The FinCEN Files - The Israeli Angle

Leaked bank reports reveal money transfers from state-owned defense giant to two companies suspected in money-laundering for the Azerbaijani government. One of the companies is alleged to have bribed an EU politician. The transfers began just months after a $1.6 billion arms deal was signed between IAI and the Azeri regime

The FinCEN Files - The Israeli Angle

Intelligence Bank Documents: Israel Aerospace Industries paid $155-million to two companies linked to money laundering

Leaked bank reports reveal money transfers from state-owned defense giant to two companies suspected in money-laundering for the Azerbaijani government. One of the companies is alleged to have bribed an EU politician. The transfers began just months after a $1.6 billion arms deal was signed between IAI and the Azeri regime

Leaked bank reports reveal money transfers from state-owned defense giant to two companies suspected in money-laundering for the Azerbaijani government. One of the companies is alleged to have bribed an EU politician. The transfers began just months after a $1.6 billion arms deal was signed between IAI and the Azeri regime

Uri Blau, Washington

Photo: SSGT Reynaldo Ramon USAF/ Wikimedia Commons

September 20, 2020

Summary

I

srael’s largest aerospace and aviation manufacturer transferred at least $155 million to two companies associated with huge-scale money laundering for the Azerbaijani government, according to leaked bank reports for the period 2012-2014. The reason for these payments by state-owned Israel Aerospace Industries, which produces aerial and astronautic systems for both military and civilian usage, remains unclear.

The story came to light as part of a huge leak involving thousands of banking documents that ultimately ended up in the hands of the International Consortium of Investigative Journalists (ICIJ).

Photo: ICIJ

A Shomrim investigation reveals that the funds were transferred shortly after IAI signed one of its largest-ever business deals with the Azerbaijani government. A source familiar with the particulars of the deal claims, however, that to the best of his knowledge, it did not include an agreement regarding payment to any intermediary. IAI chose not to dispel the fog surrounding the nature of the payments and refrained from responding to questions as to the background of the transfers.

A Shomrim investigation reveals that the funds were transferred shortly after IAI signed one of its largest-ever business deals with the Azerbaijani government. A source familiar with the particulars of the deal claims, however, that to the best of his knowledge, it did not include an agreement regarding payment to any intermediary

Instead, it offered the following laconic response: "Israel Aerospace Industries is a government company that operates in strict compliance with the provisions of the law. As a defense company, and in keeping with company policy, it doesn’t address or respond to information about its business activities other than as required by law."

The payments appear in more than a dozen Suspicious Activity Reports (SARs) compiled by Deutsche Bank officials and submitted to the Financial Crimes Enforcement Network, or FinCEN, the U.S. Treasury Department entity responsible for detecting illegal financial activity, including money laundering and funding for terrorism. The reports, along with thousands of others from banks worldwide, were leaked originally to BuzzFeed News and then passed on to the ICIJ, which, in turn, shared them with 108 media outlets around the world and some 400 journalists, including Shomrim. See accompanying article for more on the leak.

It’s important to stress, of course, that the submission to FinCEN of a SAR doesn’t mean that the individual or company mentioned in the document has done anything illegal. The transactions to which the report refers could be part of totally legitimate business activities that were carried out in a manner that aroused the suspicion of the financial institution that reported them.

The mysterious beneficiary

The list of entities and banks mentioned in the Deutsche Bank reports concerning IAI is long and includes Israeli and foreign banks, through which payments were made from customers such as Alitalia, Indian Aerospace Industries, RwandAir, Ethiopian Airlines, Russia’s Rossiya Airlines, the Kenya Police and others. The reports also include a long list of entities to which the IAI itself transferred monies, such as the Defense Ministry, aeronautical companies around the world, and so forth. Sticking out like sore thumbs among the recipients of these payments are two companies - Jetfield Networks and Larkstone - that don’t seem to match the profile of the Israeli company’s other suppliers.

