A Malta-based shell company is linked to financial transactions which likely saw Azerbaijani President Ilham Aliyev and his family amass hundreds of millions of euro at the expense of the country he leads and its citizens.

FA Invest (Malta), whose registered address is in the Cornerstone Complex in Mosta, has apparently taken over a 6.5 per cent stake in Azerbaijani telecoms company Azercell, while the Azerbaijani government transferred its own stake at highly discounted prices to a company which appears to be indirectly controlled by the Aliyev family.

Mr Aliyev presides over a country widely deemed to be one of the world's most corrupt regimes, and he and his family - his wife Mehriban, his daughters Leyla and Arzu and his teenage son Heydar - are perceived to treat state assets as if they were their own personal property.

While the President is constitutionally prohibited from owning businesses and has an annual salary of around €200,000, the Washington Post had found out in 2010 that his son - who was just 11 at the time - had acquired nine waterfront mansions in Dubai worth $44 million.

Months-long investigation unearths Malta link

The Malta link is one of many findings resulting from a months-long investigation carried out by the Organised Crime and Corruption Reporting Project, Swedish Television's programme "Uppdrag Granskning" (Mission Investigate) and the Swedish News Agency TT into Azerbaijani telecoms company Azercell, which is majority owned by Swedish-Finnish company TeliaSonera.

The story, ultimately, is based on the work of Azerbaijani journalist Khadija Ismayilova, an OCCRP member who was arrested last December on apparently trumped-up charges.

Their examination of countless business records, annual reports and internal documents uncovered a scheme to transfer Azercell shares into the hands of a "local partner" with numerous links to the Aliyevs, while TeliaSonera and its partners played down what was happening and often made misleading public statements. The Swedish company was actually found to have acted against its interest by allowing the deal to go through.

The rise of Azercell

Azercell was originally established in 1996 as a joint venture between the Azerbaijani government and Turkish company Türkcell, with the former owning a 51 per cent stake. Türkcell soon brought in a new partner, Istanbul-based company Cenay Insaat, which was viewed favourably by the Azerbaijani government.

A holding company called Azertel was called, and Türkcell moved its stake in Azercell into this new company. Azertel subsequently increased its stake in Azercell to 64.3 per cent.

In 2000, Türkcell merged Azertel and most of its international holdings with assets from Finnish telecom operator Sonera, which merged with Swedish operator Telia two years later. TeliaSonera thus gained overall control over Azercell.

Azercell proved to be highly successful, providing a significant contribution to the Azerbaijani state's budget through taxes. But as its profits grew, the Aliyev family turned their sights on it, and the state's share was quietly shifted to companies linked to them.

According to a shareholders' agreement, should any privatisation occur, the Azerbaijani government was required to first offer its shares to TeliaSonera, and in 2004, the company aimed to increase its indirect ownership in Azercell to 75 per cent, granting it full management control.

Negotiations with the government and with Cenay Insaat began, with TeliaSonera seemingly desperate to close the deal as quickly as possible since the company's value was increasing rapidly.

 

The Aliyevs dip their fingers

But in September 2004, without any explanation, the Azerbaijani government insisted that TeliaSonera could not privatise Azercell by itself, stating that Cenay Insaat and a new government-approved local partner would be involved.

TeliaSonera would be required to waive its right to buy the government share and even agree to finance Cenay Insaat and the new local partner with a $100 million loan, which would be repaid through the dividends the new partners would earn through Azercell.

In return, the local partner guaranteed that it would receive all the necessary licences and regulatory approvals, and that the government would pass laws liberalising the telecom industry - an assurance that could only be made by the government itself or someone closely linked to it.

TeliaSonera wanted to maintain corporate control and appoint all board members, but the local partner wanted more management control, and as the Swedish-Finnish company resisted, the Azerbaijani government retaliated.

Suddenly, Azercell found itself under pressure from regulators, and tax authorities started carrying out an extensive audit of its operations. Such pressure on foreign companies is hardly unusual in corrupt regimes, and is often used to force them to pay kickbacks.

But a new development occurred in the spring of 2005, through the emergence of a new local partner which put privatisation back on the agenda.

This time round, Azercell's shares were to be shifted to a company designed to appear to be linked to Cenay Insaat, but was in fact very different.

