Eurasia Press & News
In connection with the new wave of discussions about the history of the withdrawal of funds from Probusinessbank, The Insider publishes its analysis of the key episodes of what happened, based on numerous previously unpublished interviews with Zheleznyak and Leontyev, which the author of this text conducted 4 years ago. A study of the documents they provided and their own explanations allows us to conclude that the infrastructure built by Zheleznyak and Leontyev was actively used to launder hundreds of millions of “prosecutor’s” dollars, evade regulation provided by law, and transfer funds to offshore accounts, where a significant portion of the funds disappeared even before the arrival of the DIA.
Introduction: Probusinessbank ecosystem
In 2020, the author of this article spent many hours talking with the founders of the Life financial group, Sergei Leontyev and Alexander Zheleznyak, and received from them a large package of documents, including some that had not been published at that time. The founders of the Life group , which included Probusinessbank and a number of other banks, did not hide the fact that their business was not banking in the usual sense of the word. In reality, Probusinessbank (if you look at the essence, and not at the legal shell) was a not entirely formalized structure of a large number of interconnected companies that were engaged in various types of business: real estate, factoring , pawnshops, collection agencies, etc. Current regulations limit the ability of a bank to be both the owner and the creditor of its own business, so the bank carried out activities with its companies through a chain of intermediaries, and some of this activity was carried out through offshore companies.
A significant portion of the funds that the bank attracted for its investments were black cash from Russian prosecutors, their friends and relatives (which indicated their corrupt origin). Probusinessbank withdrew this money, including to offshore companies, and returned some of it to itself in the form of subordinated loans (thus converting liquidity into capital for more attractive reporting), and put some into circulation for risky operations. After the discovery of numerous violations, Probusinessbank’s license was revoked, and it turned out that the bank’s most liquid assets were pledged to brokers, and the offshore companies took out loans against these pledges, which had successfully dissolved by the time the license was revoked. At the time of the DIA’s arrival , the bank was missing several hundred million dollars.
It also emerged that the bank’s funds were used, among other things, by the owners of Probusinessbank as unsecured loans for their own risky trading with blue chips , which allowed them to shift risks from themselves to shareholders and depositors.
Let’s take a look at the key elements of this ingenious scheme one by one.
Chapter 1. Where does the money come from? The prosecutor’s black cash
One of the most important ways for Probusinessbank to attract investment was the sale of bills of exchange of companies associated with it, as Zheleznyak explained, they were given under the guarantee of the bank itself. The bills had a very high yield – up to 12% per annum in foreign currency, which is much higher than the market for the 2010s in Moscow. In the testimony that Leontyev gave in court in the United States, he explained the economic feasibility of such high interest rates on bills by the fact that every million dollars attracted in this way to the bank’s capital made it possible to issue “regular” loans for 10 million dollars.
In total, more than $300 million was attracted through such bills, according to Zheleznyak. Probusinessbank does not particularly hide the fact that these funds are black cash from prosecutors.
As Zheleznyak explained, the main buyers of the bills were the beneficiaries of the car dealership company “Avilon” Kamo Avagumyan (at one time – a representative of the Prosecutor General’s Office of Armenia in Russia; one of Avagumyan’s sons worked in the Prosecutor General’s Office of Russia) and Alexander Varshavsky. The bills were also written out to Avagumyan’s relatives, and to the daughter of the late Deputy Prosecutor General of Russia Saak Karapetyan Diana, and to other people close to Avagumyan and Varshavsky. From Zheleznyak’s explanations it followed that part of the funds contributed by Avagumyan and his entourage belonged to other people. According to the beneficiaries of “Probusinessbank”, the origins of these funds went to the Prosecutor General’s Office.
All of them were served in the VIP department of the bank, which was almost entirely focused on servicing this group of clients and was located in the same building as the head office of Avilon. The head of the VIP department, NN, noted in a conversation that she sometimes began to confuse where she worked – in Avilon or in Probusinessbank, since she devoted 80% of her time to clients from Avilon. Several full-time tellers sat at the reception of cash from Avagumyan’s people.
In a conversation with the author of this material, former shareholder of Probusinessbank Sergei Leontyev initially insisted that when cash was received at the bank, its origin was strictly checked, but after mentioning NN’s recollections that no questions were even asked about the origin of the funds, he did not deny this and stated that he “found out about it retroactively.”
