When it comes to high-risk individuals, few compare to the enigmatic Ruben Vardanyan. With a vast network of offshore companies facilitating billions in questionable transactions, and alleged involvement in bribery schemes, Vardanyan's shadowy activities have raised red flags across the globe for many years.
Pertinent to this story of successful AML processes catching out the ‘bad guys’ is Ruben Vardanyan’s change in citizenship from Russian to Armenian, prompted by Russia's invasion of Ukraine.
A high-risk business
The need for stringent AML processes is paramount in high-risk businesses.
In this case, we see a virtual office provider, Remote-Office (name changed for confidentiality purposes) , who allows entities to establish a London address without a physical presence in the country, attempting to onboard an international complex entity.
The entity being onboarded is an Armenian bank, Arm-Bank (name changed for confidentiality purposes) which is ultimately linked to the elusive Ruben Vardanyan.
Due to the nature of their business, Remote-Office attracts a diverse range of clients, some of whom may have ulterior motives for showcasing a London office address. Understanding the inherent risks associated with their business, Remote-Office typically conduct enhanced due diligence (EDD) procedures to ensure AML compliance and protect against potential threats. Join us as we uncover the details of this case and explore the measures taken to mitigate any risks associated with onboarding a dodgy entity.
One step ahead of us
Born in Yerevan, Armenia, this ‘known philanthropist’, who mingles with celebrities, oligarchs and politicians, spent much of his life in Russia. So much so, he gained Russian citizenship.
In the wake of Russia's invasion of Ukraine in February 2022, Ruben Vardanyan was specifically mentioned in a draft bill known as the Putin Accountability Act in the US. This meant he would fall under the bill which imposes personal sanctions on individuals with close ties to Putin.
In a calculated move to evade the reach of US sanctions, Vardanyan altered his citizenship immediately following the Russian invasion of Ukraine. Switching from Russian to Armenian citizenship, he sought refuge behind a new identity - becoming the head of state of Nagorno-Karabakh, a landlocked region in the South Caucasus.
Whilst he claims this was motivated by ‘patriotism and desire to serve his home country’, this strategic decision underscores his awareness of the legal ramifications he faced and his willingness to navigate complex geopolitical landscapes to preserve his own interests.
This has led to speculation that Vardanyan's decision to renounce his Russian citizenship may have been motivated by a desire to avoid potential sanctions against him.
A maze of offshore companies, luxury real estate and bribery allegations
Ruben Vardanyan's intricate web of 76 offshore companies stands as a testament to his penchant for secrecy. Through these entities, an estimated US$4.6billion in suspect transactions flowed, traversing borders and eluding detection. And unsurprisingly, Armenia, a small country in Asia, served as a hub for many of these dubious financial activities. He was known as a hub for money laundering and withdrawing money from Russian oligarchs to the West.
Vardanyan's Troika Dialog was at the heart of an $8.89 billion global money-laundering system that it dubbed the "Troika Laundromat," according to the Organised Crime and Corruption Reporting Project (OCCRP) March 2019 report. Money was withdrawn from Russia through Vardanyan's companies, including through the use of "criminal schemes". According to the OCCRP, the network operated from 2006 to 2013 and money was secretly transferred to the most powerful people in Russia.
Vardanyan received more than $3.2 million from so-called ‘Laundromat’ companies to pay his credit card and tuition for his children's school, the OCCRP report says. He ran Troika for over a decade.
A man of many hats
Ruben Vardanyan carries a large array of titles: politician, entrepreneur, and philanthropist. However, his reputation has been marred by allegations of illicit activities, including money laundering schemes, such as Troika. The multiple hats he has worn only serve to deepen the mystery surrounding his true intentions and the extent of his involvement in criminal activities.
His recent foray into politics brought him to the de facto government in Nagorno-Karabakh. Assuming the role of prime minister, he aimed to exert influence in this vulnerable region. However, his tenure was short-lived, as speculations arose that Vardanyan's close ties to the Kremlin made him a liability, leading to his ousting and raising questions about his true loyalties.
Building out the case
To uncover the truth behind the Arm-Bank’s intentions, enhanced due diligence (EDD), beyond the standard methods of customer due diligence, was necessary. The analyst in charge of the AML onboarding, Mary (name changed for confidentiality purposes) mapped out the structure, researched the bank involved, and identified prominent figures tied to it. Through careful examination of publicly available information, they stumbled upon Ruben Vardanyan’s name, further raising concerns.
Before requesting documentation or contacting him directly, Mary ran the necessary checks to assess the individual's potential risk. They conducted politically exposed person (PEP) checks, adverse media checks, and sanctions checks.
First red flag. The adverse media check revealed he had changed his citizenship multiple times.
Then eleven more red flags. He was flagged eleven times by the analyst’s AML system, indicating a high level of suspicion. False positives were ruled out, solidifying Mary’s concerns.
“There was a lot of information within the adverse media check that he changed his citizenship and moved to another country and that because of his influence, he managed to obtain citizenship from that country. Part of that was in relation to alleged bribery,” reflects Mary.
“A lot of times these types of individuals have adverse media which says ‘it is alleged that this person has done this’. But in most cases due to their prestige - they're not actually convicted.”
Stonewalled by the case contacts
The Armenian based bank, Arm-Bank, who wanted to be onboarded as a client of Remote-Office had been challenging to deal with when collecting documentation. As the investigation progressed, Mary faced challenges in obtaining detailed information from the case contact regarding Arm-Bank’s source of wealth and funds. This raised further suspicions.
“Obtaining information from him was impossible. For example, the bank itself makes a lot of money. It’s in Armenia, and their capital was approximately £1.15B. And they basically wouldn't provide a source of wealth or source of funds.”
By now the analyst was looking at several odd factors. The nature of the entity (a bank). The need for a virtual office in the UK from Armenia. The significant capital of the bank involved. All raised red flags.
“Why would a bank from Armenia need a presence in London? It seemed off,” remarks Mary.
“In the end I presented all the information in the first instance of the case back to the compliance officer. I presented it in a way that explained: these are the adverse media matches that have come up, and these are the things that he has been alleged to have done, from the research that I did. He has however denied all of the accusations. How would you like to proceed? And they decided to terminate the agreement with the entity and not engage.”
The decision was met with relief, highlighting the significance of thorough due diligence in safeguarding businesses against potential threats.
The ultimate fate of whether Ruben Vardanyan was able to establish a virtual office in London for his Armenian bank remains unknown. The virtual office provider in this case denied him the opportunity to establish a presence through their services. It is possible that he sought alternatives elsewhere, perpetuating the mystery surrounding his intentions. However this serves as a reminder of the importance of robust compliance measures and the need for businesses to remain vigilant in the face of high-risk situations.
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About First AML
First AML is an AML technology provider, and the maker of Source, an all-in-one AML platform. Source powers thousands of compliance experts around the globe to reduce the time and cost burden of complex and international entity KYC. Its enterprise-wide, long term approach to the KYC / CDD data lifecycle addresses time and cost challenges while minimising compliance, reputational and security risks.
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