European embargo on weapons sale. Baku harbour (photo: Wikimedia Commons)

Founded in New Zealand in 2009, Jetfield moved its operations to the Marshall Islands some three years later; and there, according to bank documents obtained by Italian newspaper L’Espresso, the "legitimate heir" of the company branched out into the field of consulting services. Before then, according to the same documents, the company had reported to the banks that it was engaged in commerce, including the buying and selling of construction equipment.

Jetfield’s relocation to the Marshall Islands became official in early February 2012, and almost simultaneously, Israeli and international media reported the signing of a huge contract between IAI and the Azerbaijani government - a product of the close and multifaceted relationship between Israel and Azerbaijan

The company's beneficiary is a man by the name of Javid Huseynov, an Azeri born in 1961. Huseynov is also the beneficiary of Larkstone, a company that operates out of Estonia.

Jetfield’s relocation to the Marshall Islands became official in early February 2012, and almost simultaneously, Israeli and international media reported the signing of a huge contract between IAI and the Azerbaijani government - a product of the close and multifaceted relationship between Israel and Azerbaijan that remains, for the most part, hidden from public view. Israel buys oil from Azerbaijan, and the Azeris purchase arms and agricultural equipment from Israel. The government in Jerusalem, according to foreign media reports, attaches significant strategic importance to Azerbaijan due to its long border with Iran, with the human rights violations that occur in the country failing to constitute any sort of obstacle to the ties.

In its latest report, U.S.-based organization Freedom House, an independent watchdog that ranks the countries of the world in terms of their standards of democracy and human rights, notes that "power in Azerbaijan’s authoritarian regime remains heavily concentrated in the hands of Ilham Aliyev, who has served as president since 2003, and his extended family. Corruption is rampant, and the formal political opposition has been weakened by years of persecution. The authorities have carried out an extensive crackdown on civil liberties in recent years, leaving little room for independent expression or activism."

Javid Huseynov

An embargo on the sale of weapons to Azerbaijan, imposed in February 1992 by the Organisation for Security and Co-operation in Europe, has also not deterred Israel from trading with Azerbaijan.

Negotiations over the deal between IAI and Azerbaijan began some two years before the contract was announced, and talks with various IAI sources reveal that very few company officials were in the know. The first batch of products was delivered about two years after the deal was signed and supplies continued for at least five years. According to Israeli and international media reports, the deal included the sale of drones and missile defense systems. For the Azeris, it was a business deal of extraordinary proportions, amounting to more than half the country’s overall annual defense budget of $3.2 billion.

according to Israeli and international media reports, the deal included the sale of drones and missile defense systems. For the Azeris, it was a business deal of extraordinary proportions, amounting to more than half the country’s overall annual defense budget of $3.2 billion

For IAI, too, the deal was almost unprecedented in size, the result of what one of the sources we interviewed for this report defined as "a honeymoon" with the Shia republic that began somewhere around 2007.

"No clear commercial purpose"

"This report is submitted," begins one of the documents sent by Deutsche Bank to the U.S. authorities, "because Israel Aerospace Industries is involved in the production of arms, which is a high-risk industry [in terms of money laundering, U.B.]" The report then goes on to include data on several large money transfers, in round amounts, that were made "without a clear commercial purpose." According to Deutsche Bank, IAI said the huge payments were for "management and consulting services" provided by the two companies. We'll get back to that later.

The payments to Jetfield began in June 2012, just months after the giant deal with Azerbaijan was signed, with a transfer of close to $30 million, followed by an additional $6 million in October that same year, and then repeated transfers in the months that followed. An analysis of Deutsche Bank's reports to FinCEN shows that by 2014, more than $116 million had been transferred to Jetfield, with Larkstone receiving around $39 million during the same period. In one instance, according to the bank reports, IAI transferred about $8 million to Jetfield for the purchase of helicopter rotor blades. "Deutsche Bank wasn’t able to independently confirm the purpose of the transfer of funds," the report notes.

