(Bloomberg) – The meeting above the Virgin Active gymnasium opposite the Museum of London on September 2 was loud and contentious, even for a gathering of bankrupt company creditors.
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Accountants who shut down British wealth management firm Dolfin Financial faced more than 50 of its wealthy and angry Chinese clients yelling and harassing them, many of them in Mandarin, three people at the hearing said. meeting. Dolfin had secured them ‘golden visas’ for stays in Britain of around three and a half years in exchange for investments, using means questioned by the Financial Conduct Authority. Fearing that their visas would be revoked, they demanded documents proving the validity of their investments.
For Dolfin, the reunion was another ugly chapter in a saga that brought about his downfall. In March last year, the FCA banned him from almost all regulated activities, restrictions that pushed him into administration. The regulator has been reviewing the firm’s practices since at least 2019 due to concerns about its visa business and potential conflicts of interest.
Dolfin used a complicated series of transactions that allowed wealthy Chinese clients to pay just 400,000 pounds ($542,000) for Tier 1 investor visas which by law require an investment of at least 2 million books, according to a FCA watchdog. Company directors told creditors on January 28 that the FCA investigation was ongoing. A spokeswoman for the regulator declined to comment.
With the fate of Chinese investors in limbo, the Dolfin case has once again drawn attention to the UK’s Tier 1 investor visas, showing how easily the system can be manipulated. For years, as the scheme was mainly used by wealthy Russians and members of the ruling elites of former Soviet republics, campaigners have protested that these visas are a conduit for dirty money to enter the UK. .
Now, amid concerns about the influence of Russian money, Britain is preparing to end the golden visa regime, a person familiar with the matter said on Wednesday.
The UK has issued at least 12,000 such visas since the system was created in 1994. Around 6,000 are being reviewed for national security risks, said William Wallace, a House of Lords lawmaker , in Parliament last week.
“We have imported corruption and with it the danger that corrupt foreign wealth will in turn corrupt our own society and our democracy,” Wallace said as he pushed the government to release its audit of old visas.
A 2020 parliamentary report said there had been “exploitation” of the investor visa program and that it “provided ideal mechanisms through which illicit finance could be recycled via what has been called the “London” laundromat.
For Dolfin, the visa service was an exotic side of business. Founded in 2013 by Denis Nagy and Roman Joukovski, with offices a stone’s throw from the Ritz Hotel in central London, Dolfin offered basic financial services, including at one point advising the former Goldman Sachs economist and his British counterpart Jim O’Neill. blind trust and offering “discretionary” management services for clients whose assets are held by Credit Suisse Group AG. The visa case, however, was his downfall.
The FCA, in its lookout notice to Dolfin, said that “the company’s visa activity was so clearly unlikely to comply with Tier 1 visa requirements that Dolfin would appear to have known, or at the very least had reasonable grounds to believe that he was facilitating the commission of an offence. »
Adam Stephens, Dolfin’s joint special manager, said he could not comment on investigations into the company’s past business activities. Dolfin co-founders Nagy and Zhukovsky declined to comment on the filing of FCA’s findings.
“Mr. Zhukovsky and Mr. Nagy had no material involvement in the FCA investigation that resulted in the findings set out in the FCA lookout,” a spokeswoman for them said in the statement. an email. She said that to the knowledge of the co-founders, “the visa system was fully compliant with all applicable laws and regulations.”
Chinese investors who got their visa through Dolfin say they thought the process was legitimate. The Home Office is still reviewing their visas, but for now they cannot apply for an extension or indefinite leave to stay.
Dolfin marketed its visa services to these customers by offering five options named “Jade”, “Gold”, “Silver”, “Platinum” and “Palladium” which used a complicated set of transactions to obtain golden visas with less than the amount required. investment, says the FCA’s watch notice.
Like many companies catering to global elites, Dolfin attracted clients with an office that exuded grandeur and legitimacy. It was in a building on Berkeley Street that is home to some of the biggest names in global investing, including hedge funds Millennium Capital Partners and King Street Capital Management and private equity titan Bain Capital. The top-floor office that Dolfin occupied until 2021 was impressive for a company that lost £1.4million in 2019.
In a nifty YouTube video titled “The Future of Finance Today” a few years ago, Nagy looked back at the genesis of the company that had quickly grown into a company of more than 100 employees. Staff members made cameo appearances, talking about the “dynamic” environment, with shots of views from the office over Mayfair stretching out to the iconic BT Tower.
