Activist financier targets Cyprus over Russian dirty cash

The anti-corruption and human rights activist Bill Browder is stepping up his campaign against dirty money in Cyprus with a complaint that has triggered a criminal investigation.

Browder accuses the country’s authorities of enabling money laundering through the local property market by a Russian organized crime figure, Dmitry Klyuev. Under sanctions for organized crime in the U.S., Canada, Lithuania, Latvia and Estonia, Klyuev has been convicted in Russia for fraud.

Browder, a U.S.-born British financier who has waged a campaign against the Kremlin and Russian organized crime for the past decade, argues that the case is symptomatic of much deeper problems with money laundering in Cyprus.

“From our experience, Russian organized crime has fully infiltrated Cyprus law enforcement and this is a prime example,” Browder said in an interview.

Campaigners and investigators have long identified Cyprus as a major destination for illicit Russian cash, and have accused Cypriot authorities of failing to crack down. The authorities say they have taken steps in recent years to address the problem.

“I think the Cypriot authorities are effectively welcoming Russian laundered funds by not creating any consequences for the launderers,” Browder said. “Russia has been using Cyprus as the Trojan horse to getting money into Europe. It’s one of the weak links for Europe to fight Russian organized crime.”

Browder says that an official document he obtained provides evidence that a Cypriot government employee in the interior ministry aided Klyuev in buying a house with suspicious funds.

Browder sent his complaint against the civil servant who approved the transaction to five Cyprus law enforcement authorities on July 2 this year. The complaint said that in 2014 an official in the interior ministry, tasked with examining requests for real estate purchases by foreign nationals, instructed Klyuev to put a house into his son’s name to gain state approval.

Non-EU foreigners who buy property in Cyprus are subject to approval and checks against money laundering — the processing of criminal proceeds through the financial system to make them appear legitimate.

Yet Klyuev won approval from Cyprus on May 12, 2014 just eight days ahead of widely publicized impending U.S. sanctions and involvement in fraud and money laundering, which was all readily available in the public domain. Canadian sanctions against Klyuev were already in force at the time, having been unveiled in November 2017.

Contemporaneous news reports that Klyuev and his organization were under investigation in Cyprus for moving their money through local banks were also available, Browder said. The registration of Klyuev’s property in Cyprus took place on May 28, 2014, eight days after the U.S. sanctions took effect, according to Browder’s complaint.

POLITICO is not naming the civil servant targeted by Browder’s complaint because efforts to provide a right to reply were unsuccessful ahead of publication. Emails sent to the civil servant’s work address went unanswered and the Cypriot government declined to make comments on the person’s behalf citing the ongoing investigation.

Title transfer

“This property will be transferred immediately to the name of Grigory Klyuev (Mr. Dmitry Klyuev son),” the interior ministry civil servant said in a letter to Klyuev that Browder showed to POLITICO.

This “appears to be a tactic to conceal Mr. Klyuev as the source of funds for the property acquisition and ownership,” Browder said in his complaint.

Cypriot police have received Browder’s complaint and started a formal investigation, a government spokeswoman said.

Browder’s letter also was addressed to the country’s justice minister, the head of the anti-money laundering authority, the attorney general and the interior minister.

A spokeswoman for the Cypriot government declined to comment on Browder’s broader allegations against the government and authorities. Instead she sent POLITICO a briefing document titled “General background points on the Cyprus’ AML/CFT framework and its implementation.” (AML/CTF stands for anti-money laundering and counter-terrorist finance).

Among the most important measures taken by Cypriot regulators was to ban local banks from opening accounts in the name of shell companies based abroad. This, the government says, has led to a dramatic fall in non-resident deposits. Furthermore, Cypriot banks and state authorities have greatly expanded their capacity to fight money laundering in recent years, by investing in training and computer-based monitoring tools.

Klyuev could not be reached for comment. He has denied all accusations of criminality in interviews with other media. His former lawyer Andrei Pavlov told POLITICO that he is no longer in contact with Klyuev and is unable to relay messages to him.

Seaside suburb

Browder’s complaint, seen by POLITICO, said the approval cleared Klyuev to buy a three-bedroom villa worth €245,000 in Germasogeia, a seaside suburb of the resort town of Limassol, in May 2014.

The house, with “private garden, open plan kitchen, spacious lounge and private parking,” sits in a recently built complex which, according to the developer’s website, also features a shared swimming pool.

Browder’s complaint calls on Cyprus to freeze the property on the basis of the international sanctions and the criminal investigation against Klyuev.

Browder’s crusade against the Russian mafia began after his Moscow investment fund, Hermitage Capital Management, was raided in 2007 by interior ministry officers, who confiscated stamps and documents. These were then used to file bogus tax returns to the Russian Treasury, which were paid out to bank accounts controlled by Klyuev and his associates, according to the U.S. government.

The scheme was discovered by lawyer Sergei Magnitsky, who was working for Browder. Magnitsky was arrested after he complained to the Russian authorities; he died in prison in 2009, following what Russia’s human rights ombudsman said were beatings by guards.

Browder has since successfully lobbied governments around the world to bring in so-called Magnitsky laws to impose tough financial sanctions human rights abusers.

“We have filed numerous complaints about the money laundering connected with the Magnitsky case in Cyprus and the government has refused to prosecute anyone there in spite of the country being one of the key transit points for proceeds of the crime,” Browder said.

Browder previously filed another complaint against now-shut Cypriot bank FBME, which was sanctioned by the U.S. for being a “primary money laundering concern” in 2014, a move that led to its downfall.

While there have been press reports of a police raid on FBME’s premises last month, no arrests have been made to date.

Laws passed as a result of Browder’s campaigning have been used extensively by the U.S. government and others to curtail the travel and access to the financial system of those believed to have been involved in Magnitsky’s death as well as, more recently, those believed to have murdered Saudi journalist Jamal Khashoggi.

Meanwhile, the European Commission earlier this week called for stricter enforcement of money laundering rules across the bloc, pointing to a series of scandals in recent years, including the one at FBME in Cyprus.

The European Parliament also called for an EU-wide Magnitsky Act earlier this year. To pass into law such an initiative would need unanimous approval from the governments of all EU member states, Cyprus included.

This article is part of POLITICO’s premium policy service: Pro Financial Services. From the eurozone, banking union, CMU, and more, our specialized journalists keep you on top of the topics driving the Financial Services policy agenda. Email [email protected] for a complimentary trial.