Behind Trump Soho partner, millions from post-Soviet mine empire

All of this starts at the Aktyubinsk Chromium Chemicals Plant (AZXS), a Nikita Khrushchev-era complex. It shares an industrial zone with a vast smelting plant; together, they have yielded lavish private wealth since the collapse of the Soviet Union.

In one sense, it’s a familiar snapshot of post-Soviet capitalism: state assets bought for a song, workers saying they were cheated out of shares and connected businessmen getting wildly rich.

This story, however, carves a path from near Kazakhstan’s northern border with Russia to the offshore financial centers of the Caribbean, to London and all the way to Trump property in Midtown Manhattan.

How and why funds from former Soviet states flowed into Trump-branded real estate has been the focus of speculation since the start of the 2016 presidential campaign. One theory, propounded by opponents of President Donald Trump is that his admiration for Russia’s Vladimir Putin comes down to money, a suggestion Trump has forcefully denied.

Still, Special Counsel Robert Mueller is digging into Trump’s business dealings, and the scramble for Kazakhstan’s chromium riches may fill in a piece of that puzzle. Company records, court filings and interviews in Kazakhstan and London suggest millions of dollars from the Aktobe plant wound their way to the U.S. and a development company with which Trump partnered to build a controversial Trump SoHo hotel-condominium complex in Manhattan.

There’s no suggestion that the Kazakh money ties Trump to Putin. But the funds tell an important story of the future president’s insouciance toward due diligence and business partner choices at a time when unmonitored cash was flooding out of Russia and other former Soviet states.

It was on the 24th floor of Trump Tower that Kazakh businessman Tevfik Arif, a key figure in Aktobe chromium, established Bayrock Group LLC. The plant passed millions of dollars to Bayrock, which organized financing for the Trump SoHo high-rise that Trump once hailed as a “work of art.” Earlier last month, Trump Soho’s new owner bought the Trump Organization out of its management contract for the project.

It’s unclear precisely how much money from the refinery might have coursed through Bayrock and to Trump SoHo and other Trump-branded projects that Bayrock planned or undertook, in Miami and Phoenix. A 2010 complaint by Bayrock finance director Jody Kriss against Arif and others said a confidential informant alleged that $10 million in equity contributions to Bayrock came from Arif’s brother. It said he had “access to cash accounts at a chromium refinery in Kazakhstan, but wherever it is from, Bayrock Holdings LLC is a mere conduit hiding that source.” After a court ruled that parts of the complaint had been improperly obtained, Kriss amended it. The latest version dropped the reference to Arif’s brother and the refinery. In 2016, a judge approved the case to proceed under racketeering and other statutes.

Arif, through a Bayrock spokeswoman, declined to comment on the case or a list of other questions.

In Aktobe, workers leaving their shift on a recent morning said they didn’t know who owned the chromium chemicals plant which exports the ingredients for anti-corrosive paints to about 30 countries and is known here by its Russian initials, AZXS. Inspirational Soviet-era statues of workers clutching a book and hardhat still stand over the entrance, 27 years after Kazakhstan declared its independence. Ruslan Kim, a smartly suited young ethnic Korean with a briefcase, who described himself as an AZXS representative, said he didn’t know, or ask, who owned the place.

There’s little doubt that Arif’s brother Refik has owned a controlling share of the plant since the early 1990s, when the pair started doing business with three men known collectively in Kazakhstan as the Troika, or trio. Today, the Troika own much of Kazakhstan’s metals industry, including the chromium smelter next to AZXS.

Audited 2016 accounts for AZXS show four shell companies as the plant’s main shareholders. According to the Panama Papers leak of offshore holdings, three of these were established in the British Virgin Islands and in turn were owned by shell companies, including one that shares a name with Tevfik Arif’s nephew, Polat Ali.

A 2011 leaked letter from Hamels Consultants, the London-based firm that organized the Arifs’ offshore holdings, said the annual profits from the chromium chemicals plant flowed into a further BVI entity, belonging to Refik Arif. In 2008, the most recent year cited in the letter, that profit was $44 million. (A spokeswoman for Hamels said the company could not comment on the affairs of its clients.)

Part of the chromium plant’s profits were then directed to Bayrock by issuing loans from a U.K. company registered in London as dormant. In one June 2005 instance, Tevfik Arif authorized Bayrock to borrow $2 million from the company at 6 percent a year. It isn’t clear whether the loan was repaid. The Bayrock spokeswoman declined to comment.

According to a 2007 Bayrock presentation, Arif was just one channel through which Kazakhstan’s chromium industry funded Bayrock. The other was the Troika’s multibillion-dollar metals empire and its chairman, Alexander Mashkevich.

Mashkevich and his two partners —Patokh Chodiev and Alijan Ibragimov— arrived in Kazakhstan in the early 1990s, securing control over exports from a swathe of metals industries. When those assets were then put up for privatization auction, the Troika were well-placed to win.

As early as 1996, Belgian prosecutors accused the trio of laundering a $55 million bribe by purchasing property outside Brussels. The case was since settled for an undisclosed fine and no admission of fault.

By 2007, their holding company, Eurasian Natural Resources Corporation Plc, went public in London. It soon became embroiled in one of the biggest scandals the City had seen in years. Allegations ranged from corruption in Kazakhstan to hundreds of millions of dollars in potential bribes paid to acquire mines in Africa. A U.K. Serious Fraud Office investigation is still under way. A member of the ENRC board, Ken Olisa, characterized the company’s practices at the time as “more Soviet than City.”

