By John Helmer, Moscow
Burisma, an influential Ukrainian oil and gas company with disputed ownership involving Nikolai Zlochevsky and Igor Kolomoisky, is under criminal investigation in the UK. But you wouldn’t know it from a release issued by the company on January 22. According to Burisma, “Britain closed criminal proceedings against the assets of Nikolay Zlochevskyi [sic]. The case was closed after the Court analyzed the period from 2002 to December 2014 for alleged illegality of the source of funds of companies the ultimate beneficiary of which was Nikolay Zlochevskyi [sic] and ‘found no grounds for further consideration of the case’, said the Central Criminal Court of England and Wales decision.”
A statement issued yesterday by the Serious Fraud Office (SFO) in London, which initiated the criminal proceedings against Zlochevsky in April of 2014, said its investigation of Zlochevsky and Burisma is “ongoing”. The SFO regrets, it added, that unexplained changes of position by the state prosecutor in Kiev led to last month’s court judgement. “We are disappointed,” said the SFO spokesman, “we were not provided with the evidence by authorities in the Ukraine necessary to keep this restraint order in place. Our criminal investigation continues.”
No trace of Burisma’s “no grounds” quotation from the court judgement can be found.
Instead, Justice Blake ruled that until or unless the SFO and the Ukrainian authorities produce fresh evidence of wrongdoing by Zlochevsky, a freeze order over Burisma’s bank accounts in London should be lifted. Blake also ruled: “it is not known why the [Ukrainian] authorities subsequently changed their minds 27 days later, or whether fresh evidence has arisen… In the event that this information suggests that a Ukrainian request for mutual assistance is about to be made on fresh evidence not considered in this application, that is a matter that can be addressed by a timetable for setting aside the existing order and to which the parties can give consideration following the handing down of this judgment.”
Burisma Holdings Ltd. was incorporated in Cyprus in 2006; there is no trace of its registration, asset history, or financial accounts on the company website. Its registered office appears to be on St. James Square in London. The chief executive, Leonid Petukhov, and his deputy, Alexander Gorbunenko, pick up the telephone at Asterius Fund, a small hedge fund registered in the Cayman Islands since 2011. Petukhov used to work at Victor Pinchuk’s EastOne holding.
Burisma reports that its auditor is KPMG, but it doesn’t release audited statements of its financial condition. Instead, the company issues press statements of production plans and operating intentions. “By the end of this year, Burisma Holdings is planning to produce more than 700 million cubic meters of natural gas. At year-end 2014, the Company invested around UAH 2 billion. Based on a previously approved strategy, Burisma Holdings intends to put into operation another 28 wells and invest around UAH 3 billion in case of subsoil use tax reduction. In 2015, the Company is aiming to produce more than 1 billion cubic meters of natural gas. Openness and operational transparency are key factors in the activities of the largest independent gas producer in Ukraine.” For the last report on Burisma, read this.
Until the release of Justice Blake’s judgement, Burisma and Zlochevsky refused to confirm their shareholding relationship. The SFO evidence discussed in Blake’s ruling omits the name of Igor Kolomoisky; he has been identified in Ukrainian investigations and media reports as a stakeholder in Burisma. Kolomoisky runs the Privat Bank group and he is governor of Dniepropetrovsk region.
The attempt by the Ukrainian government to protect Zlochevsky and Burisma from UK charges of money laundering, and the British Government’s decision to continue the investigation of Burisma’s shareholders and their sources of cash, have not deterred the US Government from financing a role for Burisma in what the US Agency for International Development (USAID) calls its Ukrainian Municipal Energy Reform Project (MERP). According to a Burisma press release, the company and USAID have combined to “promot[e] energy security of our country.” USAID is spending $13.5 million on MERP; the locations selected for the programme in April of 2014 are all outside the areas of Lugansk and Donetsk where the civil war is most intense.
Lobbying for US Government support of Burisma are two Americans who were appointed to the Burisma board in 2014, just after the change of government in Kiev. Hunter Biden (below left) is one of the sons of Vice President Joe Biden. Devon Archer (centre) is a campaign advisor and family friend of Secretary of State John Kerry. Biden and Archer work together in a group of investment vehicles known as Rosemont Capital Partners, Rosemont Seneca Advisors, Rosemont Realty, Rosemont Opportunities Fund, and Rosemont Solebury Capital Management. US Securities & Exchange Commission (SEC) filings indicate that together they are “pooled investment vehicles” linked to Christopher Heinz, managing director of the group (right), and the Heinz family fortune.
