Swiss prosecutors forced into climbdown over money laundering case

Via Financial Times

Swiss legal authorities have been forced into a climbdown over one of the country’s highest-profile money laundering cases, a probe centred on Russia’s Otkritie bank that stretched from the Baltic to the Caribbean, featuring abandoned Ferraris, 10-carat diamonds and 600kg of banknotes.

The three defendants have been offered four and five month suspended sentences by prosecutors — and a SFr3000 fine, the Financial Times has learned.

The proposed settlement — which has been rejected by lawyers representing the individuals accused — is a significant reversal of approach by Swiss legal authorities, who had earlier sought prison sentences of up to five years in a long-running white collar crime investigation.

Geneva’s money laundering probe is already into its ninth year and centres around the alleged theft of $173m from Russia’s Otkritie bank by a clique of the bank’s own employees. The scheme unravelled in London in early 2011.

The cantonal prosecutor’s offer was made in April. It is not public, but set out in three “ordinances”, copies of which were seen by the Financial Times. The prosecutor declined to comment. 

Statutes of limitation threaten the case’s viability beyond 2021, and its potential collapse marks the latest blow to the reputation of Switzerland’s rule of law in complex financial cases.

Otkritie’s London lawyer, Neil Dooley of Steptoe and Johnson, said the Swiss prosecutor’s offer was “astounding”:

”Does the Swiss Ministry of Justice really want to send a signal to fraudsters and money launderers that they should bring their business to Switzerland, where they risk little more than a slap on the wrist and don’t have to disgorge stolen funds?” he asked. 

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George Urumov © Neil Hall/Reuters

A UK high court ruling in 2014 declared the alleged theft of $173m from Otkritie to be a “cunning and well-orchestrated fraud” driven by “blatant dishonesty . . . and simple greed”. A subsequent British criminal case led to the group’s ringleader, Georgy Urumov, a British resident, being sentenced to 12 years in prison

The lion’s share of the money concerned — $120m — was allegedly routed before the fraud’s discovery to Switzerland, however. 

A group of five key individuals allegedly connected with the London fraud used the wealthy alpine state as a base for their financial affairs.

The core of the group, who came from wealthy Russian backgrounds and occupied well-paid positions in international finance, were linked as graduates of Switzerland’s ultra-exclusive private college, Le Rosey — the world’s most expensive school. 

Swiss law enforcement scored an early victory when Sergey Kondratyuk, one of the five, pled guilty in 2013 and was sentenced to 3 years in prison. The four remaining — Ruslan Pinaev, his wife Marija Kovarska, Yevgeny Jemai and his mother Olessia Jemai — contested the Swiss case against them, however. 

Details of their lavish lifestyles have grabbed headlines as they have emerged over the years, including a SFr20m villa in Geneva’s exclusive Conches suburb, abandoned Ferraris and impulse purchases of 10-carat diamond rings worth millions. But legal momentum behind their prosecution has ebbed. 

The original prosecutor appointed to the case was forced to recuse himself in February 2017 after a Swiss court ruled he had improperly impounded funds belonging to Ms Kovarska.

A subsequent prosecutor held the case for another year, before retiring.

The case passed to a third prosecutor, who leads it currently, Sophie Varga Lang, in 2018. 

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The case against Ms Kovarska was dropped altogether last month.

In the three ordinances Ms Varga Lang issued against Messrs Pinaev and Jemai and Ms Jemai, the prosecutor stated that the token sentence and fine reflect “the excessive length of the proceedings.”

Swiss prosecutors can propose their own unilateral judgments on cases through ordinances if the sanction they attach is minor enough. Defendants can accept, or reject the ordinance within 10 days. If rejected, the prosecutor must decide whether to pursue the case further in court — a process will may take months longer — or drop the charges entirely.

In investigating the Otkritie fraud, Swiss authorities also declined early on to take any action against Swiss institutions embroiled in the case.

The illustrious Swiss private bank Bordier & Cie facilitated a number of transactions before finally raising concerns with authorities only after Mr Pinaev tried to close his account with the firm.

The bank initially took delivery of $120m allegedly connected to the London fraud from a Latvian bank, via a Panamanian shell company, without probing the superficial origin story given for the money, according to the British fraud case’s 2014 high court judgment.

Bordier & Cie also later agreed at short notice to the withdrawal of $109m in cash by Messrs Urumov, Pinaev and Kondratyuk — a transaction that required so much hard currency it had to be ordered in from a larger bank in two armoured cars: the two pallets of banknotes involved weighed over 600kg, according to investigators working on the case at the time. The cash was immediately redeposited, via Bordier, in three separate entities, in an elaborate physical process.

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Bordier & Cie said the bank does not comment on proceedings in which it is not an involved party. “Bordier & Cie scrupulously respects all legal and regulatory obligations applicable to it”.

Lawyers for Messrs Pinaev and Jemai and Ms Jemai said their clients have rejected the conclusions of the ordinances, and therefore remain innocent of any wrongdoing. They said they were ready to fight the case further in court should the prosecutor decide to proceed further.

Mr Pinaev’s lawyer, Alexis Meleshko, said the case against his client was based on a simplified and one-sided reading of an “extremely complex” financial process that Swiss prosecutors had repeatedly failed to grasp. Mr Meleshko said he had never known a case to drag on for so long: “It is a ridiculous proceeding,” he said. 

Miguel Oural, Mr Jemai’s lawyer, and Jean-Marc Carnicé, Ms Jemai’s lawyer, said their clients had rejected the prosecutor’s ordinances. Mr and Ms Jemai are currently resident in Switzerland. Mr Pinaev is currently resident in Israel.

Meanwhile impeachment proceedings against Switzerland’s top lawyer, federal prosecutor Michael Lauber, were formally initiated last week after several high-profile investigations were jeopardised by his own conduct, including probes into corruption at Fifa, the 1MDB scandal and the Petrobras bribery affair. 

“The Swiss justice system is in a bit of a crisis at the moment,” said Mark Pieth, professor of criminal law at the University of Basel. “It’s not the law itself. It’s the institutions — the prosecutors, the courts . . . are they up to their task?”