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Russian government connection of Mihajlo Perenčević family exposed

Mihajlo Perenčević, Croatian businessman, Croat, Russia, Kremlin, Velesstroy, Russian pipeline company, Adriatic island, Lošinj

World

Russian government connection of Mihajlo Perenčević family exposed

The family of Mihajlo Perenčević, a wealthy Croatian businessman with ties to the Russian government, secretly took control of real estate developer Jadranka in 2014. The Perenčevićs funnelled suspicious funds from Velesstroy to Jadranka using an opaque trust. Despite Mihajlo Perenčević’s ties to the Kremlin, the trust’s corporate service provider conducted no due diligence on him, and worked with the family for four years. By Anuška Delić (OCCRP/Oštro), Mašenjka Bačić (Oštro), Dmitry Velikovsky (IStories)

For years, Croatians have been in the dark about who owns a major company called Jadranka, the leading tourism developer on the Adriatic island of Lošinj. New documents reveal it to be controlled by the family of Mihajlo Perenčević, president of the Russian pipeline constructor Velesstroy.

In March 2015 a Swiss lawyer wrote to staff at Asiaciti Trust, a Hong Kong-based corporate services provider, as he sought to set up a trust for Predrag Perenčević, a Croat residing in Russia.

The lawyer, Luis Arias, wanted to confirm that no corporation tax would be paid on profits generated outside Hong Kong, because some of the trust’s funds would come from the “bonuses [Perenčević] receives from the companies he manages.”

Perenčević, Arias wrote, wanted to move his bonuses into the trust and transfer the money “down the chain of companies until it reaches the intended recipient,” with minimal delays and paperwork.

Perenčević was a deputy director of Velesstroy, a Russian pipeline company led by his brother Mihajlo, a wealthy but mysterious businessman with close ties to Russia. Mihajlo is designated as a politically exposed person (PEP), partly due to his closeness to Russian President Vladimir Putin.

Little is known about how Mihajlo Perenčević made his fortune. Today much of his wealth comes from Russia, where his company has lucrative contracts to supply the state oil transport monopoly, Transneft. A 2020 investigation by OCCRP and Oštro found his family and associates received millions of dollars from Russia for seemingly fictitious real estate purchases, raising suspicions they were a tool for laundering money through Croatian property.

Despite the seemingly clear family connection between the Perenčević brothers, and Mihajlo’s status as a PEP, Asiaciti carried out Arias’s instructions and set up PNP Trust in 2015. By 2019 the trust controlled at least 650 million euros of assets.

Emails and documents from the Pandora Papers — a massive leak to the International Consortium of Investigative Journalists of documents from 14 offshore service providers, shared with media partners around the world including Oštro and OCCRP — shed new light on the Perenčević brothers’ secret acquisition of hotels and restaurants on the Croatian island Lošinj.

For over five years, the population of Lošinj has remained in the dark about who owns Jadranka, a company with a portfolio of around 250 million euros of luxury properties on the island. Jadranka was added to the Perenčević trust after the family and their associates quietly bought it in 2014.

The leaked documents also reveal how Arias and the Perenčević family dodged questions about the real owner of the trust.

Yet by 2017, staff at Asiaciti had begun to suspect that Mihajlo was secretly behind PNP Trust. In a leaked email from August 2017, the lawyer Arias wrote to Nikola Perenčević — Mihajlo’s son and the investment manager of PNP Trust — to transmit a banking compliance question about whether Mihajlo was “a family member of the Settlor.”

Nikola brushed off the query, pouring scorn on a media report referenced by the bank’s compliance department. Yet a year later, and following a suspicious multi-million-euro transfer forced through by PNP Trust, Asiaciti had dropped Pedrag Perenčević as a client and filed an official Suspicious Activity Report to Hong Kong regulators.

Experts say that trusts are particularly opaque vehicles that can be used to hide the real owners of assets. When someone puts an asset in a trust, he or she no longer technically owns it, but can enjoy all the benefits of it.

“It creates a barrier between the person and that asset – they’re no longer the legal owner of that asset and that creates a secrecy barrier very easily,” said Nicholas Shaxson, writer and researcher with the Tax Justice Network.

“Trust agreements are in a metal safe: No one except the settler and trustee knows about them,” said Ilya Shumanov, director of Transparency International Russia.

Velesstroy Vice-President Kresimir Filipović (right) signs a partnership agreement on the sidelines of the 20th St. Petersburg International Economic Forum in 2016, as Russian President Vladimir Putin stands in the background.

Tax experts also warned that the trust might be used to avoid paying tax in both Russia and Hong Kong, especially if a trust is led by a proxy for the real owner of assets and funds.

“It’s perfectly legal to set up a Hong Kong trust from Russia, and if the income was taxed in Russia there is no problem,” said Alexander Zakharov, partner at Paragon Advice Group. “But if this is someone setting up a trust and making themselves the beneficiary, but they are a proxy for someone else, that could be a problem.