Heinz is Kerry’s stepson. His mother Teresa, who was married to Senator John Heinz until he was killed in a 1991 aircrash, controls several Heinz family wealth trusts, as does Kerry his own family trusts. The two also share their investment wealth. According to the SEC dossier, the Rosemont group appears to be funded by money from the Heinz and Kerry trusts; Biden and Archer are fund managers for the Secretary of State’s pocket, as well as crew for Isabel, the Heinz-Kerry family yacht.
The UK investigation of Burisma began just before Biden and Archer officially joined the Burisma board of directors. Initially, when the SFO issued this release on April 28, 2014, there was no identification of Zlochevsky or Burisma. The SFO said it had “opened a criminal investigation into possible money laundering arising from suspicions of corruption in Ukraine. The SFO has obtained a restraint order freezing approximately $23m of assets in the UK in connection with this case. For reasons of confidentiality we cannot say more at this time.”
The SFO was confirming a London court order issued on April 16 in favour of SFO’s request to freeze the cash and other assets of Burisma and two related parties, Brociti Investments Ltd. of Cyprus, and Andrey Kicha. Intended to pre-empt the disappearance of the money abroad, before SFO could complete its investigation and frame indictments, the procedure was made without notice to the defendants. Kicha is identified in court as a “Ukrainian commercial lawyer, the chief legal officer of Burisma and other companies owned by the defendant [Zlochevsky]. He was the sole authorised signatory on the BNP accounts that are the subject to the restraint order.”
Burisma identifies Kicha as having worked for the company since 2007. He can be found signing asset transaction documents on behalf of Burisma recorded by the US Securities & Exchange Commission (SEC) in June 2009. The SEC records treat Kicha as Zlochevsky’s employee. The British court found that as soon as Zlochevsky and Kicha got wind that the British had started an investigation of money-laundering, Kicha tried to empty the London bank accounts. He wasn’t quick enough.
He and Zlochevsky then got their chance to defend their positions, and seek the lifting of the injunctions. Both sides struggled over the evidence to be disclosed to the court, and a hearing didn’t materialize for seven months until December 3, 2014. The official record then named Zlochevsky as the defendant in the SFO action, but three days of court testimony have not been published. Zlochevsky hired as his advocate Hugo Keith QC (left), who works with Alexander Cameron, brother of the British Prime Minister. Keith has also been the Murdoch media group’s barrister in the telephone hacking scandal. Zlochevsky did not testify in the hearing at the Old Bailey.
The freeze order had been issued after the SFO told the court that Zlochevsky had devised a “complicated pattern of off -shore holding companies established when he was still a serving Minister… effectively to conceal his beneficial ownership of Burisma and the economically active enterprises of which it was the holding company.”
The SFO alleged there were grounds for belief that Zlochevsky (below) had increased his wealth from “the exploitation of mineral licences awarded to his companies when he held public office.” Although the investigation was in its early stages, the SFO said there was “a clear inference of a wilful and dishonest exploitation of a direct conflict of interest by a man holding an important public office such as to amount to an abuse of the public’s trust in him’. Such conduct would, if committed in this jurisdiction, amount to an offence of misconduct in public office.”
Source for photographs of Zlochevsky’s Ukrainian mansion: https://news.pn/en/incidents/117440
In addition, the SFO said, Kicha’s attempt to remove the cash to Cyprus “was troubling evidence of an attempt to avoid sanctions and freezing orders.”
The decision of Justice Blake to lift the freeze order was issued on January 21. It can be read in full here.
Revealed in the judgement is that in 2013 Burisma’s bank in London, BNP Paribas, had hired Kroll Associates to clear Zlochevsky before it accepted the Burisma money. Kroll (misspelled Kress), reported the judge, told the bank that “a career in politics was chosen by MZ around 2002 precisely to develop further his business. I do not read that as an admission of corruption, nor is it likely that BNP did so when agreeing to open the accounts after reading this report.”
