09 Oct 2017
In recent weeks the Silk Road Group (“SRG”) has attracted unwanted and unwarranted international media attention, largely triggered by a real estate project that SRG had contemplated in the city of Batumi in 2011 in partnership with the Trump organization. A particularly scathing article, attacking the integrity of SRG was published by The New Yorker magazine on 21 August 2017 under the headline Trump’s Business of Corruption. The piece levels several very damaging allegations against SRG, mainly that: the source of SRG’s funds for the Batumi Trump Tower was illegitimate; SRG engaged in money laundering and fraud in the context of the collapse of BTA Bank; and that SRG benefitted from self-dealing by virtue of it being partly owned by a hidden Kazakh shareholder.
These allegations have no basis in fact and, unsurprisingly, are not backed by any concrete evidence. The New Yorker article’s attack on SRG is entirely based on speculation, circumstance and innuendos, and conveniently disregards facts and context that do not fit into its chosen narrative. Despite SRG’s attempts to actively engage with the New Yorker to rectify inaccuracies and explain relevant details and events, the latter has chosen to publish the allegations and in so doing conveyed a wholly inaccurate, unjustified and severely negative portrayal of SRG to the outside world. We cannot accept this and feel compelled to address the reasons and motivations behind this gross mischaracterization of SRG.
The current context is important to understand the negative bias on display. We have all witnessed how President Trump’s election combined with suspicions of Russian interference in the US electoral process have generated an unprecedented media focus on the Trump organization’s business dealings. The latter’s international deals in particular, and especially any ventures linked to Russia (and the wider FSU), have come under intense scrutiny in an apparent race amongst investigative journalists to uncover commercial and financial connections between the Trump organization and the Kremlin. Against this backdrop, factual analysis has generally been outdone by speculative soundbites and companies and individuals with no reason to feature in this debate have been dragged into the spotlight.
The New Yorker’s coverage of SRG in the context of the proposed development of a Trump Tower in the port of Batumi is a case in point. The article attempts to link the Trump organization to business partners that are close to the Kremlin and, in doing so, makes the argument that President Trump is, as a result, exposed to undue Russian influence. In pursuing this narrative, the article attacks SRG for two apparent reasons: (i) to cast doubts about the reputation, integrity and legitimacy of the Trump organization’s business partners in Georgia; and (ii) to attempt to establish a chain of connections that ultimately somehow links the Turmp organization to Vladimir Putin’s inner circle.
It is not the purpose of this letter to venture in a line-by-line rebuttal of the many erroneous statements concerning SRG contained in the New Yorker article. There is however merit in addressing the two main predicates that form the basis of the article’s allegations against SRG, namely that:
(i) SRG obtained financing from BTA Bank, a Kazakh bank involved in a large scale fraud and money-laundering scandal, and was therefore by association a recipient of proceeds of crime which, in turn, were earmarked to be used for the development of the Batumi Trump Tower; and
(ii) that SRG’s corporate structure includes a number of foreign holding companies, a fact that for the purposes of the article is interpreted as a “red flag” pointing to a high likelihood of obfuscation and money laundering.
There is no denying that SRG has had a historical banking relationship with BTA Bank. In fact, the relationship between SRG and BTA Bank dated back to 2005, well before the Batumi Trump Tower was even contemplated. The allegation that SRG was somehow involved in misappropriating BTA Bank assets through questionable related party loans is, however, entirely wrong and based on the article’s tendency to bundle together unrelated sets of facts and complement them with broadly generic opinions from carefully selected commentators.
SRG’s relationship with BTA Bank has always been on commercial terms and above board and this can easily be substantiated by three undisputable points.
First, during the course of SRG’s relationship with BTA Bank all decisions regarding loans to SRG were made in strict accordance with the bank’s internal governance rules and audited by a Big Four accounting firm, which has issued reports confirming that all funds disbursed to SRG were utilized for their stated purposes, thus rejecting all suggestions of misappropriation. As such, any insinuation that SRG benefitted from preferential treatment, or from related-party transactions, has no basis in fact.