The glowing presentation belied the company’s often chaotic happenings. Compliance was something of a revolving door, according to former employees of the company. Some said they were horrified by the shortcuts taken by management in regulated activities, quitting before their own reputations suffered. The co-founders’ spokeswoman said Dolfin’s operations complied with FCA regulations.
In the visa sector, Dolfin had 97 clients, all from China and its semi-autonomous regions. Here’s how its most popular “gold” option worked, according to the FCA’s watchdog notice:
First, the visa applicant asks a family member to act as the sole owner and manager of a special purpose vehicle created in an offshore jurisdiction like the British Virgin Islands. The SPV then “borrows” £1.6 million worth of bonds from a Dolfin-affiliated company, which it then sells to another Dolfin-related entity for £1.6 million. The family member then declares a dividend from the SPV of £1.6 million, sending it to the claimant’s account at Dolfin. The claimant then deposits £400,000 into the account and instructs Dolfin to invest the £2 million, which the wealth manager does through securities linked to family members, directors or other associates .
The deals basically resulted in the applicant paying just £400,000 for the visa. The scheme was retrospectively approved by immigration lawyers, but the FCA says the lawyers weren’t told the full story.
Dolfin is not the first company to be accused of playing with the system. Years ago, Maxwell Asset Management Ltd., another golden visa facilitator, had a process where it loaned money to clients on the condition that the funds were invested in an entity called Eclectic Capital Management. Eclectic, owned by the wife of Maxwell owner Dimitri Kirpichenko, invested nearly all of that money in Russian rather than British companies, court documents show, defeating the purpose of investment visas.
The Home Office rejected the claims, arguing that Eclectic’s investments did not comply with the rules. The decision was challenged by some investors and last year the Court of Appeals agreed that the claims complied with the letter if not the spirit of the law.
“I did not come to these conclusions with enthusiasm,” Judge Andrew Popplewell said, ruling that the decision to deny visas to Maxwell clients was incorrect. “This result is, however, a product of rule-making.”
The Home Office is asking the UK’s highest court to review the Maxwell case. Several attempts to reach Maxwell and Eclectic for comment were unsuccessful.
In the Dolfin case, the Interior Ministry has yet to send any denial letters, according to two people familiar with the matter. As in the Maxwell case, the final decision may rest with a court. Some of Dolfin’s clients have engaged Jackson & Lyon LLP, the law firm used by Maxwell visa applicants. The company said it represents a number of Dolfin Tier 1 investors and will determine the best course of action if their visas are revoked.
The Home Office declined to comment on the Dolfin case, but a spokeswoman said the department “will not tolerate abuse of the system”.
To complicate matters further for Dolfin, the FCA said in its watch notice that its broader investigation – beyond visas – found transactions suggesting an “unacceptable risk of the company being used for financial crime purposes”. .
It revealed Dolfin’s ‘significant and ongoing relationship’ with a very wealthy client who had been the subject of a UK unexplained wealth order. The client is Nurali Aliyev, the grandson of longtime Kazakhstan leader Nursultan Nazarbayev, according to two people familiar with the matter. SourceMaterial and openDemocracy revealed Aliyev’s identity as Dolfin’s mystery shopper last month.
For many British lawmakers, Aliyev’s deals in the country are emblematic of London’s role in the world of financial crime.
“Britain has opened our borders, our property market, our financial structures to the Kazakh ruling class, allowing them to launder their illicit wealth and spend it,” MP Margaret Hodge told parliament this month, calling to add Aliyev to the list. Kazakh elites under anti-corruption sanctions.
She cited a Chatham House report showing that around £330 million of real estate in the UK is owned by the extended Nazarbayev family. Aliyev’s lawyers did not respond to messages seeking comment, but in a 2020 case overturning a wealth order, Aliyev said the charges against him and his family were “totally baseless”. Dolfin’s directors and co-founders declined to comment on any company dealings with Aliyev.
Meanwhile, some of the money from Dolfin’s Tier 1 Chinese customers appears to have been invested in companies with ties to the company’s past and current directors. For example, some was invested in bonds issued by Artek Group Plc, a company owned by Nagy and Zhukovsky’s wife, people familiar with the matter said. A spokeswoman for the Dolfin co-founders declined to comment on the investment.
Unlike Dolfin, Artek is still in business. In fact, his office is on Berkeley Street, just across from Dolfin.
(Updates with the 2020 Golden Visa Report in the ninth paragraph.)
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