LONDON—A crusading Russian official traveled to Estonia in the summer of 2006 to warn the authorities that an unprecedented money-laundering scheme had been established in the tiny Baltic financial sector. The scam he had uncovered would go on to become the biggest dirty-money operation in history: the $200 billion Danske Bank scandal.
Three months after Andrei Kozlov, the first deputy chairman of the Russian Central Bank, tried to raise the alarm, he was dead.
Crooked beneficiaries of the illicit multibillion-dollar scheme to transfer money out of Russia included a member of Vladmir Putin’s family and agents from the KGB’s successor, the FSB, according to a leaked report drawn up by a bank insider.
According to a diplomatic cable seen by The Daily Beast, U.S. officials briefly investigated Kozlov’s trip to try to shut down the money-laundering superhighway through Tallinn soon after his death, but the scale and importance of the dirty-money route was unknown at the time.
Kozlov becomes the third dead Russian who can be linked to the Danske scandal after Alexander Perepilichnyy, whose company used the bank’s Estonia branch, died in suspicious circumstances in Britain, and Sergei Magnitsky, a Russian lawyer who was investigating the theft of $230 million when he died in Russian custody. It is claimed that the vast majority of the proceeds of that theft were laundered through Danske Bank.
On Sept. 13, 2006, Kozlov, who was 41, took part in a friendly soccer match between bankers and financial regulators at the Spartak Moscow sports complex in northeast Moscow. After the game, the young central banker walked back out to a car park, where a driver was waiting. His high-profile role had already earned him enough money and status for his own chauffeur; his zeal to clean up Russia’s financial sector had earned him a stellar reputation.
When Kozlov, who had a neat beard and broad face, reached his car at around 8:45 p.m., three strangers approached. They fired a volley of shots that struck Kozlov and his driver.
Alexander Semyonov, the 54-year-old chauffeur, died right there outside the sports arena. Kozlov, who was hit in the head, chest, and stomach, made it as far as the operating table at Moscow’s Hospital No. 33, but he did not regain consciousness and was never able to tell his story.
He died at 5:30 a.m. the following morning, leaving his wife, Yekaterina, and three children.
Up to that time, it was the most high-profile killing in Russia since Putin had become president six years earlier. Anna Politkovskaya, the investigative journalist and arch-critic of the Kremlin, was to be murdered a month later.
Within hours of Kozlov’s death, Russian officials were publicly speculating that he was most likely murdered in retaliation for revoking the licenses of a number of small banks. “It’s quite possible that the gangsters linked to them might have put out a contract on him,” said Boris Gryzlov, the chairman of Putin’s United Russia Party, the day he died.
This somewhat outlandish theory quickly “proved” exactly right; the Russian authorities found the operator of just such an institution and accused him of ordering the murder. Alexei Frenkel, whose VIP Bank had been shut down by the Russian Central Bank, was arrested for hiring three Ukrainian hitmen to gun down Kozlov.
As guards led Frenkel away from his first court appearance, Reuters reported that the private banker, who was 34 at the time, managed to shout out to a group of journalists in the corridor: “I am not guilty!”
Despite his protestations of innocence, which continue to this day, Frenkel was soon convicted and sentenced to 19 years in prison for an outrageous plot to shut down one of Russia’s most prominent anti-corruption officials.
We can now say that Kozlov had far more dangerous enemies at the time.
In June 2006, the central banker went to Estonia personally to warn the local authorities that billions of rubles were being transferred illegally into dollars and euros in the West via an Estonian outpost of Sampo Bank. Sampo, an institution based in Finland, was subsumed by Denmark’s largest bank, Danske, later that year.
When he got to Tallinn, Kozlov told Andres Palumaa, the head of anti-money-laundering at Estonia’s Financial Supervision Authority (FSA), that the proceeds from tax evasion and money-laundering in Russia were being passed through the financial system that he oversaw. Kozlov demanded the closure of several specific accounts.
The unusual visit was first reported by the Estonian investigative newspaper Eesti Ekspress a month after Kozlov was killed. His trip over the border to Estonia never became a global news story because the significance of the crime Kozlov had been trying to expose was still an extraordinary secret.
It would be another 12 years before Danske Bank admitted that $234 billion in non-resident money had flowed from Russia and former Soviet republics through Danske’s tiny operation in Estonia. According to a whistleblower's claims leaked to Danish newspaper Berlingske, it was discovered that some of the suspicious accounts were operated by “the Putin family and FSB.”
One organization that did follow up on that article in the Estonian press was the U.S. Embassy in Tallinn. According to a telegram that remained buried until now in the cache of 250,000 diplomatic cables leaked by WikiLeaks in 2010, U.S. officials went to interview Palumaa soon after the story appeared.
The Estonian regulator downplayed Kozlov’s warning, according to the cable sent from the embassy in Tallinn to the U.S. embassy in Moscow and back to the State Department in D.C. He conceded there could have been some legal issues with the accounts, but said he had seen no evidence of wrongdoing.
“Palumaa said that after Kozlov’s warning, the FSA followed up with their Russian counterparts in Moscow, but the Russians said that they had no information to substantiate Kozlov’s accusations,” the cable reads.
In other words, soon after their meeting in June, Palumaa flagged up Kozlov’s anti-corruption operation to the authorities back in Moscow.
Russian officials may have already have been aware of his attempts to shut down the gross corruption of his political superiors. Either way, according to leading Russian newspaper Kommersant, the Ukrainian contract killers had begun to track Kozlov by July.
The Estonian branch of Sampo bank, which was bought by Danske, was alleged to be a central nexus in a host of criminal enterprises run out of Russia. As the Danish bank’s own internal inquiry found last month (PDF), more than $200 billion in foreign money was allowed to race through its accounts in the years after Kozlov raised the alarm.
