Trump and His Buddies Keep Red Flags Flying in the Russia Probe

This article first appeared on the Just Security site.

While names like Carter Page, Roger Stone and Michael Flynn dominate headlines amid allegations of possible collusion with Russia, there's another angle to Donald Trump's connections to the former Soviet Union that's only beginning to receive the attention it deserves. This is the series of murky financial dealings that often make little business sense.

Taken on their own, many of these transactions appear perfectly legal. Viewed together, they show patterns suspicious enough that they should qualify for investigation under U.S. laws aimed at combating money laundering, tax evasion and other hard to track financial misdeeds.

One particularly good example of this pattern involves Trump's billionaire commerce secretary, Wilbur Ross, and his former role as vice chairman of the Bank of Cyprus. His case is just one piece of the puzzle that may be reflective of other dealings that warrant much closer scrutiny.

Russia's Mediterranean Laundromat

Cyprus has a long-standing reputation as the place Russians go when they need to stash or launder large amounts of money with no questions asked. In 2013, Moody's estimated that up to $31 billion in Russian money was deposited in Cypriot banks, roughly one-third of all deposits on the island.

Another $40 billion may have been loaned to Russian businesses in Cyprus, according to the ratings house. In 2012, Germany's Federal Intelligence Service (BND) put the number of Russian deposits slightly lower, at $26 billion—a figure that's still much higher than the island's gross domestic product.

In the words of one former investment banker who worked deals involving former Soviet states, when doing financial due diligence, "anytime you see Russia and Cyprus connected, it's a huge red flag."

The island blossomed as a haven for Russian money after the fall of the Soviet Union. While most national regulators require financial institutions to perform layers of checks to guard against money laundering, things were different in Cyprus.

The island featured prominently in the leaked Panama Papers, where it was referenced more than half a million times in documents showing how global elites hid and moved their money through shell companies and the like. One set of documents, from the Panamanian offshore law firm Mossack Fonseca, shows over $2 billion in sweetheart deals for associates of Russian President Vladimir Putin passing through Cyprus.

The Bank of Cyprus is the biggest player in the island's financial system by a mile. In 2014, it had nearly fallen into bankruptcy following the 2013 Cypriot financial crisis. Following a bailout of the national economy, the bank was "bailed-in," and its largest creditors became its newest owners.

Related: Michael Dorf: Why Flynn was fired is the key to the Russia plot

The bank, and its more than $11 billion in unpaid debts, was taken over by Kremlin-linked oligarchs. The New York Times described the outcome as having provided "something that [had] previously eluded even Moscow's most audacious oligarchs: control of a so-called systemic financial institution inside the European Union." Cypriot lawyer Andreas Marangos told the Times, whoever "controls the Bank of Cyprus controls the island."

There was also an American involved—someone with experience in the post-Soviet chaos that had made those oligarchs. That American was Wilbur Ross.

The Russian Oligarchs

Among the bank's major shareholder oligarchs is at least one with both deep ties to the Kremlin and a connection to Trump. In addition to serving time in jail on murder-related charges, Dimitry Rybolovlev famously bought a Palm Beach, Florida, house from Trump for $95 million in 2008—a $53 million markup over what Trump had bought it for in 2005—at a time when other Palm Beach County real estate fell by an annual rate of 19.2 percent. That's a 126 percent profit in the midst of the U.S. housing crisis.

Rybolovlev never even moved into the house, instead tearing it down in 2016 and selling parts of the property to a trust named 515 North County Road Trust for millions of dollars less than he had paid for it.

The sale would have also been an extremely helpful cash infusion for Trump, who at the time was trying to sue his way out of a $40 million debt owed to what was, for a long time, the only major bank that would lend him significant money, Deutsche Bank.

Perhaps the timing and staggering off-market sale price were coincidental, but that would have been a monumentally convenient coincidence for Trump and the oligarch. All of this massive transfer of economic benefit seems especially strange given the fact that Trump claims the two have never met. Trump and his surrogates say that he and Rybolovlev conducted one of the largest transactions for a single home in American history entirely through intermediaries.

(This isn't even getting into the online discussions among amateur sleuths digging into Trump's Russia ties, specifically the fact that Rybolovlev's business jet arrived within hours of Trump at American airports in Concord, North Carolina, and Las Vegas during the 2016 presidential election. Based on news reports, it appears Rybolovlev was aboard his jet during the North Carolina trip. No one has confirmed who was on his plane during the Las Vegas flight.)