“In general, setting up a trust abroad to look after your assets is … quite common in Russia over the last 20 years. But if there is a politically-connected person involved, someone with influence with people in the state, it could raise some suspicion. This could be a red flag for anti-money laundering teams in banks or for enforcement,” Zakharov added.

Funding Questions

“Can someone please reply???” wrote Nikola Perenčević in a November 2018 email to Asiaciti. “It has been 20 days since you received the original mail from the bank. It is absolutely urgent now, so I ask you kindly to reply.”

He was already frustrated with the time Asiaciti had taken to open a bank account for PNP Trust at the Hong Kong offices of Julius Baer, a Swiss private banking firm, and now it was dragging its heels about opening another in Austria.

Earlier in 2018, Julius Baer’s compliance department had also caused months of delays to a 3.1-million-euro transfer from PNP Overseas, one of PNP Trust’s companies, to a Croatian real-estate developer in which it held an indirect stake, Jadranka.

The attempt to force through this transfer set off a chain of events that ended with Asiaciti resigning as PNP Trust’s registrar.

Prior to this, though, the leaked documents show tens of millions of euros transferred to and between companies owned by PNP Trust in 2018 alone.

Predrag Perenčević added close to 10 million euros into the trust in 2017. More than a half constituted a “bonus payment from Velesstroy to Perenčević.”

Perenčević was also earning outsized bonuses from the pipeline company led by his brother — bonuses his lawyer had said he wanted to transfer to the trust. In an income statement later sent to Asiaciti, Perenčević reported Velesstroy had paid him the equivalent of around 114,900 euros in salary between April 2014 and mid-2017 and bonuses for the period totalling a whopping 26 million euros.

The source and sheer size of Perenčević’s bonuses flowing into PNP Trust should have caused concern for Asiaciti’s compliance department, Transparency International’s Shumanov said: “If bonuses have been transferred to a PEP’s relative who works in the company and moved offshore, it could be identified as a red flag.”

Shumanov said Velesstroy’s reliance on contracts from Russia’s state-run company was also problematic, given Mihajlo Perenčević’s known closeness to the Russian government.

The Russia connection

Since 2010 Mihajlo Perenčević has been president of Velesstroy, a major Russian construction company that has won lucrative contracts from Transneft, the state-owned oil transport monopoly.

Before becoming president of Velesstroy, Perenčević headed a British company called Amerco International Limited, which also supplied Transneft. An internal Transneft report from 2008 accused Amerco of overcharging and providing fraudulent paperwork.

No police investigation was ever carried out, however, and Transneft took no actions based on the report’s conclusions. The same year, Amerco set up a Russian affiliate that was swiftly renamed Velesstroy, which has also grown into a major Transneft supplier.

Perenčević has received honors from both former President Dmitry Medvedev and President Vladimir Putin, in part for his company’s “development of economic cooperation between Russia and the Republic of Croatia.”

In 2017 Putin personally awarded Perenčević and his vice president in Velesstroy, Krešimir Filipović, “honorary certificates” for their work.

Asiaciti said its business is “subject to stringent regulation by the relevant authorities in each jurisdiction in which we operate” while criticizing unspecified inaccuracies in the Pandora Papers stories.

“We maintain a strong compliance program,” Asiaciti said. “However, no compliance program is infallible – and when an issue is identified, we take necessary steps with regard to the client engagement and make the appropriate notifications to regulatory agencies.”

Mihajlo, Predrag, and Nikola Perenčević did not respond to a request for comment.

The Elusive Gubernator of Lošinj

Mihajlo Perenčević has a reputation as an influential operator on the Croatian island Lošinj, where he, his wife, and brother own villas and land in Čikat bay, on the western coast of the island.

The picturesque bay, touted in tourist guides for its undulating coastline, has gained a reputation as a haven for Russian money. Perenčević claims to have attracted millions of dollars from Russia to Lošinj, where activists have dubbed him the “gubernator,” the Russian word for ‘governor.’

Jadranka is also well-known as Lošinj’s top real estate developer, with restaurants, villas and hotels across the island, including its first five-star resort, Hotel Bellevue. For years it was thought to be owned by Russians, after a management company belonging to the Russian bank Promsvyazbank took a controlling stake in 2013.

Luxury Hotels in Čikat Bay, on the Croatian island of Losinj.

At the time, some wondered if Perenčević may also have been involved because of his wealth and Russian connections. Asked by a Croatian media outlet if he was behind the Jadranka deal, Perenčević replied cryptically that his money was not, but his influence was.

That was not entirely true. Documents unearthed via the Pandora Papers show the management company, UK Promsvyaz, was actually working on behalf of offshore companies partly controlled by the Perenčevićs.

In 2015, Jadranka was then consolidated under PNP Trust, which would later add several other companies to its holdings, including various offshore companies and Velesstroy.

Mihajlo’s name does not appear on any of the leaked paperwork for the trust, but there are hints of the elusive tycoon’s involvement.

