Kiwi link in $350m fraud chain

Anti-money-laundering expert Ron Pol said while the details of "The Organisations'" heist were particularly lurid - "it's as if Oceans 11 had been masterminded by a Bond villain".

An innocuous-sounding New Zealand company based on a quiet Albany Street has emerged as a key enabler of a spectacular $350m heist that's been described as "if Oceans 11 had been masterminded by a Bond villain".

The United States' Department of Homeland Security has secured freezing orders against a number of Manhattan properties and bank accounts connected to the scam involving corrupt Russian police and tax officials and a dead lawyer.

US authorities identified millions of dollars in payments from a New Zealand company in their civil action seeking to seize the laundered proceeds of the scam and penalize those responsible.

According to the formal complaint signed by Homeland Security special agent Todd Hyman and filed with New York courts earlier this year, the scam was set in train with a meeting in Cyprus in April 2007 by a group of people described as "The Organisation".

Several key members of "The Organisation" including lawyers, senior officers with the Russian interior ministry and the tax department, were flown to the Mediterranean island on the private plane of the scheme's alleged mastermind, convicted fraudster Dimitry Klyuev.

The companies named in the New York court action tackling the financial getaway vehicles to the heist have objected to the freezing of their Manhattan real estate and reject any link to "The Organisation".

In comments to the Guardian newspaper a spokesman for Klyuev described the suggestion such a conspiracy existed was a "fabrication and a lie".

But, according to the Department of Homeland Security complaint, within a month of that Cyprus meeting the first stage of the elaborate scam began with allegedly corrupt Interior Ministry officials raiding the Russian offices of three companies connected to the Hermitage Group - at the time one of the largest western investors in Russia.

Ostensibly investigating tax evasion, the complaint alleges the real purpose of the raids was to seize original corporate documents and seals of the companies and hand them to "The Organisation."

These documents allowed an elaborate corporate identity theft, with the shareholdings and directorships of these companies secretly re-registered in the names of three petty criminals. (This trio had all previously served time in Interior Ministry prisons for crimes such a burglary and extortion and would later plead guilty to the $350 million fraud, somewhat implausibly claiming they acted alone.)

Stage two of the heist saw the three new directors sign forged and backdated contracts with sham companies. These documents were then filed as part of lawsuits in Russian courts accusing the Hermitage companies of extensive breaches of contract claiming hundreds of millions of dollars in damages.

As a result of the sham contracts and lawsuits, during which lawyers acting for "The Organisation" on behalf of the Hermitage companies admitted full liability, between July and December of 2007 Russian courts entered judgments totalling US$973m.

These awards provided the opening for stage three of the heist: In the week before Christmas 2007 applications were made to Moscow tax offices arguing the Hermitage profits had been wiped out by the judgments, resulting in the largest, and likely fastest-processed, tax refund payout in Russian history.

On Christmas Eve - less than a week after the applications had been filed - the tax refund applications were approved and $US230 million was paid out to accounts held by the Universal Savings Bank, a fringe financier owned by Klyuev.

Within months the bank had been closed down and all records relating to the transactions made unavailable, having been apparently burned to ashes in a truck crash.

The Department of Homeland Security complaint alleges millions of dollars in payments were made to the then-husband of a senior tax official who approved the bulk of the payments.

The couple emigrated to Dubai shortly after the refund was paid and bought millions of dollars in real estate despite their official annual incomes totalling less than $60,000.

The Hermitage companies had become suspicious in late 2007 that something was up, and tasked their lawyers to investigate.

It's as if Oceans 11 had been masterminded by a Bond villain.

Anti-money-laundering expert Ron Pol

While unable to prevent the refunds being paid out, Sergei Magnitsky appears to have made some progress unpicking the players and methods of "The Organisation," but experienced pushback from the same Interior Ministry officials he was investigating.

In November 2008 Magnitsky was arrested and - after a year in detention - died in suspicious circumstances.

The complaint said he had been "beaten by eight guards with rubber batons on the last day of his life; and the ambulance crew that was called to treat him as he was dying was deliberately kept outside of his cell for one hour and 18 minutes until he was dead."

Stage four of the scheme, laundering the proceeds, saw the proceeds flow out through a network of shell companies registered in the British Virgin Islands, Moldova, the United Kingdom and New Zealand.

The Department of Homeland Security court action tracks at least US$1.9m ending up in US bank accounts via the offshore accounts of Megacom Transmit used for a a $25 million Manhattan property buy-up.

Megacom Transit was registered on the New Zealand Companies Register in June 2007 by New Zealand man Glenn Smith. The company's office was listed as Smith's then-office, a modest residential home in Albany. Smith himself was just an administrator whose role was limited to filing and handling paperwork and he is not accused of wrongdoing by United States authorities.

A pair of Latvian men - one of whom has since been revealed as a homeless drunk - alternated as directors of Megacom Transit. (Over the past few years the Latvian pair have cropped up in numerous international new stories as stooge directors, including of other New Zealand companies, in schemes as varied as hidings assets for a bankrupt Irish ex-billionaire and defrauding Ukrainian state-owned companies who were buying an oil rig.)

According to the complaint, in February 2008 Megacom Transit laundered millions of dollars using Estonian bank accounts after making fraudulent declarations in bank documents the funds were intended for "auto spare parts" and "venting devices". After these transactions the company appeared to languish and missed filing annual, until it was eventually struck off the New Zealand register in August 2011.

Smith did not respond to repeated calls and emails from the Weekend Herald, but had said in earlier interviews he had no knowledge of the affairs of companies he handled administration for and no longer dealt with offshore clients following a visit in 2011 by officials working for the Organised Financial Crime Agency of New Zealand. "It was brought to our attention there was some suspicious activity with some of these companies. We got out of that game and have been well out of this game," Smith said.

The emergence of a New Zealand link in this lurid tale of tax fraud, shell companies and real estate laundering - details surrounding Megacom Transit's role in the heist only publicly emerged in earlier this year in US court filings - has thrown into doubt whether recent moves to tighten company registration requirements are sufficient to prevent such criminal activities.

Anti-money-laundering expert Ron Pol said while the details of "The Organisations'" heist were particularly lurid - "it's as if Oceans 11 had been masterminded by a Bond villain" - New Zealand had long been seen as a particularly attractive jurisdiction by "some of the world's worst criminal and terrorist organisations".

Recent amendments to the Companies Act require locally-registered companies to have resident directors, which would prevent homeless Latvians pretending to be buying car parts with Estonian bank accounts, Pol said wouldn't close all loopholes.

Pol pointed to the notorious case of SP Trading - a New Zealand company used to charter a plane running guns between Iran and North Korea - as an example.

SP Trading had a New Zealand resident director, albeit an English-language student whose primary employment was as a cook for Burger King.

"If the police here happen to arrest another Auckland burger flipper, or an accountant touting their services as resident director, the authorities will still be no closer to the criminal kingpins," he said.