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The colour of Russian money part 10: fathers and sons

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Stephen KomarnyckyjLatvia The EU
The colour of Russian money part 10: fathers and sons
Parex bank may have collapsed but an oligarchic clan linked to its former owners and employees may control much of Latvia's banking and political system...

Liechtenstein is renowned both for its mountainous landscape and its fairy tale castles through whose gates you half expect to see St George trotting with a dragon’s head dangling from his saddle. However, the country is, like Switzerland, proud to offer “private banking” services to wealthy individuals, on occasion those from Russia and countries previously occupied by Moscow. The name of one specialist working at the Liechtensteinische Landesbank (LLB) will be familiar to Latvians. Rem Kargin is Senior Representative/Investment Consultant at LLB’s Swiss branch. Indeed, as he notes on his linkedin profile, the bank’s “Geneva Office has … is consentrating (sic) on servicing clients from Eastern Europe and the CIS.”

Kargin, or Kargins is the son of Valerij Kargin the former co -owner of Parex Bank which, as we have noted previously, collapsed in 2008. The son of the other co owner of Parex, Georgijs Krasovickis, is also a prominent banker albeit in the Latvian “fast loans” market. An analysis of the careers of the former owners of Parex and their families allows us to understand a rarely examined aspect of Latvia’s banking crisis. These two families are part of a trans-national oligarchy which emerged after the partial disintegration of the Russian empire in its Soviet format. It is arguable that this informal clan which spans nations is manipulating narratives of reform to bamboozle officials in western governments and financial institutions.It is vital that we understand the role of these clans after the recent revelation in the Daily Beast that respected economist Anders Askund wrote a paper in 2017 praising Latvia for supposedly addressing money laundering at the behest of a lobbyist for Latvian banks, Sally Painter.

As we have seen previously Arnis Lagzdins, who was tasked with persuading the US that Latvia has cleaned up its banking sector, was in charge of compliance at two Baltic based banks which collapsed amidst allegations of money laundering. His son who works for Latvia’s security service, allegedly has business links to Russia. Ironically, in March 2018 a few months after Aslund’s paper was produced, Latvia’s ABLV bank collapsed similarly amidst allegations of criminal activity.

The problems plaguing Latvia’s banking sector commenced shortly after independence with the rise of Kargin and Krasovickis. Kargin moved seamlessly from being head of the ideological commission of the local young communist league committee to a successful business career in 1990. He and Krasovickis launched the first Bureau de Change in Latvia in 1991. It was situated at Riga railway station and rumour has it that Krasovickis himself was often sat behind the counter swapping Rubles for dollars.

The two men created Parex bank in 1992 and were the bank’s majority shareholders. The bank ultimately became very exposed during the financial crisis of 2008, possibly due to financial arrangements with its owners, and was purchased by the Latvian government for the princely sum of $4 USD.  The bank was ultimately split into two parts Citadele and Reverta. Citadele was established as a “good”, financially viable, bank and was a new corporate entity and privatised via a bogus transaction with the EBRD. The EBRD was paid by the Latvian government to purchase its stake in the bank which, in turn, Citadele retained the right to buy back from the EBRD. “Reverta” was the original Parex corporation and retained the bad assets of the Parex bank. Simultaneously many clients and employees moved to the ABLV bank which can, therefore, be deemed to also be a successor of Parex bank and which entered voluntary liquidation in 2018.

In 2009 it emerged, via Latvia’s finanvial regulator, that the bank’s owners had invested in Parex’s subordinated capital and were still receiving interest payments from Reverta. On 30 July 2010 Parex/Reverta launched legal proceedings against its former owners. The bank alleged that a whole series of credit and deposit agreements on terms unfavourable to the bank had been concluded with Kargin and Krasovickis during 1995 to 2008. The issue was partly addressed in 2010 when their assets, including those held by third parties were supposedly seized, removing their right to receive interest payments on the subordinated capital. 

However, in 2011 allegations emerged that the owners had given the rights to multi million Lat deposits at the bank. Georgijs Krasovickis had been granted the right to deposits which also served as part of the bank’s subordinated capital and with a total value of 9 million Lats. Rem Kargin had entered into an agreement with the Russian firm Olympia transferring the right to three deposits totalling approximately 11 million Lats which also served as subordinated capital to the company. Reverta viewed the transfer of the deposits by the bank’s owners as a ploy to avoid complying with the 2010 court decision arresting their assets. Reverta launched a number of other court cases alleging malfeasance on the part of its former owners but with limited success. Indeed Rem Kargin won an EUR 15m case against the bank. He court accepted his argument that he had transferred a deposit with that value to his mother after she was going through a difficult period following her divorce.

Mystery ultimately surrounds the collapse of Parex and whether a substantial amount of money was retained by any of the parties involved and what, if any, mechanisms were used to mask any funds that might have been retained. However, former Parex employee John Christmas provided a list of fake loans made to parties secretly related to the bank to the Latvian authorities in 2005. He then fled the country and is still waiting, in 2018, for the country's law enforcement agencies to investigate. According to Christmas the FBI questioned him twice and about the allegations and collected a substantial settlement from Daimler relating to one of the fake loans. He stresses that the Latvian authorities are still falsely intimating that Parex collapsed because of the involvement of  the US and Sweden. One minor detail which supports the argument that the bank was looted is the fate of Parex's fleet of luxury cars. The ownership of the vehicles was transferred to a BVI registered firm Lastex Impex Inc, in late 2008 after the government had supposedly acquired the bank. The firm appears in the offshore leaks database and is linked to the Lotus Holding Company Limited, a Latvian based entity which specialises in establishing Seychelles registered offshore firms.

