A banker and a former politician from Kazakhstan tried to launder tens of millions of dollars of stolen money through New York real-estate holdings, a civil lawsuit alleges.
The men allegedly conspired with New York developer Joseph Chetrit to hide at least $ 40 million by investing in a former Manhattan hotel and the Cabrini Medical Center, according to a complaint filed on Oct. 12 by Kazakhstan’s largest city, Almaty, and one of the nation’s biggest lenders, BTA Bank.
The Kazakh men, ex-BTA chairman Mukhtar Ablyazov and former Almaty mayor Viktor Khrapunov, are separately under investigation for criminal fraud in Kazakhstan, the complaint says. Mr. Ablyazov is alleged to have stolen billions of dollars from BTA and Mr. Khrapunov is alleged to have stolen about $ 300 million from Almaty, according to the complaint, filed in federal court in Manhattan.
The Kazakh men parked “corrupt assets” in New York City real estate to avoid the scrutiny of escalating international investigations, the complaint alleges. Mr. Chetrit, also a defendant in the lawsuit, was aware of the criminal investigations of the Kazakhs when he agreed to use their money for his projects, according to the complaint. The suit seeks damages of up to $ 18 billion and was filed by law firm Boies, Schiller & Flexner LLP.
Mr. Ablyazov, who is being held by authorities in France, couldn’t be reached for comment. Previously, he has said he is innocent of any criminal wrongdoing and all accusations against him are ungrounded and politically motivated.
Peter Sahlas, an attorney for the Ablyazov family, said the former bank chairman had not been served and was unaware of the New York lawsuit.
The family would consider the suit “just another instance of a corrupt and kleptocratic foreign regime availing itself of the U.S. legal system to carry out its political vendettas,” Mr. Sahlas said in an interview.
A spokesman for Mr. Khrapunov said: “Having obtained nothing after years of proceedings in Switzerland and the United States, Kazakhstan is trying again to use the legal system of a Western country to harass and destroy political opponents.”
Mr. Chetrit and his lawyer didn’t respond to requests for comment.
The suit represents a rare specific legal allegation of money laundering through U.S. real estate.
Foreign buyers in recent years have flooded into major markets like Manhattan, particularly attracted to high-end condominiums, as they seek stable, long-term investments, property analysts say.
But with few disclosure requirements in the U.S. for real-estate transactions—wealthy buyers often preserve their anonymity by making purchases using limited liability companies—money-laundering experts warn the area is ripe for abuse by those looking to park ill-gotten gains.
Because the use of corporate structures to buy real estate has become commonplace, including by legitimate buyers who want to protect their privacy or other assets from liability, a sale to an LLC doesn’t necessarily raise red flags.
Banks and brokerages are far more regulated than real estate and are required to report suspicious activity. Real estate doesn’t face such requirements, which is an “enormous loophole in our financial system,” said Louise Shelley, director of the Terrorism, Transnational Crime and Corruption Center at George Mason University.
Mr. Chetrit has done numerous high-profile deals, including for the former Sony Building on New York’s Madison Avenue, which he bought with partners for $ 1.1 billion in 2013. He previously was a co-owner of the Willis Tower, the former Sears Tower, in Chicago.
Mr. Chetrit sold the Kazakh men, through their special purpose vehicle, stakes in two Manhattan properties now closed and being converted into condo buildings, according to the complaint: the Flatotel and the Cabrini Medical Center.
Mr. Chetrit referred to one of the Kazakhs’ contacts with code names like “Jose” and “Pedro” in conversations secretly recorded by an associate of the Kazakhs, according to the complaint.
As chairman of BTA, Mr. Ablyazov directed the bank to make a series of loans to companies under his control that were never repaid to BTA, according to the complaint. BTA in 2009 defaulted on debt held by foreign investors, the complaint says.
Since the default, BTA has filed 11 proceedings against its former chairman and his associates, according to the complaint. U.K. courts have awarded BTA more than $ 4 billion in damages for claims against Mr. Ablyazov and his associates, the suit says.
In 2012, a U.K. court sentenced him to 22 months imprisonment “for his numerous actions in contempt of court,” the complaint said. Mr. Ablyazov is challenging that judgment at the European Court of Human Rights in France, according to Mr. Sahlas.
The Kazakh banking executive is being held in a French jail, where he has been denied bail three times and is fighting extradition, according to the complaint.
Mr. Khrapunov was mayor of Almaty from 1997 to 2004, coming to power six years after his country declared independence from the former Soviet Union. The complaint alleged he transferred city money to himself and his family through various schemes, including sales of city-owned real estate to his spouse and friends at below-market prices.
Mr. Khrapunov and Mr. Ablyazov pooled their money and initially moved the proceeds to Switzerland in 2007, according to the lawsuit.
The partners created a special purpose vehicle, called Triadou SPV S.A., which was incorporated in Luxembourg, the lawsuit said.
An associate of the two Kazakhs met with Mr. Chetrit in Geneva and said that Mr. Chetrit “expressed sympathy” and said his own family had faced political sanctions in Morocco, according to the complaint.