How a Collapsed Russian Bank Led to a Cyprus Court Showdown
A District Court in Limassol, Cyprus, is slated to hear the next stage in a remarkable Russian banking fraud case concerning the collapse and rescue of Promsvyazbank (known as PSB), which was controlled by brothers and oligarchs, Dmitri and Alexei Ananyev.
In 2017, Forbes cited the brothers as the 58th and 59th richest men in Russia, together worth over $2.8 billion, largely based on the value of PSB. By 2010, PSB had grown to be the 9th largest bank in Russia. In 2014, PSB was recognised by the Russian central bank as “systemically important.” In other words, on Russia’s list of “too big to fail” institutions.
Dimitri Ananyev was (and perhaps still is) a politically well-connected person in Russia, serving as a Russian senator from 2006 until 2013. The U.S. Treasury added him to its sanctions list of Russian oligarchs in 2018, for his proximity to Russian President Vladimir Putin.
The Ananyev brothers (and their wives Lyudmila and Daria) are being sued for €267 million by TRUST, another Russian bank. TRUST is Russia’s state-owned “bad asset” bank, and it alleges the brothers were responsible for embezzlement and money laundering while at PSB.
By December 2017, PSB was in a critical condition and in need of financial rescue. The Russian central bank intervened by appointing administrators, who then discovered a substantial “black hole” in PSB’s balance sheet of €1.5 billion, leading to a bailout and rescue by the Russian state.
In subsequent investigations, TRUST discovered from witnesses who worked at the bank of a secretive dual system of documentation used by PSB, which created both an “official” set of papers relating to proposed loans and a second set of papers (marked “CNF”), detailing the true terms of transactions. The CNF papers were only available to certain people within PSB and were kept hidden from regulatory authorities, says officials with TRUST.
TRUST alleges that PSB set up a range of companies known as “special purpose companies” not formally owned by PSB but controlled by it through third parties. These formed a hidden network of companies that, amongst other things, concealed PSB’s involvement in lending transactions. This network was granted new loans by PSB that were then used to pay back older, non-performing loans held by other companies within the network.
Officials also allege that, two weeks after the collapse of PSB, in late December 2017, the brothers allegedly arranged for approximately €65.4 million in cash to be taken out of PSB and transferred to another Russian bank, Vozrozhdeniye (which the brothers at that time also controlled, until it too was taken over by the central bank in March 2018).
In November 2020, TRUST obtained a worldwide freezing order from the Cyprus courts against the brothers and their wives, fearing that they will hide their assets from TRUST and other creditors, who are suing them. The Cypriot case is based on a secret forensic report by global auditors, KPMG, submitted to the Cyprus court last November, setting out four schemes TRUST says sucked €267 million out of PSB. The hearing on 6th April will see the brothers attempt to have the worldwide freezing order against them canceled, which TRUST fiercely opposes.
The case also shines a light on Cyprus’ now-discredited “golden passport” scheme, where Cyprus sold citizenship to wealthy investors in Cypriot property schemes and other government funds. The scheme was popular amongst Russian and Chinese oligarchs. The scheme was closed in October 2020, when the European Union threatened to take action against Cyprus over the way it operated.
Dmitri Ananyev and his wife, Lyudmila, purchased Cypriot citizenship, and thereby EU residency rights, in June 2017 – just six months before the collapse of PSB – shortly after the brothers became aware of the results of the Russian central bank’s inspection of PSB, which led to the Russian central bank placing PSB into administration. The couple now lives in a multi-million dollar villa in Cyprus. Alexei and his wife, Daria, live in exile in a luxurious 800 square metre apartment, spanning the entire fifth floor of one of Vienna’s most famous buildings on the Hoher Markt.
TRUST says that on the eve of PSB’s collapse, Dmitry allegedly transferred ownership of the PSN Group, one of Russia’s most valuable real estate businesses to his wife, who then made purported further transfers of ownership to a third party, a manager of the PSN Group and member of the PSB board. TRUST alleges that the group in truth remains under the control and ownership of Dmitry Ananyev.
TRUST also alleges that Alexei’s wife took ownership of valuable assets including fine art, Cypriot companies, and real estate in Russia, Austria, and Portugal, as well as cash deposits at PSB. Alexei was renowned worldwide for the scale and quality of his collection of Soviet art – often described as the world’s largest collection – some bought for millions of dollars at Western auction houses. He even opened a private museum in Moscow to display it (now closed). Hundreds of paintings and rare books missing from his museum were found in a storage facility next to a church in a village near Moscow. Alexei purported to have transferred 5,299 paintings to his wife, out of a collection of over 6,000, as part of their “marital agreement.” TRUST alleges this was done to hide assets from creditors.
The brothers deny all wrongdoing and claim they are subject to a Kremlin political scheme. In an interview Dmitri gave to the Guardian in February 2020, he said: “I’m presented as a criminal. It doesn’t connect in my head…It’s a really unpleasant feeling when you see your country trying to hit you.” The brothers point to their success in having an Interpol arrest warrant overturned on the basis that it had been issued on “political” grounds and will ask the Cypriot court similarly to cancel the worldwide freezing order.
While TRUST will oppose the cancellation of the asset freeze, it is also continuing its investigations with KPMG. TRUST refuses to deny if it planned to issue more claims against the brothers as KPMG’s investigations continue. The underlying lawsuit to order the return of the missing millions to the Russian state is expected to be heard in Cyprus in 2022.