Millions in public funds invested by the European Bank for Reconstruction and Development were lost in a Russian mining venture linked to financial services watchdog chairman Joe Bannister, leaked documents show.

Prof. Bannister is linked to the venture through a British Virgin Islands-based company, which was a shareholder in Imperial Mining Holdings Limited (IMHL). He insists he was a non-executive director of the BVI company ACP Special Situations No. 2 Limited, although a leaked e-mail in the Paradise Papers refer to him as “management”. He resigned from ACP last year.

Prof Bannister's role in the BVI company was only made known thanks to the Paradise Papers.

An investigation spearheaded by Norwegian news outlet Aftenposten found out that one of the owners and directors of the Russian mining company, Alexander Glushovskoy, was wanted internationally for fraud.

READ: MFSA chief linked to BVI-Russia investment

READ: EU finance ministers to discuss tax havens in wake of Paradise Papers

According to the Paradise Papers, in 2008, the EBRD, owned and funded by over 60 countries including Malta, invested $21 million in IMHL.

The leaked documents come from the offshore services firm Appleby and company registries in 19 jurisdictions, including Malta. The documents were leaked to German newspaper Süddeutsche Zeitung and shared with the International Consortium of Investigative Journalists and a network of more than 380 journalists in 67 countries, among them the Times of Malta.

$15.4 million vanishing act

Fellow ICIJ partners Aftenposten found a large part of the company’s funds disappeared in one transaction in 2009, when IMHL paid $15.4 million to a shell company in Cyprus which was controlled by one of its own shareholders, IM International.

This meant that vast amounts of money were funnelled out of IMHL by its own shareholders, “camouflaged” by an overpriced transaction to a shell company in Cyprus, Aftenposten said.

The Cyprus company was dissolved in 2016 and investigations by Aftenposten in Russia found that IMHL’s Moscow-based headquarters no longer existed.

Elena Uvarova, a Russian model, became IMHL's major shareholder in 2014. Photo: Instagram/@modelena.u

IMHL’s auditors first raised the alarm after more than $7 million in “consultancy fees” flowed out of the company between 2009 and 2011 without sufficient documentation to back them up. They also pointed out that IMHL did not declare who its ultimate owners were and questions were raised about a debt with IM International, which, again, lacked documentation.

Finn Kinserdal, an associate professor at the Norwegian School of Economics, told Aftenposten this could indicate someone close to IMHL had withdrawn money “wrongfully” from the company.

Enter the Russian model

A share transfer took place in in 2014. Shares from IMHL’s large stakeholder IM International were transferred to a new shell company in Cyprus. Through this transaction, a 28-year-old Russian model, Elena Uvarova, became the major shareholder in IMHL.

Leaked e-mails show Appleby queried who the new major owner of the Russian mining venture was. “Elena started her professional career as a model,” IMHL’s managing director wrote in reply.

Five months after Ms Uvarova entered the scene, IMHL’s shareholders were summoned to an emergency meeting via a conference call. During the meeting, they went through IMHL’s financial statements for the previous three years, which included several remarks from the auditors about undocumented transactions running into the millions of dollars.

Prof. Bannister, as non-executive director of ACP Special Situations No. 2 Limited, told the Times of Malta he could recall there were “problems” with the Russian mining venture but these had not been probed further at the time, he said.

“The auditors did not communicate concerns to me. Subsequent to my resignation, I was not informed what the problems were. As I stated, I was not a director of IMHL but a non-executive director of a company which invested in IMHL together with the EBRD,” Prof. Bannister said.

Asked about the undocumented transactions carried out by IMHL, he said he did not know what action was taken by ACP Special Situations to recover its investment in IMHL.

He directed this newspaper to the EBRD or the Russian company when asked about IMHL’s ultimate owners.

When it was pointed out he could provide the information himself, given that ACP would have done its own due diligence, Prof. Bannister insisted he was a non-executive director.

 “The due diligence process for investment into IMHL would certainly have been done. The EBRD would certainly have carried out its own due diligence”, he replied.

‘Massive and well-planned scam’

Aftenposten shared its findings with one of Norway’s leading experts on corruption, Tina Søreide who, together with Ivar Kolstad, an experienced researcher, concluded that the EBRD’s investments in IMHL were lost in a “massive and a well-planned scam”.

Prof. Bannister maintains he was not aware of any wrongdoing. “After I resigned, I received no further communication on the matter”, he said.

The outgoing chairman of the Malta Financial Services Authority said he could “not recall” any transactions taking place between IMHL and ACP Special Situations No. 2 Limited.

Aftenposten asked the EBRD how it could risk millions in public funds in a project involving a Russian person wanted for fraud and a company structure consisting of several shell companies in tax havens.

A spokesman for the EBRD replied that occasional projects, like Imperial Mining, which did not work out as intended should be seen in the context of the overall profits and huge impact derived from other projects.

“No development bank or commercial bank can achieve a 100 per cent success rate but we try to get as close as we can and, by and large, we succeed”, he remarked.

IMHL mining licences were revoked by the Russian Federal Agency for Mineral Resources.

IMHL was stuck off the Isle of Man’s registry earlier this year.

Aftenposten found out that the company has filed an application in the Russian court demanding its licences back.

Henning Carr Ekroll, Per Anders Johansen, Nina Selbo Torset, Andreas Bakke Foss worked on the story for Aftenposten.