Yanukovych's "family business" links him to Russia

By bne IntelliNews January 28, 2014

Graham Stack in Kyiv -

The pro-Russian leanings of Ukrainian President Viktor Yanukovych and his associates have triggered a national crisis following November's shocking decision to back out of signing a deal that would have brought the country closer to the EU. Yet the Kremlin's hold over Yanukovych may not be restricted to the international power play, but include shadowy financial strings: investigations by bne has found the Kremlin's fingerprints all over Austrian holding structures used by Yanukovych and his cronies to hide their assets.

And the system of black money may be breaking down: unconfirmed reports coming out of Kyiv since the outbreak of violence on January 19 suggest the money has stopped flowing through these back channels. A system of largesse is a key element in the government's hold on power, say Yanukovych's critics, and freezing the cash flows may explain the cracks that are starting to appear in the ruling Party of Regions power structures, some have speculated.

But what is clear is the assets of Ukraine's embattled president and his closest advisers - the hardline head of the presidential administration Andriy Klyuyev and loyalist Prime Minister Mykola Azarov - appear to be held via a family of Austrian lawyers with links to the Kremlin, according to bne inquiries.

Opponents allege Yanukovych and his cronies have amassed hundreds of millions of dollars. In particular the sheer size and vulgar extravagance of the president's Mezhihirya palace and estate near Kyiv have come to symbolise the corruption that opponents say is at the heart of the Yanukovych system. "We believe that the authoritarian regime of President Viktor Yanukovych has been fuelled by proceeds of corruption laundered via the international financial system through the network of shell-companies and professional intermediaries," says PEPWatch, a Ukrainian NGO, presenting the results of the work of the country's leading investigators from websites Nashi Groshi and Ukrainskaya Pravda.

According to PEPWatch, Yanukovych's Mezhihirya estate is owned via a UK company Blythe (Europe) UK, while his vast hunting grounds encompassing 75,000 hectares at the Suholuchchya estate are held via another UK company Astute Partners Limited.

Yanukovych's Mezhihirya estate

According to PEPWatch, the families of Yanukovych's closest associates - PM Azarov and presidential administration head Klyuyev - have also amassed assets held by foreign firms: Azarov's son Oleksii holds assets including an enormous Viennese villa via a Liechtenstein company LADA Holding Anstalt. Klyuyev and his politician brother Serhiy hold assets via Austrian company Slav Beteiligung GmbH.

What all these foreign holding structures used by Yanukovych and his associates have in common are past and present links to Reinhard Proksch, an Austrian provider of corporate services, both via directorships as well as via holding structures that Proksch used to set up companies for clients.

Reinhard Proksch

Proksch insists to bne that none of the companies mentioned in the press ever "received any funding from Ukraine nor do any of these companies hold any cash assets. We never distributed any 'commissions' or other payments. No link to Mr Yanukovych exists."

"We had a Financial Markets Authority investigation in 2013 on all matters related to BLYTHE/ASTUTE and (former) Ukrainian subsidiaries and have received full clearance," he adds, producing a letter from the Liechtenstein regulator that he claims substantiates his statement.

Letter from the Liechtenstein regulator

The Kremlin's caretaker?

Proksch describes his business as providing "corporate structuring services" for foreign investors in Asia, Europe, US, Russia and South America. "Ukraine is and never has been a special 'target' or interesting market. We became interested only a few years ago when Ukraine introduced very 'progressive' regulations on solar energy projects."

The 52-year-old "Senator" Reinhard Proksch has an impressive list of credentials, according to information he provided to bne. His father, he says, was a professor of literature in Salzburg who resisted the Nazis alongside the legendary late Major of Vienna, Helmut Zilk. A Fulbright Scholarship enabled Reinhard to climb out of poverty, study in the US and gain admission to the bar, whereupon he returned to Zurich to work for United Bank of Switzerland, now known as UBS. His "Senator" title derives from his membership of the "Senate for Economy", an elite international network on economic governance. Proksch also claims to teach at universities in the US and Zurich and to have published academically.

"I have to tell you that I am running as candidate for the US office as Chief, Terrorism Prevention Branch, in Vienna of the United Nations Office on Drugs and Crime (UNODC). Do you really want to ask me what a 'PEP' is and what rules the EU and the US have installed?" Proksch protested to bne. "(Or) we can discuss about better controls and screening."

When not running his corporate services business from his London Harley Street or New York Wall Street addresses, teaching at top universities, combating terror or steering the global economy, Proksch moonlights as a journalist, according to the information he provides, and possesses audio-visual recording equipment to this effect.

But apart from his alleged connection to the Yanukovych administration, Proksch may have links to a man who is a polymath like himself and sits at the very highest levels of Russia officialdom: Russia's controversial First Deputy Prime Minister Igor Shuvalov.

Castles in the sky

Proksch is director of a real estate management company, Burgau Estate Verwaltungen GmbH, with an address at Unterburgau 27-29, 4854 Weissenbach am Attersee. The address is that of an idyllic castle on the banks of the exclusive Attersee lake, a favourite spot for Austria's and Europe's gilded elite. Austrian media claimed in 2007 that the castle is owned by Shuvalov. Burgau Estate Verwaltungen is owned by a Liechtenstein firm Curt Stiftung, administered by Proksch's Liechtenstein office. "Burgau Estate is not related to Russia," Proksch assured bne.

Burgau Estate Verwaltungen

Shuvalov attracted controversy in 2011 when documents leaked to international media pointed to his family having acquired shares from Gazprom using suspected insider knowledge, and that tens of millions of dollars had been transferred to Shuvalov's offshore account by companies with alleged links to oligarchs Roman Abramovich and Alisher Usmanov.