NN reports, and Zheleznyak confirms, that the relations with the Avagumyans and Varshavsky developed to the stage of “family” and were mutually beneficial. The bank and its owners bought cars from Avilon, Avilon took out loans from the bank (for short terms), held employee accounts, the beneficiaries of Avilon and other “Avagumyanites” serviced the personal finances of families and household members through Probusinessbank (right down to the Filipino housekeepers). Each family in the bank had a whole “cluster” of cases that the bank handled for them. For example, the bank bought a Bentley for VIP client Igor Renich in his absence and drove it to his country house. “Families were friends” – they invited them to corporate events, congratulated them on their birthdays, and so on.
According to NN, over time, the “Avagumyanites” began to command bank employees, “twist their arms.” Thus, Boris Zuyev once demanded that a bill of exchange be issued to him in the name of “B. Zuyev,” without a patronymic or name. They did this to him, although it was illegal. The reason for this was that the bank did not want to quarrel with such a valuable pool of clients. When NN issued a bill of exchange to the daughter of the Deputy Prosecutor General of Russia, Diana Karapetyan, she also did not want to do this at first, since Diana herself was not there, there was only a scan of her passport, but in the end the management ordered it.
The manager of the VIP department did not want to write out a bill of exchange to the daughter of the Deputy Prosecutor General of Russia, Diana Karapetyan, since Diana herself was not there, there was only a scan of her passport, but her superiors ordered
She did not ask questions about the origin of the hundreds of millions of dollars in cash that NN or her employees were counting. Kamo Avagumyan told her: “The less you know, the better you sleep.” He could come and tell her: “You know what kind of money this is,” meaning that Zheleznyak already had the details of the bill recipient. She would simply take the box, count it, and draw up the bill.
According to Zheleznyak, Kamo Avagumyan appeared in Moscow through the Armenian Prosecutor General’s Office. On this basis, he became friends with Russian prosecutors. He is described as a man with a broad Caucasian soul, “conceptual” (i.e., not abandoning friends in trouble). One of his sons, Georgy, worked in the Prosecutor General’s Office. Kamo became friends with many influential people: the legendary sons of Prosecutor General Chaika, the then head of the FSB banking department Viktor Voronin and the future governor Vorobyov . All these people at different times became involved in high-profile corruption scandals.
The “friends” of Probusinessbank, who carried “suitcases full of cash” to its office (as stated in one of the court decisions), introduced its owners to a number of security officials, whom the bank then tried to use in its interests. For example, according to Zheleznyak’s testimony under oath in American courts, in 2014 Avagumyan and Varshavsky proposed a deal to Zheleznyak and Leontyev. According to Zheleznyak, Avagumyan claimed that the state was going to revoke the license of Bank24, which was part of the Life financial group, and Avagumyan offered to prevent this on the condition that half of Life’s shares would be transferred to Avilon free of charge. Zheleznyak claims that the seriousness of this threat followed from Avagumyan’s long-standing and close business ties with Chaika’s sons. At the same time, Avagumyan’s words allegedly implied that the dividends from half of Life would be divided between the Prosecutor General’s Office and Avilon. And the “final decision” on the Bank24 issue allegedly belonged to Prosecutor General Chaika and the head of the FSB’s “K” department, Viktor Voronin.
According to Zheleznyak, he discussed the proposal to take over Bank24 with Anatoly Palamarchuk at the Prosecutor General’s Office. He convinced Zheleznyak that the Central Bank’s investigation into Bank24 was very serious, but suggested “talking” with the head of Rosfinmonitoring Yuri Chikhanchin and the deputy chairman of the Central Bank of the Russian Federation Mikhail Sukhov. According to Zheleznyak, at the next meeting Avagumyan confirmed that all the details of the upcoming division of ZAO Life had been worked out under Voronin’s leadership. At the same time, an additional condition arose: to hire a former FSB officer as vice president of Life at this stage, with a good salary for “supervision.” Zheleznyak and Leontyev agreed to this requirement and sent a corresponding letter to the FSB. Then, according to Zheleznyak, a meeting with Kirill Cherkalin took place. He confirmed that the letter had been put into effect. Avagumyan, according to Zheleznyak, organized a meeting for him and Leontyev with the Chairman of the Central Bank of the Russian Federation Elvira Nabiullina.
True, in September 2014, Bank24’s license was revoked anyway, and its assets were transferred to Otkritie Bank. And in 2019, Cherkalin was arrested and 12 billion rubles in cash were seized during a search of his apartment.
The fact that Probusinessbank was de facto turning over prosecutors’ money was confirmed during trials in various jurisdictions. Alexander Zheleznyak claims that by the time Probusinessbank’s license was revoked, Avagumyan and Varshavsky’s friends and relatives owned approximately $80 million in investments. A significant portion of Avagumyan and Varshavsky’s personal investments had been spent on real estate, a yacht, and airplanes by that time. Formally, Avagumyan had bills of exchange for approximately $30 million in his own name, and approximately the same amount for Avilon (this is what Zheleznyak himself says, and this is confirmed by materials from American courts). According to Zheleznyak, these $30 million actually belonged to Palamarchuk, the Chaikas, Karapetyan, and Voronins. It was these $30 million that were discussed in the New York courts.
