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The Divorce Industrial Complex

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DIVORCE PROCEEDINGS

I’m taking off the rest of this month and next, so this is my last newsletter for a short spell.

London is the divorce capital of the world, but Akhmed v Akhmedova was a battle to make even its jaded lawyers sit up and take notice. Both the size of the reward given to Tatiana Akhmedova in 2016 after her marriage collapsed – a £453,576,152 ($617,904,523.99, as of right now) share of a billion-dollar-plus fortune – and the steps that Farkhad Akhmed took to stop her getting it, were unprecedented.

But now – after a multi-jurisdictional odyssey, involving more tax havens and micro-states than most people can name —  it appears to be over

  • “Tatiana has ended up with not a penny more than she was offered by her ex-husband six years ago,” said a spokesman for Farkhad.

He is paying her around $200 million to settle the claim, on top of nearly $100 million she won from her eldest son earlier in the year, but she’ll be giving a large chunk of that away. Her fees were being paid upfront by Burford Capital, a litigation funder, on a contingency basis. It’s taken $103 million of her haul as a return on its investment, which works out as a handy $70 million profit.

Akhmedov’s fortune was born in the early 1990s trading furs and expanded after he moved into the lucrative Russian gas business. She lived in London with their children, which is why an English court had jurisdiction over the marital assets. Those assets’ division between the ex-spouses has been, by any standards, a sordid and depressing affair.

  • “All happy families are alike, each unhappy family is unhappy in its own way. With apologies to Tolstoy, the Akhmedov family is one of the unhappiest ever to have appeared in my courtroom,” said the judge in her ruling against Temur Akhmedov – the couple’s oldest son.

Farkhad moved many of his assets into Temur’s name in what a judge said was an attempt to prevent Tatiana being able to access them, which is why she ended up targeting their son as well. It was a tactic that earned Temur some sympathy to begin with, although much of that sympathy dissipated when messages he had written about his father’s elaborate financial arrangements were revealed in court.

  • “If the Tatiana problem did not exist, my Father would not move his asset anywhere…!! […] He wants to MOVE OUT OF SWITZERLAND … CUT HER BALLS OF[F] … GET DIVORCED … POST NUPTIAL AGREEMENT… And be a FREE MAN,” he wrote at one point.
  • “Temur was not a witness of truth. On the contrary, he showed himself to be an untruthful and unsatisfactory witness who lied in respect of various aspects of his evidence, who had a propensity to make up his evidence as he went along, who changed his evidence repeatedly when confronted with the contemporaneous documents, and who provided explanations that were simply beyond belief,” the judge concluded.

If anyone is interested in the measures that very wealthy people are able to employ to structure their assets, I highly recommend reading the judgment in full, just for the astonishing variety of techniques and jurisdictions involved: Cypriot companies, Panamanian companies, Bermudan trusts (including a “dear me” trust), Liechtenstein establishments, Liechtenstein trusts, a French company, a Luxembourgish company, a Russian company, Emirati banks, Liechtenstein private banks, Swiss banks, British property, French property, Russian property, fine art and, last but not least, the $260 million superyacht Luna, which was owned at various times via companies in the Isle of Man and the Marshall Islands, and which Akhmedov was determined to hang onto at all costs

  • “The histology of H’s dealings with M.V. “Luna” are redolent of his elaborate and contumacious campaign to evade and frustrate the enforcement of the Judgment debt against him,” said one of the many legal findings (you need a dictionary of legal English to understand it).
  • “We should take all out and send her naxyj. I will burn this moneys rather then will give her,” Akhmedov wrote at one point (you need a dictionary of Russian swearwords to understand it).

Akhmedova’s claim to the 377-foot yacht was rejected by a court in Dubai, but her lawyers challenged that in the Marshall Islands, where a court in turn kicked the decision back to Dubai in May. That may have been what precipitated her decision to settle, since the prospect of a sharia law court siding with a woman in a divorce case was always going to be remote.

  • “Burford and she spent years and millions of pounds on a costly global tour of various jurisdictions in their attempts to seize Luna. Every one of them failed and the yacht remains and will remain in the ownership of Farkhad and the family trusts,” said Akhmedov’s spokesman.

