The Czech connection

By bne IntelliNews March 30, 2012

Graham Stack in Kyiv and Nicholas Watson in Prague -

In John le Carré's later novels like "The Night Manager", there's a character who keeps popping up - the financial fixer/lawyer to the international moneyed elite, who sits at the back of the private jet but in front of his wealthy and often shady clients as a buffer. Money flows seamlessly between front companies registered in offshore havens from Cyprus to the Caribbean, all overseen by a ubiquitous company director, who also happens to be this lawyer.

Author Chris Morgan Jones based his 2011 debut novel, "An Agent of Deceit", around such a character, whom he describes as an unglamorous middleman who sets up the network of companies and monitors the flow of cash through that network. Ultimately, Morgan Jones tells bne, "the client and middleman become locked in a mutually binding relationship from which neither can escape."

One of the more interesting connections thrown up by recent revelations in the Czech Republic concerning the money-laundering case of coal miner Mostecka uhelna spolecnost (MUS) is the link with Russia, Ukraine and the lawyer Markus Buechel. Buechel, currently Russia's honorary consul to Liechtenstein, seems to have carved out quite a niche for himself in Central and Eastern Europe as a director of various offshore companies since his brief stint as prime minister of Liechtenstein in the early 1990s.

Over the last six months, the Czech daily Mlada fronta Dnes (MfD) has published a series of revelations about the controversial privatisation of the Czech coal miner MUS in 1998, which saw the murky Appian Group, whose true ownership remains elusive, wrestle ownership control of the company from the state.

In October, the Swiss authorities announced they had launched criminal proceedings against "seven people suspected of money laundering and economic crime in connection with controlling one of the most important energy companies in the Czech Republic". According to various news outlets that have seen the indictment, the energy company in question is MUS, now known as Czech Coal, and the people charged are former directors of the company, together with third-parties, who are also suspected of being at the same time the owners of Appian. Around €500m in local bank accounts have been frozen in connection with the case, which is suspected of having been syphoned off from MUS.

What has particularly shocked the Czech public is that several years ago the Swiss provided the Czech authorities with the evidence and invited them as the injured party to join the criminal proceedings, only for the Czechs to drag their feet over the matter. This has led to much speculation about collusion at the highest levels of government. Czech Justice Minister Jiri Pospisil has filed disciplinary complaints against Prague High State Attorney Vlastimil Rampula and three of Rampula's subordinates over the belated reaction to the Swiss request for joining the case. Rampula, of course, denies any wrongdoing and has even managed to return to his old job after being ousted in October - something that's caused consternation among the Czech public.

Belatedly - and many suspect in a cynical piece of political theatre for the press and public - the Czech government has been trying to insinuate itself into the Swiss action. But on March 8, the Swiss gave a resounding "no", arguing the Czechs had waited too long and treated the Swiss side disrespectfully (which perhaps goes some way to explaining why so much of the Swiss investigation is now finding itself on the front pages of the Czech press). No trial date has yet been set by the Swiss, though the Czech media is waiting for more juicy revelations when it does.

In the meantime, the press is feasting on a related issue to the MUS investigation concerning, almost inevitably, the country's largest and all-powerful company, the giant state-controlled utility CEZ.

Spent fuel

CEZ - and by dint of it being about 70% state owned, the Czech taxpayer - are the proud owners of surely one of the world's most expensive spent fuel facilities at its Temelin nuclear power plant.

In 2008, MfD reports that CEZ paid CZK1.5bn (€61m) to a hitherto unknown company registered in Slovakia called CEEI to build the spent fuel facility at Temelin, even though an earlier project prepared by the Czech Nuclear Research Institute, part-owned by CEZ, priced the facility at one-third of CEEI's bid price, while the cost of an equivalent facility at the Isar nuclear power plant in neighbouring Bavaria completed a year earlier came in at almost half that amount, according to its owner E.ON. CEZ follows the line used in all these depressingly frequent cases in the Czech Republic where a tender has been awarded to companies whose ownership is hidden that it has "no legal basis for the question who is the owner of each participant because it cannot be a criteria" in the bidding process. But it refused to comment further to bne about whether it has a obligation to its shareholders and the government to find out who the owners were given EU law governing sanctions on certain countries, worries over organised crime and terrorism, and that it was going to spend tens of millions of euros to build something as security sensitive as a spent nuclear fuel facility.

