Trump's partnership with the Kazakh businessman he says he hardly knew

TenTen years ago, Donald Trump and Tevfik Arif were close business chums. Trump leant his name to Arif in a licensing arrangement that gave Trump handsome returns, while the wealthy Kazakh with joint Turkish nationality used the Trump name to vastly expand his property development business.

“Donald Trump has been very helpful from the beginning and he’s been very helpful in opening some doors,” said Tevfik Arif in an interview published in 2007 by the US magazine Real Estate.  

The interview is now no longer available on the magazine’s website, wiped from view like many other public references to the association between the two men. Donald Trump, who in 2007 praised Tevfik Arif’s “big international connections” and who announced the two were engaging on large international property development projects, now has difficulty remembering the relationship with his former partner. “I don't know Tevfik Arif very well,” said Trump in 2013. “I just saw him a couple of times.”

The US president-elect appears only just capable of recalling that he was associated with the Arif family’s property development business Bayrock Group.

On their side, the Arif family have officially distanced themselves from Trump. At least, officially. For when the name of Bayrock began to be cited in connection with numerous unflattering property projects, a degree of panic set in the family’s worldwide business group, Doyen, as demonstrated in numerous internal emails obtained from the whistle-blowing platform Football Leaks and analysed by Mediapart and its partners in the journalistic collective European Investigative Collaborations (EIC).

Considerable efforts were employed to ensure that Bayrock, Doyen and the Arif family could continue their business activities in relative obscurity. As of 2012, law firm Schillings, specialized in cyber security and communications, was appointed by the Arif family and their Doyen Group to wipe from the internet unwelcome references to their activities, including buying up photos that showed Tevfik Arif in the company of Donald Trump and his children, Donald Junior and Ivanka. It was as if there was an urgency to erase a burdensome and all too visible past.

This meant diverting attention from Bayrock and its role in recycling the family’s finances. Bayrock’s operations were detailed in a legal case brought against the company in 2010 by its former financial director Jody Kriss. The lawsuit, which accused the management of Bayrock of moneylaundering, fraud and tax evasion, stated: “In 2004 Bayrock Group LLC began receiving what would total, in two years, $10,000,000 in equity contributions. A Confidential informant told Plaintiffs this money came from Arif’s brother in Russia, who had access to cash accounts at a chromium refinery in Kazakhstan.”

Of the four Kazak-Turkish brothers at the head of the Arif clan, Tevfik Arif, 63, is the only one with a public face. In an email to K2 Intelligence (formerly Kroll), a private agency specialized in investigations, cyber defence and risk management, which was hired in 2014 to help restore the reputation of the Arifs, Tevfik Arif’s son wrote: “My father is the more public figure due to his involvement in high publicity business such as real estate with Donald Trump.”  

The Arif family’s wealth was founded on their ownership of the Aktyubinsk Chromium Chemicals Plant (ACCP), based in Aktobe, in western Kazakhstan, and one of the world’s biggest producers of chromium-based chemicals. They took control of the plant after the fall of the Soviet Union, in the early 1990s, a period when many future oligarchs grabbed industrial assets with the help of organised crime. The Football Leaks documents suggest that the Arifs’ ownership of ACCP is dependent on a group of protectors who are apparently so powerful that the Arifs fear they could be ruined by them if a conflict erupted.

The Arifs have siphoned off hundreds of millions of euros in profits from the Kazakh plant, which were placed in tax havens before being recycled to finance their group’s different activities, including in European football (see our reports here and here).

Close to the Arif’s chemical factory in Aktobe is a chrome-producing plant owned by the Eurasian Natural Resources Corporation (ENRC), in which Alexander Mashkevitch is one of three principal shareholders. In 2013, the London-based ENRC group was renamed the Eurasian Resources Group when it also transferred its offices to Luxembourg. It made the move, in which it delisted from the London stick Exchange, when it was under investigation over allegations of corruption and moneylaundering.

The documents from Football Leaks show the close links between the Arif family and Mashkevitch. In a confidential phone text message sent by Ayla Arif, daughter of Tevfik Arif, she wrote that Alexander Mashkevitch “is helping dad keep hold of his primary business”. When Bayrock still promoted itself openly in public, the company’s brochure (see here) described Mashkevitch and his company as one of its “strategic partners”.    

