One of Germany's biggest banks is at the center of an intensifying money-laundering investigation into whether Russian telecommunications assets now worth hundreds of millions of dollars were diverted through a company set up by a longtime ally of Russian President Vladimir Putin.
German and Swiss authorities searched the Frankfurt headquarters of Germany's Commerzbank AG along with at least a half-dozen other locations in recent days. The inquiry prompted the recent resignation of a top Commerzbank executive, Andreas de Maiziere, a bank spokesman said, and it is focusing on four other current and former bank officials.
The case threatens to further shake Germany's corporate elite, which is already enduring the fallout from other business scandals. Business ethics moved to the top of Germany's political discussion earlier this month when Volkswagen AG asked prosecutors to investigate the activities of its personnel officials and union representatives. The investigation also could prove awkward for Mr. Putin, whose regime has been increasingly tainted by allegations of graft, even as he continually vows to crack down on corruption.
Zurich prosecutor Ivo Hoppler said the case is based on suspicions that assets were diverted from Russian state companies and "funneled to a network of funds via dummy companies, secret trustee agreements and shareholdings."
Documents reviewed by The Wall Street Journal show Commerzbank played a key role in a series of transactions that diluted the stakes of state-owned companies in OAO Telecominvest, a St. Petersburg holding company set up in 1994 by Leonid Reiman, now the telecom minister in Mr. Putin's cabinet. Mr. Reiman was at the time an executive at a state telecom company in St. Petersburg, and Mr. Putin was deputy mayor.
The bank's involvement helped shield from scrutiny until last year the role played by Jeffrey Galmond, a Danish lawyer and friend of Mr. Reiman, in transferring ownership of state assets into Mr. Galmond's control. Mr. Galmond says he controls Russian telecom assets worth billions of dollars. German and Swiss prosecutors want to know if the bank violated money-laundering laws by misstating its role or that of other players. A Commerzbank spokesman said the company is cooperating.
In a telephone interview yesterday, Mr. Galmond said he thinks the latest probes are linked to a battle over a stake in Russia's No. 3 wireless company, pitting the Danish lawyer against Russia's Alfa Group, a holding company with interests spanning oil, telecommunications and banking. Alfa's representatives have argued that Mr. Galmond's network of funds and holding companies is involved in corrupt dealings with Mr. Reiman and other Russian officials. Mr. Galmond denied the allegations, calling them pressure tactics; Mr. Reiman, who couldn't be reached, has denied them in the past.
Alfa's accusations against Mr. Reiman emerged during a private arbitration proceeding in Zurich last year, and people familiar with the money-laundering inquiry say last week's raids by Zurich police stemmed from the Zurich arbitration proceeding.
In various securities and regulatory documents created between 1996 and 2003, Commerzbank is described as the ultimate owner of First National Holding SA, a Luxembourg holding company that steadily increased its controlling stake in Telecominvest in a series of private transactions between 1996 and 2001.
But in a July 27, 2004, court affidavit in civil litigation, Mr. Galmond said that Commerzbank merely acted as a "nominee shareholder" in First National for Mr. Galmond, in order to enable him to "protect my legitimate desire for anonymity." The use of nominees is a legal practice designed to conceal ownership, but the Galmond statement is a potential problem for Commerzbank because the law in most European countries requires that if a bank or any other entity is acting as a nominee for an undisclosed owner, it must disclose that fact. Mr. Galmond said Commerzbank was the legal owner of the stake, though he had the right to buy it back at any time.
In one private transaction on Jan. 30, 2000, according to an agreement signed by representatives of First National, Telecominvest and Commerzbank, First National gave Telecominvest an undisclosed sum for the explicit purpose of buying out the stake of a state-owned Russian company. One person with knowledge of the deal said the stake was bought at a steep discount, but because the deal was private, it is difficult for an outsider to make an accurate valuation.
Mr. Galmond said the state-owned companies that had been minority shareholders in Telecominvest initially couldn't provide the capital the company needed to expand, and saw their stakes diluted as others bought into the company.
Among the people who participated in the 2000 deal was Mr. Galmond, the documents show. Another person who signed the documents was Michael North, a former Commerzbank executive who is a focus of the German inquiry. Mr. North runs Eurokapital GmbH of Frankfurt, one of the firms raided by German police and part of the network of companies controlled by Mr. Galmond.
Doris Moeller-Scheu, spokeswoman for the Frankfurt prosecutor's office, says police are investigating whether Mr. North used four funds operated under the Eurokapital umbrella to launder millions of dollars of assets from a Russian telecom company she declined to identify. Mr. North and a partner, Vadim Vinogradov, declined to comment for this article.
On July 15, members of Commerzbank's supervisory board met in a special session to accept Mr. de Maiziere's resignation. In a news release last Monday, the bank said he resigned for unspecified personal reasons. On Friday, in response to a Wall Street Journal query, a Commerzbank spokesman said Mr. de Maiziere's personal reasons for leaving the bank were related to the money-laundering investigation. Mr. de Maiziere couldn't be reached for comment.
Mr. Reiman was at one time the beneficiary of a Liechtenstein trust created by Mr. Galmond that held an interest in First National, according to a statement by Mr. Galmond in the civil litigation. But Mr. Galmond also testified that "no distributions whatsoever were made to Mr. Reiman" from the trust. Witnesses in the civil case have alleged that Mr. Reiman retained a secret interest in Telecominvest, but no documentary evidence has emerged to prove their claims. "I have never had any financial connections with Telecominvest," Mr. Reiman said last year.
- 186 Financial Services, Insurance and Banking