A glitzy development built on an environmentally sensitive Cypriot coast was partly financed by companies owned by figures connected to the notorious Russian tax fraud, writes OCCRP.
- One of the first purchasers of a villa at the Cap St Georges luxury resort was a company owned by Dmitry Klyuev, who was identified by the U.S. as the alleged ringleader of a criminal group behind a huge tax fraud now known as the “Magnitsky Affair.”
- One of the companies originally behind the resort was part-owned by Russian businessman Igor Sagiryan, whose Panamanian company received $2 million from Klyuev-owned companies.
- These Klyuev-owned companies had themselves been paid by companies that received proceeds of the fraud, according to exhibits presented by the U.S. Department of Justice in a U.S. civil case.
- The head of Cypriot service provider ConnectedSky served as director and nominee shareholder for companies owned by Klyuev.
- Cap St Georges hotel and villas were built near protected land, and have been blamed by activists and the European Commission for damaging the sensitive environment.
Not long ago, the sleepy seaside village of Pegeia on Cyprus’s western coast was best known for its banana plantations and olive groves. Its biggest landmarks were the St. George chapel and its namesake fish tavern.
Today, that chapel has a glitzier namesake: the Cap St Georges development, which is home to a new luxury hotel and hundreds of expensive beachfront villas — one of which is reportedly owned by pop star Shakira.
Advertisements and billboards around Cyprus identify the luxe resort’s developer as Korantina Homes, a company owned by Cypriot businessman George Ioannou.
But Cap St Georges’ origins are a little more complex — and murky — than its advertisements suggest. The resort was actually developed by a group of companies that included opaque offshore firms, making it difficult to establish who owned or invested in the project over the years.
Using leaked records and corporate filings, OCCRP reporters discovered that key early investments in the project came from two Russians linked to the infamous “Magnitsky Affair” tax fraud. The case was named after whistleblower Sergei Magnitsky, who died in prison after giving evidence about a scam in which $230 million was stolen from the Russian state and siphoned out of the country through a maze of shell companies.
Some of the documents come from a leak of files from Cypriot corporate service providers that make up Cyprus Confidential, a global investigative collaboration led by the International Consortium of Investigative Journalists (ICIJ) and Paper Trail Media.
The alleged ringleader of a criminal group behind the tax fraud, Dmitry Klyuev, was one of the first buyers of a villa at Cap St Georges and appears to have been a shareholder in an investment company behind the resort. Klyuev was identified by the U.S. government as an “organized crime” figure and sanctioned in 2014 for his alleged role in the criminal conspiracy uncovered by Magnitsky — but he appears to have held on to his villa until 2019 by transferring it to proxy owners.
Igor Sagiryan — at the time chairman of a financial firm whose subsidiary allegedly received millions of dollars from companies linked to the proceeds from the tax scam — was a founding shareholder of the offshore holding company that brought investors into the Cap St Georges project. The holding company’s subsidiary owned part of the land the project was built on and sold its villas.
Reporters also discovered that Sagiryan owned a Panamanian company that received $2 million in 2008 from two British Virgin Islands companies owned by Klyuev, which themselves had received money from companies named by the U.S. Department of Justice in a civil court case as recipients of proceeds of the tax fraud.
“What you have here is a window into this murky world of criminal and corrupt capital that has left Russia and been distributed in financial havens around the world,” said Louise Shelley, an expert for the U.S. Southern District of New York’s case against Prevezon Holdings, a Cypriot real estate company that allegedly laundered proceeds of the tax fraud.
“Some of this tainted money appears to have been consolidated” in the Cap St Georges real estate development, Shelley added.
Tax advisor Magnitsky was jailed after testifying against the perpetrators of the scam. His death in prison prompted a campaign spearheaded by American-British investor Bill Browder, whose companies were targeted by the fraud. The campaign resulted in the so-called “Magnitsky Act,” which included a package of targeted U.S. sanctions against the alleged perpetrators, including Klyuev.
Sagiryan has not been sanctioned. A lawyer for Browder’s company alleged, in testimony in a U.S. court case in 2009, that Renaissance Capital — the financial firm where Sagiryan was chairman at the time of the scam — may have had some link “to those who were involved in orchestrating the fraud.”
Klyuev did not respond to a request for comment. In an email to OCCRP, Sagiryan confirmed his involvement in the Cap St Georges project, but said he divested in 2015 and made a loss on his investment. He said he was not involved with and did not benefit from the events surrounding the Magnitsky fraud.
Ioannou said he had never met or even heard of Klyuev. He said Sagiryan had owned a villa at the resort and had promoted investments into the project, but that neither man “have any financial interests in Cap St Georges.”
About the ‘Cyprus Confidential’ Project
Cyprus Confidential is a global investigation examining Russian influence in Cyprus, and how local service providers helped oligarchs and billionaires structure their wealth over the years preceding the 2022 full-scale invasion of Ukraine. The project is based on more than 3.6 million documents leaked from six different Cypriot service providers, as well as a Latvian firm.
