prodding, the Bank Rossiya executive who was shepherding the loan provided a bit more detail. The loan appeared to exist to buy tanker ships. The executive tacked on a repayment schedule and added the requested letter of indemnity. The loan went forward. It wasn’t the first loan the Bank Rossiya network shepherded through Mossfon, nor, as the partners knew, was it likely to be the last. On this one deal, Mossfon earned more than $2,000 simply to provide a few signatures. The specter of future profits likely weighed heavily in the firm’s calculations. The partners gave a green light to future transactions, allowing the Mossfon nominees to approve the transfer of hundreds of millions of dollars from the state-owned bank to the anonymous company.
In the Bank Rossiya network of companies, Sandalwood acted as a clearinghouse for loans and as a credit card for miscellaneous expenses. It was reminiscent of the Ozero cooperative bank account, writ large, a vessel into which communal money flowed. The Mossfon files show that Sandalwood loaned out about $600 million in 2009, and at least $350 million in 2010. Most of the money went to companies created by company providers other than Mossfon.
Sandalwood lent around $737,000 to a company that owned land and a hotel complex in the city of Sortavala, on the northern tip of scenic Lake Ladoga. The Organized Crime and Corruption Reporting Project reported that local blogs had identified the location as a possible holiday house for Putin. Over several years, Sandalwood lent $11.3 million to the Russian company Ozon, at an interest rate of 1 percent. Repayment terms on the loans sometimes stretched for as long as twenty years. The loan terms also changed currencies, further depreciating how much Ozon needed to repay. Sandalwood lent another $590,000 on similar terms to a second company that shared an address with Ozon, to build a yacht club on Lake Ladoga.
Bank Rossiya’s Yury Kovalchuk was a co-owner of Ozon at the time it received the Sandalwood money. By this time, Kovalchuk was the bank’s CEO and its largest shareholder. A few years later, the U.S. government would identify Kovalchuk as one of “Putin’s cashiers.”
A year after Sandalwood started loaning money to Ozon, Kovalchuk’s company acquired an extensive mountain property not far from the Ozero cooperative’s compound. Ozon built the Igora ski resort on the site, reportedly now one of Putin’s favorite places to ski. There is a dacha on the grounds that locals claim exists for the Russian leader’s exclusive use. In 2013, under tight security, the resort played host to the wedding of Putin’s younger daughter, Katerina Tikhonova, to Kirill Shamalov, the son of Nikolai Shamalov, the former Siemens representative who was a major Bank Rossiya shareholder and Ozero cooperative member.
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IN 2007, A year after creating Sandalwood, Bank Rossiya executives started another company, Sonnette Overseas. It had an even more improbable owner than Oleg Gordin. On paper, the company belonged to Putin’s dear friend, Sergei Roldugin, the cellist. Broad-faced and often sporting a pageboy haircut, Roldugin has served as a gracious interlocutor for Putin, humanizing the Russian leader in interviews. A year after creating Sonnette, Bank Rossiya formed another company, International Media Overseas. Roldugin ostensibly owned this company, too. For a self-described musician with no business experience, Roldugin’s companies demonstrated an uncanny ability to earn profits and navigate complex corporate transactions.
Mysterious payments flowed to Roldugin’s companies through multiple avenues, including stock deals. In 2010, International Media agreed to buy shares of the Russian technology company Rosneft. Another anonymous Panamanian company, unaffiliated with Mossfon, was on the other end of the deal. The transaction details included a provision that if the deal failed to go through, Roldugin’s company was to earn almost $750,000 in a penalty payment. Two deal documents went out on the same day. The first executed the sale. The second
canceled it, triggering the failure provision and guaranteeing the bonanza for Roldugin’s company. In this way, an unexplainable payment was made to look legitimate.
Another arrangement, with an anonymous Cayman Islands company, involved swapping identical share amounts of the Russian military corporation Rostec. No actual Rostec shares exchanged hands since the amounts offset each other. The agreement was then backdated. The value of the Cayman company’s shares was lower on the older date. It now had to pay International Media the difference. In 2011, a series of these deals netted International Media Overseas $463,800. Questionable payments were made legal. Sandalwood Continental entered into similar transactions, earning at least $4 million from them between 2008 and 2011.
Roldugin’s company Sonnette Overseas was even more ambitious. It joined a consortium in a secret and convoluted plan to take control of Russia’s largest truck manufacturer, Kamaz. Several agreements in the Mossfon files show exchanges of company percentages and responsibilities. If the deal prospered, the cellist would win a say in the business plan, budget, and role of foreign investors in Kamaz. Derailed by the 2008 financial crisis, the deal never came to pass.
Despite the sophistication of his companies, Roldugin exhibited a remarkably laissez-faire attitude toward his business interests. “It’s difficult for us sometimes to get ahold of the [beneficial owner] of International Media and other companies to get his signature,” the Bank Rossiya executive complained in an email to Mossfon. He suggested an end run around this problem. The executive would appoint an authorized person to sign documents; that way, he would not have to bother the musician.
In 2008, Putin stepped down from the presidency. The Russian constitution did not allow more than two consecutive presidential terms, so he swapped places with his prime minister, Dmitry Medvedev. The change in title did little to diminish Putin’s authority. During Putin’s time as prime minister, from 2008 to 2012, Bank Rossiya’s balance sheet more than doubled in size from $4 billion to over $8 billion. The offshore network established with Mossfon also went into high gear.
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