The building
formerly housing Dolfin Financial offices on Berkeley Street in London.Source:
Google Street View
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February 17, 2022, 1:00 AM GMT
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The meeting above the
Virgin Active gym across the street from the Museum of London on Sept. 2 was
raucous and contentious even for a creditor gathering of a company gone bust.
Accountants
winding down U.K. wealth management firm Dolfin Financial faced more than 50 of its
affluent, angry Chinese clients shouting and hectoring them, many in Mandarin,
three people present at the meeting said. Dolfin had gotten them “golden visas”
for U.K. stays of about three-and-a-half years in exchange for investments,
using ways being questioned by the Financial Conduct Authority. Fearing their
visas could be revoked, they demanded documents proving the validity of their
investments.
For
Dolfin, the meeting was another ugly chapter in a saga that has brought about
its downfall. In March last year, the FCA barred it
from nearly all regulated activities, restrictions that pushed it into
administration. The regulator has been examining Dolfin’s practices since at
least 2019 over concerns about its visa business and potential conflicts of
interest.
Dolfin
used a complicated series of transactions that allowed wealthy Chinese clients
pay just 400,000 pounds ($542,000) for Tier-1 Investor Visas that by law
require an investment of at least 2 million pounds, according to an FCA supervisory notice.
The firm’s administrators told creditors on Jan. 28 that the FCA’s
investigation is ongoing. A spokeswoman for the regulator declined to
comment.
With the fate of the Chinese
investors in limbo, the Dolfin case once again drew attention to the U.K.’s
Tier-1 Investor Visas, showing how easily the system can be manipulated. For
years, as the program was mostly used by rich Russians and members of the the
ruling elites of former Soviet republics, campaigners protested that such visas
are a route for dirty money to enter the U.K.
Now, amid concerns about the
influence of Russian money, Britain is preparing to end the golden-visa regime,
a person familiar with the matter said on Wednesday.
Related News: U.K. Plans to Scrap Golden Visa Route for
Millionaire Investors
The U.K. has delivered at least
12,000 such visas since the system’s inception in 1994. About 6,000 are being
reviewed for national security risks, William Wallace, a lawmaker in the House
of Lords, said in parliament last week.
“We have imported corruption and
with it the danger that corrupt overseas wealth will in turn corrupt our own
society and democracy,” Wallace said as he pushed the government to publish its
audit of older visas.
Related Story: ‘Londongrad’ Undermines U.K.’s Tough Talk on
Russia Sanctions
For Dolfin, the visa service was
an exotic side businesses. Founded in 2013 by Denis Nagy and Roman Joukovski,
with offices a stone’s throw from the Ritz Hotel in central London, Dolfin
offered main-line financial services, including at one point providing advice
to ex-Goldman Sachs economist and British peer Jim O’Neill’s blind trust and
offering “discretionary” management services for clients with assets held by
Credit Suisse Group AG. The visa business, however, was its undoing.
The FCA in its supervisory notice
to Dolfin said the firm’s “visa business was so clearly unlikely to comply with
Tier 1 visa requirements that Dolfin would appear to have known, or at the very
least had reasonable cause to believe, that it was facilitating the commission
of a breach.”
Adam Stephens, a joint special
administrator for Dolfin, said he cannot comment on investigations into the
firm’s past business activities. Dolfin’s co-founders Nagy and Joukovski
declined to comment on the record on the FCA’s findings.
“Mr Joukovski and Mr Nagy had no
material involvement in the FCA investigation which gave rise to the
conclusions set out in the FCA Supervisory Notice,” a spokeswoman for them said
in an email. She said as far as the co-founders are aware, “the visa scheme was
in full compliance with all applicable laws and regulations.”
The Chinese investors who got
their visas through Dolfin say they believed the process was legitimate. The
Home Office is still scrutinizing their visas, but for now they can’t apply for
an extension or an indefinite leave to remain.
Dolfin marketed its visa services
to these clients offering five options code-named “Jade,” “Gold,” “Silver,”
“Platinum” and “Palladium” that used a convoluted set of transactions to secure
golden visas with less than the required amount of investment, the FCA
supervisory notice says.
Like
many firms catering to global elites, Dolfin drew in clients with an office
that exuded grandeur and legitimacy. It was in a building on Berkeley Street
that houses some of the biggest names in global investing, including hedge
funds Millennium Capital Partners and King Street Capital Management and private
equity titan Bain Capital. The
top-floor office Dolfin occupied until 2021 was impressive for a firm that lost
1.4 million pounds in 2019.
In a
slick video on YouTube entitled
“The future of finance today” a few years ago, Nagy went over the genesis of
the firm that had rapidly grown into a company with more than 100 employees.
Staffers made cameo appearances, talking about the “dynamic” environment, with
shots of views from the office over Mayfair stretching all the way to the
iconic BT Tower.