But more than Shuvalov's private interests, it is his official political role as first deputy prime minister that makes his links to Proksch - in view of Proksch's alleged links to Yanukovych - potentially so controversial.

Ukraine is currently in political meltdown due to what is widely regarded as Russian interference in getting it to abandon a free trade and association deal with the EU in favour of closer political and economic ties with Russia. And Shuvalov is one of the Kremlin's main international fixers and influence peddlers: as sherpa for the 2006 G8 summit in St Petersburg, organiser of the Asian-Pacific regional summit in Vladivostok in 2012 and of Russia's successful bid to host the 2018 World Cup, he is at the forefront of the Kremlin's drive to expand its international sphere of influence.

Viennese waltz

Proksch's Russian connections don't end with Shuvalov's castle, but may be even more extensive and longstanding - and explains how he sources his high-placed clients. According to bne inquiries, Reinhard Proksch's cousin and business associate Richard, also a business lawyer, has close connections to a top-level, pro-Russian lobby in Austria and the EU.

Reinhard Proksch disputes that he has ever sourced clients via his cousin: "Our (law) firms are not related and I never received any client from him," he told bne. Reinhard's site used to link to Richard's firm's site, however, and he has listed Richard's Vienna office as part of his global network.

Richard Proksch, like Reinhard, is a business lawyer and director of at least one company owned by a major Russian gas oligarch, Yakov Goldovsky. Goldovsky together with former Gazprom management set up the giant Sibur chemicals holding in the Russia in the late 1990s - only to surrender it to the Kremlin to avoid jail in 2002. bne contacted Richard Proksch for comment, but in contrast to his flamboyant cousin appears the epitome of the discreet lawyer and did not respond.

Goldovsky as early as the mid-1990s was running his business out of Vienna via Petrochemical Holding GmbH, which is still his main business structure today. Richard Proksch is listed as director of Tuna Privatstiftung, owned by Goldovsky and dissolved in 2013. Richard Proksch is also on the board of Sachseln-Privatstiftung, formerly a shareholder in Goldovsky's Petrochemical Holding.

Richard Proksch's co-director at Tuna Privatstiftung is Stefan Malaschofsky, a prominent Viennese tax consultant. Proksch and Malaschofsky also serve together on the board of a number of other companies. Malaschofsky is a longstanding associate of Goldovsky, having been a top manager at Sibur Trading AG at the turn of the century, before control over Sibur assets changed hands in 2002.

In 2000, Malaschofsky was one of the founders of Vienna Capital Partners (VCP), a leading private equity group specialising in the energy and chemical sectors of Central and Eastern Europe. Malaschofsky has been board member and shareholder in the VCP energy subsidiary, CE Oil & Gas Trading.

VCP was set up at the turn of the century, and quickly found itself embroiled in controversy over its role in the acquisition of major Hungarian chemicals producer Borsodchem, due to allegations that VCP was acting on behalf of Gazprom. VCP has since won court actions against the allegations.

Since then VCP has booked a raft of large deals across the region, many of which have been highly politicised. "We are unaware of links between VCP founders and the Proksch family," VCP told bne.

Kremlin lobbyist

While VCP disputes links to Russian business interests, there is no secrecy about the company's former links to a controversial top-level pro-Russian faction in Austrian politics. Proksch's links via VCP may thus not just stretch eastwards to Moscow, but upwards - to the highest echelons of Austrian politics - and onwards to the European Parliament.

VCP has had close links to key Austrian politicians who were the country's leading pro-Russian lobbyists. Ernst Strasser, of the Austrian People's Party, headed Austria's interior ministry from 2000-2004. From 2005-2008, Strasser was board member of a number of VCP's power and energy subsidiaries. One of Strasser's associates, Christoph Ulmer, formerly cabinet secretary in the Austrian government, headed VCP-owned CE Oil & Gas Trading.

Strasser and Ulmer were also Austria's leading pro-Kremlin lobbyists: Starting in 2003, Strasser was executive president of the Austrian-Russian Friendship Society (ARFS), a high-ranking networking platform for politics and business, and Ulmer was a senior member of it. According to its website, the ARFS "collaborates closely with the Russian Embassy," and the Russian ambassador ex officio is honorary president of the society. Membership includes "representatives of Austrian government ministries, political parties, interest groups and business." The ARFS meets in the splendid "Hall of Mirrors" of the Viennese palace Kaiserhaus, and is currently promoting the Winter Olympics in Sochi

Pro-Kremlin lobbyist Strasser overstepped the mark after being elected Member of the European Parliament in 2009: In 2011, journalists from The Sunday Times posed as lobbyists offering MEPs $100,000 for amendments to legislation. According to the British newspaper, Strasser accepted the offer and took steps to bring about the requested amendments. Undercover videos filmed by the journalists (see below) show Strasser declaring "of course I am a lobbyist, and I am open for that." In January 2013, Strasser received a four-year jail sentence for bribery, and is currently appealing the sentence.

The Yanukovych administration has accused jailed former prime minister Yulia Tymoshenko of betraying national interests when as PM in January 2009 she signed a ruinous agreement with Russia over gas price increases. According to her foes, Tymoshenko was blackmailed into signing the agreement due to leverage the Kremlin had over her, deriving from a Russian criminal case opened from the 1990s relating to her gas trading company's debts. According to her critics, she agreed to punitive gas prices for Ukraine in return for the case being closed.

But the close financial ties of the Yanukovych family and associates to Kremlin connections show that similar arguments hold for the Yanukovych's destabilising last-minute decision to back out of signing a key deal with the EU in November.

Russia's tentacles reach deep into Ukraine, and it's all the more ironic that some Yanukovych-Kremlin ties run via Europe.

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