Two of Cenay Insaat's founders established a new company with a very similar name, Cenay Iletisim, and asked TeliaSonera to approve the transfer of half of Cenay Insaat's shares, equivalent to 6.5 per cent of Azercell, to the new company.

When the transfer of shares was approved, TeliaSonera was informed that Cenay Iletisim was controlled by the Cenay Group, but only a month later, Cenay sold its interest - worth some $26-45.5 million - to two newly-established Panamanian shell companies for just $6.5 million.

Such ownership structures are typical for the Aliyev family as it amasses huge wealth off the country's assets: most of the family's offshore companies are registered in Panama through registration agent Morgan y Morgan.

Asked why Cenay would give up half its share for so little, Cenay Group's Ugur Uzpeder told the OCCCRP that "it is better to sell for us. To work in Azerbaijan is quite hard, we have other investments there. For example, we have the pipeline, pipe factory there. We couldn't succeed with that, because it is a very hard market."

He said that he could not say anything more when asked if Cenay were forced to sell.

 

TeliaSonera strong-armed into benefiting first family

And at the end of 2005, TeliaSonera was asked to approve a deal where Cenay Iletisim would take over the government's stake in Azercell for $180 million - although they were worth some $785 million at the time - even though the government legally had to privatise its share to its holding company.

Faced with no other choice - its holding company's CEO had said, during a board meeting, that not approving the deal would be very much destructive for the company - TeliaSonera ended up approving the deal which saw Cenay Iletisim's stake in Azercell increase to 42 per cent, while TeliaSonera's own stake fell to 51 per cent.

Adding insult to injury, TeliaSonera was expected to loan Cenay Iletisim the money it needed to buy the shares from the government, and also had to agree to give Cenay Iletisim the right to sell its stake back at a fair value in the future.

It effectively committed itself to an $873 million liability to Cenay Iletisim, a transfer of wealth potentially rising to $1 billion when dividends from TeliaSonera to the company are considered.

But internal documents reveal that the Azerbaijani government did not even receive the $180 million it sold its shares for, as the government requested that at least half of that amount would be paid through a three-party arrangement with government voucher holders. The voucher system, through which Azerbaijani citizens had been entitled to voucher coupons to benefit from the privatisation of state-owned enterprises, was riddled with corruption, and evidence presented in a US bribery trial suggests that two-thirds were owned by 28 shell companies owned by Azerbaijani government officials, possibly including the Aliyevs.

While Azercell initially expected to receive permission to use the newest technology at the time - a 3G licence - this was not forthcoming. As it happens, one of its competitors is owned by President Aliyev's two daughters through a Panamanian offshore registration agency.

The licence only appeared in late 2011, and only in the wake of another round of shady deals.

In November 2011, Azercell's results for the fiscal year ending 30 September 2011 were approved, but no dividends were distributed. However, the board met again the following month and changed its mind about distributing dividends.

But as it happens, Cenay Insaat did not receive its 6.5 per cent share of the dividends: these instead went to a Malta-based company, FA Invest Malta, which had only been registered in 27 October, 2011.

FA Invest was represented by a certain Hamzayev Rashad Firidunoglu, whose name is coincidentally identical to one of the President's personal security guards, who received the "For service to the motherland" medal from President Aliyev in 2010.

Only after FA Invest's entry into the scene did Azercell receive its long-awaited 3G licence. A 4G licence soon followed.

 

Maltese company linked to Aliyevs' Panamanian registration agency

Investigations carried out by The Malta Independent on Sunday show that FA Invest Malta is owned by two companies.

One of them is Panama-based Stella International Services, which appears to be linked to the Aliyev family: it is based in the Morgan y Morgan offices in Panama City.

The other is Trident Trust Company (Malta) Ltd, whose directors are Maltese citizen Nissim Ohayon - who is also the company secretary of FA Invest Malta - Mark Wilson LeTissier from Guernsey, and David Hermanus Bester from the Isle of Man.

Trident Trust's shares are owned by TTG (Malta) Ltd, which is based in the same Mosta office, but TTG Malta's own shares are controlled by Binder Investments Limited, which is based in the British Virgin Islands.