Last year’s $230 billion money-laundering scandal of mostly Russian money discovered by an employee at the Estonian branch of Danske Bank, Denmark’s largest, has opened a Pandora’s Box in Europe.
The European Union’s tighter anti-money laundering policies sparked by the sandal are now targeting so-called “freeports”, massive tax-free facilities used to store things like fine art and wines, classic cars and other luxury items. Some of these ports have informal ties to people involved in the Danske Bank fraud, namely those from Azerbaijan, where some $3 billion was laundered through a slush fund used to bribe members of the EU parliament and its institutions.
Until recently, freeports were quiet and off-radar. An October EU government study by the European Parliamentary Research Service (EPRS) shined a spotlight on Europe’s major freeports as a de facto offshore bank account that could be used by anonymous shell companies to execute financial transactions with little oversight, and zero taxes.
“I’ve seen the wire transfers of the Danske bank transactions,” says L. Burke Files, president of the American Anti-Corruption Institute in Tempe, Arizona. Some of the Azeri money was used legitimately to pay for strategic communications work in Washington, DC.
“What the Azeris did that was most deplorable was bribe EU officials with those funds,” Files sales. “Is it an allegation or a fact? For some politicians, it is still an allegation,” he says.
Thirteen members of the Parliamentary Assembly’s Council of Europe (PACE) – the human rights body with the power to propose and shape national laws — were suspended following the “Caviar Diplomacy” investigation in 2012 conducted by the European Stability Initiative, a Berlin-based NGO that began investigating what would later be known as the “Azerbaijan laundromat.”
“You had a whole chorus of people who voted in the Council of Europe to say Azerbaijan had free and fair elections and got $50,000 for it,” Burke says. “We know this because we’ve seen the wire transfers.”
Suspicions of foul play stemming from Danske Bank’s Estonia branch surfaced between 2012 and 2016. There were rumors that members of PACE were offered prostitutes, cars and paid vacations by Azerbaijan businesses to clean up the country’s image.
Two years ago, Italian member of European parliament (MEP) Luca Volonte was investigated for accepting two million euros from Azerbaijan through four shell companies owned by Azeris, with transfers from Danske to Italian banks. At least one bank flagged the deposits due to the transaction size. Money laundering charges against Volonte were dropped. He still faces bribery charges.
The bribes were to get PACE members to give Azerbaijan positive reviews on its human rights record, and to highlight it as a good place to invest.
PACE President and Spanish MEP Pedro Agramunt was forced out of office in 2017 after an independent commission of three retired European judges looked into the Azerbaijan scandal and found him negligent. Two other Spanish MEPs were also cited by the independent commission report. Spain dropped the cases in December.
In March, Transparency International filed a complaint in Germany against a retired MEP named Eduard Lintner and Bundestag politician Karin Strenz for a private election monitoring outing in the country where Azerbaijan’s election was given high marks. Belgium is also looking at two PACE members, Alain Destexhe and Stef Goris, according to TI legal advisor in Berlin, Adam Foldes.
Concerns of unchecked money laundering and bribes by foreign businesses led to the October 2018 study by the European Parliament to examine how freeports can be used in fraudulent activities.
The 48-page report by the EPRS, given to European Commission president Jean-Claude Juncker last fall, stated that freeports “could enable money laundering because they circumvent the normal international rules on transparency.” To give an idea of the scale, the Geneva Freeport is estimated to hold $100 billion worth of artwork.
Yves Bouvier’s freeport empire
Geneva Freeport and Le Freeport in Luxemburg were the two warehouses cited in the report. Both of them are partially owned by controversial Swiss-Singaporean art dealer Yves Bouvier. Yves Bouvier used to be the largest private shareholder of the Geneva port until he sold his stake in 2017 after the government tightened rules on customs warehouses, demanding more oversight.
Yves Bouvier, aka the “Freeport King”, also has freeport in Singapore. Le Freeport’s other owners include French nationals Jean Marc Peretti and Olivier Thomas. Peretti’s reputation has been called into question by white-collar crime and corruption research investigators at EU Reporter in a November 2018 article. Bouvier himself was arrested on fraud and money laundering charges in 2015. And Thomas was charged with stealing artworks belonging to a Picasso family member.
