Streetwise Professor

November 5, 2014

Finally: Letting Slip the Accountants of War. Target: Timchenko-and Gunvor.

Filed under: Commodities,Energy,Politics,Russia — The Professor @ 8:13 pm

At the time of the Russian invasion of Georgia in 2008, I advocated that the US government “cry havoc! and let slip the accountants of war.” I specifically identified Gunvor as one of the targets.

Well, more than six years and another invasion later, that’s exactly what’s happening. Federal prosecutors from the Eastern District of New York-the go to guys and gals for big time financial cases-are going after ex(?)-Gunvor owner Gennady Timchenko for potentially corrupt transactions between Gunvor and Rosneft:

U.S. prosecutors have launched a money-laundering investigation of a member of Vladimir Putin ’s inner circle, several people familiar with the efforts said, in a politically sensitive escalation of pressure on the Russian president’s cadre of billionaire supporters.

The U.S. Attorney’s Office for the Eastern District of New York, aided by the Justice Department, is investigating whether Gennady Timchenko transferred funds linked to allegedly corrupt deals in Russia through the U.S. financial system, the people said.

The prosecutors are probing transactions in which the Geneva-based commodities firm Mr. Timchenko founded, Gunvor Group, purchased oil from Russia’s OAO Rosneft and later sold it to third parties, one of the people familiar with the matter said. Investigators have in recent months requested information about the prices Gunvor charged, the person said.

A State Department cable released by Wikileaks suggests at least part of which prosecutors are looking at:

Cables from the U.S. Department of State in 2008, later released by WikiLeaks, relayed allegations that Gunvor is the mandatory trader for certain oil exports, and that the firm adds $1 to each barrel. “In a competitive market, by contrast, an oil trader might add anywhere from five to 20 cents ‘maximum’ to the price,” they said. One cable relayed allegations that Gunvor “is just a front for ’massive corruption.’ ”

Buying Russian oil at prices discounted from world prices and then selling it at world prices has been a ticket to riches in Russia since before the collapse of the USSR, and a proven way of getting money out of the country.

And it gets better! The prosecutors are specifically investigating whether any illicit funds went into Putin’s personal pocket, after a few trips through the laundry.

If indicted, Timchenko would likely be put on an Interpol Red Notice list, which would result in his arrest in most jurisdictions in the world. Even though he has been Red Noticed yet, the US’s FUD campaign has already put a major crimp in Gennady’s get along:

Mr. Timchenko told Russian news agency Itar-Tass in August that he’s afraid to travel to much of Europe.

“Alas, there are reasons to be seriously afraid of provocations from the U.S. special services,” he said in the interview. “Believe me, this isn’t speculation, but concrete information, whose details I cannot share with you yet for obvious reasons. But we are working on this issue.”

So I guess it’s not too big a deal that sanctions have grounded Timchenko’s Gulfstream G650. Not like he’s going anywhere.

The most amusing part of the article was the response of Putin’s Jay Carney, Dmitry Peskov:

Mr. Putin’s spokesman, Dmitry Peskov, said: “We’re not aware of any investigation, and we’re not following such things.”

Not following. Riiiggghhht.

Although the article suggests that Timchenko personally is the target of the probe, Gunvor is inextricably entangled in such an investigation. So speaking of probe, Gunvor can expect months if not years of the financial and legal equivalent of a proctological exam. Thus, the company’s recent frantic efforts to de-Russify may come to naught. The existential crisis that the firm apparently escaped in March and April is likely to re-appear, with a vengeance. Since this investigation strikes at the company directly, and since it involves actions and events that have occurred (or not), there is no ready expedient like severing ties with Timchenko that can defuse this threat. Its fate now largely hinges on what investigators turn up. And believe me, they will leave no stone unturned.

It will be interesting to see what the company’s bond will do tomorrow. Its yield spiked when Timchenko was sanctioned. I’d expect the same tomorrow. It will also be quite interesting to see what the banks do. The company put on a full court press with the banks (and on Capitol Hill too) to keep the loans flowing last time, and succeeded. But this investigation represents a threat that is orders of magnitude greater. Thoughts of BNP are no doubt going through many banker brains right now. The company’s fate therefore truly hangs in the balance.

Ironically, I’m in Atlanta for an Atlanta Fed conference to present a paper about the systemic risks posed (or not) by commodity trading firms. Are they too big to fail? Would the financial distress of a big commodity trading firm pose threats to the broader financial system? I think not, but I believe there are pretty good odds that I will soon be able to add a new case study to the paper.


