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Ananyev brothers face mounting pressure over Russian bank



Tensions are rising in the long-running and increasingly complex battle over the dramatic nationalisation of Russian bank Promsvyazbank.

Readers of our story in August may remember that brothers Dmitri and Alexei Ananyev had fled Russia after the bank, which they founded and previously owned, fell into administration and was taken over by the country’s central bank in 2017 (though not before some rather unusual transactions in its shares). Alexei moved to the UK, while Dmitri went to Cyprus.

Russian authorities put out a warrant for their arrest and charged them with embezzlement of around $1.6bn. A lawyer for Alexei said the charges and warrant for his arrest were “absolutely groundless”. Dmitri maintains he is the victim of a politically motivated nationalisation and he did nothing wrong. According to the brothers, Interpol’s General Secretariat says the accusations against Dmitri and Alexei have a political dimension to them and they are no longer subject to an Interpol notice. Interpol declined to comment.

Now a court case in the Netherlands this week could shed further light on what happened at PSB, as the bank is known, around the time of its nationalisation.

This case is being brought by some of the mostly Russian savers (including the owner of a fertiliser company and a wine merchant) who are trying to find a way to get their money back after they bought $240m of guaranteed notes sold by PSB that subsequently defaulted.

The brothers have a web of offshore companies around the globe, and claimants say they have found it hard to decide where to pursue a legal complaint.

However, the claimants have recently been aided by input from a group of enthusiastic German MPs and MEPs who have taken up their fight. These politicians have been briefed on the Ananyevs by high-profile lawyer John Sandweg — former acting general counsel at the US Department of Homeland Security and now a lawyer advising some noteholders. After an industrious approach to letter-writing to various political leaders, pressure is now building in some jurisdictions.

With German savers said to be among the alleged victims (and no doubt mindful both of Commerzbank’s shareholding in PSB between 2006 and 2012, as well as the embarrassment of the Wirecard fraud back home), the German politicians have written to European Commission President Ursula von der Leyen, UK Chancellor Rishi Sunak, Home Secretary Priti Patel, Cyprus’s Minister of Finance Constantinos Petrides, European Commissioner for Justice Didier Reynders, the Netherlands’ Minister of Interior Kajsa Ollongren . . . the list goes on.

All that glitters

A September letter from MEP Sven Schulze to Mr Sunak, for instance, raised questions over the provenance of the money used to gain residency in the UK and Cyprus. Mr Schulze has asked Dishy Rishi for access to the information the brothers disclosed in the UK residency application — including the income sources given for the brothers’ wives and children — and for that application to be scrutinised.

He has also asked Cyprus’s Mr Petrides to examine Dmitri’s visa application in Cyprus, which was made under the country’s so-called golden visa process.

That process came into the spotlight in October when, following an Al Jazeera undercover investigation, Cyprus suspended its golden passport scheme. The European Commission has also launched legal action against the country. The Commission had been irked by the fact that such schemes appear to let wealthy individuals buy the benefits of EU membership, following controversial cases involving Malaysian businessman Jho Low, and relatives and associates of Cambodia’s authoritarian prime minister Hun Sen.

One of the letter-writers, German MP Peter Beyer, told us he is now requesting “serious reclaiming of already-issued golden passports by the Cypriot government, since this practice clearly is contrary to European common interests”.

Dmitri’s stance is that, unlike applicants who concealed the source of their money, his application was based on documents verified by Cypriot authorities and is supported by his long track record in the banking sector and the fact PSB had a branch in Cyprus.

Alexei’s lawyer said any such concerns raised by the German politicians appeared “misleading and not accurate”.

© Bloomberg

Courting controversy

In Russia, meanwhile, investigators recently arrested five people and put four more on a wanted list in connection with the alleged siphoning off of funds at PSB. 

In George Town in the Cayman Islands, some noteholders filed a writ in the Grand Court in October. The claim, published on the court’s website, alleges that Dmitri’s “dishonest scheme . . . fraudulently” moved the proceeds of the notes into his companies. Dmitri apparently has not received notice of the case.

And in the Netherlands, some noteholders won a potentially significant victory in August when a judge ruled the two directors of a Dutch company owned by the brothers could be questioned.

Noteholders hope the hearing, scheduled for this week, will help them show whether the directors acted on the brothers’ instructions in carrying out the unusual share transactions just before PSB was nationalised.

They hope that evidence could, in turn, prove useful in asking the UK High Court to reconsider a freezing order on the brothers’ assets. Last year a judge threw out the noteholders’ claim against the brothers’ English companies, ruling England was not the correct jurisdiction, ordering frozen money to be repaid to Dmitri and the noteholders to pay costs.