Second, following the collapse of the bank and at a time when suspicious related-party transactions were being legally pursued by BTA Bank around the world, an agreement was reached to settle the bank’s outstanding loans to SRG. It would be safe to assume that had any loans made to SRG been fraudulent in nature, these would have been legally pursued by BTA’s new management in similar fashion as those made to the plethora of companies linked to its disgraced former Chairman, Mukhtar Ablyazov. Instead, BTA Bank’s new management chose the settlement route, recognizing the absence of any wrongdoing. Rather than pursuing a meritless legal action, BTA Bank determined that the appropriate course of action was to recover what it could from a distressed loan portfolio.
Third, the relevant judicial authorities reached the exact same conclusion as BTA Bank’s new management. In 2013 the Georgian Prosecutor’s Office, on the request of the Kazakh Prosecution, began a thorough and comprehensive investigation of SRG’s relationship with BTA Bank. During the course of over one year, countless documents were seized and analyzed and numerous SRG employees were repeatedly interviewed. By 2014 the Georgian Prosecutor’s Office had concluded that no wrongdoing had taken place on the part of SRG and the case was closed.
It is clear from the above that the correctness of SRG’s relationship with BTA Bank has withstood the scrutiny of BTA Bank’s Credit Committee, a Big Four auditing firm, BTA Bank’s new management (at a time when it was pursuing legal claims around the world) and the Georgian Prosecutor’s Office. To suggest, as the article does, that SRG was involved in the fraud and money laundering scheme that plagued the bank equates to paying lip service to innuendos whilst ignoring compelling evidence.
Turning to the second main predicate of the article, namely the suggestion that SRG’s corporate structure is conducive to obfuscation and money laundering, once again one cannot help but note the speculative nature of the allegation. The fact that SRG features in its organization foreign subsidiaries should not be immediately extrapolated to suggest that the structure has been used for questionable purposes, by conveniently leveraging generic statements made by commentators with no direct knowledge of SRG or its operations.
SRG’s current organizational structure is rooted in its history and reflects the evolution of the Georgian tax code, which has undergone significant changes as it emerged firstly from under Soviet rule and subsequently from dramatic years of civil unrest. Georgia has different fiscal treaties with various countries; it so happens that both Netherlands and Malta, jurisdictions that feature in SRG’s corporate structure, were two countries that from early on established tax treaties with Georgia making Dutch and Maltese companies particularly attractive for investors wanting to hold assets in in the country. To speculate that the presence of foreign holding companies within SRG’s corporate structure is indicative of obfuscation and money laundering blatantly ignores the perfectly legitimate and widespread use that not only SRG, but countless other companies around the world, make of international corporate vehicles for tax planning purposes.
It is unfortunate that the New Yorker article disregards facts and circumstances that explain both the true nature of SRG’s relationship with BTA Bank and the rationale behind its corporate structure. Instead, the article handpicks isolated pieces of information and weaves them together with factoids to create a speculative story line supporting a self-serving narrative according to which SRG was an instrument through which the Trump organization received funds of questionable origin the could potentially expose the current US President to Russian blackmail. As explained above, there is no basis for characterizing SRG’s relationship with the Trump Organization in such terms.
In concluding I’d like to stress that our approach to business has always revolved around the pursuit of excellence and an adherence to the highest ethical standards. Our operational entities are audited by Big Four audit companies and we are one of the largest tax payers in Georgia. It is this very approach that has enabled SRG to partner with some of the world’s leading organizations, companies and brands, such as Total Oil Trading, BNP Paribas, BCGE Banque Cantonale de Geneve, U.S. Overseas Private Investment Corporation (OPIC), Carlson Rezidor Hotel Group, National Geographic and others, and in so doing employ thousands of people who are proud to uphold our values as we continue to invest in Georgia.