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Reuters/Max Rossi
Mukhtar Ablyazov’s wife and daughter, who said her father “will become someone important, or he will die.”

Proof that offshore banking is the key to embezzling billions

Tim Fernholz
By Tim Fernholz

Senior reporter

The story of the day–complete with wolf-hunting accidents, private detectives and an angry dictator—is the Wall Street Journal’s rundown of Mukhtar Ablyazov’s alleged embezzlement of billions from a bank in Kazakhstan.

The tale of the oligarch-turned-dissident needs to be read to believed. Four countries’ legal systems are trying to recoup billions from Ablyazov, who used his position as chairman of the bank to make more than $1.7 billion in loans to holding companies in the British Virgin Islands that were never repaid. Those companies are allegedly controlled by Ablyazov, according to a British judge, though he denies this is the case.

These companies used nominee directors, lawyers and others who put their names on the corporate registry on behalf of the true, anonymous owner. It can be nearly impossible to trace beneficial ownership in these cases, but employees of Ablyazov’s former bank were able to find documents linking him to the shell companies using search warrants at storage facilities and offices; in one case, a receipt found in Cyprus led them to a hundred thousand documents saved by a company that shreds documents.

Absent that discovery, there might not have been any evidence to connect Abylazov with the shell companies. Despite pressure from the international community, the British Virgin Islands does not maintain a central database of the true owners of companies set up there, leaving plenty of opportunities for embezzlers—and anyone else interested in hiding money—to do so.