The Fiji Times » How a Russian billionaire protected assets from EU sanctions

ISTANBUL/BRUSSELS (Reuters) – Russian businessman Andrey Melnichenko has handed over ownership of two of the world’s biggest coal and fertilizer companies to his wife the day before it was sanctioned by the European Union, three people say close to the file.

Melnichenko, who built his fortune in the years after the fall of the Soviet Union in 1991, sold his stakes in coal producer SUEK AO and fertilizer group EuroChem Group AG on March 8, the day of his 50th birthday, leaving his wife, Aleksandra Melnichenko, the beneficial ownership of the companies, people said.

Until March 8, Melnichenko owned the two companies through a chain of trusts and corporations stretching from Moscow and the Swiss city of Zug to Cyprus and Bermuda, according to legal documents reviewed by Reuters.

Since 2006, Melnichenko’s wife had been second in line behind her husband on the list of beneficial owners of both companies in trust documents, according to the three people, who spoke on condition of anonymity because they are not allowed to speak publicly about the couple. assets. This meant she would inherit ownership of the businesses if her husband died, the people said.

When the war in Ukraine began in February, however, Melnichenko grew concerned about being designated under the European Union’s sanctions regime against Russia, people familiar with the matter said. On March 8, Melnichenko notified administrators of his retirement as a beneficiary, the people said. It set off the same chain of changes in trust records that would have happened if the businessman had died and made his wife the beneficiary.

Reuters could not reach Melnichenko and his wife for comment.

A Russia-based SUEK spokesperson did not respond to messages seeking comment. Swiss-based EuroChem has confirmed that Aleksandra Melnichenko has replaced her husband as the beneficial owner.

“Following the departure of its founder, the primary beneficial owner of a trust holding a 90% stake in the global fertilizer company automatically passed to his wife,” the company said in a statement to Reuters on Wednesday.

The role of Melnichenko’s wife at EuroChem was first reported by the Swiss newspaper Tages-Anzeiger. His role at SUEK along with the timing of ownership changes and other details are reported here for the first time.

Melnichenko, who founded SUEK and EuroChem two decades ago, was ranked Russia’s eighth richest man by Forbes last year, with an estimated fortune of $18 billion.

The European Union sanctioned Melnichenko, citing his alleged closeness to the Kremlin, on March 9 as part of a Western attempt to punish Russian President Vladimir Putin for the February 24 invasion of Ukraine. The sanctions – which include freezing his assets, banning him from entering the European Union and barring EU entities from providing him with funds – do not apply to his wife or daughter and the couple’s son.

Britain also put Melnichenko, who is Russian but was born in Belarus and has a Ukrainian mother, on its sanctions list on March 15. Switzerland imposed sanctions on him the following day.

The businessman said in a statement to Reuters in March after EU sanctions were imposed that the war in Ukraine was “truly tragic” and he called for peace. A spokesman for Melnichenko said at the time that he had “no political affiliation”.

Western governments have imposed sweeping sanctions on Russian companies and individuals in an attempt to force Moscow out.

But some sanctioned Russian businessmen, including Roman Abramovich and Vladimir Yevtushenkov, have transferred assets to friends and family members, fueling doubts about the effectiveness of such attempts to pressure Moscow.

Melnichenko, whose residence was registered in the Swiss alpine resort of St. Moritz until he was hit with sanctions, gave his instructions to change ownership of his businesses from a retreat near Mount Kilimanjaro where he was celebrating his birthday, according to a person familiar with the matter. A Boeing 737 bearing the billionaire’s signature “A” on the fuselage landed in Tanzania on March 5 from Dubai, according to flight tracking service Flightradar24.

A lawyer for Melnichenko did not respond to questions about the trip to Kilimanjaro.

Melnichenko’s transfer of ownership to SUEK and EuroChem had far-reaching implications.

After several weeks of examinations, Swiss financial authorities concluded that the two companies could continue to operate normally on the grounds that Melnichenko was no longer involved with them. SUEK and EuroChem said British and German financial regulators have come to similar conclusions.

British and German regulators did not respond to requests for comment.

At the end of the reviews at the end of April, SUEK and EuroChem – which had revenues last year of $9.7 billion and $10.2 billion respectively – were able to resume distributing millions of dollars in payments interest to bondholders.

In recent weeks, SUEK and EuroChem have also approached Western customers, showing them documents with the new ownership structure in an attempt to reassure them that they can continue to do business with Mr. Melnichenko’s former companies, said two people familiar with the matter.

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In Switzerland, the Secretariat for Economic Affairs (SECO) said neither SUEK nor EuroChem were under sanctions in the country.

SECO said that to its knowledge, Melnichenko was no longer a beneficiary of the trust to which EuroChem belonged at the time of its sanction by the EU and Switzerland.

SECO also said it had sought confirmation from Eurochem that it would no longer provide funds to Melnichenko.

“The company and its management have guaranteed in writing to SECO that the Swiss sanction measures will be fully respected and in particular that no funds or economic resources will be made available to the sanctioned persons,” SECO said in response to a question.

Swiss authorities have defended their decision not to extend sanctions to Melnichenko’s wife or his former companies, pointing to the fact that EU authorities have not sanctioned them either.

“In this case, we did exactly what the EU did,” Swiss Economy Minister Guy Parmelin told Swiss television on Wednesday.

Parmelin added that Switzerland is also wary that sanctioning EuroChem at a time when fertilizer prices have soared in most parts of the world could have disastrous consequences for agricultural markets. EuroChem said it produced more than 19 million metric tons of fertilizer last year, about 10% of global production, according to UN data.

The European Commission, the executive arm of the EU, said it had no information on the transfer of Melnichenko’s assets to his wife. The commission said it was willing to close loopholes allowing individuals and businesses to escape its sanctions. Earlier this week, he unveiled proposals to criminalize measures to circumvent sanctions, including transferring assets to family members, across the 27-nation bloc.

Under the trust structure, control of SUEK and EuroChem is exercised by independent trustees while beneficial ownership, which was in Melnichenko’s hands until March 8, passed to his wife.

A mathematician who once dreamed of becoming a physicist, Melnichenko dropped out of college to delve into the chaotic – and sometimes deadly – ​​world of post-Soviet affairs.

He founded MDM Bank, but in the 1990s he was still too minor to participate in the privatizations under President Boris Yeltsin which handed over the best assets of a former superpower to a group of businessmen who would become known as the name of oligarchs because of their political and economic weight. .

Melnichenko then began buying up often struggling coal and fertilizer assets, making him one of the richest men in Europe.

The EU said, when announcing its sanctions, that Melnichenko “belonged to the most influential circle of Russian businessmen with close ties to the Russian government“.

Melnichenko was among dozens of business leaders who met Putin the day Russia invaded Ukraine to discuss the impact of sanctions, showing his close ties to the Kremlin, the EU said in its order. sanction of March 9.

At the time, a spokesman for Melnichenko denied the businessman was from Putin’s inner circle and said he would challenge the sanctions in court. On May 17, Melnichenko challenged the sanctions by filing an appeal with the EU General Court, which deals with complaints against EU institutions, according to court records.

Russia calls its actions in Ukraine a “special operation” to disarm Ukraine and protect it from fascists. Ukraine and the West say the fascist allegation is baseless and that the war is an unprovoked act of aggression.

Italy seized Melnichenko’s superyacht – the 470ft Sailboat A, which has a price tag of 530 million euros – on March 12, three days after it was placed on an EU sanctions list.

SUEK and EuroChem said on March 10, a day after the EU announced sanctions against Melnichenko and 159 others linked to Russia, that their founder had resigned from his positions on the companies’ board of directors.