Panama Papers: Bulgarian Underworld Boss Stings Banks with Millions

by Екип на Биволъ

The infamous underworld boss from the 1990s, Mladen “Madjo” Mihalev is the real owner of a company that has profiteered from a swindle causing damage worth millions to two banks – United Bulgarian Bank (UBB) and DSK bank. This emerges from the Panama Papers, to which Bivol has access as a partner of the International Consortium of Investigative Journalists (ICIJ). The “sting” happens through a chain of offshore companies, the affiliated with Mihalev International Asset Bank and judges from his hometown of Silistra.

The swindle is very bold and has been described in detail in various media publications.

How to syphon a bank – brief summary

A company borrows EUR 9 million in bank loans to build chemical plants in Silistra. It ceases to repay the loans, and the mortgaged assets are transferred to a fictitious offshore lender, while the court helps to arrange for the banks to write-off the mortgages and ultimately transfer all the assets to another offshore, owned by Mihalev.

The story began in 2006 when UBB guaranteed bonds for EUR 6 million to the company Bross Holding. With them, Bross began building two chemical plants for technical aerosols, silicones and sealants at Silistra’s Industrial Park. However, the money ended up not being enough and in 2011, DSK granted another EUR 3 million for the completion of the plant and warehouses.

Bross Holding has serviced the loans for several years, but the financial results of the company have started to deteriorate and with them have come the difficulties to repay the balance of BGN 10 million. What happened later is a classic “bad apples” scheme – offshores, a bank and helpful magistrates managed to “sting” UBB and DSK with millions, and with that money, Mihalev became the happy owner of the constructed production facilities.

Act One: An Imaginary Offshore Lender

The report on the public activity of Bross Holding for 2008 shows that the main bank servicing the company is International Asset Bank. It is also the only designated “external source of liquidity”. Subsequently, this bank, affiliated with Mihalev, will play a key role in the “elimination” of the loans to UBB and DSK.

The scheme was launched in 2012 with the sudden appearance of a new lender to Bross Holding. This is the DC & Kem Company of Delaware in the United States, which was later relocated to the Seychelles. It has submitted a contract for the supply of 20,000 metric tons of styrene annually since 2007 and claims that Bross Holding has delivered nothing and owes BGN 43.4 million with interest and penalties. According to Capital weekly, until 2011, no such obligation was entered in the reports of Bross Holding.

DC & Kem Company has filed a legal case against Bross Holding. However, the defendant has not sent attorneys to represent and defend it in court. The court in Silistra, where Bross’ headquarters have been relocated, has hastily accepted that the offshore’s claim for BGN 43.4million has been legitimate.

DC & Kem Company had then taken action to collect its receivables and in spring 2013 sold the assets (chemical plants and equipment) to BP Industries. Some Bozhidar Peev, apparently a strawman with no business record, owns this company. As soon as it bought the assets, BP Industries wrote off the loans in favor of UBB and DSK.

As a result, the factories turn out to be “third party property, completely cleared of burdens and untouchable by the creditors,” said UBB and DSK, which have attacked in court the deletion of loans.

According to the lenders, the deletion of the loans is illegal, but it had been possible with the help of the Judge Registrar of Silistra Krassimir Danailov Dechev. He was fired in 2014 by then Justice Minister Zinaida Zlatanova following a ruling of the Supreme Judicial Council (SJC), but the Supreme Administrative Court (SAC) has reinstated him at the post, which he currently holds.

Act Two: Bank “Bad Apple” and Mihalev

Several events have occurred after BP Industries acquired the assets and deleted the mortgage. The company has been first sold by Bozhidar Peev to Tin Commerce Ltd. The Cypriot offshore Almara Trading and an old business associate of Mihalev – Stefan Atanassov Nikolov, are its owners. The two had been partners in the company PMS Ltd back in the early 1990’s, according to data from the State Gazette.