The relationship between the questionable Kazakh funds and Donald Trump initially attracted little attention, despite the fact that for years the US press had looked into the projects led by Bayrock alongside Trump. But the US media investigations into the relations between Tevfik Arif’s company Bayrock and Donald Tump focussed above all on one of the property company’s associates with a criminal past, Felix Sater, and Trump’s role in fronting unsuccessful property developments with the company. and which led to numerous lawsuits. It has been speculated that it was the adverse reporting which dissuaded Trump from running for the 2012 presidential elections, as detailed in an article by US investigative journalist Wayne Barrett, (who in 1992 wrote a book on Trump and his alleged links with organised crime). 

But the 2016 presidential election campaign has brought Trump’s dealings with Bayrock back to the fore. In October this year, an investigation by The Financial Times disclosed evidence suggesting that an exiled Kazakh oligarch, wanted in his home country on moneylaundering charges, had invested in property in a Trump apartment block built by Bayrock. “Now the details of Bayrock’s association with the family of Viktor Khrapunov, a former Kazakh energy minister and ex-mayor of the city of Almaty, show it was connected to an alleged laundering scheme at the same time as it was collaborating with Mr Trump,” the daily reported. 

The Football Leaks documents show that the links between Trump and the Arif family were much closer than has been previously suggested. Beginning in 2004, Bayrock and Trump embarked on a series of property development projects.  

The first, in Phoenix, Arizona, was abandoned after opposition from the local city council. In 2006, construction work began on the Trump SoHo, a luxury hotel and condominium in Lower Manhattan which was eventually completed in 2010. A number of unit buyers later launched lawsuits against Trump arguing they had been defrauded by him and his family who made false claims of buoyant early sales of the condos.

Another similar project led by the two men was the Trump International Hotel & Tower in Fort Lauderdale, Florida, which was abandoned in 2009 when the half-built project went bust, costing condo buyers millions of dollars in lost deposits, prompting more lawsuits. Trump and Bayrock planned more projects in several locations worldwide, of which none would ever see the light of day.

Tevfik Arif settled in New York to build, on behalf of the Arif clan, a property development business. He had already established a hotel chain in Turkey, called Rixos, but he was unknown in the US, and had no local business references. Arif began dabbling in property deals in Brooklyn and set up the Bayrock Group in 2001. The company moved into the Trump Tower, on Fifth Avenue in Midtown Manhattan, which was of course also home to the Trump Organization.

Arif took on a partner in the business, Felix Sater, (who also occasionally spells his family name as Satter, reportedly to distance himself from his criminal past). In legal documents supporting the fraud allegations made against Bayrock and led by the company’s former finance director, Jody Kriss, the plaintiffs claimed: “Arif and Sater understood that in order to reap tremendous profit from Bayrock Group, they needed to become involved in large-scale high-profile real estate development projects. This would require (1) the financial assistance and prestige of high-profile developers and wealthy investors; (2) hundreds of millions of dollars in debt financing; and (3) valuable services from highly-skilled and pedigreed finance professionals.”

Russian-born Sater emigrated to the US with his parents when he was a young boy, and became a Wall Street stockbroker in his early 20s. In 1993, when he was aged 27, he was given a one-year prison sentence for stabbing a man in the face with a margarita glass in a Manhattan bar in 1991. In 1998 he was implicated in a 40-million-dollar Wall Street scheme to defraud investors, involving other stockbrokers and four Mafia families. He agreed to cooperate with the prosecution services in exchange for his immunity.

According to several press reports, he began working covertly for the CIA (some accounts claim it was the FBI) and was reportedly tasked with buying up anti-aircraft missiles offered for sale on the black market by groups linked to Osama Bin Laden. Whatever the truth over his mission, his official protection is demonstrated by the seal of secrecy placed on the criminal fraud investigations in which he was implicated.

When in December 2007 The New York Times published a detailed investigation into Sater’s dark past, Donald Trump expressed surprise. “We never knew that,” Trump told the daily. “We do as much of a background check as we can on the principals. I didn’t really know him very well.”

In November 2013, in sworn testimony he gave during the civil legal action against him over the collapse of the Fort Lauderdale hotel-condo project, Trump said of Sater: "If he were sitting in the room right now, I really wouldn't know what he looked like.” During the video deposition he also said: “I don’t know him very well, but I don’t think he was connected to the Mafia.”

Following The New York Times article on Sater, Bayrock – according to internal company documents – removed Sater from the company, handing him a payoff of 750,000 dollars and another 1.5 million dollars to pay off back payments he owed on taxes. Sater found refuge within the Trump Organization, where he became, according to his Trump Organization- stamped business card, a “senior advisor to Donald Trump”.

