The divorce proceedings between Russian oligarch Oleg Leonidovich Burlakov and his wife were already dramatic enough, with reports that the tycoon was trying to deprive his wife of her assets by reregistering his ultra-luxurious yacht the Black Pearl under the name of one of his relatives. Now Burlakov’s divorce proceedings have sparked a bitter feud between the owners of Swiss fiduciary firm Leo Trust, complete with criminal complaints and allegations of forgery and manipulation of the judicial system.
The fresh squabble is not just the latest twist in the sensational saga of Burlakov’s divorce. It also shines a fresh spotlight on the army of advisers and consultants which serve the rich and famous—and who have been caught more than once skirting the grey areas of the law on their behalf.
Forgery and feuds in Zurich
At the heart of the dispute currently cleaving Leo Trust, one piece of the web of Swiss financial services companies which optimize super high-net-worth clients’ assets for tax purposes, in two is a $1.35 billion loan contract. According to a criminal complaint filed in March by two of the firm’s former board members, Leo Trust’s owner and chairman— referred to in the Swiss media by his initials DT—allegedly forged and backdated the contract for Burlakov, allegedly as part of a scheme to help the Russian tycoon misrepresent his net worth in his divorce battle in order to cheat his wife.
The Swiss financial news outlet Finews, which saw the loan contract in question, deemed it a clumsy forgery. Both vehicles in the loan transfer belonged to Burlakov and were dissolved in 2014 before being re-activated in 2018, when one was apparently transferred to one of his relatives—while the Panamanian address of both firms apparently didn’t even exist on the date printed on the contract.
After a Leo Trust employee spotted the apparent forgery, the firm devolved into a full-on civil war. The board tried to vote DT out of his post as chairman in absentia, but thanks to the firm’s unusual ownership structure DT was instead able to sack the two board members who had accused him of forgery and “disloyal management”. Zurich’s prosecutor is now combing through the messy particulars of the case, while DT has struck back against the two former board members and the co-owner of Leo Trust, accusing them of a laundry list of crimes.
Helping clients hide assets
The mudslinging at Leo Trust is just the latest example of suggested misbehaviour from unscrupulous financial advisers. Though DT’s alleged forgery in order to help Burlakov come out ahead in his divorce battle would be a particularly brazen move, top European bankers have been convicted of orchestrating elaborate schemes to hide their wealthy clients’ assets. Even more commonly, firms have seemed to wilfully disregard red flags and skimp on due diligence, rubberstamping shell companies and signing off on accounts full of holes.
Last summer, former HSBC executive Peter Braunwalder admitted to a French court that he had helped his wealthy clients hide assets totalling more than $1.6 billion. Braunwalder, who received a one-year suspended jail sentence and a €500,000 fine, apparently helped his high-net-worth clients evade taxes by providing them with fake loans or undercover Swiss bank accounts.
The HSBC division which Braunwalder once led, the Private Bank section headquartered in Geneva, has itself had to pay out hundreds of millions of dollars in penalties to the US and to France to settle allegations of conspiring with wealthy clients to conceal their assets from the taxman. Even these whopping fines pale in comparison to the $5.1 billion fine that a Paris court imposed on Swiss bank UBS in February 2019 for helping clients hide their funds from tax authorities, an act the court considered money laundering.
Turning a blind eye
London-based firm Formations House, which specialised in registering and managing companies on behalf of clients, had faced allegations for years that its lack of oversight was facilitating countless cases of fraud, but seemed to be “[abiding] by the letter of British law”—if not its spirit. An undercover investigation and a database of more than a million documents leaked last December, however, made clear the extent of criminal activity which had been enabled by Formations House’s willingness to turn a blind eye.
The comprehensive investigation, led by the Organized Crime and Corruption Reporting Project (OCCRP) and a host of international news organisations, found that shell companies registered by Formations House had been responsible for some £315 million in fraud. What’s more, the company had accepted—seemingly without raising any concerns—clients ranging from sanctioned Iranian oil traders to the Italian mafia.
The argument put forward by Formations House owner Charlotte Pawar that her firm had carried out appropriate due diligence and bore no responsibility for crimes committed by companies they had registered was undermined by her own discussions with an undercover reporter from the Times. During an introductory meeting, Pawar advised the reporter on how a fictional North Macedonian used car business owner used to payments in cash—a setup which would have normally raised substantial red flags about money laundering risks—could set up a company while concealing his identity and recommended a Latvian bank that followed less strict anti-money laundering rules than most British financial institutions.
A recurrent problem
Undercover investigations, whopping fines and extensive press coverage seems to have done little to dissuade this cottage industry of advisers and firms who will go to extraordinary lengths to ensure that their clients’ finances avoid scrutiny—whether from authorities or from a divorce court. The Leo Trust scandal is unlikely to be the last of its kind. Indeed, auditing giant EY is facing increasing scrutiny—including calls to stand trial—over its role in the Wirecard scandal, in which the executives of the German payment services firm were recently arrested on suspicion of carrying out a criminal scheme for years to hide the firm’s losses. It’s clear that existing regulation isn’t sufficient to deter European advisers from helping their clients evade financial oversight—how many more examples need to hit the headlines before stronger action is taken?