In addition, Nikolov has been the Chairman of the Board of Directors of Intergroup Bulgaria, associated with the 1990s alleged powerful organized crime group SIC and a shareholder in First Eastern International Bank, which was subsequently transformed into International Asset Bank. Meanwhile, the offshore Almara Trading is currently a majority shareholder in Football Club (FC) Slaviya.

It is precisely at the International Asset Bank that BP Industries has established a special pledge for the entire venture acquired by DC & Kem Company. Moreover, the bank has generously sold the assets i.e. two chemical plants in Silistra secured by a BGN 10 million pledge to a new offshore, Phoenix Chemicals, at a price of BGN 100.

According to the Commercial Register, Phoenix Chemicals is the property of Phoenix Chemicals Resource Limited, registered in the British Virgin Islands. Another offshore company named OMNI Capital Assets Ltd., in turn owns this company.

In 2014, with the entry into force of a new law to disclose the true owners of offshore companies, the then-manager of Phoenix Chemicals, Jordan Yordan Lyubenov Dzingarov, filed a declaration, listing Moldovan citizen Tatiana Vozdovskaya as the real owner.

However, documents from the archives of the Panamanian company Mossack Fonseca & Co, which leaked to Süddeutsche Zeitung and the ICIJ strongly indicate otherwise.

The real owner of Phoenix Chemicals Resource Limited and hence of Phoenix Chemicals is Mladen Yordanov Mihalev.

There is a letter by offshore attorneys from Mossack Fonseca informing that they have received the documents from the real owner of Phoenix Chemicals – Mladen Mihalev and a so-called “counter letter” – a document certifying that the listed owner of OMNI Capital Assets Ltd. is not the real one.

Copies of the passport and ID card of Mladen Mihalev, as well as a document from International Asset Bank that he has been a reliable client of the bank since 1995 are attached to this document.

In 2013, when International Asset Bank sold the factories for BGN 100 to Phoenix Chemicals, Mihalev’s wife – Elena Blagoeva Mihaleva was a shareholder in the bank. The main shareholder is Dinatrade International Ltd – an offshore entity represented by Kiril “The Barbut” Barbutov from SIC. Barbutov declared in 2014 that the owner of Dinatrade is the freestyle-wrestling champion Valentin Yordanov, recipient of the Order “Stara Planina” for his outstanding contributions to Bulgarian sport. Mihalev and Barbutov are also former wrestlers and Olympic hopefuls.

US diplomatic cables leaked on WikiLeaks note that International Asset Bank is a “bad apple” bank that deals with money laundering. The literal quote is:

International Asset Bank (former First East International Bank): “The bank of SIC” – formerly one of the most influential organized crime groups in Bulgaria.

“Mladen “Madjo” Mihalev, who is apparently linked to the Bank through his wife, is mentioned in another cable, signed by the former US Ambassador in Sofia James Pardew, as one of the founders of the group SIC – Intergroup:

“KRASIMIR ANDREEV MARINOV (Bulgarian citizen born 6 May 1964, also known as “THE BIG MARGIN”), the group’s current president and another former wrestler, founded SIC (and later INTERGROUP) with MLADEN MIHALEV (Bulgarian citizen born 13 October 1964, also known as “MADJO”), also a former wrestler, and RUMEN GOTZOV NIKOLOV (Bulgarian citizen born 26 May 1962, also known as “THE PASHA”)…

Intergroup’s illegal activities include narcotics (especially heroin), financial fraud (through its ties with the AMIGOS financial guarantee company), car thefts and trafficking in stolen automobiles, smuggling, extortion and racketeering, and prostitution,” writes Pardew

To date, members of the Bank’s Supervisory Board include Rumyana Lyubenova Gotseva-Yordanova – daughter of the former Deputy Chief of the Communist regime secret services (State Security) and former Foreign Minister Lyuben Gotsev, as well as former diplomat Viktor Valkov.