Rybolovlev is only one of several oligarchs connected to the bank. Ross's predecessor as vice chairman of the bank is a former KGB operative and suspected Putin associate Vladimir Strzhalkovsky.

It's worth noting that Strzhalkovsky once ran Intourist, Russia's official tourism agency with a reputation for being staffed by the KGB and used as a source of kompromat on foreign visitors during Soviet times.

In a possibly random twist of fate, Intourist's former flagship hotel is now the Moscow Ritz Carlton, the hotel mentioned in the Steele dossier as the place where the New York tycoon is alleged to have engaged in behavior that provided the Russian government with compromising material on him.

Strzhalkovsky left the board in 2015, criticizing it for not taking a more strategic approach to breaking from its prior business practices, saying of the bank's earlier lending standards, "I have a feeling that people from the bank were running around with bags of money, looking for someone to give the money to and not caring whether it will be repaid or not," according to Russian news reports.

Yet a third major shareholder is Viktor Vekselberg, sometimes referred to as the richest man in Russia, who had been close to the Kremlin until late last year.

So why did Ross, a man worth $2.5 billion, become vice chairman of a relatively small bank, partially owned by Russians with ties to the Kremlin and Russian intelligence services, on an island known for being the laundromat for ill-gotten Russian money?

A recent New York Times article cites a former Bank of Cyprus board member as essentially saying Ross saw the failing bank as a business opportunity that suited his skill set of flipping businesses that are near rock bottom. "He told me he thought it was a good move because Cyprus had gone down so far it could not get any worse and could only go up," former board member Adonis Papaconstantinou told the Times. (The bank's share price is now lower than it had been when Ross became involved in 2014, according to the article.)

Even though Ross is portrayed in that article as a professional businessman determined to clean up what had been a laundromat for illicit Russian money and turn it into a profitable and aboveboard business, neither he nor the Trump administration will discuss what drove Ross to invest in the bank. (I reached out to a Department of Commerce spokesperson on March 29 and have yet to receive a response.)

At first blush, all that might seem normal, as Ross's representatives insist. But there are extraordinary red flags in these particular connections, as well as others like them, which when held up to the U.S. government's own anti–money laundering standards, demand detailed answers.

The Americans: Wilbur Ross, Donald Trump and Two Banks

Given his background and career, numerous people with experience in banking or financial investigations found it highly unusual that an American businessman like Ross would get involved with a tiny bank in a jurisdiction widely known to be associated with Russian money laundering.

"Most people on Wall Street wouldn't go near that. Most people would run the other way," said one former investment banker familiar with Cyprus. "Everyone likes to say Wall Street is a corrupt cesspool, but most people on Wall Street are terrified of even getting close to a whiff of impropriety. A Cyprus bank with a reputation for money laundering for Russian oligarchs goes well beyond a whiff of impropriety—it's an absolute career killer."

Ross has made his career by capitalizing on other people's disasters in the market. He's long been the man who businesses go to when they need to be rescued from bankruptcies, occupying a particularly nasty and hard-nosed niche in our economic ecosystem.

He appears to have first crossed paths with Trump in the late 1980s, when the real estate developer's casino projects in Atlantic City, New Jersey, were going south and under threat of foreclosure. Ross, at the time working as senior managing director at N M Rothschild & Sons, represented Trump's investors and, together with famous corporate raider Carl Icahn, hammered out a deal in the early 1990s that allowed Trump to hang on to his casinos.

After rescuing Trump, Ross went on to start his own firm specialized in scooping up distressed companies at low prices and squeezing value out of them. Essentially, Ross found failing businesses, bought their assets and then tried to turn them profitable.

By the mid-'90s, Ross had become a prominent figure in New York Democratic Party politics and had caught the eye of the White House. President Bill Clinton appointed him to lead the U.S.-Russia Investment Fund, a U.S. government–created organization meant to help bring a stabilizing influence to Russia's chaotic transition to a market economy.

While we don't know who introduced Ross to the Bank of Cyprus deal, his time working with Russians in the 1990s would have put him in a position to connect with plenty of up-and-coming oligarchs. In an interesting twist, the fund was privatized in the aughts and many of its assets were sold off to Deutsche Bank, which was then run by CEO Josef Ackermann.