Zheleznyak claims that at the time Probusinessbank’s license was revoked, Avagumyan and Varshavsky’s friends and relatives owned approximately $80 million in investments
Varshavsky himself testified that the “frozen” investments do not belong entirely to Avagumyan and Varshavsky. At a confidential meeting with Zheleznyak and Leontyev in London, which was recorded on audio and later added to the American court materials, Varshavsky said that if he flies to Moscow without a written commitment from Leontyev to pay off the debts of the bank’s affiliated companies from his personal funds, they will “rip his head off.”
Chapter 2. External Circuit: Non-Banking Affairs of Probusinessbank
Zheleznyak explained the cash turnover by the bank’s investment tasks. According to him, it was very difficult for the bank to conduct business in the real sector. Among the businesses that Probusinessbank wanted to engage in, Zheleznyak names development projects, factoring business, pawnshops:
“Well, it’s a business, you know? The bank doesn’t do business. This starts a bunch of regulation, because it’s a real business. A gold pawnshop. How can a bank run a gold pawnshop? And if a bank acts as a founder of a gold pawnshop, it won’t be able to lend money to it because of regulatory restrictions. That’s why business projects were created, where the bank acted as a creditor, which had both interest and profit from the project.”
In other words, the management of Probusinessbank did not hide the fact that it de facto controlled businesses associated with the bank, and at the same time provided loans to them and received profits from them, fully aware that this was prohibited.
According to Alexander Zheleznyak, the Life financial group operated as an “entrepreneurial bank” with about 300 divisions that operated as independent businesses and had separate profit and loss accounts. Of the bank’s 15,000 employees, about 5,000 worked as “partners,” that is, for a share of the profit. Among these divisions were both separate legal entities (about 30%) and divisions (about 70%). At the same time, one business division could have excess cash (for example, a division working with individual depositors), while others needed cash (for example, to buy profitable financial instruments abroad or to issue loans). This is where the “entrepreneurial bank” came to the rescue, helping to transfer funds from one division to another through a chain of companies united by hubs . According to Zheleznyak, one of the main hubs was, for example, the Vermenda company.
The former owners of the bank admit that the same “cash” mentioned above was used to invest in these businesses. Thus, Probusinessbank received suitcases of cash from prosecutors and transferred this “dirty” money not only through its bank, but also through its businesses, turning funds of dubious origin into completely legal income.
Probusinessbank received suitcases of cash from the “prosecutors” and transferred the “dirty” money not only through its bank, but also through its businesses, turning them into completely legal income
At the same time, in the process of financing its projects, Probusinessbank regularly transfers large amounts of money through the chain to firms that are not engaged in business activities.
Zheleznyak and Leontyev explained that they needed a chain of intermediaries (or, as Zheleznyak calls them, “operating companies”) to avoid the eyes of the regulator, since credit to companies affiliated with the bank is prohibited. According to them, one “intermediary” might not be enough, since the Central Bank could at some point begin to track the next “investment level” during the transaction. A chain of three intermediary companies allowed the transfer of credit funds between affiliated legal entities, formally not violating the regulator’s norm .
It is worth noting that this chain of intermediaries not only helped to avoid unnecessary questions from the regulator, but also served as an ideal infrastructure for turning hundreds of millions of prosecutorial gray cash into “clean money.”
Gaskets and a network of hundreds of legal entities are not the only know-how of the Life group. Offshore companies, to which the bulk of funds were transferred, also played an important role in this ecosystem.
Chapter 3. The Disappearing Millions: Repo Transactions and the Off-Balance Sheet
Zheleznyak and Leontyev admit that they purposefully pumped the bank’s money into a number of offshore companies, which can be called off-balance sheet companies or the bank’s “external contour.” Since it was impossible to do this directly (a loan to a structure that had no assets would have spoiled Probusinessbank’s reporting), it was formalized through a deal formally structured as a REPO with respected brokerage firms (Otkritie, BCS, Dinosaur securities), which issued external contour firms ( Ambika , Merrianol , Vermenda ) a loan secured by Probusinessbank’s highly liquid assets — U.S. Treasury bonds and other securities. Formally, the bonds were still in the bank’s account at the brokerage firm, but de facto they already served as collateral for the offshore companies’ financial activities.
Once the funds were in the “external circuit,” Zheleznyak and Leontyev could manage them as they wished, without any control from the regulator.