For a lot of well-connected Russians, removing the potential obstacle of Kozlov has proved to be extremely lucrative.
Danske’s internal report, written by the Danish law firm Bruun & Hjejle and published in September, did not examine the status of all of the $234 billion identified, but concluded that “a large part” of it may need to be considered suspicious.
The law firm also identified three major international scandals tied to Danske’s accounts in Estonia. It found almost 200 accounts linked to the “Russian Laundromat” exposed by the Organized Crime and Corruption Reporting Project (OCCRP), which uncovered a complex laundering system used to funnel approximately $20 billion out of Russia illegally. An additional 75 accounts were linked to the similar “Azerbaijani Laundromat.”
The third scandal tied to Danske in the report is the $230 million fraud uncovered by Sergei Magnitsky. In 2008, the tax lawyer was detained, beaten, and left to die in a Russian jail cell after uncovering evidence that Russian officials had been involved in stealing Russian public funds in a scam that victimized Hermitage Capital Management, an investment fund founded by Bill Browder.
Browder has since campaigned for the introduction of a series of anti-corruption laws, which have been enacted all over the world. The U.S. laws passed in Sergei Magnitsky’s name have so far been used to sanction 74 individuals accused of corruption.
Of the $230 million obtained fraudulently, Browder estimates that more than $200 million passed through the Danske bank in Estonia. He first reported suspected money laundering at the bank to the Estonian authorities in 2012. In July this year, Browder sent a 22-page complaint to the Danish public prosecutor detailing 190 suspicious accounts linked to the Russian fraud.
Danske announced last week that the U.S. authorities had opened an investigation into the bank to run alongside similar probes launched in Britain, France, Denmark, and Estonia. It may take years to disentangle all of the suspicious accounts.
One controversial figure allegedly linked to money-laundering through the bank was Perepilichnyy, whose company IC Financial Bridge was a client of Danske’s Estonian branch, according to the Financial Times. The Russian businessman turned whistleblower died suddenly near his home in the suburbs outside London; he had been due to testify in Switzerland as part of a case alleging endemic corruption in Russia.
His is one of a number of suspicious deaths linked to Russia in Britain that are set to be re-examined by the authorities.
In Russia, officials are in no rush to re-open the murder of Andrei Kozlov.
Five years after his murder conviction, Alexei Frenkel saw his latest appeal turned down in 2012.
Doubts that Frenkel, a young financier, would have ordered the hit on a senior Russian official emerged as soon as he was publicly accused of the killing by Putin’s close confidant Yury Chaika.
Chaika, whose son has been hit with sanctions by the U.S. under the Global Magnitsky Act, is Russia’s prosecutor general. After Kozlov’s death, he said he would take the case under his personal control. Chaika is a hugely influential man in Moscow; he is also the alleged source of both the supposed Hillary Clinton kompromat offered to Donald Trump Jr. at the Trump Tower meeting and the propaganda handed to controversial Rep. Dana Rohrabacher (R-CA).
When Frenkel was arrested, a diplomatic cable from the U.S. Embassy said the reaction in Moscow was mixed. Some were impressed that the prosecutor general’s office had shown a determination never previously glimpsed. “This is the first time that authorities went after not just the ones who committed the crime, but the ones who ordered it and paid for it,” a source said. “It is also the first time that a Russian, not a Ukrainian or a Georgian, was found responsible.”
Other sources expressed “disbelief that Frenkel could have orchestrated the murder.”
The Austrian government would also come to doubt the official account of Kozlov’s demise. Similar to his work in Estonia, Kozlov had been in touch with Austrian financial regulators to warn them of illicit sources of money coming out of Russia. A few weeks before his death, he had ordered the closure of a small Russian bank engaged in suspicious activity linked to the Austrian banking sector.
In April 2007, seven months after Kozlov was shot dead and long after Frenkel was placed behind bars, the Austrian interior ministry made public a report of its own investigation into Kozlov’s death.
They said they had passed their findings to the Russian prosecutor general’s office but had received no response, according to a report in The New York Times. The Austrians confirmed they had been working closely with Kozlov about shutting down these money-laundering pipelines out of Russia, and concluded that they could not rule out “official corruption” as the motive for his murder.
An investigative reporter for Russia’s opposition New Times newspaper also wrote that Kozlov may have been killed for delving into money-laundering issues that may have upset powerful people in Russiam rather than interfering in the work of a small independent bank.
“The New Times interviewees at the Interior Ministry, in the State Duma, and in the banking community are convinced that ‘Frenkel has nothing to do with murder,’” wrote Natalia Morar.
Morar’s sources even suggested that Frenkel could have been framed because he knew too much about the very same black-money trails that Kozlov was investigating. Either way, she reported that Kozlov was heading up an investigation into “the possibility of money-laundering through foreign banks by a number of Russian commercial organizations, and also by individuals” when he was killed.
Soon after her story was published, Morar, a Moldovan citizen, was denied entry to Russia. She said sources close to the FSB had warned her to quit: “There is no need to end your life with an article—someone might simply wait for you at the entrance to your apartment building, and they will not find a killer afterward.”
According to Amy Knight’s book Orders to Kill, Kozlov feared that there may be agents in the FSB who wanted to stop him, too.
Despite that specter hanging over him, when Kozlov went to Estonia to try and shut down the Sampo/Danske bank route to the West, nobody—not even Kozlov himself—realized that he was stumbling into what would become the single biggest money-laundering scheme used to clean up the ill-gotten gains of Russia’s most powerful men.