It’s hard to avoid the conclusion that Akhmedov won, in that his wife ended up accepting a sum of money far lower than the total originally awarded by the English court in 2016, which goes to show the power of offshore structures in frustrating legal processes. However, considering the process has spectacularly poisoned relations between his children and their mother, the cost of that victory is extremely high. The real victors are, as ever, the lawyers.

BEZOS IN SPACE?

I said enough about billionaires going into space last week, but if there is anyone else out there determined to spend huge quantities of money and emit vast amounts of carbon dioxide on this hateful endeavor at a time when emissions are at an all-time high and the planet is literally burning – with many plumes of smoke visible, ironically enough, from space — then please drop me a line. I’ll be more than happy to suggest other things more useful for you to do with your money, though – to be honest – almost anything would be. Perhaps Jeff Bezos could use some of the money protecting the Amazon Rainforest, that would be appropriate.

Here’s a joke to cheer you up: what do you call a billionaire on Pluto? Actually, no, I give up, I’m too depressed, sorry.

WHO PAYS FOR SANCTIONS?

In recent years, many Western countries have turned to sanctions as a primary tool in dealing with foreign leaders, oligarchs, or others that they disagree with. The UK’s own post-Brexit sanctions regime is almost exactly a year old and has been nicely analyzed here

Often these sanctions are named in honor of Sergei Magnitsky, a Russian accountant who died in a Russian jail cell after being arrested for exposing a gigantic tax fraud. Bill Browder, whose company was defrauded, has campaigned for years for sanctions to be imposed against the people involved in persecuting Magnitsky and – more broadly – all human rights abusers.

Browder has been very successful, and people looking to do business now need to keep an eye on sanctions lists in the United States, the European Union, Canada, Australia, the UK and various other places. I have always been a bit suspicious about the alacrity with which many governments have signed up to this cause, however. It is cheap, quick and easy to announce sanctions against someone, rather than going through the laborious, risky and time-consuming process of bringing a criminal case against them or their enablers. If the sanctions are legally challenged and fail, that leaves us all right back where we started.

But what do they mean for ordinary businesses? This is the subject of a fascinating blog post by a German compliance manager.

  • “It’s 5 p.m., and I’m celebrating,” she writes, “Not because a project was completed or the workday is over, but because I have just reviewed the ten-thousandth false positive in our company’s sanctions lists screening software.”

In the post, she lays out the competing demands of different sanctions regimes, the challenges of complying with them, and the difficulty of sorting through the “false positives” — names that are so like those of people sanctioned that the software highlights them for manual checks. This is not a trivial matter: Apple had to pay a fine of almost half a million dollars after its screening software mixed up upper case and lower case letters and it missed a new designation. That’s small change for Apple, but a potentially massive deal for a small company.

I recommend reading the whole post to understand the effort required to comply with global sanctions regimes. If you scale up the effort described, and imagine it replicated in countless multinational companies worldwide, you have an idea of the cost of the current regime. You may have little sympathy for companies having to bear a cost of this nature, but it is important to wonder if that cost is worth it? What are we getting for that money? Are we achieving what we want to achieve, particularly when you consider that companies are doing the same checks over and over again? Is it really a good idea to have private companies repeating work, which could be done just once by government?

In my opinion, it would be preferable if the billions being spent on compliance was spent instead by governments on better resourcing their law enforcement bodies, on regulating their financial services industries, and on creating reliable databases of ownership information. That would prevent crooked money from entering our economies, and prosecute anyone who tried to evade our restrictions, rather than playing whack-a-mole with shell companies and nominee directors as we are at present. 

WHAT I’M READING

I am going to be taking the next few weeks off from writing this newsletter (back in September) to spend some time on holiday and on looking after the kids now school has broken up. I plan to take the proof copy of American Kleptocracy by Casey Michel to the beach with me. I’ll let you know what I think when I get back, but judging by the few pages I’ve read so far, I’m expecting great things.

I also hope to find time to read this fascinating-looking transcript from the UK parliament’s enquiry into financial crime, which included this great question from an MP.

  • “Basically, you are saying that, if I could put it this way, the eye of Mordor has alighted on the UK with its systems and the problems with it, and if we do not do something very effective, very soon, we are going to be in deep trouble. Is that a fair summary?”

It certainly looks fair to me.

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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.

@OliverBullough