https://www.ft.com/trump-russia-ties
Tower of
secrets: the Russian money behind a Donald Trump skyscraper
The Trump
Toronto reveals the links between a shadowy world of post-Soviet money and a
future president
The Trump Toronto reveals the links between a shadowy world of
post-Soviet money and a future president
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https://www.ft.com/trumptoronto
One October day in 2007, a celebrity real estate developer in a greatcoat and powder-blue tie alighted from a stretch limousine in Toronto’s financial district. Before a bank of photographers, he took hold of a golden shovel. To his left, also holding a novelty spade, was his partner in a C$500m (£287m) skyscraper, construction of which was to begin that day: a Russian-Canadian billionaire whose fortune had its origins in the collision of communism, capitalism and the KGB at the fall of the Soviet empire.
https://www.ft.com/trumptoronto
One October day in 2007, a celebrity real estate developer in a greatcoat and powder-blue tie alighted from a stretch limousine in Toronto’s financial district. Before a bank of photographers, he took hold of a golden shovel. To his left, also holding a novelty spade, was his partner in a C$500m (£287m) skyscraper, construction of which was to begin that day: a Russian-Canadian billionaire whose fortune had its origins in the collision of communism, capitalism and the KGB at the fall of the Soviet empire.
Also
present were representatives of the project’s financial backers — an Austrian
bank that would soon be accused of failing to conduct sufficient checks on the
sources of its ex-Soviet clients’ money. Camera flashes glinted on the shovels
as the grinning dignitaries plunged them into a neat patch of dirt on which had
been painted the word “Trump”.
So
commenced work on the Trump International Hotel and Tower Toronto. “People
really want to own what I do,” Donald Trump told an interviewer that day,
declaring that, among other qualities, the tower would be “taller than other
buildings”. The Financial Times has been investigating the money behind Trump
Toronto for 10 months.
Legal
documents, signed statements and two dozen interviews with people with
knowledge of the project and the money that flowed through it reveal that the
venture connects the US president with a shadowy post-Soviet world where
politics and personal enrichment merge. Donald Trump at the 2007 groundbreaking
for the Trump Toronto next to Alex Shnaider, his partner in the project © Getty
Some
of the money flows that the Financial Times has established raise questions
about Trump’s vulnerability to undue influence now that he is in the White
House.
These
include evidence that Trump’s billionaire partner in the Toronto project
authorised a secret $100m payment to a Moscow-based fixer representing
Kremlin-backed investors.
That
payment was part of a series of transactions that generated millions for the
backers of the Toronto venture — a project that, in turn, made millions for the
future president. A month after the 2007 groundbreaking, Trump wrote a letter
to The Wall Street Journal citing the financing for “our” Trump Toronto project
as “a testament to the strength of the Trump name and brand within the
financial community”.
But
when the FT sent questions to the Trump Organization for this article, it
declined to answer them, saying: “The Trump Organization was not the owner,
developer or seller of the Trump International Hotel and Tower Toronto.
Consequently, it had no involvement in the financing of the project. Instead,
the company’s role was limited to licensing its brand and managing the hotel
and residences, which it did until June 2017 when its agreement ended.” It is
precisely this approach to the provenance of the money that has sustained
Trump’s business career that concerns many who have examined it closely.
After
a series of corporate bankruptcies in the 1990s and early 2000s left the
property business he had inherited from his father largely unable to borrow
from mainstream banks, Trump turned to ever more obscure backers. He was able
to borrow sporadically from Deutsche Bank, with whom he had a long and
fractious relationship, but, from about the turn of the millennium, he also
adopted a new model, under which he licensed his brand to skyscraper
developments that the Trump Organization would then manage under contract. This
was a time when the former Soviet Union’s newly minted oligarchs were seeking
foreign havens for their wealth. By 2008, Trump’s son, Donald Jr, was telling a
real estate conference: “Russians make up a pretty disproportionate cross-section
of a lot of our assets . . . We see a lot of money pouring in from Russia.”