The property development companies involved in the Trump SoHo project were Bayrock and the Sapir Organisation, founded by Tamir Sapir. Trump once described Sapir, who died in 2014, as “a great friend”.  Sapir was born in Georgia when it was part of the Soviet Union, emigrated to Israel in his late 20s, and finally settled in the US in 1973. Following a short spell in Kentucky, he moved to New York where he first worked as a taxi driver before meeting Sam Kislin, who was originally from the Ukraine. The two men set up an electronics shop in the city.

Sapir built his fortune when he began an export-import business trading between Russia and US companies, and during the 1990s he invested the profits in New York property deals. The property business, now headed by his son Alex, is estimated to be worth 1.4 billion dollars. It, too, is domiciled in the Trump Tower.

Despite the physical proximity with his partners, Trump declared in 2011 that “I never really understood who owned Bayrock”. His claims to have little or no recall of the people he did big business with have been consistent in press interviews and legal cases.

When Trump became an associate with Tevfik Arif in the early 2000s, he had lost the Midas touch of his earlier years. While he remained a high-profile figure in the media, his business was bordering on bankruptcy following the slump on the property market, and he had difficulty raising bank loans. But Trump, polishing his public reputation with an autobiography and appearances on TV shows, found a new money-spinning opportunity by licensing his name. It was used under licensing deals to sell a wide range of products and services: vodka, mattresses, meat, ties - and hotels. In 2014 alone, the Donald Trump name, according to figures from his company, brought in 75 million dollars.

In the case of his partnership with Bayrock, Trump licensed his name to build projects to his specifications and with his signature, but without any investment required of him. In return he took a share of the profits. The Trump Organization was also offered a percentage on the gross revenues of hotels built by Bayrock and its subsidiaries in exchange for managing them.

In the civil case brought against him by those left out-of-pocket in the Fort Lauderdale fiasco, the plaintiffs obtained details of the agreement between Trump and Bayrock over the doomed Florida hotel-condo project. These showed that, once again, Trump invested nothing in the scheme, but that in exchange for use of his name he was given an immediate payment of 250,000 dollars, and shares worth 960,000 dollars which Trump, when questioned about the arrangement, insisted gave him “no voting rights”. But they did give a dividend payment, to the tune of 25,000 dollars per month. On top, Trump was also entitled to a payment of 19.3 million dollars if the project was a success.

The licensing agreement, which it could reasonably be assumed resembled other construction projects involving him and Bayrock, kept Trump at a reasonably safe distance from Kevfik Arif’s company. While Trump had a financial interest in the success of each joint project, and a say in the norms of each – from the raw materials used, to the decorations and the height of ceilings – he was in fact responsible for nothing. The arrangement allowed him to escape without serious damage from the scandals and legal actions that surrounded several projects with Bayrock.

Given the earnings he was promised by Bayrock, it is understandable that Trump, along with his children, enthusiastically promoted the future joint projects. Trump announced the launching of the Trump SoHo hotel-condo in New York during an episode of his longrunning TV show The Apprentice, broadcast on NBC. Meanwhile, during the building of the 46-storey tower, his daughter Ivanka told Reuters in 2008 that 60% of the condo units had been sold. The New York Times found that only between 15-30% had in fact been sold by early 2009. Many buyers subsequently sued the developers over the incident, arguing they were deliberately misled. In the end, the plaintiffs settled for refunds of 90% of their deposits on the units.

The problems were clear from early on: Bayrock did not have the staff, the know-how or sufficient financial depth to carry out the major development projects it was involved in. It was kept afloat by timely funding from Kazakstan paid via companies in tax havens. “Month after month, for two years, in fact more frequently, whenever Bayrock ran out of  cash, Bayrock Holdings would magically show up with a wire from “somewhere” just large enough to keep the company going,” testified its former finance director, Jody Kriss. “Without those wires, Bayrock could not have turned the lights on, literally. No sane, let alone reasonable, lender would have lent money to Bayrock, particularly unsecured, in these conditions.”

Banks and investors appeared wary of Bayrock, despite the magic aura of its association with Trump. Something had to be done to reassure them and convince them to provide loans. In April 2007, Bayrock announced that an Icelandic company, FL Group, had bought a stake in its capital. FL Group, which was making headlines in the financial press, proposed pumping 50 million dollars into Bayrock.