The judge’s conclusion was that crooked though Zlochevsky might allegedly be, the SFO’s application for the freeze order didn’t provide enough evidence to substantiate that finding, or warrant the injunction. This got Zlochevsky’s and Burisma’s money off the hook, but not Zlochevsky. According to Blake, “I accept that very large sums of money came into the BNP accounts, US $35 million, of which $23 million remains. I accept that the defendant held public office in a regime that is presently considered corrupt. I accept that Ukrainian domestic arrangements to prevent conflict of influence by public officials who were already wealthy businessmen and had substantial shareholdings in companies involved in the extractive industries might either be considered inadequate or inadequately enforced. I accept that there is always the possibility that, despite the existence of safeguards as to who makes decision, undue influence can be brought to bear. However, none of these general points establishes reasonable grounds for a belief that his assets were unlawfully acquired as a result of misconduct in public office.”
This week, the SFO spokesman said, “our criminal investigation continues and as such we are unable to comment further. I am unable to share anything further, however, due to the ongoing investigation.”
The Blake ruling reveals that the initiative to investigate Zlochevsky and Burisma came from the SFO, not from the Ukrainian regime which took over in Kiev on February 22, 2014. Until December, the judge says there was “political contact between Ukraine and the United Kingdom since the change of regime in February 2014. There have been high profile commitments on the English side to assist Ukraine to recover stolen assets and some political expressions of support on the Ukrainian side for the fact that the English authorities have taken the lead with respect to MZ [Zlochevsky].”
When the Yanukovich government was toppled, the Prosecutor-General in Kiev was Viktor Pshonka. He and his son were hit by UK Government sanctions on March 6; they were accused of “misappropriation”. The new prosecutor on February 22 was Oleh Makhnitsky (below, left), a member of the rightwing Svoboda party. He was dismissed on June 18, and reportedly bought himself a home in London.
Vitaly Yarema (right) was appointed in his stead. Yarema was dismissed last week, on February 11.
Early in the SFO’s investigation in 2014, it received a letter from the Ukrainian Ministry of Interior to say “‘there are sufficient grounds to suggest that MZ [Zlochevsky] had been receiving his share of money for participating in law violations.”
Justice Blake faults the SFO investigator, Richard Gould, for failing to do enough to verify the allegations he had presented to the court in April; and for subsequently misleading the court on what the Ukrainian evidence added up to.
According to the SFO’s advocate in the December hearing, Zlochevsky “has not made a witness statement detailing how he came by his significant wealth or the nature of his dealings with those who are connected to the funds in the BNP accounts, or explaining the source of the funds paid into the accounts. It is not sufficient for him to rely on the evidence of Mr Kicha and that evidence leaves unanswered questions. It is a reasonable inference that it involved criminality of one sort or another.”
Blake refused to agree. According to his judgement, “shortly before the hearing of this application a letter dated 2 December 2014 was received from the General Prosecutor of Ukraine [Yarema] stating that in respect of five separately identified investigations opened between 19 December 2012 and 6 August 2014 ( including 155 and another investigation 181) ‘allegation notification was not delivered to MZ due to absence of grounds for criminal prosecution.’”
Blake also reveals there was a change of mind on Prosecutor Yarema’s part in Kiev between the London hearing and Blake’s judgement. “On 29 December 2014, in respect of investigation 42014000000805 (805), the Ukrainian prosecutor made a decision to give MZ notice that he was suspected of having committed a criminal offence of unlawful enrichment. He could not be served with this notice as his whereabouts were unknown. On 30 December 2014, at a without notice hearing in the same investigation, a judge of the Percherskyi District Court in Kyiv gave a decision on the prosecution’s application to seize the funds in the BNP accounts, inviting the initiation of a mutual assistance request to the English authorities so as to obtain their recovery.”
Blake decided to ignore this, ruling “these developments do not cause me to reopen this hearing or to revisit the provisional conclusions already reached.” At the close of his ruling, Blake underlines that his decision to lift the freeze order is provisional. “It is not known why the authorities subsequently changed their minds 27 days later, or whether fresh evidence has arisen. Equally it is not known what persuaded the [Ukrainian] judge to make a seizure order without notice, when of course the assets were already subject to an existing UK order of which the defendant had notice.”
In the last section of the ruling, Blake says that if the Ukrainian prosecutor submits “fresh evidence”, and the SFO returns to court with it, he will reopen “consideration” of the freeze order.
Tomorrow, in Part 2: the evidence that Igor Kolomoisky controls Burisma through a chain of corporate front companies registered in Cyprus and Panama, managed by individuals who reveal for the first time that they work for the Privat Bank group. Plus: what the Polish intelligence services reveal they believe about Kolomoisky in a report published in Warsaw this week.