Some
of this came through sales of individual units in Trump-branded properties,
where Trump was sometimes entitled to a cut. An alleged Kazakh money-laundering
network channelled millions through apartment sales at the Trump SoHo; a
Russian oligarch bought a Palm Beach estate from Trump in 2008 for $95m, more
than double what Trump had paid for it four years earlier; in Florida, 63
Russians, some with political connections, spent $100m buying property at seven
Trump-branded luxury towers, Reuters established. The money was not exclusively
from the former Soviet Union: at the Trump Panama, some of it allegedly
belonged to Latin American drug traffickers. In recent years, it has become
increasingly clear that many of the oligarchs who made their riches amid the
downfall of the Soviet Union have protected their fortunes by advancing the
interests of the ruling cliques at home.
This
wealth has been coursing through western markets, often disguised by shell
companies. Trump’s sector, real estate, has long been susceptible to infusions
of incognito money. A large proportion of sales of high-end US property takes
place through companies whose true owners are hidden.
A US
Treasury investigation last year found that one in three cash buyers of top-end
property was suspicious. Trump has broken with presidential tradition by
refusing to divest his holdings in the dozens of companies that comprise the
Trump Organization or to release tax returns that might shine more light on
what appear to be multitudinous conflicts of interest.
In
May last year, his decision to fire James Comey as head of the FBI triggered
the appointment of Robert Mueller, himself a former FBI chief, as special
counsel to investigate links between the Russian government and the Trump
campaign.
Testifying
before the Senate Intelligence Committee, Comey was asked whether the
investigation might turn up matters unrelated to the campaign.
He
replied that “in any complex investigation, when you start turning over rocks,
sometimes you find things that are unrelated to the primary investigation that
are criminal in nature”. Robert Mueller's investigation is closely guarded but
it is clear that he sees prior financial dealings as fair game © Getty
Paul
Manafort, one of Trump’s campaign managers, has already learnt what this means
in practice. He faces charges, which he denies, of laundering $30m in
connection with his work as a consultant for pro-Russian politicians in
Ukraine.
Michael
Flynn, Trump’s first national security adviser, has pleaded guilty to charges
that included lying about a lobbying contract he had with Turkey. Much of the
rest of Mueller’s investigation is closely guarded but it is clear that he sees
prior financial dealings as fair game. Tom Warner, a US-based corporate
investigator specialising in Russia and Ukraine, is among those who spoke to
the FT who believe that Trump’s outlook is shaped by the alignment of his
interests with those who brought him the money that sustained his career. When
Trump turns on longstanding US allies and suggests that Russia be readmitted to
the G8, some analysts see ulterior motives. Such scrutiny intensified this week
after Trump attended a Nato summit in Brussels, visited London to meet prime
minister Theresa May and was then due to sit down with Russian president
Vladimir Putin in Helsinki.
“Putin
or his chosen successor will be there long after Trump leaves office,” Warner
said. “And [Trump and his children] need the family business model to still be
there.” The tale of the Trump Toronto illuminates what it means for the US to
have a leader whose business model has long depended on exchanging his family
name for money with a murky past, no questions asked.
By
2010, the Trump Toronto was supposed to be finished: 65 storeys containing 261
luxury hotel rooms and condominiums, all encased in a shimmering glass façade.
But construction dragged on and in October, Alex Shnaider, the billionaire
backer who had broken ground with Trump three years earlier, put aside another
$40m for the project. Millions from the project would subsequently flow out to
Trump himself — and documents seen by the FT raise serious questions about how
Shnaider’s company was making its money in the period leading up to the
decision to invest this $40m in the Trump Toronto.
A few
months earlier, documents show Shnaider had approved a secret $100m
“commission” payment to “introducers” representing the Kremlin’s interests.
The
payment was to facilitate the sale of his group’s prize asset, its stake in the
vast Zaporizhstal steel mill in eastern Ukraine — and represented more than 10
per cent of the $850m sale price.
The
Wall Street Journal reported in 2017 that the sale of the mill was financed by
Vnesheconombank (VEB), a Russian state-owned bank whose chairman at the time
was Vladimir Putin. But this $100m commission has not previously been reported.
Nor has it been revealed that legal filings in a recent commercial dispute
between Shnaider and his business partner raised the possibility that some of
the money could have ended up with Russian government officials. If that was
the case, the steel mill deal would risk falling foul of anti-bribery laws in
Canada and potentially other western countries that make it a crime to pay foreign
officials to gain a business advantage.