An email from the leak, sent by the family’s lawyer in 2017, asks Asiaciti to remove Predrag’s name as the beneficiary of the trust and replace it with a description of a “designated class of beneficiaries.”

Initially, that “class” was described as “male descendants of the settlor [Predrag Perenčević] and/or other male family members of the Perenčević Family as nominated.” This meant only Nikola or Mihajlo could take over if Predrag died.

The wording was changed again in March 2018. This time the “class” included “any male beneficiary descending from the Original Settlor’s father, born to a legal matrimony and fully and legally entitled to bear the Perenčević name.”

This could only be Mihajlo.

Lakshmi Kumar, Policy Director at Washington, DC-based non-profit Global Financial Integrity indicated the changes could have been intended to make it unclear who truly owned the trust.

“A trust allows you to create vague enough language that would help obscure identity. The real owners of assets can hide behind a trust because it provides anonymity and it is often hard to determine who is the real owner,” she said. “Examining the relationship between the settlor and beneficiary provides vital information on who truly owns and controls the assets held by the trust.”

The maneuver coincided with the introduction of a new tax treaty between Russia and Hong Kong, which tax analyst Zakharov said would make it much harder to move assets between the countries to avoid paying any tax.

“When the double tax treaty was signed and came into effect, it became more difficult to hide anything from Russia,” he said. “There are now requests [for information] from Russia to Hong Kong, and Hong Kong has been providing responses.”

In February 2018, Arias emailed Asiaciti to warn that PNP Overseas was due to receive dividends through the Russian office of Velesstroy’s holding company. To comply with the new treaty, PNP Overseas needed a certificate to show it was resident in Hong Kong and not an offshore company.

But PNP Overseas couldn’t meet the criteria. An audit by Ernst & Young’s Hong Kong office found it had no business income in its first year, it had nothing in its local bank account, and no physical presence in Hong Kong.

Zakharov said that a trust having no bank account or substantial economic presence in its jurisdiction was one sign that it had been set up purely for tax purposes.

Following further banking compliance questions from other parties about the identity of PNP Trust’s ultimate beneficiary, the “designated class” was abandoned and Predrag reinstated as the primary beneficiary.

Fire Alarm

While PNP Overseas was vainly seeking resident status in Hong Kong, Velesstroy’s holding company granted it a dividend payment of 3.1 million euros.

PNP Overseas wanted its bankers at Julius Baer to transfer the money to the Croatian company Jadranka via its indirect owner, a British Virgin Islands company called Montex Assets. This is when alarm bells sounded in the bank’s compliance department, which demanded to know more about the transfer.

The banker was surprised to see the client “remit another sum so frequently” given that its account was meant to “invest in bonds, funds or structure portfolios.” Julius Baer also wanted to know why the dividend was to pass through PNP Overseas, instead of being paid directly to Montex Assets.

Arias replied the client “is conscious he is asking the bank to make an exception and would like to reassure the bank that it will remain an exception.”

As Julius Baer’s compliance team demanded more information, PNP Trust’s representatives changed their explanation. Now, they claimed the money was needed to renovate the “marquee restaurant” of Jadranka’s Hotel Bellevue, which had been damaged in a fire in April 2018.

However an official report from the local fire department shows that less than 27,000 euros of damage was done. The document, obtained by Oštro, shows that the fire burned in a subterranean storage room and auxiliary kitchen spaces — not in direct proximity to the hotel’s marquee restaurant — and was put out in less than two hours.

Despite the bank’s reservations, the money was eventually transferred as an interest-free loan to Jadranka’s indirect owner, Montex Assets, to “simplify compliance issues”.

Burned Bridges

By now, however, Julius Baer’s compliance department had delved into the Perenčević family’s links to the Kremlin. It subsequently upgraded PNP Overseas’ rating to “high risk,” and communicated its findings to Asiaciti.

Asiaciti resigned as the trust’s registrar.

In February 2019 — after staff concluded Mihajlo Perenčevic was likely “the [trust’s] “effective controller based on … internet searches” that included a years-old OCCRP story — Asiaciti filed a suspicious transaction report with Hong Kong’s Financial Intelligence Unit.

Hong Kong authorities declined to comment for confidentiality reasons. A spokesperson for Julius Baer also declined to comment.

Emails between Asiaciti staff who put together the report show the provider had failed to carry out basic due diligence checks on Mihajlo Perenčević.

When staff asked colleagues for documentation on him, they were told: “We do not have client due diligence documents on the identified effective controller. Thank you.”

PNP Trust still exists, but with a different registrar. It may also be using a different bank.

“Please ask the Trustee to liquidate the account and to return the funds to the BO [beneficial owner],” Nikola Perenčević wrote in a fuming May 2018 email to the Swiss lawyer Arias about the delays to the 3.1 million euro transfer.

“The time for patience is over. Business waits for no man, and so neither does it wait for the compliance officers.”

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