The payments to Jetfield began in June 2012, just months after the giant deal with Azerbaijan was signed, with a transfer of close to $30 million, followed by an additional $6 million in October that same year, and then repeated transfers in the months that followed

The money transfers to Jetfield and Larkstone raise questions primarily due to information about the two companies that came to light in the years that followed. Bank documents, which were leaked in 2017 and served as the basis for a series of investigative reports published by the Organized Crime and Corruption Reporting Project (OCCRP) under the title, The Azerbaijani Laundromat, revealed that a sum of 2.5 billion euros had been channeled through companies with very close ties to the Azeri regime to four companies registered in England, through which the money was then laundered. Jetfield, according to the OCCRP investigation, was one of the companies through which some of the money, $109 million, was channeled. Larkstone was part of the system too.

The money, which flowed out of Azerbaijan between 2012 and 2014, was used, inter alia, to purchase luxury goods for government officials in Azerbaijan, but also for greasing palms. More than 2 million euros that left Azerbaijan, with a portion going through Jetfield, for example, ended up in 2012 in the bank account of Italian politician Luca Volontè, Rome’s representative to the Parliamentary Assembly of the Council of Europe (PACE), an official European Union body that keeps track of human rights violations and the preservation of democratic institutions. The Italian police believe that, in return for the payment, Volontè undertook to soften European Council reports on human rights violations in Azerbaijan. The investigation, which was launched as far back as 2015, is still ongoing.

The questions only get bigger in light of material uncovered in a worldwide investigation underway into the Estonian branch of Danske Bank of Denmark, which allegedly served as a center for money laundering to the tune of some $200 billion. Both Jetfield and Larkstone managed accounts at the bank, and internal bank correspondence uncovered during the investigation touches on the companies’ ties with IAI.

In one internal email, Oksana Lindmets, a Danske Bank employee and suspect in the affair, provides details about a meeting with representatives of Jetfield in Baku in January 2012. The company, she writes, is part of an array of firms, including Larkstone, that are engaged in "marketing, research, legal, financial and tax consulting, and also the finding of partners." Its principal customers, Lindmets adds, "are international companies that wish to offer their services and other goods to various government ministries in Azerbaijan (Defense, Communications, etc.)."

Lindmets notes in her email  that Jetfield has already signed contracts with IAI. The email explicitly states that Jetfield isn’t involved in the buying or selling of equipment, and that the company will be providing consulting and office management services for IAI, locating local partners and so forth. Jetfield, according to the email, will receive a brokerage fee of 9.9 percent of the volume of the deals

Luca Volontè (photo: Claude Truong-Ngoc / Wikimedia Commons)

Lindmets notes in her email (sent in June 2012, a few months after IAI signed its deal with Azerbaijan) that Jetfield has already signed contracts with IAI. The email explicitly states that Jetfield isn’t involved in the buying or selling of equipment, and that the company will be providing consulting and office management services for IAI, locating local partners and so forth. Jetfield, according to the email, will receive a brokerage fee of 9.9 percent of the volume of the deals.

Another email, dealing with Larkstone this time, was sent in February 2013 and concerned the transfer of $11.5 million from IAI to the company. This contract is unusual, Lindmets writes, as it doesn’t deal with consulting services. According to the email, Larkstone had been contracted by IAI to purchase trucks and a generator to be transferred to Azerbaijan. A third email notes that Larkstone may be involved in the construction of a training base in Azerbaijan on behalf of IAI.

IAI business deals require the approval of the company's board of directors, as well as that of SIBAT, the International Defense Cooperation Directorate of the Defense Ministry. According to former IAI officials, the regulations regarding the payment of commission fees are very stringent, and the same goes for the due diligence that companies that work with IAI undergo. These regulations, a former senior IAI official told Shomrim, have been even more strictly adhered to since Israel joined the OECD more than a decade ago. In any event, none of the people with whom we spoke were familiar with the names Jetfield, Larkstone or Huseynov.