A Deutsche Bank branch in the United States is under increasing scrutiny for its extensive relationship with a Ukrainian bank that the US Department of Justice has said laundered billions into US real estate, according to exclusively obtained documents and interviews with people familiar with the matter.
The New York-based branch of the German bank, Deutsche Bank Trust Company Americas (DBTCA), had a significant relationship with PrivatBank during the time that the Ukrainian oligarch owners of the bank were embezzling and laundering the vast amount of money into the United States.
2013 banking records shared exclusively with Forensic News by Val Broeksmit, the son of a senior Deutsche Bank executive who took his own life in 2014, show that PrivatBank maintained at least four bank-to-bank accounts with DBTCA from four different jurisdictions – Ukraine, Cyprus, Latvia, and Switzerland.
In sum, PrivatBank had over $198,000,000 in cash at the four accounts with DBTCA, in what officials said what a “cash management” relationship wherein PrivatBank could convert their cash to the US Dollar in order to disburse in jurisdictions where the Dollar is the primary currency.
One source told Forensic News that this number was “just the tip of the iceberg” when it came to DBTCA’s relationship with Kolomoisky’s businesses in the US.
The data that showed PrivatBank’s relationship with DBTCA was attached to an October 2013 email sent to Bill Broeksmit, the late senior executive at DBTCA. Attached was a “breach report” – a document that is triggered by a bank when its funds required to fund cash outflows are below the expected amount. Val Broeksmit found the breach report in a cache of documents belonging to his father after his father’s death.
The breach report shows the bank’s full liabilities to other banks and corporations, a list that included over 3,300 entities. Most of the “liabilities,” however, are listed as liabilities but are in fact cash deposits by the entity into their DBTCA account.
“Such cash balances show as liabilities on balance sheet, as that attributes the ownership of that cash to the client. Such liabilities are cash deposits, not loans,” a spokesman for Deutsche Bank told Forensic News.
The entry for PrivatBank’s Cyprus branch alone was DBTCA’s 12th largest foreign cash deposit, according to the breach report seen below.
Forensic News converted the listed cash deposit of 111,138,867 euros to USD using the conversion rate as of October 18, 2013, to come to establish a figure of $152,115,767.
The three other branches of PrivatBank’s accounts with DBTCA, and their cash deposit amounts, are illustrated below.
PrivatBank
PrivatBank is the largest bank in Ukraine and has held that title for a number of years. Prior to its near-collapse in 2016, the bank was owned by two oligarchs – Ihor Kolomoisky and Gennadiy Boholiubov.
According to the US Department of Justice and a large civil suit in Delaware filed against the two oligarchs and their accomplices, Kolomoisky and Boholiubov siphoned off billions from their own bank by requesting money from the bank and seldom paying it back. They loaned companies under their control billions and when the loans were due, they used other loans to pay off the existing loans. It was the banking equivalent of a pyramid scheme.
By virtue of their ownership of the bank, the criminal enterprise went on for years and reached historic levels.
“The basic idea was simple,” the DOJ said, “Kolomoisky and Boholiubov requested money from PrivatBank, which (based on their control and ownership) they always received, and rarely paid it back, except through new loans.”
In 2014, the government of Ukraine caught wind of the scheme and began investigating. The former chair of the National Bank of Ukraine, told BuzzFeed News that the level of the oligarch’s fraud was “larger than any crime ever perpetrated on a Ukrainian bank.”
By 2016, the Ukrainian government stepped in and nationalized PrivatBank.
Both the DOJ and the civil suit allege that Kolomoisky used the money from PrivatBank to purchase large swathes of real estate in the United States. Among purchases by companies tied to Kolomoisky include commercial real estate and steel plants.
The DOJ, in calling for the forfeiture of some of the real estate purchased by Kolomoisky, summed up the magnitude of the scheme by saying,
[su_quote style=”default” cite=”US Department of Justice” url=”https://www.justice.gov/opa/press-release/file/1302001/download” class=”fancy-quote”]
Over the course of more than a decade, Ihor Kolomoisky and Gennadiy Boholiubov used their control of PrivatBank to steal billions of dollars of the bank’s funds. The magnitude of the fraud and theft was so great that NBU was forced to bail out the bank by providing $5.5 billion in order to stave off economic crisis for the whole country. [/su_quote]
Kolomoisky emphatically denies the DOJ allegations and has stated that he has done nothing illegal. Michael Sullivan, an attorney who represents Kolomoisky, did not respond to a request for comment. Marc Kasowitz, who was reportedly representing Kolomoisky in the civil complaint filed in Delaware, told Forensic News that he does not represent the oligarch.
The powerful oligarch remains politically important in Ukraine, with a reported close relationship with Ukrainian President Volodymyr Zelensky.
Daria Kaleniuk, a leading anti-corruption activist in Ukraine and Executive Director at Anti-Corruption Action Centre (AntAC), said that Kolomoisky’s power in Ukraine is threatened by ongoing investigations in the United States.
“Kolomoisky is afraid of the US criminal investigation against him as he might go to jail and can lose his business empire as well as influence over politics in Ukraine,” she said. “For the untouchable oligarch who has in Ukraine his private army, private MPs, private national TV channel, private judges it is a lot at stake.”
The investigations have marked a dramatic shift for Kolomoisky, who once financially supported Ukrainians fighting against Russian occupiers. Now, he appears to be shifting to a more Kremlin-friendly public persona.