What was the pumping for? Zheleznyak explains that subordinated loans were issued back to Probusinessbank from these offshores , saying that in this way the bank essentially invisibly converted liquid assets (the same treasury bonds) into capital, which is good for reporting.
Leaving aside the question of whether it is good to deceive the regulator, we note that only $90 million was returned in the form of these subordinated loans, which is several hundred million dollars less than what was withdrawn.
Thus, as in the case of shell companies and a network of multiple legal entities, the offshore “external circuit” became one of the tools that allowed part of the money to be taken out of the relatively transparent and regulated financial turnover into the “manual control” mode, where it disappeared safely.
The offshore “external circuit” allowed part of the money to be withdrawn from the relatively transparent and regulated financial turnover into the “manual control” mode, where it disappeared safely.
One of the most striking illustrations of this “manual control” mode was the story of the Wonderworks Investments fund.
Chapter 4. Alice in Wonderworks: Profit for yourself, risks for shareholders
The investment fund Wonderworks Investments (aka Wonderworks Assets) belonged to the family trust of Sergei Leontiev and received no less than $360 million in loans at a rate of 3-5% from offshore companies controlled by the owners of Probusinessbank (Sergey Leontiev insists on calling them “business units”) – Finbay, Dunning, Vermenda, Greenex. Wonderworks invested in shares of large companies – “blue chips”, such as Apple, JPMorgan, Visa, Wells Fargo, Facebook, Whole Foods. The turnover from these transactions amounted to more than $700 million.
Why was trading not conducted by the bank’s main legal entities? As in other cases, the management of Probusinessbank explains this by the desire to escape the all-seeing eye of the regulator: the Central Bank would have forced large reserves to insure risks when buying “blue chips”. Moreover, other shareholders of the bank also considered such trading too risky.
Sergey Leontyev explained that he initially proposed the idea of Wonderworks for the bank’s corporate structure, but was rejected by other managers with the wording “We don’t want another bloody hedge fund.”
Then, in a slightly modified form, according to him, he implemented the idea of off-balance sheet investments in “blue chips” with the help of his personal start-up capital (several million dollars) and loans from Probusinessbank; he also took employees for his personal trust from Probusinessbank.
The ease with which Probusinessbank issued loans to Wonderworks was explained, according to Leontyev, by the fact that Probusinessbank employees knew the Wonderworks employees who applied to them from their previous work. According to him, he himself could not influence the issuance of a loan to his family business.
Simply put, Leontiev was playing a game (he calls it “investing”) on the stock markets, using investors’ money in the form of an unsecured loan – the main profit went into his personal pocket, while the main risks fell on the investors.
Wonderworks’ investment netted Leontiev more than $190 million after taxes, which he placed in a family trust, Legion, registered in the Cook Islands.
Where is the money?
From the available data, confirmed by documents submitted in 2020, and direct speech by Zheleznyak and Leontyev, it follows that the owners of Probusinessbank created an infrastructure with chains of intermediaries and a “second circuit” of off-balance sheet firms, which is ideal both for hiding risky transactions from the eyes of the regulator and for “digesting” hundreds of millions of dollars in cash that the “prosecutors” brought to the bank in suitcases.
It also follows from the documents and explanations of Zheleznyak and Leontyev that they pumped off-balance sheet companies with the bank’s money under the guise of a bona fide investment in reliable securities (US Treasury bonds). Part of the withdrawn money – but only part – returned in the form of subordinated loans that were needed on the balance sheets for the illusion of beautiful reporting. But the bulk of the withdrawn funds – hundreds of millions of dollars – did not return to the bank, but disappeared without a trace, and disappeared even before the DIA came to the bank.
The bulk of the withdrawn funds – hundreds of millions of dollars – did not return to the bank, but disappeared without a trace, and disappeared even before the DIA arrived at the bank.
The money that ended up in Ambika and Merrianol could have left a trace in the form of, for example, investments in the bank’s “business units”, and in such a case, Probusinessbank, after withholding the collateral under the guarantee, would have received the right to claim these investments. However, according to the inventory conducted by the DIA, such rights of claim are unknown.
It is also known from the explanations of Zheleznyak and Leontyev that Leontyev played on the stock market using an unsecured loan for his personal investment fund, contrary to the wishes of management, thereby shifting the risks to investors and shareholders.
Bank owners should be the last to receive funds in the event of a bank’s bankruptcy (if they even get their turn), just as a ship’s captain is the last to leave the vessel. Here, however, the first to suffer were the depositors, and the funds that were pumped into offshore companies turned out to be impossible to localize.
The subsequent “ cutting up ” of Probusinessbank assets by the DIA does not affect the conclusions made above, which are based on events and documents from an earlier period.