Created in 2005 by Hannes Smarason, one of an ambitious group of Icelandic enterpreneurs nicknamed the “Corporate Vikings”. He invested in airlines Icelandair and Easyjet, and became a major shareholder of Iceland’s Glitnir Bank, in which he held a 32% stake. “During the early FL negotiations, Bayrock was approached by Novator, an Icelandic competitor of FL's, which promised to go into the same partnership with Bayrock as FL was contemplating, and at better terms,” testified Jody Kriss. “Arif and Satter told Kriss that this would not be possible, because the money behind these companies was mostly Russian and the Russians behind FL were in favor with Putin, but the Russians behind Novator were not, and so they had to deal with FL. Whether or not this was true and what further Russian involvement existed must await disclosure.” 

On paper, the terms of the FL Group cash injection were not especially lenient for Bayrock. The 50 million dollars were given to the Arif family’s company through preference shares, at an interest rate of 7.5% until the loan was refunded, and the Icelandic company was also to receive half of yearly profits.

But in reality Bayrock refunded nothing to FL Group. At the end of 2008, the Glitnir Bank collapsed and was urgently nationalized, setting in train the collapse of FL Group. It was the start of the Icelandic financial crisis.

In 2009, the Norwegian-born former French investigating magistrate and anti-corruption campaigner Eva Joly was appointed by the Icelandic government as a special advisor to its official commission of enquiry to establish to what extent criminal financial activities had prompted the financial crisis in the country. In that role, Joly warned of the danger that the Icelandic banking system could be used as a rear base for Russian oligarchs (according to a report by Icelandic newspaper DV, in November 2008, shortly after the beginning of the crisis, a group of about 50 Russian oligarchs met together in a hotel in the country’s capital Reykjavik). Among its conclusions, the Icelandic commission of enquiry found that the Glitnir Bank had begun to encounter serious difficulties one year before the financial crisis erupted because of dubious loans it had made.

Back in 2007, the lenders became kinder to Bayrock after the cash the injection from FL Group. Istar Finance agreed to lend 275 million dollars for the construction of theTrump SoHo building. Later, when the property market crashed alongside the financial crisis, Istar Finance sold its credit, certain that it would never be paid back. It was the first of a long series of defaults in the Trump SoHo project that totalled more than 400 million dollars.

In May this year, British daily The Telegraph published an exclusive investigation into the 50 million dollars injected by the FL Group. Citing internal documents, it detailed how Bayrock, in order to skirt tax, had presented the funding as a loan. But the documents cited by The Telegraph also demonstrated that Trump was involved in the scheme, for without his signed agreement it could never have been completed. “Alan Garten, Mr Trump’s lawyer, claimed that the billionaire “had nothing to do with that transaction” and by signing the letters was simply acknowledging the deal as a “limited partner”,” reported The Telegraph.

According to Bayrock internal documents, obtained by the Football Leaks platform and analysed by the EIC, the US tax authorities did eventually, in 2013, take an interest in the manoeuvre. Referring to financial advisor Alex Salomon, Bayrock's executive vice president and general counsel Julius Schwarz wrote in a confidential email: “Alex is working on it. We hope that the tax liabilities stemming on the audit will effectively minimize or eliminate. Without Alex working on it, the results could be different.”

A lengthy internal report for the attention of Bayrock’s directors detailed the use that was made of the money from the FL Group. To all appearances, it was to be the company’s official explanation before the tax authorities. It claimed that of the 50 million dollars received from the Icelandic company, only 7.4 million dollars was placed with the subsidiaries involved in the company’s various property development projects, essentially for advisory services, while the rest was used for other purposes.

Almost as soon as the 50 million dollars was handed to Bayrock, the company began paying back a loan of 10.5 million dollars – in increments of between 1-2 million dollars – to a London-based company called BexGold Finance, and which now no longer exists. Another 7.2 million dollars was used to repay a loan agreed with an Israeli bank, while another 2.8 million dollars was paid into Bayrock Holdings to repay another loan.

Meanwhile, 2.2 million dollars were sent for projects in Kazakhstan via two Dutch-registered subsidiaries called Bayrock BV and KayBay BV, while Tevfik Arif paid himself an exceptional dividend of 1.5 million dollars.

There were also commission payments of 1.5 million dollars to intermediaries: almost 400,000 dollars was paid to advisors involved in a plan to buy, for 1 million dollars, a hotel at the upmarket resort of Juan-les-Pins on the French Riviera – which in the end was abandoned; more than 100,000 Swiss francs were paid to advisors in a deal to buy a hotel in Geneva for 1.9 million Swiss francs and which would, after the signing of a sale agreement, also be abandoned. The seemingly casual manner in which the sums were spent was surprising for a company that was slow to pay its bills and quick to demand payment for its services.