The judge also said that “the most natural targets for any claim are PSB and (possibly) the first defendant [Dmitri]”.

Last week a court in Cyprus issued an order for the seizure of the global assets of the brothers and their wives for up to €267m, according to Kommersant. Alexei “had nothing to do with the alleged illegal actions or transactions stated in the claim”, a spokesperson reportedly told the newspaper. Dmitri’s spokesperson told the paper the defendants “categorically disagree with the demands made in the Limassol District Court and dispute them”.

Dmitri, a former member of the upper chamber of the Russian parliament, contests many of the allegations and concerns raised. His position, in a nutshell, seems to be that prior to the Russian central bank’s intervention, PSB had a strong international reputation, and that he is the victim of a politically motivated nationalisation.

He has filed an application to the European Court of Human Rights, which was declared inadmissible by an ECHR judge, the ECHR told us (there is understood to be an issue at the moment about jurisdiction). However, a separate application, PSB vs Russia, is “under consideration”, the ECHR said.

From Dmitri’s legal representation:

Matters related to Russia’s nationalisation of PSB are the subject of independent judicial scrutiny. We expect that to put an end to the years of unfounded accusations Mr Ananiev has since faced.

A lawyer speaking on behalf of Alexei said his client did not “at any time… have authority or capacity to affect the transactions” of PSB or any other entities. The UK High Court judge last year said that, while PSB had been jointly owned by the brothers, it was “Dmitri’s business”. Alexei never had an executive or managerial role at the bank, although he did have a non-executive role on its supervisory board, the judge said.

Victims of alleged frauds spread across offshore jurisdictions hardly have a great track record of getting their money back. Corporate secrecy, a lack of international co-operation, questions of jurisdiction and the sheer cost of such court cases eventually put off many complainants.

However, in the case of PSB, matters appear slowly to be coming to a head. Helped by some German politicians’ enthusiastic letter-writing, more details about what really went on at PSB — including what happened to noteholders’ money — could eventually come out in the various contested court proceedings.

We will be watching.

Related links:
Cayman, Curaçao and Cyprus: the hunt for $240m of Russian bank bonds — FT Alphaville

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Emerging Markets

India moves to scrap retrospective tax




Indian politics & policy updates

India took a big step towards repairing its damaged image as an investment destination by moving to scrap a controversial retrospective tax that ensnared multinationals such as Cairn Energy and Vodafone.

Prime minister Narendra Modi’s government on Thursday introduced a bill in parliament to rescind a 2012 tax code provision that had allowed New Delhi to impose retrospective taxes on some foreign investments.

The controversial provision — pushed through parliament after New Delhi lost a $2.9bn tax battle with Vodafone in India’s Supreme Court in 2012 — had severely damaged the country’s reputation as an attractive place to do business.

“We think this is an important time for India to be welcoming of investment,” T.V. Somanathan, India’s finance secretary, told a local television channel after the bill was tabled. “We are very keen to basically get the economy on a faster growth path.”

The move comes as India’s economy is reeling from the impact of the Covid-19 pandemic, with GDP growth contracting 7.2 per cent last year. Even before the virus hit, the economy was in the doldrums, with GDP growth slowing for eight consecutive quarters.

New Delhi’s image has suffered in recent months from its high-profile international tax battle with Cairn Energy over the Scottish energy company’s 2006 corporate restructuring before it listed its Indian operations on the Bombay Stock Exchange.

In December, an international arbitration tribunal ordered New Delhi to pay Cairn $1.7bn as compensation for its’ seizure and sale of a 10 per cent stake in Cairn India against the disputed tax.

New Delhi refused to honour the award, and Cairn last month secured an order from a French court freezing Indian-government owned properties in Paris as a step towards collecting on its debt.

Cairn also filed a lawsuit in a US court seeking to seize aeroplanes of state-owned carrier, Air India, in lieu of payment, and said it had identified more than $70bn worth of other Indian government assets abroad that it could seize in lieu of payment.

Amending the Indian tax code — which will allow a tax refund to Cairn, though without interest — will allow New Delhi to say it has settled the dispute under Indian law, rather than appear to comply with an international arbitration ruling whose jurisdiction it has long contested.

“Those cases that predated the 2012 amendment are now going to be let off the hook, but we are doing this under Indian law,” Somanathan said. 

“There is a principle at stake here — it’s being done through Indian statute. We continue to assert that we have the right to tax but we are choosing to do this. We are not accepting those arbitral awards. We have an objection to such disputes getting adjudicated outside India.” 