ENRC denied all wrongdoing and said it had “a zero-tolerance policy to bribery.” But the adverse publicity crashed the company’s share price and in 2013 — just six years after listing — the Troika took their company private again. Now based in Luxembourg, Eurasian Resources Group Sarl., or ERG, accounts for 4 percent of Kazakhstan’s economy.

How did so much of Kazakhstan’s natural-resources wealth end up in the hands of a few businessmen?

That question troubles Yerzhan Dosmukhamedov, a former Kazakhstani politician who has railed against what he sees as endemic corruption in his country. A critic of Kazakhstan’s President Nursultan Nazarbayev and his regime, Dosmukhamedov lives in self-imposed exile in London.

“No civilized financial institution should even shake hands with them,” Dosmukhamedov said of the Troika.

The Troika, in a letter from ERG’s lawyers, declined to comment on a list of queries the letter described as “a patchwork of stale matters.” When listed on the London Stock Exchange, the letter said, ENRC’s “assets (including Kazchrome), and its founders, including Mr. Machkevitch, were subject to the detailed level of scrutiny to be expected of such a business, at the time of flotation and since.”

Bayrock spokeswoman Angela Pruitt said Mashkevich was never a partner or investor in the firm. She did not explain why Bayrock had named him, backed by ENRC, as a strategic investor in 2007.

In many ways, Mashkevich makes an unlikely tycoon. During the Soviet era, he was a professor of philology and mixed with some of Central Asia’s best-known writers. His brother became a globe-trotting orchestral conductor.

“He was a really nice kid” from a family of intellectuals, recalls Zamira Sydykova, who grew up with Mashkevich in Kyrgyzstan. Once he became rich, he was generous to friends back home, she said, placing them into jobs in his business in Kazakhstan and funding a Jewish school in Bishkek, the Kyrgyz capital.

Sydykova, a prominent journalist and former Kyrgyz ambassador to the United States, declined to comment on Mashkevich’s business dealings because she knows little about them. Speaking broadly, however, she said influence peddling was endemic in Central Asia. “What is the problem?” she asked of the focus on Mashkevich’s reportedly close ties to Nazarbayev, a relationship he has denied. “You can’t do business here without connections in the government.”

Today Tevfik Arif and Mashkevich enjoy the trappings of extreme wealth. Arif lives in Port Washington on Long Island’s North Shore. Mashkevich, an Israeli national since the 1990s, has  homes in several countries including London, as well as a $30 million property near Buckingham Palace. He keeps a 300-foot-long superyacht, the Lady Lara. Mashkevich is worth at least $1 billion, according to Bloomberg data.

Others haven’t been so lucky.

In Xromtau, a dusty mining settlement 60 miles east of Aktobe, Natalya Ivanova recalls how in July 1999 she was ordered to sell her small stake in Kazakhstan’s lucrative chromium industry.

Under a state voucher privatization program, 10 percent of the shares in Kazchrome, a company that included the Troika’s chromium mine and two smelters, were earmarked for employees.

“My boss came and said, ‘Do you want to keep working here? If you do, you have to give up your shares,” Ivanova says.

Several of her neighbors, standing outside their drab concrete apartment blocks, tell similar stories. They say they were given three days; buses took them to Kazchrome’s headquarters in Aktobe; they were ordered to sign away their stock rights.

Ivanova kept her signed copy of the sale agreement. It shows she transferred her stock to a company registered in the British Virgin Islands. The price she was paid — the equivalent of $4 per share, or $316 in all — would have valued Kazchrome’s entire share issue at about $2.25 million.

It isn’t clear who owned the now-defunct BVI company, Essex Commercial Corporation. Given that the mine’s management worked for the Troika at the time, the workers assume it was one of them. When ENRC floated on the London Stock Exchange eight years later, it was valued at 6.8 billion pounds (then $13 billion). At the time, more than half of ENRC’s total revenue came from Kazchrome, suggesting a valuation in the billions.

Xromtau’s mine workers noticed. Hundreds combined to hire a lawyer, Bakhtygul Kanatov. He says government officials tried to bribe him to back off the class action suit he filed to seek redress. When he declined, police arrested him over a faked hit-and-run accident in a parking lot, and told him things would get worse if he didn’t drop the case, he says.

Kanatov dug a hole in the ground, buried his files and walked away. “One of the unhappiest times of my life,” he says.

What Kazakh shareholders and tax payers lost, Bayrock and other, much larger foreign recipients of funds extracted from the nation’s rich natural resource industry gained. According to one study, more than a quarter of Kazakh economic output slipped out of the country each year from 1995 to 2005.

There is no indication that the Trump Organization broke laws by working with Bayrock. Still, said former Kazakh Deputy Prime Minister Baltash Tursunbayev, it was a mistake. Sitting in the lobby of Almaty’s Rixos hotel, a chain Arif also listed among Bayrock’s projects, Tursunbayev said that in the interest of transparency, Trump should order an inquiry into his former business associates.

“Who were these people?” Tursunbayev asked. “Who were you dealing with?”

Story by Marc Champion, with assistance by Mark Hollingsworth.