“Russia
has long been associated with dirty money,” said Elise Bean, a former top
official on the US Senate’s leading investigative committee and veteran of
several money-laundering investigations. “Anyone getting substantial funds
originating in the former Soviet Union should have known that the funds were
high risk and required a careful due diligence review to ensure the money was
clean.” Shnaider’s rise to become one of Canada’s wealthiest men (he was on
Forbes’ list of billionaires by the age of 36) was helped by Boris Birshtein,
his father-in-law and mentor in business. Convivial and ambitious, Birshtein
enjoyed the rare privilege among western-based businessmen of being able to
traverse the Iron Curtain. “I’m for many years in business with Soviet Union,”
Birshtein, who was born in Soviet Lithuania and emigrated to Canada, told an
interviewer in 1993. “I started with [Leonid] Brezhnev
and, you know, somehow I manage to get in some way [a] unique position and I
met lot of people and made friendship with a lot of very powerful people.” In
May, the FT spoke with a former KGB officer who worked in the 1980s in the
agency’s foreign intelligence arm. He explained how, as the Soviet Union was
collapsing, the Communist party and the KGB scrambled to stash money abroad. He
also said that, in the late 1980s, Birshtein was one of the western businessmen
whose companies became linked with KGB figures involved with the agency’s
efforts to build up international business interests. Birshtein’s lawyer told
the FT that it would be “preposterous” and “patently false” to say that the
businessman was a KGB “operative”. The lawyer added, however, that Birshtein
did recall agreeing in the mid-1980s to participate in a Soviet plan to set up
international business ventures that was led by Georgi Arbatov, head of a
prestigious Moscow think-tank. According to a defector’s account published
years later, Arbatov was also a KGB asset codenamed Vasili. Alex Shnaider,
Donald Trump's business partner on the Trump Toronto; right: Shnaider's
father-in-law Boris Birshtein, who helped him become one of Canada's wealthiest
men
(Veselovsky
could not be reached for comment; the former KGB officer said he had
“disappeared without trace”.) While Birshtein was cultivating the Soviet elite,
Shnaider’s Russian parents had joined a wave of Jewish emigration, settling in
1982 in a Toronto district popular with immigrants. They bought a delicatessen,
where the young Shnaider stacked shelves. He was drawn to business and, by the
early 1990s, Birshtein was introducing him to the helter-skelter capitalism
taking hold in the former Soviet Union. That would bring them both into the
orbit of one of its most notorious figures. Allegations of ties to the American
mob have followed Trump throughout his career. For Alex Shnaider, the
connection to an alleged Russian gangster runs through his erstwhile
father-in-law. Sergei Mikhailov, known as Mikhas, is widely recognised as the
leader of what, in the 1990s and early 2000s, was regarded as Moscow’s most
powerful organised crime syndicate: the Solntsevskaya Bratva. The FBI’s top
expert on Russian organised crime in the 1990s said the group’s activities
included extortion, narcotics, murder and money laundering. In a rare interview
with the FT in June, Mikhailov denied this, saying the Solntsevskaya “does not
exist”. A great barrel of a man in a maroon checked jacket, his Moscow office festooned
with icons of the Orthodox Church, he insisted he was merely a “run-of-the-mill
businessman” with interests in trade, tourism and real estate. The former
champion wrestler added that, given the turbulence of the post-Soviet years,
“my success is that I’m still alive”. Mikhailov, 60, told the FT that he met
Birshtein — “a very talented businessman” — at a meeting with the Moldovan
president in 1995 and the pair hit it off. “He trusted me and this is a very
important factor in business.” He said the duo made “big plans” for business
ventures, most ambitiously to renovate a pipeline that ran from Central Asia to
Ukraine. Mikhailov said his job was to source the technical know-how, while
Birshtein’s task was to convince the authorities to back the project. “He had
big connections” in Ukraine, Mikhailov said, “as far as I know, all the way up
to the president and his entourage.” (Birshtein, through his lawyer, said he
had “never been friends” with Leonid Kuchma, Ukraine’s then president.)
Mikhailov
also remembered meeting Birshtein’s young protégé, Alex Shnaider, at a
restaurant in Belgium, where Birshtein kept an office. Shnaider’s lawyer did
not respond to a question about this alleged encounter with Mikhailov.