The glowing presentation belied
the often chaotic goings-on at the firm. Compliance was something of a
revolving door, according to former employees of the firm. Some said they were
horrified by the shortcuts management took in regulated activities, quitting
before their own reputations took a hit. The co-founders’ spokeswoman said
Dolfin’s operations were in line with FCA regulations.
In the visa business, Dolfin had
97 clients -- all from China and its semi-autonomous regions. Here’s how its
most-popular “gold” option worked, according to the FCA’s supervisory
notice:
First, the visa applicant gets a
family member to act as the owner and sole director of a special purpose
vehicle set up in an offshore jurisdiction like the British Virgin Islands. The
SPV then “borrows” 1.6 million pounds worth of bonds from a Dolfin-affiliated
company, which it then sells to another Dolfin-connected entity for 1.6 million
pounds. Next, the family member declares a dividend from the SPV of 1.6 million
pounds, sending it to the applicant’s account at Dolfin. The applicant then
pays 400,000 pounds into the account and asks Dolfin to invest the 2 million
pounds, which the wealth manager does through securities connected to family
members, directors, or other associates.
The transactions essentially
resulted in the applicant shelling out just 400,000 pounds for the visa. The
scheme was retrospectively signed off by immigration lawyers, but the FCA says
the lawyers weren’t told the whole story.
Dolfin isn’t the first firm to be
accused of gaming the system. Years ago, Maxwell Asset Management Ltd., another
facilitator of golden visas, had a process in which it loaned money to clients
with the proviso that the funds be invested in an entity called Eclectic
Capital Management. Eclectic, held by the wife of Maxwell’s owner Dimitri
Kirpichenko, plowed almost all that money into Russian companies rather than
U.K. ones, court documents show, defeating the purpose of the investment visas.
The Home Office rejected the
applications, arguing that Eclectic’s investments didn’t comply with the rules.
The decision was challenged by some investors and last year the Court of Appeal
accepted that the applications complied with the letter if not the spirit of
the law.
“I have not reached these
conclusions with any enthusiasm,” Judge Andrew Popplewell said, ruling that the
decision to deny Maxwell clients a visa was incorrect. “This result is,
however, a product of the drafting of the rules.”
The Home Office is asking the
U.K.’s highest court to look at the Maxwell case. Several attempts to reach
Maxwell and Eclectic for a comment were unsuccessful.
In the Dolfin case, the Home
Office hasn’t sent any letters of refusal yet, according to two people familiar
with the situation. Much as in the Maxwell case, the ultimate decision may lie
with a court. Some of Dolfin’s clients have hired Jackson & Lyon LLP, the
law firm used by the Maxwell visa applicants. The firm said it represents a
number of Dolfin’s Tier 1 investors and will determine the best course of
action if their visas are revoked.
The Home Office declined to
comment on the Dolfin case, but a spokeswoman said the department “will not
tolerate abuse of the system.”
Further complicating matters for
Dolfin, the FCA said in its supervisory notice that its broadened probe --
beyond visas -- found transactions suggesting an “unacceptable risk of the Firm
being used for the purposes of financial crime.”
It
revealed Dolfin’s “significant and ongoing connections” with an ultra-high net
worth client who had been subject to a U.K. Unexplained Wealth Order. The client is
Nurali Aliyev, the grandson of Kazakhstan’s long-time leader Nursultan
Nazarbayev, according to two people familiar with the matter. SourceMaterial
and openDemocracy revealed Aliyev’s identity as Dolfin’s mystery client last
month.
For many U.K. lawmakers, Aliyev’s
business in the country is emblematic of London’s role in the world of
financial crime.
“Britain has opened our borders,
our property market, our financial structures to the Kazakh ruling class
enabling them to launder their illicit wealth and to spend it,” lawmaker
Margaret Hodge said in Parliament this month, calling for Aliyev to be added to
the list of Kazakh elites under anti-corruption sanctions.
She
cited a Chatham House report showing that about 330 million pounds of U.K. real
estate belongs to the extended Nazarbayev family. Lawyers for Aliyev didn’t
respond to messages seeking comment, but in a 2020 case overturning a wealth order, Aliyev said
accusations against him and his family are “entirely without merit.” Dolfin’s
administrators and co-founders declined to comment on any business by the firm
with Aliyev.
Meanwhile,
some of Dolfin’s Chinese Tier-1 clients’ money appears to have been invested in
companies with links to the firm’s past and present directors. For example,
some of it was plowed into bonds issued by Artek Group Plc, a company owned by Nagy and
Joukovski’s wife, people familiar with the matter said. The spokeswoman for
Dolfin’s co-founders declined to comment on the investment.
Unlike Dolfin, Artek is still in
business. In fact, its office is on Berkeley Street, right across where Dolfin
used to be.
—
With assistance by Gina Turner, Luca Casiraghi, Jeremy Hodges, and Joe Mayes
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