How to bankroll an oligarch’s divorce, and cracking shell companies

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DIVORCE CASE

The news may be grim elsewhere, but there’s always someone worse off than yourself. We have an update from the grotesque London divorce proceedings that is Akhmedova v Akhmedov.

Tracing this legal battle to its start is long-winded (a little like trying to work out why Brexit is still happening), but it has expanded over the last four years to take in multiple shell companies, jurisdictions, yachts, paintings, which all add together to make a protracted legal mess that threatens to rival something born of Charles Dickens’ imagination. The key elements of the battle are that

  • It involves the largest financial judgment in favor of a wife in English history (£453,576,152.00 ordered to Tatiana Akhmedova in 2016), which is 41.5 percent of Farkhad Akhmedov’s assets.
  • The husband has paid over only a fraction of that (plus, apparently, a rusty helicopter).

Say what you like about the British tabloids, but they do adore a messy feud between rich people, and the Daily Mail was in court for this week to hear from the Akhmedovs’ son Temur.

My favorite detail of this week’s proceedings was how Temur told his mother (in a WhatsApp message of all things) that he had made some bad trades on the market: “Mum, I lost $50 million.” Apparently, he was very upset and, having once lost the envelope containing my £200 university allowance, I know how he feels. However, the important point is that this case is an interesting departure in British legal practice, which could supercharge London’s leading place in the already congested divorce tourism market. It also shows quite how many areas of life the financial services industry has managed to financialize.

Tatiana Akhmedova’s quest for her ex-husband’s assets is being paid for by a specialist litigation funder called Burford Capital, which will take a percentage of everything it manages to dredge out of Farkhad Akhmedov’s deep and well-guarded pockets. This has meant the case is not just of interest to the morbidly curious, but also to the London markets where Burford shares are traded. When a court in Dubai rejected Burford’s attempt to seize a $460 million superyacht, deeming the request to be counter to Sharia law, Burford shares fell by as much as seven percent. (The yacht’s fate is still being discussed in the Marshall Islands, and Liechtenstein, so that matter is not settled.)

In fact, someone cleverer than I could probably work out a way for Farkhad Akhmedov to hedge his exposure to his own divorce, by investing in Burford: the more money it recovers from him, the more money he would make when its shares increase in value. British judges have rejected challenges to third party funding of divorce proceedings, but it is precisely this kind of reasoning that makes a lot of lawyers extremely dubious about the morality of divorces being funded as if they’re private equity plays. 

  • “Litigation funding agreements have no place in family cases since they drive couples and families apart,” said two leading lawyers in a column last week.

It is hard to see how estranged spouses could ever be persuaded to reconcile, if that would bankrupt their financial backers.

SHELL COMPANIES

Last week, I listed some suggestions for President-elect Joe Biden if he truly wants to fight kleptocracy, but perhaps – perhaps – he could be scooped by Donald Trump, if the president stops losing court cases for a few minutes and signs the Defense Bill into law. Some 2,798 pages into the bill, it drops an unusually poetic metaphor, to show why it seeks to end U.S. shell companies altogether (which was one of my recommendations!).

  • “Money launderers and others involved in commercial activity intentionally conduct transactions through corporate structures in order to evade detection, and may layer such structures, much like Russian nesting ‘‘Matryoshka’’ dolls, across various secretive jurisdictions such that each time an investigator obtains ownership records for a domestic or foreign entity, the newly identified entity is yet another corporate entity, necessitating a repeat of the same process,” the bill says.

Right now, even an FBI agent can’t see who owns a company in Delaware or Nevada but, thanks to this bill, US corporate regulations could be on the brink of the most radical change in decades. This bill would force companies to inform the authorities of their ownership information, which would in turn stop criminals being able to hide behind them. Although that information would be held in a “a secure, nonpublic database at FinCEN”, and thus wouldn’t be publicly accessibly, this would at least bring the United States up to the level of the British Virgin Islands. If that doesn’t sound like the most impressive achievement that’s because it isn’t; but it’s still better than nothing.

Sadly, however, Trump has just threatened to veto the bill so all this hard work may come to nothing, like every previous effort to end the U.S. shell company industry. 

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BILLIONAIRES

Despite the recent cheerful vaccine news, 2020 does seem like a year we’d all like to forget (but will obviously never be able to), but it’s worth repeating that it’s not been bad for everyone. According to The Institute for Policy Studies, the collective wealth of the 650 US billionaires has increased by a trillion dollars since the start of the pandemic, to almost four trillion dollars, which is a truly unimaginable sum of money. A trillion is a million times a million; a trillion seconds is more than 31,000 years; a trillion dollars would buy you Facebook, with more money left over than Jeff Bezos’ entire fortune.

  • “Billionaire wealth is twice the amount of wealth held by the bottom 50 percent of households combined, roughly 160 million people,” the report said.

Inequality is clearly a serious problem: how do you repair democracy in a country where 650 people can outspend 160 million, when there are few if any limits on funding elections? Lots of people have lots of interesting things to say about it, but I thought this conversation was particularly insightful, with its suggestion that perhaps we’ve all said enough now. The last decade has seen a tremendous amount of work exposing the nature of inequality and yet the rich keep getting richer. 

  • “I remember sitting in a room full of economists exchanging formulas with Greek letters. Then I raised my hand, ‘just wondering, everyone here seems to see it as their role that they will present the facts that will explain to leaders how inequality is harmful, and what policy mix would reduce it, is that right?’ I was told ‘yes’. So I said OK, can anyone tell me about when and where doing that brought a noteworthy reduction in inequality? They went very quiet. Then they started laughing,” said Ben Philips, author of How to Fight Inequality.

Will 2021 be a year of action, rather than research? That would certainly be something worth remembering.

AN EVENT TO ATTEND

On Wednesday, at 4pm Eastern European Time/2pm London time, I’m moderating a talk about Eastern Europe’s “democracy-killers: corruption, money laundering, propaganda”. 

We have a stellar panel: George Kent, from the State Department; Paul Massaro, of the US Helsinki Commission; Anastasia Radina, of the Ukrainian parliament’s anti-corruption committee; Matti Maasikas, EU ambassador in Kyiv; Yevhen Fedchenko of StopFake; and Daria Kaleniuk, of the Anti-Corruption Action Centre. Sign up!

WHAT I’M READING

I was lucky to get an advance copy of Dirty Gold: the rise and fall of an international smuggling ring, an extraordinary tale by four Miami Herald journalists of how US gold traders connived in the destruction of the Peruvian rainforest, so they could trade in gold that they falsely claimed was produced to the highest ethical and environmental standards. It reads like a thriller, and I’d highly recommend it.

See you next Wednesday,

Oliver

The story you just read is a small piece of a complex and an ever-changing storyline we are following as part of our coverage. These overarching storylines — whether the disinformation campaigns that are feeding the war on truth or the new technologies strengthening the growing authoritarianism, are the crises that Coda covers relentlessly and with singular focus. But we can’t do it without your help. Support journalism that stays on the story.

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Oliver Bullough

Oliver Bullough is an author and journalist from Wales, who specializes in writing about financial crime, often when it has links to the former Soviet Union. His most recent book is Moneyland, why thieves and crooks now rule the world and how to take it back, and he is currently trying to write another one despite lockdown.