CEEI's owners today remain hidden behind Cyprus-based nominee shareholders and trustees. Its owner until last year was the Liechtenstein-based company UBIE, which has listed as a director Markus Buechel. Buechel could not be reached for comment, but has reportedly said that even he doesn't know who ultimately owns CEEI. According to MfD, the documents related to the Swiss investigation show a financial link between UBIE and Appian, which snared the Czech coal company MUS in that dodgy privatisation. These documents show that in 2006 and 2007, an Appian subsidiary sent UBIE a total of CZK12m, although why remains unclear. In 2003, Appian also transferred CZK150m to a British Virgin Islands-registered company Ashby Commercial, which sent on CZK100m through a series of other shell companies that ended up in a Cypriot-registered company Dillard Enterprises, owned by Liechtenstein-based Financial and Investment Energy Holding (FIEH), whose director is also Markus Buechel.

In addition to Dillard Enterprises, FIEH owns large stakes in Ukrainian companies that form the Universalna Investment Group, which is led by Ukrainian oligarch Vitaliy Antonov.

Social climbing

The circumstances of Buechel's acquaintanceship with Ukraine's Antonov could equally well come from a novel. Antonov grew up in the shadow of the Carpathians and was a qualified climbing instructor towards the end of the Soviet Union. He claimed in interviews given in 2008 that he made Buechel's acquaintance in 1994 through a common acquaintance in an alpine sport in Switzerland, after Buechel was forced out as prime minister of Liechtenstein in 1993.

But proximity to the Carpathians for Antonov meant not just alpine sports, but cross-border trade: according to a proverb, "all West Ukrainian fortunes were made on the border", and Antonov's home town of Stryi was a transport node up for railway lines through Hungary. According to Antonov, by the mid-1990s he was involved in a transnational barter scheme typical for the times that saw local industrial goods from his home region sent to Russia, and in return Russian oil - mostly from Mikhail Khodorkovsky's ill-fated Yukos - sent to among others Lithuania's Mazeikiu Nafta refinery, and the resulting motor fuel sent by rail to Ukraine to be marketed by Antonov's Galnaftogaz structures.

In a 2008 interview in Kontrakty, Antonov says he was only one link in the barter chain, and not the originator. Logically, the link with most clout in the chain would have been the Russian provider of oil for processing - ie. the now-jailed Russian oligarch Khodorkovsky's Yukos. Buechel's FIEH oversaw the business, according to Antonov, and also owned Antonov's various fuel retail companies, consolidated into Galnaftogaz in 2001. According to Antonov in a September 2008 interview in Vlast Deneg, Buechel originally was a co-owner of FIEH, but Buechel's share was diluted with his consent. Whether Buechel was originally fronting for another owner - perhaps from Russia - is an open question.

Despite having the mysterious Liechtenstein company as majority shareholder, Antonov early on realised the benefits of corporate transparency and started working with the European Bank of Reconstruction and Development (EBRD) and the private sector wing of the World Bank, the International Financial Corporation (IFC), as early as 2001. In 2004, Galnaftogaz was named Ukraine's best company for corporate governance; in 2005, the EBRD and IFC together lent the company $50m each.

In 2007, the ownership of almost 80% of Galnaftogaz shares changed from FIEH to a Cyprus company GNG Retail PLC as part of "our corporate restructuring program", the company tells bne, and the EBRD's Ukraine director replaced Buechel on the board of Galnaftogaz. Antonov said in an interview that as early as 2004 the EBRD had sought to take an equity stake in the company. Was it the share switch from Buechel's mysterious FEIH to the Cyprus company that allowed the deal to finally go ahead? In 2009, following the switch, the EBRD took a 10.26% stake in the Ukrainian company, which it boosted to around 19% in 2011. Likewise, the EBRD took a 23% stake in Antonov's insurance company Universalna after he had installed a Cyprus company as ownership vehicle instead of Buechel's FIEH.

EBRD said they could not comment on FIEH, but said that "GNG is one of our best clients in Ukraine in terms of corporate governance and integrity."

The same, however, can't be said for Appian or CEEI, whose owners remain hidden by a tangle of offshore companies. Markus Buechel is key to unlocking the true nature of relations between Appian, CEEI and CEZ - but like a good lawyer, he's not talking.

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