The Luxemburg Indirect Tax Office (AED) considered Le Freeport a “high risk” for laundering money, according to the EPRS study.
Portugal MEP Ana Gomes told the BBC in March that she came away from her first trip to Le Freeport apprehensive. She said, “We did not see any real attempt to establish who really owned the goods.” Austrian MEP Evelyn Regner called it a “black hole”.
With the dust still settling on Danske Bank’s Russian and Azeri laundromat scandal, a loose Azerbaijan connection to Le Freeport could put it under more scrutiny.
Freeport links to Azerbaijani laundromat
Le Freeport’s CEO Philippe Dauvergne, a former French customs official, has been a partner in businesses with Azeri businessman Khagani Bashirov in the U.K., Luxemburg and Cyprus. Between 2008 and 2014, Philippe Dauvergne sit on board of at least 10 EU-based companies affiliated with Khagani Bashirov. In his turn, Khagani Bashirov is a close associate of Jahangir Hajiev, former chairman of International Bank of Azerbaijan (IBA), and a key figure in Azerbaijani laundromat. IBA was the main source of money for laundromat.
Bashirov’s companies received at least $200 mln in loans from the IBA. These loans were never repaid thanks to Bashirov’s personal connection with Hajiev, according to an independent Azerbaijani journalist Khadija Ismayilova. Instead, a number of companies Bashirov controlled sent and received funds from the UK-based companies which made up the Azerbaijani laundromat.
in 2016, Hajiev was sentenced to 15 years in prison for fraud, embezzlement, and misappropriation of public funds. Last year Hajiev’s wife Zamira Hajieva, a UK resident, became the first recipient of an unexplained wealth order under a new UK anti-corruption law.
EU Reporter’s online magazine recently reported that Belgian authorities were investigating Dauvergne’s relationship with companies caught in the Azerbaijani laundromat.
Recent revelations add to the woes of le Freeport Luxemburg which has been already affected by dubious reputation of its major shareholder Yves Bouvier.
He is being sued by his former clients around the world for alleged art fraud totaling over $1 bln. Among them are Canadian art collector Lorette Shefner, Russian auto magnate Vladimir Scherbakov, the owner of Monaco football club Dmitry Rybolovlev and some more big names. In addition, Picasso’s stepdaughter, Catherine Hutin-Blay, once accused him of stealing artwork she claimed Bouvier and Thomas were supposed to transport and store. He was charged and paid around $30 million in bail.
As recent as 2018, Yves Bouvier was facing criminal charges in France, Monaco and Switzerland. Swiss authorities are investigating tax evasion of around $165 million.
The TAX3 Committee report — published in February — said the EU should phase out free ports as a part of a broader move to crack down on money laundering and tax evasion. On March 26, the report’s view on stronger anti-money laundering mechanisms was supported by a Parliamentary vote of 505 voting in favor and only 63 against.
Bouvier’s Freeport Singapore – the same questions?
Similar voices are heard in Asia, specifically in Singapore. The Financial Action Task Force – a multi-country advisory group set up to combat money laundering – assessed the risks of money laundering and terrorist financing at Freeport Singapore also owned by Yves Bouvier as medium-to-high. In other words, for authorities it is not easy to find out what is actually being stored there and who the real owners are, and it’s not possible to trace deals and transactions that could amount to hundreds of millions of dollars inside the Freeport Singapore. It is interesting that Singapore’s Freeport CEO Tony Reynard recently had to step down without any explanation.
“Current anti-money laundering laws aren’t working,” says Burke Files, noting that the U.S. is only marginally better. “Money laundering is part of a crime, but it is not a crime itself. The crime that occurs is fraud, bribery or embezzlement. The laundering of the money comes after the crime. It would be more helpful to create an environment where crimes are not tolerated. Instead, in many cases, with the lack of oversight as we have seen with Danske Bank and in the Council of Europe, they end up being encouraged.”