Gotsev and Valkov are also known as members of the informal but very powerful center branded as the Monterey Circle for the group’s frequent meetings at a restaurant in Sofia of the same name. The Circle brings together mostly senior officers – generals and colonels from the former State Security, who are believed to be the puppeteers and backstage rulers deciding the fate of Bulgaria.

The “Monterey” group is also known by the nicknames “The General’s Movement” and Mihalev, who lives mainly in Switzerland, is seen as someone close to this circle. In 2014, 24 Chassa (24 Hours) daily’s reporters even managed to photograph Mladen Mihalev at a meeting with Monterey people, at which he arrived with numerous bodyguards. Sources say that his patron and handler in Monterey is the former Ambassador, Foreign Minister, Deputy Prime Minister and State Security agent Viktor Valkov.

Asset Bank knows but does not say who owns Phoenix Chemicals

Bivol sent questions to International Asset Bank asking whether they knew who the real owner of Phoenix Chemical was, as the company is still pledged as collateral for the debt of another offshore company – Bistow Limited.

International Asset Bank replied that “prior to entering into relations with the company and in fulfillment of our legal obligations under the Law on Measures against Money Laundering, we have identified the individual who is the actual owner of Phoenix Chemicals Ltd by collecting information representing personal data”.

Citing precisely personal data, the Bank refuses to name the owner, but provides guidance that “the answer may be sought in the publicly available information in the Commercial Register and the Register of Non-Profit Legal Entities in the part titled “Real Owner”.

As it was already mentioned, Moldovan citizen Tatyana Vozdovskaya is listed as the owner, but the entry clearly does not correspond to the actual situation.

DSK transferred the loan to a company affiliated with Mihalev

As for the banks affected by Mihalev’s sting, they have taken a different approach to the problem. The answer of DSK informs that the bank has transferred its loan of EUR 3 million – “DSK Bank sold its claim to Bross Holding in September 2017 and accordingly we have no information on the development of the case since then.” They declined to specify to whom and for how much the claim had been sold.

According to Bivol’s research, on October 3, 2017, DSK Bank transferred its mortgage claims to Bross Holding to Chemical Industry Park. It appears that the company is a “shell” one, founded shortly before buying out the loan of Bross at the end of 2016, with a registered capital of BGN 1,000 deposited in International Asset Bank.

The transfer had been made in two tranches for a total amount of just over BGN 6 million, which Chemical Industry Park had paid to DSK. The company practically has no activity and capital and has taken the money from International Asset Bank. Thus, DSK has managed to escape the scheme with no damage.

Bross Holding has been declared bankrupt and has a court-appointed trustee who must fulfill the claims of the creditors. At present, one of the main creditors listed by the trustee is also the Cyprus offshore Bistow Limited.

Although its property is hidden behind several other offshores, the company is present in Bulgaria as one of the two owners of Sunny Beach Consulting and Engineering JSC. The other co-owner there is the wife of Mihalev’s longtime business partner – Mladen Mutafchiyski, with whom they built the luxury resort Helena.

The joint tourism business in the Sunny Beach of Mutafchiyski and Mladen Mihalev is publicly known because after Mutafchiyski’s death it was precisely Mihalev who took over the Helena resort and even spends most of the summer there.

Since 2004 to date, Bistow is also co-owner of the SIC affiliated fuel trading company Interpetrollium & Partners.

The connection between these two Bistow businesses with Mihalev is obvious. Moreover, not anyone but Mladen Mihalev’s lawyer Nikolay Borisov is representing the interests of Bistow Limited in the Silistra plant case. An interesting detail is that the listed phone numbers for contact of Chemical Industry are the same as those of Sofia lawyer Emil Lichev. He is also a member of the Board of Directors of Sunny Beach Consulting and Engineering, together with the offshore Bistow Limited.

The obvious conclusion is that it was Mihalev who has bought from DSK Bross’ liabilities, while International Asset Bank has loaned most of the money to shell companies.

