2020/09: With Deutsche Bank’s help, an oligarch’s buying spree trails ruin across the US heartland

By Michael Sallah and Tanya Kozyreva –

In a fiery ball, the explosion in a massive furnace at Warren Steel in Ohio blew out bricks and windows and sent workers hurtling to the ground, including three who were airlifted to burn units and two others rushed to local hospitals.

 

“I was like a ping pong ball,” said Michael Buckner, 34, who was taken by helicopter to an Akron hospital with severe burns on his head and arms. “I got thrown down steps. You couldn’t see anything.”

 

In the aftermath, federal inspectors turned up serious safety violations at the plant, while workers railed about dangerous and decrepit conditions they said had been ignored.

The 2011 blast was one of the first calamities to strike an American business owned by Ihor Kolomoisky, a Ukrainian oligarch with a reputation for heavy-handed tactics — he once sent a team of armed men to occupy an oil company — and for corruption on a grand scale.

 

For more than a decade, Kolomoisky siphoned billions of dollars from PrivatBank, Ukraine’s largest financial institution, which he co-owned, in an audacious laundering scheme, cleaning the money through a web of companies around the world, U.S. federal prosecutors allege.

 

An investigation by the International Consortium of Investigative Journalists shows that Deutsche Bank, the troubled global lender, played a pivotal role, transferring more than $750 million to Kolomoisky’s business interests in the United States.

 

Criminals and others seeking to hide illicit money in the U.S. often plow it into glittering high-rises in New York, or use it to buy billionaire playthings, like yachts and expensive jewelry. Kolomoisky, who played a peripheral role in the Donald Trump impeachment drama, had a different prize in mind: real estate in the American heartland.

 

Over a decade, he and his associates secretly amassed a real estate empire, buying at least 22 properties, including a skyscraper in Cleveland with vaulted ceilings that featured one of the largest bank lobbies in the world, a shuttered Motorola facility rising from the farm fields of northern Illinois and the former headquarters of Mary Kay Cosmetics in Dallas.

 

In his wake, Kolomoisky and his associates left a trail of empty, boarded-up buildings, unpaid property taxes, dangerous factory conditions, unemployed workers, and at least four steel mills that filed for bankruptcy, ICIJ found.

 

Laws require banks to be on alert for laundering, especially when money passes through high-risk jurisdictions like Ukraine and the Caribbean.

 

Yet ICIJ found that for six years, Deutsche Bank moved at least $490 million from companies set up in the British Virgin Islands secretly under the control of Kolomoisky and business partner Hennady Boholyubov to companies in Delaware — one of the world’s foremost havens for financial secrecy. Most of the money was used to buy up the Midwest properties.

 

Another $268 million went through Deutsche into other companies controlled by the men and their associates in the U.S., ICIJ found. The transfers took place between 2007 and 2013.

 

Deutsche stopped only when Kolomoisky and his associates stopped their buying spree. Money-laundering experts say the bank failed to abide by fundamental safeguards like refusing the transfers or dropping the customer.

 

“It’s a reckless disregard of what the bank should be doing,” said Thomas Creal, a Chicago forensic accountant who has assisted the United Nations Security Council and the U.S. military on money laundering inquiries. “They were looking at hundreds of millions of dollars. The bank was like the getaway car in a robbery.”

 

ICIJ’s investigation is based on hundreds of confidential PrivatBank documents, including an audit of its troubled finances, that show for the first time how the money secretly zipped around the world. It also draws from a leak of more than 2,100 suspicious activity reports obtained by BuzzFeed News and shared with ICIJ, known as the FinCEN Files, along with court records and dozens of interviews.

 

Deutsche Bank has paid hundreds of millions of dollars in penalties in the past three years for violations of anti-money laundering laws in the U.S., including moving suspicious payments for convicted sex offender Jeffrey Epstein after it deemed him to be a high-risk.

 

Deutsche Bank declined to respond to written questions from ICIJ about transactions involving Kolomoisky or his companies, saying it was legally restricted from talking about clients or any transfers it may have carried out.

 

The bank said it has acknowledged “past weaknesses” and “learnt from our mistakes” and that it has addressed many of the concerns that have been raised about the institution.

Scandal and consequences

In Ukraine, the alleged money laundering scheme was a massive scandal, prompting the government to plug a $5.5 billion hole in PrivatBank’s finances. Had it failed, it could have taken the country’s fragile economy with it.

 

In the U.S., the fallout points to one of the least-examined consequences of money laundering: what happens to communities and everyday people when absentee owners motivated to clean ill-gotten cash take control of workplaces and buildings.

 

At the Ohio factory where the arc furnace blew up, investigators for the U.S. Occupational Safety and Health Administration turned up troubling violations  — at least 17 — before Kolomoisky and his associates abandoned the plant.

 

At a metals factory in West Virginia, a 27-year-old employee died in 2009 after he worked a 90-hour week, finished the night shift and fell asleep while driving home, crashing his vehicle, according to the United Steelworkers.

 

Under Kolomoisky’s ownership, hundreds of steelworkers in Kentucky, New York state and Ohio lost their jobs, and in one case, were left without insurance coverage or the ability to temporarily access their retirement funds, court records state.

 

“There are real people who are hurt by this,” said Michael Kelly, the mayor of Harvard, Illinois, where the city’s largest manufacturing plant, bought by Kolomoisky in 2008, was left vacant after the electricity was shut off and the property taxes went unpaid.

Court documents show that Deutsche Bank carried out thousands of transactions tied to Kolomoisky companies in the U.S. from 2006 to 2015 — three times more than any other bank that moved money into the country for companies tied to Kolomoisky.

 

It was also the primary bank that moved nearly all the money into U.S. real estate — at least 18 major properties scattered across eight states, an ICIJ analysis shows.

In 2016, Deutsche Bank’s own fraud experts raised several alerts about payments the bank was moving on behalf of a Kolomoisky aviation company, filing suspicious activity reports with the U.S. Treasury Department’s Financial Crimes Enforcement Network, according to the leaked records shared by BuzzFeed News.

 

The reports, called SARs, identified big, round transactions from high-risk jurisdictions — hallmark signs of money laundering — and noted that the bank could not establish the legitimacy of some of the companies that were receiving millions of dollars.

Despite the alerts, the bank continued moving money for Kolomoisky’s airline — including at least $104.7 million after internal watchdogs began raising concerns about the company.

 

In August, FBI agents carried out raids on a penthouse office in Miami and another office in Cleveland tied to Kolomoisky, and hauled away computers and records as part of an ongoing probe.

 

Days later, the Justice Department filed two civil cases to seize two properties bought during the spending spree, which ended in 2016 after Ukraine regulators took control of the Ukraine bank where Kolomoisky had been in control.

 

Kolomoisky did not respond to repeated interview requests by ICIJ or to written questions sent to him. But in an earlier interview in May, he denied that he broke any laws in his country or in the U.S.

 

In a civil case filed against Kolomoisky and his associates in Delaware, lawyers for the billionaire have argued that all the property transactions were legal and that neither he or his partners broke any laws.

 

Boholyubov, a Ukraine billionaire who is also accused in the same lawsuit of taking part in the scheme, declined to respond to written questions by ICIJ on the advice of his lawyers. In an earlier interview in May, he, too, denied doing anything illegal.

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