The deputy chairman of Russia’s second-largest gas producer Novatek, Florida businessman Mark Gyetvay, has been arrested in the US on tax charges relating to $93mn that was hidden in offshore accounts.
Gyetvay played a key role in arranging financing for Novatek’s ambitious $27bn Yamal LNG export project in the Russian Arctic, which came online in December 2017. His arrest comes as the Russian gas company continues its search for external financing for its next scheme, Arctic LNG-2, which is expected to start production in 2023.
The US Department of Justice (DoJ) said in a statement on September 23 that a federal grand jury in Fort Myers, Florida, was charging Gyetvay “with defrauding the US by not disclosing his substantial offshore assets, failing to report substantial income on his tax returns, failing to pay millions of dollars of taxes and submitting a false offshore compliance filing with the IRS in an attempt to avoid substantial penalties and criminal prosecution.”
The tax charges relate to Gyetvay’s activities between 2005, two years after he was appointed as Novatek's CFO, and 2016. The DoJ said he had “allegedly received lucrative stock options and/or stock-based compensation” as part of his compensation for the role.
“Beginning in 2005, Gyetvay allegedly opened the first of two different Swiss bank accounts to hold these assets, which at one point had an aggregate value of over $93mn,” the DoJ said. “Over a period of several years, Gyetvay allegedly took steps to conceal his ownership and control over the foreign accounts and associated assets, such as removing himself and making his then-wife, a Russian citizen, the beneficial owner of the accounts.”
Despite being a certified public accountant, the department continued, the indictment states that Gyetvay did not his US tax returns on time, or the required Reports of Foreign Bank and Financial Accounts (FBARs) forms that some US taxpayers have to submit to disclose control over assets maintained in foreign bank accounts. Those tax returns he did file were false, according to the indictment, and he also submitted a false offshore compliance filing with the IRS, in which he “attested that his prior failure to file FBARs and tax returns was non-wilful.”
Gyetvay was due to appear in court on September 23. If he is convicted, he faces up to 20 years in prison for each count of wire fraud, five years in prison for each failure to file FBAR count, five years in prison for tax evasion, five years in prison for making a false statement, three years in prison for each count of assisting in the preparation of a false tax return and one year in prison for each wilful failure to file a tax return count, the DoJ said.
US prosecutors have requested a $80mn bail for Gyetvay’s release.
Novatek’s share price saw its biggest slump in 16 months when markets opened on September 24.
What is more, his arrest comes as a crucial time for Novatek, which along with its partners is seeking some $11bn in external financing from international investors for Arctic LNG-2. The group has reached out to financiers in China and Japan, as well as in Europe, though some European environmentalists have urged their governments not to support the project because of its climate impact.
Gyetvay acquired Russian citizenship in 2019, while retaining his US passport.
“We of course are interested in his fate,” Kremlin spokesman Dmitry Peskov said on September 24. “On the other hand, he is also a US citizen and as such, bears some tax obligations and we can’t intervene in these processes.”
Novatek issued its own statement on September 24, stressing that it "was not involved in the litigation and does not have any details of the court hearings. Novatek monitors the situation and will give all necessary support."
"For many years, Mark Gyetvay is the main representative of Novatek for the professional and investment community, making an invaluable contribution to Novatek's success," the company continued. "In 2014, Mark Gyetvay left the board of directors of Novatek and CFO's position, and according to the internal Novatek's order, subsequently was not involved in financial activities of the company, including attracting financing."
2014 was the year when the US and the EU imposed sanctions on Russia's oil and gas industry including measures against Novatek, preventing US citizens from involvement with financial activities with the firm.
"The situation has absolutely no effect on Novatek's operational and financial activities," Novatek said.