The remainder of the Icelandic cash injection, about 12 million dollars, was used to keep Bayrock ticking. Of that amount, 8 million dollars was spent over two years on the company’s staff salaries, although the personnel numbered only about ten. There were also miscellaneous payments in fees for advisors, bills for restaurants and luxury car rentals, and even supermarket purchases. After two years, all the money had been spent.

Following their audit of Bayrock’s accounts, the US tax authorities sent a letter to the company in December 2013, a copy of which appears in the Footbal Leaks papers obtained by the EIC. It was good news for Bayrock, which the tax inspectors concluded had quite properly described the 50 million dollars it had received from the FL Group as a loan. It was quite normal that the company had paid no interest on the loan, nor any partial refund, given that FLGroup had gone bankrupt.

But in fact, FL Group had been resurrected in the form of another Icelandic company, called Stodir, which listed its involvement in property development projects with Bayrock, up until 2014, in its annual reports. In 2014, Stodir announced that all the projects had gone bust and had been sold on, and it had withdrawn its involvement. Meanwhile, the 50 million dollars had disappeared.

Even before the subprime crisis, Bayrock’s property development projects were struggling, and after the advent of the crisis the situation was naturally worse still. In March 2009, Donald Trump announced he was pulling out of the Fort Lauderdale beachfront building project, the Trump International Hotel & Tower, because it did not meet the standards required by the Trump trademark. The timely move came just before the project collapsed, but that was not enough to escape the ensuing scandal. Precipitated by his withdrawal, the construction was abandoned, leaving behind an empty shell and a default on a loan of more than 130 million dollars.

The dozens of early clients who had paid deposits for the purchase of units in the building sued Bayrock and Trump, who claimed that the project had failed because of the crash of the property market. “On this one, they got very, very fortunate that they didn’t put their money down, that they didn’t buy the units and that would have been worth a fraction of what they were when they signed at the all-time high in the market,” said Trump in his deposition. The project was eventually sold on, and is now renamed The Conrad Fort Lauderdale. Later, it would be the turn of the Trump SoHo to change hands after it came close to financial collapse.  Just how much money was lost in all these operations remains uncertain, as is also whether they could have been used in part as a vehicle for money movement.

Bayrock’s owners eventually moved the company onto the back burner, leaving its place to another company called Green Investments, which had the same address as Bayrock and was staffed by the same employees. The surviving Trump SoHo project served the Arif family as a reference for their property dealings, as illustrated in company emails, revealed via Football Leaks, which also indicate that Tevfik Arif wanted to continue his fruitful relations with Trump, despite appearances.

During a visit to Azerbaijan in 2012, Arif began with plans to build a Trump hotel in the capital, Baku. When that ran into difficulty, he turned to an identical plan, this time in Brazil. Nelio Lucas, the co-director of Doyen Sports Investments, the football funding arm of the Arif family’s Doyen Group (see our investigation here), was tasked with finding potential local investors in the project, which was to be built in Rio de Janeiro close to where the Trump Organization planned to build five tower blocks, called Trump Towers Rio. The Arif project was later abandoned while construction of the Trump Towers Rio, a project first announced in 2013, has never got underway. Meanwhile, the Trump Organization is under investigation in Brazil over suspected corruption in the financial preparations for the project.

After property investment company CIM Group took over ownership of the Trump SoHo hotel and condominium, in which had previously acted as a lender, it handed the management of the hotel to the Trump Organization, the only previous actor in the project to remain involved.  Two months earlier, Alex Sapir had told The Wall Street Journal that "the current structure does not make economic sense for ownership," and said that "we have not ruled out the possibility of repurchasing the hotel at the appropriate time” along with Trump and Bayrock.

Then in 2015, Bayrock launched legal action against the new owners of the Trump SoHo, arguing it had not been paid since 2014 for legal, financial, sales, marketing and other services it had provided under contract, estimating the losses to be equal to 75,000 dollars per month, and demanding that previously agreed privileges, including free overnight rooms in the complex, be re-instated.

According to documents accessed via the Football Leaks platform, the Arif clan was keen to hold on to the privileges.  Over several years, members of the Arif family, management of the Doyen Group, and also some footballers linked to its activities, regularly requested favourable terms while staying in Trump hotels, where they were given red-carpet treatment.

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• This article in English is based on Mediapart's original report in French, which can be found here.