Cairn said it had “noted” the proposed legislation and was “monitoring the situation.” Shares in Cairn soared as much as 47 per cent before easing slightly to close at 160p a share, up 27.4 per cent on the day.

Tax experts welcomed the move but questioned why the ruling Bharatiya Janata Party waited so long. The BJP had fiercely criticised the retrospective tax law when the previous Congress party government pushed it through in 2012, and had described it as ‘tax terrorism’.

“It should have been done a while ago, it’s absolutely the right decision and it sends the right signal to investors,” said Nigam Nuggehalli, registrar at the National Law School Bangalore. 

“I’m sure that the immediate prod for them was the fact that they lost their arbitration cases against Vodafone and Cairn,” said Nuggehalli, “any more intransigence on this would really result in loss of face for [the government].” 

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Erdogan under pressure over Turkey’s response to wildfires




As Turkish firefighters battle blazes across the Mediterranean coastline, President Recep Tayyip Erdogan has been criticised over his government’s response to what he called the worst fires in the nation’s history.

While all of Europe has experienced extreme weather this summer, from heavy flooding in the north to severe heatwaves and fires in parts of the Mediterranean, Turkey has been hit by its most intense blazes on record.

Eight people have died since the fires began last week, with hundreds of tourists evacuated as the flames spread across 40 provinces. Almost 300 fires had been extinguished by midday on Wednesday while 13 were still burning, according to a forestry official.

“This year’s fire is unlike any other in our history. This is the largest,” Erdogan said in a television interview. “On the eighth day of our operations, we are now confronted with a thermal power plant fire.”

The flames reached the coal-fired power station in Mugla province late on Wednesday, prompting soldiers to evacuate nearby homes amid sounds of explosions at the facility, according to news channels. Military landing ships reached the coast 20km away to move residents to safety, the defence ministry said on Twitter.

A Spanish hydroplane ‘waterbombs’ a wildfire near Mugla
A Spanish hydroplane ‘waterbombs’ flames near Mugla on Wednesday © ERDEM SAHIN/EPA-EFE/Shutterstock

Although soaring temperatures, low humidity and winds gusting at 50km/h complicated the response, anger has mounted over an apparent failure to adequately prepare a country where summer forest fires are a perennial concern.

The absence of a functioning national fleet of firefighting aircraft forced Turkey to wait for specialised planes to arrive from other countries, including Spain, Ukraine and Russia. Ankara declined an offer of assistance from Greece because its planes had low water-load capacities, according to Bekir Pakdemirli, the forestry minister.

“I have not seen any planes. Due to the topography, it is almost impossible to intervene by land . . . so the fires run their course,” said Mehmet Oktay, an opposition party mayor in the resort town of Marmaris, where more than 13,000 hectares of nearby forest lay charred and half a dozen fires continued to burn. “We are clearly not prepared if we suffered this kind of loss.”

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Marmaris and other areas hit by the fires are among Turkey’s most important destinations for a tourism industry already battered by coronavirus travel curbs.

Scientists say Turkey’s fires are part of a chain of extreme weather events caused by a changing climate; this summer, blazes have also raged in Italy and Greece. Even Finland, where temperatures hit a record high in July, has suffered its worst forest fire in half a century. Yet Turkey is the only G20 nation to refuse to ratify the Paris agreement on climate change.

“The failure to ratify the climate change accords is part of the government’s regard for the environment as something to be exploited, rather than protected,” said Saruhan Oluc, a lawmaker in parliament’s second-biggest opposition group, the People’s Democratic party. “A lack of preparation, including having aircraft, and negligence is to blame for the scale of this disaster.”

The emergency adds to voter discontent with Erdogan’s Justice and Development party (AKP), whose support in opinion polls has fallen to record lows over its handling of an economy plagued by high unemployment and inflation stuck in the double digits for most of the past four years. “There’s a sense among Turks that the government is failing in its function to deliver a better standard of living across the board. The polls show there’s a majority who believe that in the near future things will get worse,” said Sinan Ulgen, a visiting scholar at Carnegie Europe.

President Recep Tayyip Erdogan talks to residents of Manavgat, Antalya
President Recep Tayyip Erdogan talks to residents of Manavgat, Antalya, which has been hit by wildfires. He has attracted criticism for his response to the emergency © Turkish Presidency via AP

Erdogan travelled to some of the worst-hit areas at the weekend, expressing sorrow for the loss of life and promising to “dress the wounds of our citizens”. Crowds applauded him. But some of his attempts to console victims were met with derision. In Marmaris, he tossed bags of free tea from his moving bus — a week after he gave handouts of tea to residents of a Black Sea community struck by deadly floods.