Without implying any wrongdoing on their part we can note that Georgijs Krasovickis was connected to a coffee shop which was owned by a BVI registered company with opaque ownership. Rem Kargin, using the Latvian variant of his name Rems Kargins is the director and shareholder of an offshore firm Masterex Capital Corps, and the director of another offshore firm FedMax S.A. according to the offshore leaks database. Masterex Capital Corps is one of over 2000 firms set up by an Irishman Philip Burrell and registered at his Dublin address. According to The Irish Times Burrell admits that his entities may be used for questionable purposes but “draws a parallel with a gun shop in Texas – while the owner of the shop legally sells a gun to a customer, they are not responsible for what that customer does with the gun.”

However, no doubt all these curious entities registered in sunstruck paradises where the money is sometimes dirty but the beaches are immaculate are all utterly legitimate. We can also note, without in the least implying any wrong doing, that a number of interesting real estate arrangements were entered by members of the Kargin and Krasovickis families in the years following Parex’s collapse. Rem Kargin resorted to the courts to protect his reputation in connection with an article which touched on his ownership of a company entitled “Citadeles Nekustamie īpašumi." The articles contained a number of allegations of bribery which were not backed up by any evidence. However, citing corporate information, they noted that ownership of the firm had been transferred to one Anna Barinova, the wife of Rem’s father in 2011.

Barinova had not been a prominent business figure until she became the wife of Kargin senior but a moderately successful tennis professional. Rem Kargin’s real estate empire includes the Latvian registered firm SIA Adlera, according to the kompromat.lv site, which owns a luxurious villa at Jurmala, a resort in Riga, inhabited by Valerij Kargin, his father, and several other properties in the same area. SIA Adlera had allegedly been owned by a now defunct British company Oakcroft Services Limited, which was struck off in 2008, prior to its acquisition by Rem. The British company was in turn owned by various corporate entities with different registrations masking its ownership. Interestingly during the same year SIA Adlera and another real estate firm owned by Rem Kargin, SIA Vasals were lending each other money in connection with construction projects.

Georgijs Krasovickis, in addition to his offshore linked coffee franchise, similarly engaged in some interesting real estate deals. He owned 25% of a firm called SIA Smilga, according to the skaties.lv site, which won a tender to construct a café complex next to Kargin’s villa at Jurmala. Interestingly the tender was held twice and the result of the first procurement process, which was won buy a firm bidding EUR 22000 was cancelled. SIA Smilga allegedly won the second tender with a bid of EUR 1200 which the local authorities claimed was more realistic… He currently owns 19% of the capital in VIA SMS a Latvian fast loan provider which is now being evaluated by the Lithuanian Central Bank because they have realised it is linked to individuals connected to the collapse of Parex bank. 31% of the firm is owned by another Parex old hand Denis Šerstjukov who, in turn, is linked to a pro Russian Latvian politician who has a cooperation agreement with Putin’s United Russia, Nils Ushakovs.

There is of course nothing to suggest that any of these deals were improper and, although there were allegations of bribes being paid by the families to the authorities in Jurmala nothing was ever proved. Similarly we cannot prove that any of the real estate and commercial arrangements entered into by the families after the collapse of Parex were in any way receptacles for funds extracted from the bank via “favourable” loan mechanisms. The EUR 15m deposit transferred by Rem to his mother may have been the gesture of a loving son caring for her at a time of stress. The apparent transfer of a real estate business to the tennis player who replaced her may also be both loving and familial .

Yet the power wielded by these families and the group of former Parex employees such as Arnis Lagzdins calls into question the nature of Latvia’s reform process.One possibly alarming interpretation of the circumstances around Aslund’s report is that a third party apart from Latvia’s government largely controls the banking reforms in Latvia. These, in turn, could be a partial charade with the measures that are adopted being gestures towards a transparency they have already determined to undermine.

It may be the case that there is in fact a conflict between genuine reformers and the oligarchs’ clients. However, we will only be certain that Latvia has reformed if the case against the owners of Parex bank is re opened and the financial operations undertaken by them before and after its collapse are thoroughly investigated. It may be that there is no malfeasance involved but until a light is shone into the dark tangled web of shell companies and transferred property we will never be sure how a bank collapsed but the families of its owners were able to inhabit luxurious villas and build vast real estate empires. Their affluent lifestyles coincided with the Latvian people suffering a harsh austerity programme to finance the bailout of Parex. Many Latvians were compelled to emigrate and those who remained suffered often extreme poverty as a result of the profligacy of the Parex clan.  Until they are held properly to account we will not be sure that politics in Latvia is not in large degree controlled by shadowy oligarchic clans linked to Putin, who also seem poised to seize control of political life in the US UK and much of the EU via similar mechanisms.

Stephen Komarnyckyj is a PEN award winning literary translator and poet whose work is published by Kalyna Language Press and features on the PEN World Bookshelf. You can e mail him on stevekomoffice(at)zoho.eu

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