‘Putin’s banker’ used sham trusts to hide assets

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Oct 12, 2017
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Sergei Pugachev was the sole beneficial owner of the assets and replaced trustees when they did not follow his instructions

John Schults/Reuters

A ruling that trusts owned by “Putin’s banker” are shams has been hailed as demonstrating that English courts will not tolerate “shadowy off-shore structures”.

The judgment in the High Court in London yesterday came after a four-year battle between Sergei Pugachev, a Russian businessman, and the Deposit Insurance Agency.

The agency was the liquidator of Pugachev’s JSC Mezhprombank, one of Russia’s largest banks, which was declared bankrupt by a Moscow court nearly seven years ago, and was seeking to recover funds for creditors. Lawyers for the agency said a key focus of the litigation was the New Zealand-based “discretionary” trusts that Pugachev used to shelter funds, including two valuable properties in London and a luxury holiday home in the Caribbean.

In yesterday’s ruling, the High Court accepted that the trusts were not discretionary trusts and that in reality Pugachev was the sole beneficial owner of their assets. Lawyers for the claimant argued that Pugachev remained in absolute control of the assets and that he replaced trustees when they did not follow his instructions.

The court also accepted the agency’s argument that to the extent the trust deeds did create genuine discretionary trusts, they were shams that were simply a pretence intended to mislead third parties.

In the ruling, Mr Justice Birss found that: "The point of the trusts was not to cede control of his assets to someone else, it was to hide his control of them. In other words Mr Pugachev intended to use the trusts as a pretence to mislead other people, by creating the appearance that the property did not belong to him when really it did.”

Michael Roberts, a partner at the transatlantic law firm Hogan Lovells, which acted for the DIA, said the judgment “demonstrates that the English Court will not tolerate the use of shadowy offshore structures in an attempt to the defeat the claims of creditors. Even where the trusts are set up on the other side of the world, the English court will be prepared to break them open and allow the assets to be clawed back”.

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