Few developments speak so well of how far Caucasian dictatorships have come since the grey days of the Soviet Union as the fabulously wealthy and incredibly investment-savvy 15-year-old male heir of Azerbaijan's ruling family.
When he was a mere 11 years old, Heydar Aliyev, the son of Azerbaijan's President Ilham Aliyev, purchased $44 million in luxury mansions on Palm Jumeirah, the elite artificial archipelago built by Dubai and known for housing both holidaying British soccer players and thieving Russian tax officials. $44 million is, in the words of the Washington Post's Andrew Higgins, who broke the story in 2010, "roughly 10,000 years worth of salary for the average citizen of Azerbaijan." But young Heydar wasn't the only member of his family engaged in Gulf property speculation. His two older sisters, Leyla and Arzu, were also listed as owners in Dubai's Land Department registry. Together, the three Aliyev children invested in $75 million in Dubai real estate, which certainly is impressive considering that their father's official annual income as a public servant is just $228,000. When asked for comment by Higgins, who showed how the date of birth and name for the listed Dubai owner was the same as Ilham's dauphin, Aliyev's spokesman Azer Gasimov replied: "I have no comment on anything. I am stopping this talk. Goodbye."
The reader will therefore understand why I didn't bother to try to reach Gasimov to explain Heydar's other high-profile but low-recognition investment. Now 15, the Aliyev son and likely heir to Azerbaijan's political dynasty has also got himself a sideline in commercial banking, judging from corporate filings I've obtained. These documents show that he controls a parent company that owns, through an offshore subsidiary, almost half of Russian mega-bank VTB's Azerbaijani subsidiary.
Nothing wrong with that, you say. It's a fine idea to give a pubescent a solid education in the credit industry, what with all global shenanigans that have taken place in the last five years.
There are only two problems.
The first is that VTB, which is the second-largest bank in Russia and is 75 percent-owned by the Russian government, is also one of the fastest-growing financial institutions on the planet, with retail, commercial and investment arms in 19 countries, including the United States. It has been, and continues to be, dogged by civil lawsuits filed in multiple jurisdictions because of its issuance of loans that have led High Court justices to wonder "what, if any, due diligence" was carried out beforehand. VTB has been accused to being little more than a vehicle for the enrichment of its executives and for the Kremlin's "economic diplomacy" in luring foreign direct investment to Russia--a Putinist Lehman Brothers. In 2011, it took in about $712 million in German and French pensioner deposits, and earlier this year, it featured prominently and unflatteringly in the Cyprus credit implosion,given the $13.8 billion in assets it had tied up in the Mediterranean country long rumored to be a money-laundering haven.
Embattled Russian opposition leader Alexey Navalny is particularly fond of exposing VTB's dodgy history; in September 2012, his Foundation for Fighting Corruption published a comprehensive report examining some of the highlights (full disclosure: I edited it).
The second problem is that in May of this year, Azerbaijan's sovereign wealth fund invested $500 million in VTB's secondary public offering (SPO). It was joined by Qatar's and Norway's sovereign wealth funds and, collectively, all three gobbled up 55 percent of the SPO. According to Herbert Moos, VTB's chief financial officer, "We have been working with the [Azerbaijani sovereign wealth fund] on a real estate investment in Moscow, their first investment, and they have a 20 percent allocation to Russia so they made a strategic decision to invest in us and become a business partner."
Good thing Heydar has ample real estate experience, otherwise his father's regime might have balked at the prospect of throwing a cool half a billion into a bank heavily owned by the baby of the Aliyev family.
Here's what we can prove from open-source financial filings and Panama's surprisingly helpful corporate registry. On November 9, 2009, Ataholding, an open joint-stock company that manages AtaBank, one of the biggest commercial banks in Azerbaijan, purchased 48.99 percent of VTB's Azerbaijani subsidiary. The remaining 51 percent is owned by VTB and thus mostly owned by the Russian government. As of December 31, 2009, AtaBank's investment was valued at 10,887,310 Azerbaijani manats, which at today's exchange rate is around $13.8 million.
Ataholding is 51 percent-owned by a Panama-registered shell company called Hughson Management, Inc., of which, as the Ataholding financial statement for 2009 informs us, Heydar Aliyev has the controlling interest. At least that's in the iteration of the statement I received. (Here's a PDF copy and mark that the metadata dates its drafting in 2010.)
Curiously, and perhaps owing to the diligent spadework of Andrew Higgins, the Ataholding statement currently hosted on the company's website does not include the notes section of the earlier copy, which features this disclosure:
The Group's immediate parent is Hughson Management Inc, tax resident of Republic of Panama (2008: Hughson Management Inc, tax resident of Republic of Panama). The Group is ultimately controlled by Mr. Heidar Aliyev (2008: Mr. Heidar Aliyev).
Hughson Management is still currently listed as the majority owner of AtaBank.
Now, there have been exactly two prominent Heydar Aliyevs in Azerbaijan's recent history. The first was a KGB chief turned Communist ruler of the Soviet autonomous region (1969-1982) and was the kind of Stalinoid satrap-cum-mafia kingpin who found it necessary to bribe Leonid Brezhnev in order to remain in power. Gorbachev's rise in Moscow coincided with this Heydar's eclipse in Baku. He subsequently became first the de facto head of the republic, as the USSR was falling apart, and then the first president of post-Soviet Azerbaijan in 1993. Heydar ruled until 2003, which is the year he died. That would have made it difficult -- though probably not impossible given that Azerbaijan one of the world's most corrupt countries -- for him to be found owning banks five years later. The elder Heydar was immediately succeeded by his son Ilham, the State Department's Michael/Sonny metaphor whose own "election" in 2003 Human Rights Watch characterized as the rotten fruit of "bureaucratic interference and political intimidation against the opposition [which made] a free and fair pre-election campaign environment impossible." Terms limits for presidents were abolished in 2009, the same year the regime clamped down on domestic press freedoms and took the BBC, Radio Free Europe/Radio Liberty, and Voice of America off the air.