A Russian bank that claims it has been defrauded by its former co-owner, Boris Mints, is preparing to seize his assets, including a Scottish castle, French Riviera villas and Moscow apartments, all purportedly held in a Cayman Islands trust.
Bank Otkritie, a Russian bank that was taken over and bailed out with US$8 billion by the Russian central bank, has filed a discovery application in the US seeking information from Citibank, Deutsche Bank and Deutsche Bank Securities to help it enforce an award issued by the London Court of International Arbitration against Mints.
Bank Otkritie and National Bank Trust, the Russian state-owned financial institution that holds ‘bad bank’ assets, claim that one of the parties in an alleged fraudulent scheme, Coniston Management Ltd., has played a role in dissipating assets of the bank since 2017.
They allege that British Virgin Islands-domiciled Coniston was controlled by the Russian oligarch and his three sons, Alexander, Dmitriy and Igor.
Mints formerly co-owned Bank Otkritie together with businessman Vadim Belyaev, before it became one of several banks taken over by the Russian central bank in 2017.
At the time it was the country’s eighth-largest lender.
The petitioners seek information from the US financial institutions on any transactions involving Coniston that exceeded $50,000 to identify any assets that may have been fraudulently transferred to members of the Mints family and others.
The discovery will also assist in High Court proceedings in the UK, the banks said.
“Once this discovery is obtained, the Petitioners will commence actions abroad to freeze and/or recover assets identified via this discovery,” the court application stated.
The alleged fraudulent scheme
Bank Otkritie alleges that shortly before it was put into temporary administration, the O1 Group controlled by the Mints family owed the bank approximately US$500 million in secured loans.
The alleged fraudulent scheme consisted of replacing this debt, secured by shares in a property holding company that was part of the O1 Group, with unsecured, long-term, low-interest, illiquid and unrated bonds that were issued by a special purpose vehicle with no material assets.
The bank claims that Mints and Belyaev, in collusion with the chairman of the bank’s management board, Evgeny Dankevich, induced it to buy the bonds at an inflated value, while the proceeds were used to repay the O1 Group loans.
All three men subsequently left – the banks say fled – Russia.
Mints’ O1 Group carried out a similar bond replacement transaction for debt held by Rost Bank, another Russian bank that was shortly after taken over the Russian central bank.
The UK proceedings
The High Court proceedings started in 2018 when the Russian banks petitioned the court to freeze GBP470 million of assets belonging to the Mints family, including a Scottish mansion known as the Tower of Lethendy, a property reportedly owned by Cayman-registered MFT Braveheart Ltd.
The court’s freezing order was later turned into an agreement prohibiting their disposal.
The Mints family members deny the fraud claims and contested the allegations in arbitration proceedings.
In the proceedings Coniston, along with the two other entities that had pledged shares in O1 Properties Limited for the original secured loans, sought a declaration that their pledges of stock had been validly terminated, implying that the bond replacement transaction was a bona fide commercial transaction.
The London Court of Arbitration, however, upheld the fraud claims by Bank Otkritie, and is expected to rule in May 2022 on a claim for US$500 million in losses plus legal fees, the petition said.
In June 2019, the Russian banks filed a separate proceeding in the High Court against members of the Mints family, and later joined their alleged co-conspirators and a Cayman Islands trust the Mints family allegedly used to fraudulently transfer their assets.
The High Court proceedings are ongoing.
In April 2021, the High Court refused the application by the alleged co-conspirators, Belyaev, Dankevich and Mikail Shishkhanov, the former chairman of Rost Bank, to set aside an order permitting the Russian banks to bring a claim against them in the UK rather than Russia.
They had argued that it was a Russian case in which the claimants and the defendants were Russians and the alleged wrongdoing and losses occurred in Russia under Russian law.
But the court decided that it was rational for the claimants to pursue their claim in England because it would be easier to enforce an English judgment than a Russian one against certain Cayman trust interests held by the Mints.
The Cayman trust assets
In the High Court case, the banks claim that Boris Mints in December 2017 transferred the shares in 19 companies to Maples FS as trustee of a newly established Cayman Islands trust known as the MF Trust.
According to the banks, 12 of the companies hold real estate in Moscow; four properties in Théoule sur Mer on the French Riviera; two properties in the St. George’s Hill Estate in Surrey; and a historic property in Scotland.
The banks allege that the trust is structured in such a way that Boris Mints never relinquished control of the assets and remains the beneficial owner.
Although his son Igor is named as protector of the trust, they argue that he is just an agent or nominee for his father.
“Igor Mints was appointed as the Protector of the MF Trust simply to hide the true reality, namely that Boris Mints retained complete control over the assets within the MF Trust,” the court filing said.
In addition, the banks claim that Mints transferred the company shares to the trust shortly after the bond replacement transaction at Bank Otkritie to “protect” them from any enforcement action by creditors and frustrate the enforcement of any judgment that might be obtained against him.
At the same time, the structure would still allow “Mints and his extended family to continue to enjoy the economic benefit of the Trust Companies and their assets.”
It is further alleged that the transfer of the company assets to the trust was a disposition of property with the intent to defraud under the Cayman Islands Fraudulent Dispositions Law.
The plaintiffs in the case seek a declaration from the UK court that Boris Mints is the beneficial owner of the trust assets and an order that the transfer of the trust companies and any other assets is reversed under the Fraudulent Dispositions Law or the Insolvency Act.
Maples FS filed a court application in the Cayman Islands in July 2021, seeking a declaration from the Grand Court that it is the trustee of MF Trust and that it holds the trust assets for the beneficiaries under the terms of the trust deed “and not on bare trust for Boris Mints”.
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