Birshtein’s lawyer said his client did not recall such a meeting. He also said
Birshtein had met Mikhailov “a handful of times” but “was never involved with
the pipeline project”, had “no business dealings” with him and was not aware of
his alleged criminal activity. Mikhailov said the prospective partnership with
Birshtein came to an abrupt end when Mikhailov was arrested in Switzerland in
1996, accused of being a member of a criminal organisation. According to an
account at the time in an intelligence newsletter, detectives who searched
Mikhailov’s Swiss residence found a contract for him to pay Birshtein $150m —
an agreement, Mikhailov said, that was “most likely” connected to the pipeline
project. He insisted, however, that no money ever changed hands, dismissing
investigators’ claims to the contrary. To Birshtein’s knowledge, “no such
contract exists”, his lawyer said. The Swiss did not pursue charges against
Birshtein but Mikhailov’s case came to court. The trial was held under tight
security after a witness was shot dead in Amsterdam. Mikhailov spent two years
in jail awaiting a verdict before he was acquitted by a jury and awarded
compensation. From about this time, Birshtein receded from the post-Soviet
business scene and his son-in-law emerged. According to a 2017 witness
statement by Eduard Shyfrin, a Ukrainian metals trader who became Shnaider’s
partner, Belgian police investigating Mikhailov raided Birshtein and Shnaider’s
houses in Antwerp in 1996, prompting Shnaider to shift his base back to
Toronto. That year, Birshtein sold out of Midland, the group Shnaider and
Shyfrin would greatly expand, his lawyer said, adding: “Our client is a
law-abiding businessperson with no criminal record.” Birshtein’s lawyer said
his client “had no involvement with [the Trump Toronto] in any manner either directly
or indirectly”.
A
Cypriot company, DE Multi-Finance, which until at least 2003 was controlled by
a man who had served as a director of Birshtein companies, was listed in 2016
among the creditors to the Trump Toronto, but Birshtein’s lawyer said Birshtein
had “never had any association or connection” with DE Multi-Finance or the
Trump Toronto. The Trump Toronto, mid-construction in 2011 © Toronto Star via
Getty Images Gradually, a rift emerged between Birshtein and Shnaider.
Birshtein now describes Shnaider as his “former, long-estranged son-in-law”
(neither would confirm whether Shnaider and Birshtein’s daughter had divorced).
In 2005, Shnaider told Canada’s Globe and Mail newspaper that “due to
unfortunate and irreconcilable differences relating to business policy and
family matters, I have not had any contact with my father-in-law for more than
four years”. Stocky and with close-cropped hair, Shnaider has a more serious
demeanour than the gregarious Birshtein. Like Trump, he owed his opportunity to
the previous generation and was keen to show he was his own man, associates
said. Nonetheless, Birshtein’s role in Shnaider’s rise to riches is indelible.
“Boris did a lot of things for him,” said a former Midland manager, and
Shnaider built on “what Boris had created for him”. The tale of the Trump
Toronto illuminates what it means for the US to have a leader whose business
model has long depended on exchanging his family name for money with a murky
past, no questions asked The principal launch pad that Birshtein built for
Shnaider was in Ukraine, where Birshtein had established interests in metals.
In the 1990s, the country’s mineral riches were a scene of lawless and
sometimes violent competition. It was here that Shnaider would start to make
the millions that would ultimately help to build the Trump Toronto. Shyfrin
wrote in his witness statement: “Mr Birshtein gave Mr Shnaider some interests
in the Ukrainian steel business. Mr Shnaider, however, knew nothing about steel
at the time. He had no involvement with Ukraine or metallurgy prior to his
marriage to a daughter of Mr Birshtein.” The Ukrainian steel business would
catapult Shnaider and Shyfrin into the ranks of the global super-rich.