Deutsche Bank was then, and still is, Trump's main creditor. It's worth mentioning that major American banks have been somewhat wary of lending to Trump since his losses in the early 1990s, but Germany-based Deutsche Bank has lent him hundreds of millions of dollars in the decades since—even after his 2008 lawsuit against the bank.

Ackermann's reign at Deutsche Bank was hardly clean. The bank paid out more than $20 billion in fines for actions taken during his tenure. Between $630 and $650 million of those fines were paid as a result of the bank allegedly laundering $10 billion in Russian money with suspected ties to Putin's family and associates. That laundered money was routed through offices in Moscow, New York and—wait for it—Cyprus. The bank remains under investigation in a separate Department of Justice inquiry.

(Ackermann's other business dealings are also suspect—he is, for example, also on the board of directors at Renova Management AG, a company that owns a large stake in the Bank of Cyprus and belongs to Viktor Vekselberg—one of the prominent Kremlin-linked oligarchs. Renova's director of strategic projects, Maksim Goldman, is a U.S.-educated lawyer with nearly two decades of experience working in Russia. He is also the current vice chairman of Bank of Cyprus, according to the bank's website.)

One former risk analyst, who helped blow the whistle on some of Deutsche's activities during the Ackermann era, told The New Yorker 's Ed Caesar last year:

"There was cultural of criminality," he said. "Deutsche Bank was structurally designed by management to allow corrupt individuals to commit fraud."

Ackermann left Deutsche Bank in 2012, and was brought in by Ross in 2014 to help steer the Bank of Cyprus, as noted by McClatchy's Kevin Hall, who's covered these connections for months. The Cypriot bank had run into serious financial difficulties by 2013, and the next year Ross joined several Russian oligarch investors who swept in and took over. Ross soon installed Ackermann as chairman of the bank.

Again, a titan of banking made a bizarre choice involving the Cypriot bank, this time downsizing from running one of the world's largest investment banks to working at the Bank of Cyprus. In the words of an anonymous investment banker, Ackermann "is taken very seriously in finance, that's like going from CEO of GM to running a dealership in Tijuana."

In 2015, The New York Times described Ackermann as seeking "redemption" by going to work for Cyprus in an article titled, "A Banker Sees His Role in Cyprus as a Chance to Give Back." Interestingly, Strzhalkovsky, the former KGB operative, reportedly told Russian media shortly after leaving the bank's board in 2015 that it "would probably have been better if we knew in advance" of bringing Ackermann into the Bank of Cyprus about German authorities' investigation into Ackermann's involvement in the 2002 collapse of Germany-based Kirch Media Group.

Ackermann was acquitted last year, after being accused of lying under oath in an effort to reduce the amount of money that Deutsche would pay to heirs of the Kirch fortune as part of a lawsuit involving the bank's role in the media house's collapse.

It's also worth noting that beginning in the spring of 2014, the year Ross became involved with the Bank of Cyprus, Western sanctions against Russia for its actions in Ukraine were ramping up, significantly impacting the country's access to the global financial system.

In 2015, while Ross was supposedly cleaning up the bank, its Russia-focused business unit was sold to a Kremlin-linked consultant whose business partner is the son of the CEO of Sberbank, a Russian institution that was under U.S. sanctions following Moscow's annexation of Crimea.

According to Zachary Goldman, executive director of the Center for Law and Security at NYU School of Law, 2014 "was a time period during which U.S. persons would have been examining closely their connections to Russia and particularly Russian banks as a result of the sanctions because of the increased regulatory risks that those sanctions would have posed to U.S. individuals and banks."

Once again, why was the American billionaire, now-Cabinet secretary, invested in an obscure bank that was the backbone of the financial system of an island that was nearly synonymous with Russian money laundering?

Why would that billionaire install a CEO with a reputation like Ackermann's to be the chairman of a bank that he was trying to clean up, as the recent Times article suggests?

Why would that CEO take such a huge downsize in position?

And finally, what was the plan of a savvy businessman like Ross to make money from his involvement in the bank, which is less valuable now than it was when he first became involved?

The Rules: Where There's (Lots of) Smoke…

The type of questions raised by the commerce secretary's investment in the Bank of Cyprus is so important, and its answers so potentially indicative of financial impropriety, that there are decades' worth of rules mandating that banks doing businesses on U.S. soil understand who their clients are. These regulations often require banks to identify the people who exert influence over a bank's institutional clients, ranging from shell companies to nonprofit foundations, and who will benefit from that client's transactions.

