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By John Helmer, Moscow 

Two Swiss bankers will go on trial this week in the Swiss Federal Criminal Court charged with money-laundering offences when they supervised and assisted the movement out of Russia, then  through Switzerland,  of at least 700 million Swiss francs. The money was moved by Sergei Pugachev (lead image, left) between 2008 and 2010; at the time it was worth the equivalent of $720 million.

News of the trial was made public for the first time by the Swiss newspaper, Tribune de Genève,  on Saturday. It appeared in German in its sister paper, Zurich’s Tages-Anzeiger at the same time. Both media are owned by the TX Group (aka Tamedia), the largest press group in Switzerland.

The bankers’ names weren’t reported in the newspapers, but will be identified later this week at the courthouse in Bellinzona; they were a former director and chairman of the board of Société Générale in Geneva, and his subordinate, the head of legal compliance at the bank. They were fined by the Swiss financial regulator nine months ago for breaching regulations and failing to report suspicious transactions through their bank by Pugachev. The two bankers have moved on to other employment but deny their guilt. They say Pugachev’s money wasn’t stolen or laundered by the bank on their watch. He was a political victim of the Kremlin, they will argue in court.

This is the case Pugachev has attempted in the UK High Court where it has been dismissed and he has been convicted of lying. It is also the case which Catherine Belton has turned into a book-sized indictment by Pugachev of President Vladimir Putin. The Swiss trial is the first in Europe to test the criminal case against Pugachev, how he came by his money, and what he did with it in hiding.

Belton; HarperCollins, the Rupert Murdoch company which published her book; and Reuters, Belton’s current employer, haven’t mentioned the Swiss government investigations of Pugachev which were running for a decade before last summer’s fines were imposed. They are also facing a direct trial of their veracity in a defamation action initiated by Roman Abramovich in the UK High Court last month.  

“Our structure”, runs the pitch of Société Générale in Geneva, “is localized to human scale, allowing an entrepreneurial approach whose point of departure is always your need.”  The bankers, and their bank, are now on trial for putting Pugachev’s need ahead of the law.  “The Swiss system can take a very long time,” comments a well-known Swiss banker. “This case is a rare one in which the Russian evidence of the crime of a decade ago will be presented in open court now, for such high-ranking private bankers to account for themselves. In Switzerland such a case is almost unheard of.”

The disclosures just published appear to come from Swiss prosecutors. They say that of more than $1 billion in Russian Central Bank loans to Pugachev’s Mezhprombank (International Industrial Bank, IIB), about $700 million went through the Geneva accounts he maintained at Société Générale (SocGen). The bank failed the requirement that it check Pugachev’s claims about the source of his money and its destination. “The bank should have ascertained the veracity of these denials by asking for documents to trace the course of the funds,” the prosecutors have charged.

Instead of reporting to the Swiss Money Laundering Reporting Office (MROS) in Berne, they say the bank officials “simply accepted the explanations of the Family Office (private wealth management firm) of the oligarch [Pugachev] that the 700 million moved through his Geneva accounts did not come from the Mezhprombank.”

Instead, they reportedly told Pugachev he should close his accounts. Before that, they called in for repayment a loan he had outstanding to the bank of 350 million Swiss francs (CHF). That was in 2010. Pugachev then refused to sign the account closure documents. “[It’s] a pity that we could not close the relationship”, the compliance officer is reported as telling the prosecutors. They now dispute that the bankers were unable to close the accounts at the time; they say the bankers violated Swiss law by failing to notify MROS.  

In 2013, according to the newspaper report, the bank handed over to Russian prosecutors details of Pugachev’s transactions. Last summer, the Swiss authorities fined the bank director 30,000 CHF and the compliance officer 60,000 CHF for their violations. The details of the offences appear to have been leaked to the newspaper from that administrative proceeding.

A decade ago the Geneva bank says it was obliged to preserve Pugachev’s client confidentiality. It is now claiming the regulations have changed,  but their refusal to report Pugachev’s transactions to MROS was lawful at the time. In appealing the fines, the bankers sought a court trial of the charges and their defence. “Today,” according to the press report, “the former director of Société Générale is retired and serves as an independent advisor. The former head of compliance holds the same position in a large Geneva private bank.”

The reporter of the Swiss story, Christian Broennimann (Brönnimann) (right), is employed by the Tamedia group. A  media giant in Switzerland, financially worth about $860  million in current market capitalisation, it is a dwarf in the German or Anglo-American media markets. Its share price has also been falling steeply since it last peaked in mid-2016 at almost $2 billion.

The Murdoch media (market cap $15 billion) and the Thompson group which owns Reuters (market cap $45 billion) have sided with Pugachev, as has the Financial Times, the London outlet for the Nikkei media holding in Tokyo. They are publishing Pugachev’s allegations against President Putin as part of the allied campaign for regime change in Russia. The record of Belton’s reporting of Pugachev’s claims can be followed here.  

Broennimann and Tamedia appear not to know of the extensive reporting of the Swiss investigations of Pugachev’s business at SocGen which began appearing in 2013, then intensified when the High Court judgement of Justice Dame Vivien Rose was issued in February 2016.    The full story can be followed here.  There is no trace of any of these details in Broennimann’s latest reporting or in the archive of the Tamedia papers in Geneva and Zurich.