First,
they established themselves as middlemen between the old Soviet steel plants
and global markets. Then, in the late 1990s, during the wave of cut-price
privatisations that created many oligarchs, the chance arose to buy the
Zaporizhstal steel mill. Vadim Grib, a banker who led a rival consortium in the
privatisation, claimed when he spoke to the FT recently in Kiev that Shnaider
and Shyfrin were unfairly favoured by the Ukrainian authorities, who designated
them “strategic investors”, giving them an advantage over competitors. Their
partner in the bid was Vasyl Khmelnytsky, a businessman who was then a member
of Ukraine’s parliament. In an interview with the FT, Khmelnytsky agreed that
connections were key. “Fifteen years ago, to be a successful businessman, you
have to have access to those in power,” he said. By 2001 Shnaider and Shyfrin
had paid a reported $70m for a stake in Zaporizhstal that, within five years,
would be valued at nearly 10 times as much. From there, Shnaider and Shyfrin
expanded. One major 2003 acquisition, of the storied Red October steel plant in
the Russian city of Volgograd, showed that they were able to navigate the
emerging business scene in Russia as they had in Ukraine. Mathieu Boulègue, an
expert at the Chatham House think-tank in London, said Red October was “one of
the few remaining Russian companies able to produce the armoured steel and
reinforced steel you need for the military industry”. Securing permission to
buy and run the plant would involve maintaining a relationship with the upper
echelons of the Russian military, Boulègue said. Shnaider also amassed the
standard trappings of enormous wealth. He bought a 170ft yacht, an Israeli
football club and a Formula One team. For entertainment at a family party in
Toronto, he booked Justin Bieber. And then there was the must-have asset for
billionaires who got rich in the former Soviet Union: a prime piece of western
real estate. To the sound of Aaron Copland’s “Fanfare for the Common Man”, Alex
Shnaider and Donald Trump cut a red ribbon to mark the belated opening of their
Toronto skyscraper in April 2012.
Trump’s
three adult children were present: Ivanka, who would later work alongside her
father in the White House, and Donald Jr and Eric, who would take over the
family business. As the Trumps strode through the marble lobby, anyone would
think this was their building. But the money had come from elsewhere. More than
a decade had passed since Trump signed up to the project in 2001, alongside
Ritz-Carlton and a little-known developer called Leib Waldman. The project
almost collapsed the following year when Waldman was exposed as a fugitive
fraudster and Ritz-Carlton pulled out. But Trump pressed on. Shnaider joined
the venture in about 2003. Neither he nor Trump answered the FT’s questions
about how they met. Over the years that followed, while Trump was trying and
failing to have his mobster associate Felix Sater secure a deal for a Trump
Tower in Moscow, Shnaider poured funds into the Toronto skyscraper. All the
while, his steel mill was becoming embroiled in Putin’s efforts to project
Russia’s influence beyond its borders — a strategy that would eventually expand
to include meddling in the 2016 US election. Trump at the 2012 ribbon-cutting
ceremony for the Toronto tower with daughter Ivanka and sons Donald Jr and Eric
© WireImage Employing 50,000 people, the Zaporizhstal steel mill is among
Ukraine’s biggest industrial operations. It lies just 150 miles from the
Russian border. In the years before Putin’s 2014 invasion, Russia waged an
economic incursion in eastern Ukraine, securing industrial assets either
directly or through sympathetic oligarchs. In May 2010, Shnaider received a
call from Shyfrin in Moscow. It was the start of a series of events that have
not previously been reported and that are described in the documents seen by
the FT, including a complaint Shnaider brought against Shyfrin in 2016 in a
London arbitration court and one of Shyfrin’s witness statements in response.
According to Shnaider’s arbitration claim, Shyfrin told him that buyers acting
“on behalf of the Russian government” wanted to buy their Zaporizhstal stake
and that he was coming “under pressure” to sell. At the time, Moscow was
capitalising on a slump in demand for Ukrainian steel to snap up assets in
order to maintain influence over a neighbour being courted by the west.