Since commercial organizations and other legal entities can easily hide, move and store assets, they are often used to conduct seemingly innocuous or legal activities for nefarious purposes, such as money laundering, for these influential individuals.

Part of the reasoning behind the rules is to help bankers and regulators understand the purpose of customer relationships that might be red flags for transactions and other behavior patterns often linked to illegal activity.

Understanding these relationships might help explain why Ross would buy into an institution with a shady past that hasn't yet proven profitable despite his acumen for making money from investing in struggling businesses.

"The idea that you wake up one morning and you get out a bed and say, 'you know what, I think the thing that's missing on my plate right now is trying to clean up a bank in a jurisdiction that I have absolutely no knowledge of, or authority in'…it's unusual to say the least," said a former congressional staffer who specialized in investigating illegal financial transactions. "But people have done weirder."

Even if there's nothing illegal on the surface, the Trump circle's connections to Cyprus (which also run through Paul Manafort), Russian oligarchs and banks tied to money laundering may be so blatantly worrisome that they present fertile ground to start digging.

In fact, because it's so difficult to unearth global flows of illicit funds, often the best way to combat them is to dig deeper into patterns of suspicious but legal activities. Section 311 of the USA Patriot Act, for example, authorizes the Treasury Department to label jurisdictions, organizations or types of transactions that appear suspect as primary money laundering concerns, opening them up to extra scrutiny.

The way the law is written, officials don't have to point to a specific instance of money laundering to designate a primary money laundering concern. Instead, they can recognize a swath of evidence in which any single transaction on its own may be legitimate, but the entities, the jurisdiction or the totality of the transactions evaluated as a whole are suspicious enough to give regulators pause, according to a former Treasury official who extensively investigated money laundering.

"We used this authority in a half a dozen jurisdictions in places like Burma, like Cyprus, like Iran because their money laundering laws, or their enforcement remain weak, or fall short of international guidance and review," said the former Treasury official.

That's what appears to be happening here. There seem to be many individual instances that point to a broader pattern of questionable activities, and look at the way [Trump] has conducted business for decades and the manner in which he has moved value around, albeit seemingly legitimately, and admitted to have taken advantage of the law–including bankruptcy, tax, legal jurisdiction, to the manner he has deployed his own and his company's capital, to the use of multiple corporate entity structures globally.

"There are so many connections vis-à-vis his individual household and corporate ties to Russia that one has to say, 'Wait a second, is there something more surreptitious or systemic?'" he added. "When you put them all together it paints a canvas that is murky at best, conspiracy-laden at worst."

Once a jurisdiction or organization is labeled a "special concern," the Treasury secretary can require any government and private-sector financial institution doing business with that concern to take "special measures" in order to ensure things are aboveboard. The official said:

Basically it told all U.S. institutions that if you do business with that [special concern], you have to do everything from report it to U.S. law enforcement and regulators all the way up to you cannot do business with that entity because it constitutes a primary money laundering concern and you will be opening yourself up to facilitating, unbeknownst to you, money laundering transactions or illicit finance and you wouldn't even know it unless we gave you a heads up on it,

Per the Department of the Treasury:

These special measures range from requiring additional due diligence and special attention concerning particular account transactions among U.S. financial institutionsto prohibiting the opening or maintenance of any correspondent or payable-through accounts. The following special measures can be imposed individually, jointly, in any combination and in any sequence:

• Recordkeeping and reporting certain transactions;
• Collection of information relating to beneficial ownership;
• Collection of information relating to certain payable-through accounts;
• Collection of information relating to certain correspondent accounts; and
• Prohibition or conditions on the opening or maintaining of correspondent or payable-through accounts

Applying the Rules to the Americans, the Oligarchs and Their Banks

These shady but legal areas and transactions can provide useful traps for catching money launderers. That's because deals that look bad are often the points in the global economy where money crosses from the black market into the legal market. While it's relatively easy to move money within the black market, eventually ne'er-do-wells almost always need to put their ill-gained fortunes in the legal economy to do things such as buy luxury property.

"It's always going to be those crossing points where the red flags pop up, either where you're moving money out of the illicit market or back in," said the former congressional staffer. "That's why things like the Palm Beach sale are so important. You're looking for those transactions that don't make any sense."