Christian Broennimann’s Twitter stream: https://twitter.com/ch_broennimann 

Pugachev’s, Mezhprombank lost its Russian Central Bank licence in October 2010, and was declared bankrupt in Moscow the following month. At that time Central Bank auditors and the Deposit Insurance Agency (DIA) estimated the deficiency in the bank’s accounts amounted to Rb70.1 billion (then $2.3 billion). Rb32 billion of that ($1.05 billion) had been loaned by the Central Bank and disappeared. In the subsequent Russian, UK and Swiss court records, about $700 million in US-denominated cash has been tracked into Pugachev front companies, trusts and bank accounts. There were Euro-denominated transfers in parallel. The assets identified by the DIA to the London courts as under Pugachev’s control in mid-2014 were valued at £1.17 billion ($1.93 billion).

Pugachev, the control shareholder, was investigated by the Russian authorities for fraud and embezzlement in 2011, and he left the country that year. He wasn’t indicted until 2013, but the Moscow courts initially refused to confirm the charges and an international arrest warrant was withdrawn. The indictment was revised, and a new warrant issued in mid-2014. By then Pugachev was living in London, Monaco, and Nice.

In 2014 the Central Bank and DIA started civil court proceedings in the UK with a request for a freeze order over the Pugachev assets which had been traced, in order to prevent him selling or hiding them once more. In July 2014 the UK High Court ordered a freeze over £1.17 billion in Pugachev’s assets worldwide. In August 2014 the freeze order was modified, and he was allowed to spend “an average of £50,000 (or any equivalent sum in a foreign currency) a week towards his ordinary living expenses, such amounts to be averaged over a period of two months, and also a reasonable sum on legal advice and representation (“legal expenses”).” The one condition required was that “the Respondent [Pugachev] must tell the Applicants’ [DIA] solicitors where the money is to come from.”

He was innocent of stealing from the bank, Pugachev claimed, because the charges had been  trumped up on Putin’s orders to allow rivals for Putin favour to seize his assets without paying him for them. When Pugachev’s Putin plot defence was dismissed in two years of proceedings at the High Court and Court of Appeal in London, he fled to France, where there is no extradition treaty with Russia.

Pugachev’s defence for his getaway was that tracking devices had been found underneath his car, and he was in peril of Kremlin-ordered assassination. Justice Rose of the High Court ruled this was more deceit. “His explanation as to why he felt safer in France than in England does not bear any scrutiny”, she said. “In my judgment Mr Pugachev has seized on the discovery of these devices as a purported justification for his departure
from the jurisdiction and has accorded them an importance for the purposes of this committal application far beyond any significance that he or anyone else accorded them at the time.” On February 8, 2016, the judge sentenced Pugachev to two years in prison for contempt of court. For
Rose’s analysis of 17 charges of Pugachev’s lying to the court and violations of the freeze order, read this.

For Rose’s judgement, click to open. For the London court records of all the evidence, and Pugachev’s claims preceding his flight to France, read the archive.

In 73 pages of single-spaced analysis of the evidence, of Pugachev’s testimony in his own defence, and of lawyers’ arguments, Rose presented the most detailed picture to date of how Pugachev arranged loans from his Russian bank to dozens of companies he had created offshore, and then transferred the cash to his private pocket. Belton and the Financial Times have reported  Pugachev did nothing of the sort. “I have concluded,” Rose ruled, “that I cannot safely rely on any evidence he gave during the hearing. It is clear that his evidence on many topics changes depending on what he perceives to be the most useful version of events at any given time.”

Unaccountably, Broennimann and Tamedia have failed to follow the British judge’s account of exactly what happened at SocGen. Rose reported that $712,978,000 was deposited by two Pugachev entities in the SocGen account of a third entity between December 29, 2008, and April 8, 2009. $422 million, according to Rose,  went to an entity called Financial Investment Solutions Ltd. (FIS) in February 2010. Within weeks, most of this money was transferred to Enderton Company Ltd. From there it was broken down into smaller deposits to a string of other companies Pugachev also controlled. There is no claim in the London evidence that the money was being loaned from one Pugachev entity to another with legal undertakings for repayment. The court quotes Pugachev as claiming “he has no information about how these funds were used.” Several of the recipients were later liquidated, closed, or made bankrupt. Rose added a footnote: “$12,100,000 was transferred to Mr Pugachev’s son Victor. He cannot now recall the reason for this and can provide no more details. In his 12th affidavit he says of his son ‘I have enquired as to his use of the funds. He has respectfully declined to provide me with further detail’.”

Five months after Rose’s ruling was published, in July 2016 , Swiss prosecutors in Geneva revealed they didn’t believe Pugachev. They told the local press they had opened a money-laundering investigation of about $700 million in accounts controlled by Pugachev at the Geneva branch of SocGen.  The full story can be read in Le Matin of July 25, 2016.   It was not a Tamedia property.

Broennimann reported on Saturday that he has been told by Daniel Tunik, lawyer for one of the bankers on trial this week, that the criteria for triggering a report to MROS on suspicion of money laundering were different when Pugachev was moving his money into and out of SocGen. The lawyer said the federal Department of Finance is to blame for applying the more stringent standards of today retrospectively. Tunik also said “it was clear to Société Générale that the accusations against Sergei Pugachev were politically motivated. And since there were no well-founded suspicions about a possible criminal origin of the funds, an announcement for money laundering was not justified.”

The British court record of Pugachev’s US dollar transactions revealed that they had gone through New York banks on their way into Geneva and on their way out. This was evidence available to the US Treasury, Department of Justice, the State Department and the Central Intelligence Agency. That they didn’t act against Pugachev then suggests they  were protecting Pugachev from their own evidence of his money-laundering.

How far the Swiss are now going with the US Government, or against it, to convict or to exonerate Pugachev,  will become clear when the court proceedings open later this week in Bellinzona.

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