“He is now supporting the Kremlin-backed anti-American and anti-West activities in Ukraine to get Putin to protect his money laundering empire,” Kaleniuk said.
“The oligarch is deliberately attacking independent agencies like the National Anti-Corruption Bureau and National Bank of Ukraine to block the flow of evidence to Western courts from these agencies about the $5 billion PrivatBank fraud.”
PrivatBank did not immediately respond to a request for comment.
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Investigations
Apart from the DOJ’s allegations of money laundering contained within the civil petition to seize real estate purchased by PrivatBank funds, the FBI has in recent weeks stepped up its criminal investigation into Kolomoisky and the alleged PrivatBank embezzlement.
In early August, the FBI raided the Miami and Cleveland offices of the real estate company used by Kolomoisky. The company, Optima Management Group, made purchases over the course of several years in the past decade, in Ohio, Texas, and Kentucky. At one point, Optima Management Group was the largest commercial real estate holder in Cleveland.
In May, BuzzFeed News reported that a federal grand jury had been empaneled in Ohio to investigate potential financial crimes, including money laundering, committed by Kolomoisky.
[su_quote style=”default” cite=”BuzzFeed News” url=”https://www.buzzfeednews.com/article/mikesallah/ukraine-billionaire-oligarch-money-laundering-investigation” class=”fancy-quote”]
With the ongoing US grand jury investigation, federal agents have traveled multiple times to Ukraine — including in February — where they met with Riaboshapka and investigators from the National Anti-Corruption Bureau of Ukraine to discuss the case against the 57-year-old oligarch[/su_quote]
Now, investigators are zeroing in on Deutsche Bank Trust Company Americas (DBTCA) and their handling of PrivatBank’s money in the United States, with a particular focus on the Ukrainian bank’s Cyprus branch, according to a source involved in the investigation.
In the civil forfeiture complaints filed by the DOJ for real estate in Kentucky and Ohio, PrivatBank’s Cyprus branch – the same branch that had over $152,000,000 in cash in a DBTCA account – played a central role in the money laundering scheme.
[su_quote style=”default” cite=”US Department of Justice” url=”https://www.justice.gov/opa/press-release/file/1302006/download” class=”fancy-quote”]
The loan proceeds were then divided, combined, and transferred through a vast network of companies, generally using accounts at PrivatBank’s Cyprus branch, to thoroughly disguise their nature, source, ownership, and control.
Once the funds were taken from PrivatBank, they were transferred quickly among dozens of the shell entities, often in a matter of minutes. The Cyprus branch of PrivatBank was used as a washing machine for the stolen loan funds…The management of PrivatBank’s Cyprus branch was controlled by PrivatBank in Ukraine—in other words, by Kolomoisky and Boholiubov.
[/su_quote]
DBTCA
Deutsche Bank and its branch in New York DBTCA have a long history of facing fines for their lax money laundering systems, with a particular penchant to Russian and Ukrainian clients.
Last week, DBTCA settled for over $580,000 with the Treasury Department for violations of Ukraine-based sanctions on Russia. DBTCA processed the purchase of fuel from a Cypriot company that was designated on a Russian-sanctions list by the US Government. Separately, DBTCA was fined for processing payments from a Russian bank on the sanctions list after the country’s invasion and annexation of Crimea.
In early 2017, DBTCA was levied with a massive $425 million fine for what was determined to be one of the largest Russian money laundering operations in modern history. The bank allowed Russian nationals to conduct a more than $10 billion dollar money laundering scheme out of its Moscow branch which saw Russian cash transferred to London and the US.
Later in 2017, Deutsche Bank was again fined – this time for $41 million – for failing to screen billions in suspicious money transfers through DBTCA.
Most recently, DBTCA was fined $150 million for its relationship with convicted sex offender and alleged child rapist Jeffrey Epstein and its relationship with the defunct FBME Bank headquartered in Cyprus and Tanzania and Danske Bank in Estonia. Some of the suspicious activity in Epstein’s account related to payments to Russian models. With Danske Bank, DBTCA overlooked “large quantities of money being moved on behalf of Russian oligarchs.”
Within the structure of Deutsche Bank as a whole, DBTCA plays a small role. In the United States, DBTCA accounts for just 22% of Deutsche Bank’s assets, according to an internal document. The vast majority of the bank’s business stateside is run through another branch – Deutsche Bank Securities Inc. (DBSI).
Forensic News has been investigating DBTCA in regards to its relationship with Donald Trump. The bank lent Trump hundreds of millions of dollars for multiple real estate properties, at a time when no other bank would lend to the developer who had gone bankrupt numerous times. According to estimates, companies controlled by Trump and his son-in-law Jared Kushner combined to make up a whopping 1.6-1.7% of DBTCA’s entire portfolio.
According to the internal documents shared with Forensic News by Broeksmit, the former DBTCA banker’s son, Russian banks had over $3 billion parked in the smaller New York branch that lent Trump his hundreds of millions. Gazprombank alone, a Kremlin-controlled entity that often does the political bidding of Putin’s government, had over half a billion dollars in DBTCA as of late 2013 – by far its largest entanglement with a foreign-owned bank.
Deutsche Bank previously told Forensic News that Gazprombank, like most others on the breach report, including PrivatBank, had cash accounts at DBTCA to exchange their currency to US Dollars and disburse the money as the banks saw fit. Deutsche Bank did not identify the vendors or clients that received these foreign payments.
Deutsche Bank was sent a detailed list of questions regarding their relationship with PrivatBank but declined to comment.