The Cypriot firms are DJC Accountants, ConnectedSky, Cypcodirect, MeritServus, MeritKapital, and Kallias and Associates. Additional records came from a Latvian company, Dataset SIA, which sells Cypriot corporate registry documents through a website called i-Cyprus.
The MeritServus and MeritKapital records were shared with OCCRP, ICIJ and other media outlets by Distributed Denial of Secrets (DDoS). OCCRP has previously reported on these firms, and the current project builds upon this work. ICIJ also shared the leaked records from Cypcodirect, ConnectedSky, i-Cyprus, and Kallias and Associates that were obtained by Paper Trail Media. In the case of Kallias and Associates, the documents were obtained from DDoS who shared them with Paper Trail Media and ICIJ. OCCRP shared the DJC Accountants leaked records with media partners after previously obtaining them via DDoS.
A ‘Mediterranean Dacha’
An advertorial published in the Russian business newspaper Kommersant on November 20, 2008, promoted the Cap St Georges villas as a version of a “Mediterranean dacha,” an allusion to traditional Russian countryside getaways.
The ad appeared just four days before Sergei Magnitsky was arrested on tax evasion allegations, following testimony he gave implicating Russian Interior Ministry officials and Klyuev in a complex fraud scheme. Magnitsky alleged Klyuev ran a criminal group that was behind the scam.
As part of that scheme, police had raided the Russian offices of Browder’s companies in June 2007, based on false paperwork. The criminal group then seized these companies while laying claim to a fraudulent $230 million tax refund, Magnitsky alleged. The funds were funneled out of the country and laundered through a network of offshore firms.
After Magnitsky’s death and the campaign led by Browder, the U.S. opened a civil case against Prevezon Holdings Limited, a Cypriot company, which it accused of laundering part of the fraud’s proceeds through New York real estate. (Prevezon agreed to a $5.9 million settlement in 2017.)
Court exhibits presented in the case identified over $9 million of the fraud’s proceeds that were channeled via 13 shell companies to the British Virgin Islands subsidiary of Renaissance Capital, where Sagiryan was president at the time.
Another four shell companies identified in the exhibits sent money to two British Virgin Islands firms owned by Klyuev, which in turn sent $2 million to Athina Corporation, a Panamanian company , according to documents seen by reporters.
“The source of this money has been identified by the top U.S. court … as being tainted money,” said Shelley, the U.S. government’s expert in the Prevezon case, adding that the proceeds have since been traced to Dubai and Cyprus.
‘Founder Shareholder’
In March 2007, around three months before the police raids of Browder’s firms, a company called Alpha Arch Investments Limited was incorporated in the British Virgin Islands, apparently to manage investments into the eventual development of Cap St Georges.
A letter from a representative of Alpha Arch to potential investors in the Cap St Georges project from June of that year described Sagiryan as one of three “founder shareholders” who held “class A” shares in the firm, and had responsibility for overseeing company business plans and investments.
Outside investors into the project would receive class B shares, entitling them to dividends, but not to any influence over the company.
Cypriot company Melkov Limited bought one of the first villas for 3.3 million euros in October 2009. Reporters could not find documentation of Melkov’s ownership for that month, but Klyuev is named as the company’s controlling shareholder in a December 2009 management agreement with a Cypriot fiduciary services firm. Melkov purchased the villa “A1” from Silfona Developments, a Cypriot company ultimately owned by Alpha Arch.
The investment may have earned Klyuev shares in the firms behind the development, according to a leaked 2018 French law enforcement report.
The resort was to be built on land owned by a Cypriot subsidiary of Alpha Arch called Silfona Limited — whose “beneficial owner,” the French report claimed, was Klyuev. A well-placed source who had seen company records told OCCRP that Klyuev had a minority stake in Silfona.
Reporters could not independently corroborate the French document’s information about Klyuev and Silfona, or the source’s account.
But Silfona’s 2011 company financials do list Klyuev’s Melkov as a “related party,” indicating Melkov’s owner may have had “the ability to control … or exercise significant influence” over Silfona’s ultimate parent company, according to the Silfona financials.
Sagiryan told OCCRP that he was “one of the investors” in Cap St Georges but did not run the project or have control over Alpha Arch Investments. He said he was involved in the development until 2015, but “made a huge personal loss” on Cap St Georges, and that to his knowledge Klyuev was not an investor in the project.
Klyuev did not respond to emailed requests for comment.
🔗Silfona’s Accounts
By 2011, Silfona was reporting that the value of its property under development was over 54 million euros. That had allowed the company to secure 35 million euros in loans from a Cypriot bank.
But in its 2012 financial statements, the company said it had changed its valuation methods, suddenly reducing the value of its property under development to 14.4 million euros.
This reduction was “probably done to bring the amount of the loans to the true market value of the collateral assets, thus helping the company to remain solvent in order to meet its obligations,” Kyriacos Iordanou, the director of the Institute of Certified Public Accountants of Cyprus, which supervises the accounting profession, told OCCRP.
He said that the “image presented by the financial statements of the company raises several concerns,” including that its real estate portfolio had been overvalued.
Silfona’s director did not respond to questions about the company’s financial statements.