Thereafter,
at least $4m subsequently flowed out of the project to Trump in licensing and
management fees — possibly much more, given that his financial disclosures as
candidate and president only cover the years since 2014. Both Shnaider and
Shyfrin declined to be interviewed or to answer questions from the FT for this
article. Their lawyers said the arbitration documents were confidential. One of
the most striking things about the history of the Trump Toronto is the number
of independent threads that connect Trump to post-Soviet money. Raiffeisen, the
Austrian bank whose representatives stood alongside Trump and Shnaider at the
Toronto groundbreaking in 2007, had previously backed Midland projects in the
former Soviet Union. It was persuaded to finance the Trump Toronto, Shnaider
said at the time, thanks to “the universal appeal of the Trump brand and the
Trump Toronto team’s global business experience”. © Hellovon Raiffeisen had
funded other North American real estate ventures but most of its business lay
east of Vienna. It had expanded aggressively in the former Soviet Union, at
times becoming embroiled in regional power struggles, such as when its
investment arm was revealed in 2006 to have represented the concealed interests
of a Ukrainian oligarch in an opaque gas deal with Russia’s Gazprom. Many
Raiffeisen projects received funding from the European Bank for Reconstruction
and Development, a World-Bank-type institution for the post-Soviet region. In
the years leading up to 2010, some EBRD directors became alarmed with what they
saw as Raiffeisen’s cavalier attitude to the origins of its clients’ money,
according to two people familiar with the matter. “This is irresponsible
behaviour,” Kurt Bayer, a former Austrian finance ministry official who was an
EBRD director at the time, told the FT in describing Raiffeisen’s dealings at
the time. “You just push and build market share without doing the controls that
are required.” The EBRD told the FT that in 2010, concerned by “an alleged
incident”, it “worked closely with the [Raiffeisen] management team to develop
an appropriate response, the central part of which was a comprehensive review
of the bank’s compliance system”.
Raiffeisen
said that its compliance processes and staffing “had to be adjusted” due its
growth in central and eastern Europe and increased regulation. This was,
Raiffeisen added, “a development in the entire banking industry”. Raiffeisen
put up C$310m for the Trump Toronto — then treated the developers remarkably
kindly. First, it required them to pre-sell just 80 per cent of the units
before releasing loan funds, less than the 100 per cent that local media
reported was the usual standard. When sales lagged, Raiffeisen allowed
deadlines to slip at least 10 times. When Trump Toronto finally went bust in 2016,
the bank was still owed all but C$9m of its initial loan. Asked to explain its
leniency, Raiffeisen told the FT that Austrian bank secrecy laws prevented it
from discussing the project. Now that Trump is president, his administration’s
approach to the division between affairs of state and personal interests at
times appears to echo how business is often done in the post-Soviet states
where many of his backers made their money. In May, the BBC reported that
Michael Cohen, Trump’s lawyer, received a $400,000 payment arranged by
intermediaries acting for Petro Poroshenko, Ukraine’s president, to set up
talks with Trump. (The two leaders did meet in June last year but Poroshenko
and Cohen have denied the BBC’s claims.) Reports of conflicts of interests
across the wider administration proliferate. The Washington Post reported in
February that the United Arab Emirates, China, Israel and Mexico were trying to
influence Jared Kushner, Trump’s son-in-law and senior White House adviser and
the scion of another New York real estate family, through his business
interests. Several experts on financial crime and espionage told the FT that
the most troubling part of the interplay between Trump’s past in business and
his present in public office was his potential susceptibility to blackmail.
Keatinge, the Rusi expert on illicit finance, calls such a scenario “the
number-one fear of any intelligence agency”. Knowledge of an illicit
transaction might not be as sensational as the most notorious claim in the
former MI6 officer Christopher Steele’s dossier on Trump’s Russian connections
— that Russian intelligence had footage of the future president instructing
prostitutes to urinate on the Moscow hotel bed in which the Obamas had once
slept. But it could be at least as powerful if used as kompromat with which to
pressure the president. The Trump name was gradually removed from the Toronto
tower in 2017 by its new owners © Bloomberg Trump-branded property ventures
have a way of going bust, even in booms. Sales at the Toronto tower came in
lower than the developers had predicted during construction but Trump still
made his millions. In 2017, a property fund bought out the bankrupt venture and
renamed it the Adelaide Hotel. The M came off first, then the P. Soon the T, R
and U were gone too. It was July 2017, Donald Trump was seven months into his
presidency and Washington was fizzing with news that he had held an undisclosed
private rendezvous with Putin during a trip to Germany and that Donald Jr had
met a Russian lawyer promising dirt on Hillary Clinton during the campaign. The
Trump name was everywhere but, in Toronto, a crane was removing it, letter by
enormous letter, from the pinnacle of Canada’s second-tallest building. The
past, however, is not so easily erased.
Tom Burgis is an FT investigations
correspondent