"Or, as was the case with the Trump Taj Mahal, you're looking at instances in which an outside regulator has come in and seen that there's a pattern and practice of hiding financial transactions," added the former congressional staffer who went on to point out that there is an "enormous" amount of money to be made in facilitating money crossings between the licit and illicit economies.

"I don't understand the business model—setting aside all moral judgments—that's based on the relationships and the networks Trump has that doesn't rely on the revenue generated from facilitating that kind of transfer," said the former congressional investigator. "There are so many better, safer ways to do business."

Trump's Taj Mahal casino in Atlantic City paid $10 million to the Department of the Treasury in 2015 for deliberately violating the Bank Secrecy Act, an anti–money laundering law that works in tandem with Section 311 of the USA Patriot Act, among others. The casino had failed to report hundreds of large and suspicious transactions over the years, according to the Department of the Treasury's Financial Crimes Enforcement Network.

"It's kind of like setting up a speed trap. You're asking, 'How am I going to know the points at which that's most likely to occur [funds crossing between the black and legal markets], and how do I either watch prospectively for something to happen or how do I look back in time?'" said the former congressional investigator.

Another example is the massive hotel project recently overseen by the Trump Organization in Baku, Azerbaijan, a deal rife with strange transactions and connections that are detailed in an in-dept article by The New Yorker 's Adam Davidson.

"Knowing the companies that they own is good, but more important is finding the examples when somebody paid $10 for a $5 box of chocolates or the example in The New Yorker where somebody builds a giant building where a giant building has no business being and then following the threads," said the former Capitol Hill staffer.

"More likely than not, you'll find that deal and then you follow the thread back to an organization whose ownership you can't figure out, but you see that organization writes a $10 million check to another organization that you have no idea what it is and that's the organization you're going to want."

But there's a big catch, diving into some of those bank records will be near impossible without a warrant or subpoena power or a whistleblower.

What's Next?

So what happens now? Knowing the players, knowing enough about the deals to be suspicious about their legality, and knowing the rules that should apply, how can it all be pieced together to find if there is, for sure, fire behind all this smoke?

A group of Democratic senators tried to raise the issue in the weeks leading up to Ross's February 27 confirmation, only to have their questions slow-rolled and deflected by the Trump administration. And it's hardly guaranteed that the Republican-led Congress would ever pursue a vigorous, nonpartisan investigation.

As Andy Wright put it on March 1 in reference to an inquiry into Russian connections to the Trump campaign, "Republican leadership seeks to bury this investigation in the secrecy and narrow jurisdiction of the intelligence committees. But the leaders of these committees are too close to the facts and politics to run a credible investigation."

Just look at last month's string of odd statements and behaviors from the congressman charged with leading the House investigation into Russia's ties to the Trump White House, House Permanent Select Committee on Intelligence Chair and Trump transition team member Representative Devin Nunes (R-Calif.).

If Congress fails to pursue a proper investigation, it will fall on law enforcement and intelligence agencies to uncover evidence of illegal behavior. The Treasury Department doesn't comment on investigations, so perhaps the questions raised here have been, or are being explored. If not, lawmakers and the American public must demand the U.S. government uphold its own standards and press an investigation along these lines.

Perhaps information from a Treasury inquiry is factoring into the FBI-led interagency investigation into Trump's Russian connections or opening a new one. Unfortunately, this option also seems like it may prove to be inadequate for political reasons that Ryan Goodman and Richard Painter laid out here when writing about the bureau's investigation into Russian involvement in the 2016 presidential election.

As plenty of others have argued, the only satisfactory option is for the Justice Department or Congress to appoint an outside and fully independent special prosecutor with subpoena power—à la Patrick Fitzgerald investigating the Valerie Plame affair—to do serious digging into the Trump team's contacts with Russia, but this still may not be enough to reveal a smoking gun.

It's extremely likely that the only way this will come to an end is if an intelligence agency has intercepted communications featuring Trump or his associates engaging in illegal activities or if that agency can develop a source on the inside of this network—a bookkeeper, lawyer, or scorned business partner—who can provide damning evidence that can be passed to a special prosecutor.

But perhaps, Trump and his associates, if they've done anything illegal, have become so good at hiding money that they've grown complacent and have made tiny, easily overlooked needle of a mistake buried deep in this financial haystack …

Of course, another way for this to end is if Trump and his associates did nothing wrong, they could provide the information to clear away these clouds of suspicion.

John Reed is the managing editor of Just Security.