World News

Manafort, a Ukrainian Hairdresser and a $30 Million Tax Bill

Posted September 15, 2018 4:15 p.m. EDT
Updated September 15, 2018 4:19 p.m. EDT

KIEV, Ukraine — At first glance, what happened to Yevgeny G. Kaseyev hardly seems like misfortune.

Without his knowledge, he says, unknown individuals set up multiple companies in his name and deposited tens of millions of dollars into those companies’ bank accounts.

“Sometimes it seems fun,” Kaseyev, a 34-year-old hairdresser, said with a shrug during an interview. “I’m a secret millionaire.”

Until authorities came calling, that is, seeking $30 million in back taxes.

One of the people who did business with a company opened under Kaseyev’s stolen identity didn’t mean anything to him. But the name certainly caught the eye of investigators in the United States: Paul Manafort.

Manafort, who worked for a decade as a political consultant in Ukraine before becoming chairman of Donald Trump’s campaign in 2016, made a deal worth hundreds of thousands of dollars with the shell company under the hairdresser’s name. It was called Neocom Systems Ltd., according to a Ukrainian lawmaker.

This was just one example of the kind of complex financial arrangements that caught the attention of the special counsel, Robert Mueller, and led to Manafort pleading guilty to criminal charges Friday in U.S. District Court in Washington.

Looking into tax evasion by Manafort, Mueller’s investigators found a web of offshore companies, some of which had directors who, like Kaseyev, did not even know their identities were being used.

Manafort was convicted in August on eight counts of financial fraud and evading taxes on millions of dollars he earned as a consultant for pro-Russia political forces in Ukraine. He avoided a second federal trial by pleading guilty Friday to conspiracy to defraud the United States, largely through the use offshore companies, and conspiracy to obstruct of justice.

There is nothing new about Manafort’s use of shell companies to hide and launder money. Nor is it surprising that Manafort should seek to use the scheme of fake directors, say analysts of Ukrainian corruption. It is a common form of subterfuge in former Soviet states, though hardly unique to them.

But the role — and sometimes the plight — of the people whose identities were used has gone mostly unnoticed.

“It’s a frequent problem,” Daria Kalenyuk, head of the Anti-Corruption Action Center, said of the directors, who stand to take the fall if prosecutors investigate.

Sometimes the directors are lawyers or victims of identity theft, she said. But usually “it’s people who are either alcoholics or in poor health, and who simply sell their passports for about $20.”

One of the risks to this scheme is that the fake directors might try to claim the millions held in their names. But Kalenyuk could not recall one instance of that happening.

“You need to have some knowledge and education to know how to do that” in the tax havens like Cyprus or the British Virgin Islands, where such companies are typically established, she said.

“Usually, they don’t know how to do it,” she added. “And even if they did, it’s a risky business to take over a company from a powerful businessman engaged in corruption.”

The companies set up with Kaseyev’s identity had bland names like April Ltd. and Neocom Systems Ltd. For example, in 2009, Manafort signed an invoice for $750,000 addressed to Kaseyev as director of Neocom Systems.

That was news to Kaseyev when the invoice was first revealed publicly in 2017 by Ukrainian lawmaker Serhiy A. Leshchenko. At the time, Manafort’s spokesman, Jason Maloni, suggested that the document might be fraudulent.

Neocom Systems did not come up at Manafort’s first trial, nor was it mentioned in the plea agreement he signed Friday. But Rick Gates, a former employee who became the star witness for the prosecution, testified that Ukrainian oligarchs had paid millions of dollars to Manafort through an array of offshore companies with obscure names like Novirex, Firemax and Telmar.

Kaseyev said he first became aware of his unwitting role in the creation of at least three Ukrainian front companies a decade ago, when tax police contacted him in 2007 about his purported $30 million tax liability at Regional Insurance Union, a company he had never heard of. His passport had been stolen in a burglary a year earlier.

The scale of unpaid taxes, he said, suggested that there were larger sums moving through the company.

A slender, soft-spoken young man then just getting his start as a beautician, and hence unlikely to have amassed such wealth, Kaseyev said he was able to quickly convince police of the identity theft. Yet the companies continued to be used in deals, and one, April Ltd., still appears to be open for business, a corporate registry shows.

Some homeless men have achieved a measure of fame among activists who track corruption in the former Soviet states because they pop up so often at the head of multimillion dollar companies.

One man identified in the Ukrainian media as a homeless Latvian named Erik Vanagels has been listed as the owner of hundreds of companies in Britain, Cyprus, Ireland, New Zealand, Panama and elsewhere. Companies in the network also helped finance the private zoo and sprawling estate of the former Ukrainian president, Viktor Yanukovych, who was the main client of Manafort. Manafort’s finances also intersected with companies of Vanagels and another Latvian whose name was used as a director, Stan Gorin. Among the murky transactions these companies engaged in was an $18 million deal to sell Ukrainian cable television assets to a partnership put together by Manafort, called Pericles, and financed by a Russian oligarch, Oleg Deripaska, according to a Cayman Islands lawsuit and Cypriot corporate records.

Milltown Corporate Services, a front company in Gorin’s name, for a time controlled the television assets.

In another notable case, police in Ukraine last year questioned a barefoot man, Arkady Kashkin, who during interrogation accepted their offer of slices of pizza. He turned out to be named as a director of one of several related companies that had bought $1.5 billion in Ukrainian bonds, according to court records.

In that case, first reported by Al-Jazeera, Ukrainian prosecutors said that an oligarch who has since fled to Russia, Serhiy V. Kurchenko, was the actual manager of the company registered in Kashkin’s name. A judge fined Kashkin for willingly allowing his identity to be used in fraud.

Neocom Systems Ltd., Kaseyev’s company, which was opened a decade ago in the Central American nation of Belize, surfaced in relation to Manafort’s dealings in early 2017, several months after the longtime Republican Party strategist had been pushed out as Trump’s campaign manager over his Ukraine work.

The invoice had been left in the Kiev office of Manafort’s political consulting business, Davis Manafort International. In the invoice, Kaseyev’s name is transliterated into English as Evgeniy Kaseev.

Leshchenko, the Ukranian lawmaker, publicized the find after first providing the originals to the FBI. Leshchenko said that the company was a front and that Kaseyev had no control over its operations.

This was not the first time Neocom Systems had surfaced in a corruption investigation. In a 2012 money laundering and stock fraud case in Kyrgyzstan, the country’s central bank listed it as a shell company used for payments by Asia Universal Bank, which was seized by Kyrgyz officials amid money laundering allegations.

It is not clear how much money, in total, passed through that company or through others opened in Kaseyev’s name.

He now spends his days working at a beauty salon in Kiev for the equivalent of about $8 a haircut. He is also a certified colorist.

The best part of his day, he said, comes from seeing the new “sense of self-confidence” in his clients as they leave his chair, examining their fresh new look.