Enablers Inc.
By June 2012, interest in the Magnitsky Affair had turned into concrete policy in the U.S., where the Senate Foreign Relations Committee unanimously passed the Sergei Magnitsky Rule of Law Accountability Act. The following month, Klyuev exited Melkov’s parent company, Belize-registered Alpine Management Limited, according to a leaked letter from Klyuev to a corporate services firm.
By February 2014, Klyuev’s shares in Alpine had been transferred to Sergey Smorodin, a former regional minister in Russia, other leaked corporate records show.
Klyuev first transferred the shares to Larisa Bolkhovitina — a low-profile Russian businesswoman — before they moved via the Cypriot service provider ConnectedSky Legal & Corporate Consultants Limited to Smorodin.
🔗The Proxies
Records obtained by OCCRP suggest both Bolkhovitina and Smorodin acted as proxies for Klyuev in multiple cases:
- Two other Klyuev companies, one in Belize and one in the British Virgin Islands, were transferred to Bolkhovitina and then to Smorodin, via ConnectedSky as nominee shareholders, according to leaked documents.
- A banking alert, known as a “suspicious activity report,” filed by the Cypriot branch of Greece’s Eurobank, confirmed that Alpine, Melkov, and the Belize company were all owned by Klyuev but moved to Bolkhovitina by 2013.
- Two Klyuev companies in the British Virgin Islands, which received funds from companies that handled proceeds of the tax fraud, were also transferred to Smorodin by August 2011, according to a leaked email.
On paper, Smorodin remained the owner of Melkov until the villa was sold to Ioannou’s company Celicandia Limited for 3.8 million euros in 2019, according to the sales contract. But James Henry, an economist and lawyer who is an expert on illicit financial flows, said there were indications that Klyuev had remained the real owner of Melkov — and the Cypriot villa — the entire time.
“There are many indications of a sham transfer to proxy cutouts, allowing the real owner to maintain control,” Henry said after reviewing the transfers. “In this situation a proper investigation by tax or [anti-money laundering] authorities is called for.”
The service provider ConnectedSky administered multiple Klyuev companies, while also counting among its clients other suspects in the Magnitsky tax fraud, including Andrey Pavlov and Artem Zuev, according to leaked documents from Cyprus Confidential.
When Cypriot law enforcement requested information from ConnectedSky for a criminal investigation of Klyuev and Pavlov in September 2018, the company responded with a letter, obtained by reporters, in which it confirmed that Pavlov was a client between 2012 and 2014, but claimed to have had no relationship with Klyuev at that time.
But through the Cyprus Confidential leak reporters have obtained hundreds of documents covering dozens of companies directly or indirectly owned by Klyuev and his associates that were administered by ConnectedSky. Among the documents is a 2015 letter signed by the head of the firm, Charlambos Samir, identifying Klyuev as a client.
The documents show that ConnectedSky and Samir personally served as directors and nominee shareholders of multiple Klyuev-linked companies, including Melkov and its Belize-registered parent company Alpine Management Limited, as recently as 2020.
Bolkhovitina, and Smorodin could not be reached for comment, and Klyuev did not respond to emailed questions. ConnectedSky declined to answer questions, but the company said that it and its “associated companies are duly regulated companies, which always abide respective laws.” It said it did not represent Bolkhovitina and Smorodin.
Regulation Violations
In December 2015, Alpha Arch’s subsidiaries sold the Cap St Georges real estate for 16 million euros to companies owned by Cypriot businessman Ioannou.
Since then, the resort has grown into a sprawling development of 200 private villas with swimming pools, a hotel with 202 rooms, and accompanying sewage treatment plants.
The development has also continued to generate controversy. Before the resort was built, Pegeira’s coastal caves housed the endangered Mediterranean monk seal, and nature lovers traveled here to walk on fields of poppies and anemones flowers.
A 2019 “warning letter” from the European Commission to the Cypriot government accused Cyprus of failing to carry out an “appropriate assessment” of several projects that risked damaging sensitive environments — including Cap St Georges.
Ioannou told OCCRP that when developing that area, “we were very cautious in abiding to all enforced regulations including environmental restrictions so that the development will not interfere or harm the natural beauty of the area.” He said that his company, Korantina, and all the companies under it, “always follow all the laws and regulations and we operate with full respect towards all our clients and associates.”
From 2016 to 2022, Ioannou’s companies made at least 170,000 euros in political donations, including every party continuously in parliament in the past decade except the development’s fiercest critics — the Green Party. Theano Kalavana, chairwoman of OPEK, a Cypriot think tank focused on political and social problems, told OCCRP the donations were generous by the standards of Cypriot political giving.
Ioannou said that all his political donations had been “below the maximum extent of contribution allowed by law” and that each donation was “transparent and is public data.”
Alexandra Attalidou, a lawmaker elected in 2021 on the Green ballot before switching to another party this month, told OCCRP there should be an investigation into whether any donations had secured political favors for the companies and the Cap St Georges development.
“Clearly this case should be looked into, as to what extent there is a correlation between these donations and the tolerance the state showed to such a blatant violation,” she said.