Hip-hop artist Sehinsah mocked the gesture, telling a concert audience he had a “surprise” for them before hurling tea, according to a video. Another video circulating on social media showed a woman throwing boxes of tea at unsuspecting pedestrians and asking “Are you happy now?” A play on the ruling party’s initials, “AKParTea” trended on Twitter.

The spoofs are all the more striking because criticism of Erdogan is heavily policed, with prosecutors last year opening cases against almost 10,000 people for insulting the president, a crime in Turkey. “People found this idea of throwing tea as odd [when] in previous years, this government was savvy about the pulse of the population. Now they seem to have lost that touch,” said Ulgen.

Erdogan’s communications chief, Fahrettin Altun, dismissed information shared on social media as “fake news” and said that Turkey would compensate people for the loss of property. “We are continuing our fight against forest fires by mobilising all means of the state,” he said on Twitter.

An anguished woman surveys the scene in Oren
An anguished woman surveys the scene in Oren © Emre Tazegul/AP

Even pledges to rebuild hundreds of destroyed or damaged homes have hit the wrong note.

The state housing authority posted on Twitter mock-ups of new village houses as the conflagration engulfed villages last week. Mehmet Ozeren, the AKP mayor of the hard-hit district of Gundogmus, said this week those who lost homes they owned would now enjoy low interest-rate loans from the housing agency. “It may be wrong to say this, but I think people with very old houses will say, ‘If only our homes had burnt too’,” he told a reporter.

“Trust in the government is declining as people see problems cannot be managed,” said Bekir Agirdir, who runs the polling agency KONDA Research. “Turkey remains polarised over culture and identity but the problems of everyday life are so burdensome — the pandemic, unemployment, inflation, floods, fires — the feeling this government cannot solve these issues is strengthening.”

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Brazil poised for biggest interest rate increase since 2003




Banco Central do Brasil updates

Brazil’s central bank is expected to enact its biggest interest rate rise in almost two decades on Wednesday, with economists predicting an increase of 100 basis points to curb the risk of spiralling inflation.

Latin America’s most populous nation is witnessing a sharp acceleration in prices as its economy recovers from the Covid-19 pandemic, pinching households and putting pressure on the Banco Central do Brasil, or BCB, to act.

A weak exchange rate, buoyant worldwide demand for raw materials and rising electricity bills due to the worst drought in almost a century have all contributed to Brazilian inflation that exceeded 8 per cent in the 12 months to June, more than double the official target of 3.75 per cent for 2021.

A majority of economists polled by Reuters expect the BCB’s Selic rate will be lifted from 4.25 per cent to 5.25 per cent, which would be its fourth consecutive rise. The benchmark was at a historic low of 2 per cent until March. The decision is expected on Wednesday evening.

A full percentage point jump would represent a step up from the 75 basis point increases announced after the three previous meetings this year of the rate-setting committee, known as Copom. It would be the sharpest increase since its last 100bp rise in 2003.

As a commodities boom and pandemic-related bottlenecks in global supply chains feed an international debate about whether a return of inflation will be temporary or long-lived, central bankers in some countries are already tightening monetary policy. 

Russia, Mexico and Chile have all recently raised interest rates, while the US Federal Reserve is edging closer to a decision on slowing its massive monetary stimulus.

The BCB, which gained formal autonomy this year, is at the forefront of emerging markets pursuing an aggressive approach, said William Jackson, chief EM economist at Capital Economics.

However, he noted that Brazil’s gross domestic product was still below the level of 2014, before a deep recession struck.

“That would suggest the economy is operating below its potential and that monetary policy should be stimulative,” Jackson said. “But with the inflation threat as it is, there’s a belief that can’t continue for the time being.”

In a country that experienced runaway prices and hyperinflation only a generation ago, monetary policymakers will have to strike a balance between shielding consumers and encouraging growth.

Cristiano Oliveira, chief economist at the business lender Banco Fibra, suggested Copom should accelerate rate increases to bring estimates of future inflation closer in line with its objective.

“In 2022, the centre of the inflation target is 3.25 per cent, but inflation in the previous year should be close to 7.5 per cent. In other words, the central bank has a difficult job ahead of it, which is to reduce the inflation rate by more than 50 per cent”.

Food costs have pushed millions of people into hunger, with unemployment near a record in Brazil since data collection first began in 2012. Transport and housing have also become more expensive lately.

At the same time, low reservoir levels have affected hydroelectricity production, the South American nation’s main source of power, forcing utilities to turn on more costly thermal plants.

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