UBB is suing

On its part, UBB continues to this day with efforts to tackle the offshores, with cases idling between Mihalev’s hometown of Silistra, where judges have consistently ruled in favor of the offshores and the Court of Appeals in the Black Sea city of Varna, which has overturned the Silistra’s rules in favor of the Bank. This emerges from UBB’s response to questions by Bivol.

The decision of the Varna Court of Appeal was upheld on October 24, 2018, by the Supreme Court of Cassations, whereby the court found that the write-off of the mortgages had been invalid and ordered its cancellation.

Despite the decisions of the two court instances, there is still no conclusion of the case. According to the latest information, the Judge Registrar of Silistra has again “hastily” stopped the proceedings on the two UBB applications submitted on January 2, 2019 to cancel the write-off of the mortgages. Later, on January 4, 2019, the Bank was given a one-month deadline to file a claim to rebut the claims of Phoenix Chemicals. Immediately after the Supreme Court ruling, Phoenix Chemicals filed a motion to suspend the proceeding upon a possible request by UBB.

“This means that the Bank will again have to file a lawsuit to establish its rights, which will cause a delay for a few more years,” says UBB.

Asked if they knew who the real owner of Phoenix Chemical was, UBB replied that they did not have such information.

Mihalev’s lawyer lied about his client’s involvement in another offshore?

24 Chassa, as a Media Partner of ICIJ, published information from the Panama Papers in 2016, according to which Mladen Mihalev is the owner of the offshore Anfield Finance Ltd. The publication also quoted his lawyer Nikolay Borisov, claiming that in 2004 Madjo had transferred his shares in Anfield to other legal entities and had since been unconnected to the company.

Bivol contacted lawyer Borisov, who confirmed his statement to 24 Hours.

This statement does not correspond to the available documents, according to which in 2017 Mladen Mihalev was still the real owner of Anfield Finance Ltd.

The Panama papers show that Mihalev is the real owner of at least three offshore companies used to hide his business in Bulgaria. These are Anfield Finance Limited, Phoenix Chemicals Resource Limited and Buline Investments Limited.

In 2008 – 2009, Anfield Finance had been a majority shareholder in FC Slaviya, represented for many years by Ventsislav Stefanov, another associate of Mihalev from the SIC period. Anfield Finance had then authorized Stefan Nikolov, the same person that appears in the bank sting scheme, as its representative. The Chairman of the General Meeting of Shareholders of FC Slaviya is attorney Nikolay Borisov.

Regarding Phoenix Chemicals, attorney Nikolay Borisov told Bivol that he knew nothing about the offshore property of his client in this company.

How the “offshore” law turned against its authors

The conclusion that can be drawn from these findings is that the so-called Peevski-Tsonev law (named after the lawmakers who tabled it) for offshore disclosure, adopted in 2014, is not working in reality. It gives good grounds for exposing murky interests since it mandates offshore owners to identify themselves, but the mandate leads to its breach – either nothing is declared or the declared information is false. The creators have obviously relied on the impossibility to disclose well-hidden real owners and that in case they are disclosed, they would not be investigated.

The Prosecutor’s Office should hold responsible those who have filed false statements, such as Phoenix Chemicals. However, so far no one has been held liable for a false declaration under the Peevski-Tsonev law.

Nevertheless, the law has not taken into account international journalistic investigations.

In its previous Panama Papers investigations, Bivol revealed that Sasho Angelov, the lawyer of the controversial lawmaker and media mogul Delyan Peevski, one of the authors of the law, is the real owner of key offshore companies with multi-million dollar assets associated with the MP.

Sasho Angelov also stands behind the offshore VIAFOT, which is leading the legal attack to control the weapons plant “Dunarit”. Its owner, Emilian Gebrev, links this attack with the attempt to eliminate him by poisoning him with a substance with a Novichok-like composition. The dark shadow of the Monterey Circle is lurking behind Peevski and Angelov as well.

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