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  1. > Buying Russian oil at prices discounted from world prices and then selling it at world prices has been a ticket to riches in Russia since before the collapse of the USSR, and a proven way of getting money out of the country.

    Hell, that’s how the KGB was financing foreign operations deemed vital while USSR was collapsing and Western assistance was coming to “save poor Russia”: e.g. a discounted oil for sugar deal ordered by Gaidar to finance the radio-surveillance base in Cuba.

    Comment by Ivan — November 6, 2014 @ 12:31 am

  2. yep, Global Witness has done a bunch of investigation on this.

    In fact, Turkmenistan traded its energy exports for —- galoshes. Just one example of brutal corruption in the former sovok union.

    Comment by elmer — November 6, 2014 @ 8:16 am

  3. Emotionally it feels good to learn of Putin cronies getting a commupence. But I think a war of accountants is much more dangerous than you consider…

    if Eric Holder is driven by politics to use the force of law against political opponents, it smells just like Putin’s actions against Khodorkovsky. It is a dangerous slope.

    The USA keeps the world order in place with a powerful military and perhaps just as importantly not sticking its nose in commercial transactions (like the rest of the world). Economic sanctions against a country are one thing, but politically motivated sanctions against individuals close to Putin smells like the actions of a despot, and Obama is one in disguise.

    My heart is torn regarding Timchenko, but my intellect is very worried about financial stability of the world when it is threatened by the US prosecutors in far away places just for the sake of using dollars- Eric Holder’s jurisdiction and political machinery should not extend beyond US borders. it is a dangerous game.

    Breakdown of the world cash-settlement system in dollars could destroy the world as much as a nuclear weapon. tens of millions would starve.

    Comment by scott — November 6, 2014 @ 10:19 am

  4. scott, you sound like you belong on zerohedge. US has jurisdiction over banks domiciled in the US. No one forced that idiot Timchenko to launder his money here.

    Comment by d — November 6, 2014 @ 12:01 pm

  5. “Breakdown of the world cash-settlement system in dollars could destroy the world as much as a nuclear weapon. tens of millions would starve.”

    Good thing Russia doesn’t have the trillions of dollars it would need to make that happen. Though they might have trillions of rubles in another week or so.

    Comment by Blackshoe — November 6, 2014 @ 6:27 pm

  6. […] a November 6 blog post, he said the investigation could threaten Gunvor with “the financial and legal equivalent of a […]

    Pingback by Explainer: Putin ‘Insider’ Gennady Timchenko’s U.S. Footprint | Radio Free — November 7, 2014 @ 5:30 am

  7. I don’t think criminal investigations into Timchenko are politically motivated in the sense some innocent person is being targeted because they are friends with someone. If Timchenko was not already tied to Putin, his criminal activities would have been investigated earlier. What was politically motivated was the decision to NOT investigate earlier. That might have upset Russia, and the US and West in general didn’t want to deal with the political hassle it would cause with relations to Russia. So the rule of law was overruled for foreign policy reasons.

    It’s only because relations with Russia are so bad now that the political reasons for ignoring violations of the law no longer exist, and the normal course of things resume.

    All the various individual sanctions are doing are letting the world know that criminals will be treated like criminals now despite their relationship with Putin which protected them before.

    Comment by Chris — November 7, 2014 @ 11:37 am

  8. McCain definitely reads SWP 🙂

    “The United States and Europe need to stop assuming that the provision of lethal military assistance to Ukraine would provoke President Putin into further aggression. What is most provocative to Putin is U.S. and European unwillingness to take these steps, and the perception of weakness it fosters.”

    Comment by Ivan — November 9, 2014 @ 8:15 pm

  9. @Ivan. Heh. It’s not the first time. In the immediate aftermath of Benghazi, he made remarks on one of the Sunday shows that matched a SWP post very closely.

    The ProfessorComment by The Professor — November 9, 2014 @ 9:18 pm


    This article mentions Professor’s interview to Radio Liberty. Is there a full transcript available?

    Comment by LL — November 11, 2014 @ 7:32 am

  11. @LL. Certainly not in Russian 😉 Seriously, though, it was not recorded: it was a normal phone conversation with the reporter who just transcribed what I said into his computer. That’s the way these things usually work.

    The ProfessorComment by The Professor — November 11, 2014 @ 9:34 am

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