London Finance Firm Collapse Leaves Golden Visa Holders in Limbo

 

London Finance Firm Collapse Leaves Golden Visa Holders in Limbo

 

Dolfin’s rich Chinese clients invested less than required: FCA

 

U.K.’s golden visas to be scrapped amid Russia money concerns

 

The meeting above the Virgin Active gym across the street from the Museum of London on Sept. 2 was raucous and contentious even for a creditor gathering of a company gone bust.

 

Accountants winding down U.K. wealth management firm Dolfin Financial faced more than 50 of its affluent, angry Chinese clients shouting and hectoring them, many in Mandarin, three people present at the meeting said. Dolfin had gotten them “golden visas” for U.K. stays of about three-and-a-half years in exchange for investments, using ways being questioned by the Financial Conduct Authority. Fearing their visas could be revoked, they demanded documents proving the validity of their investments.For Dolfin, the meeting was another ugly chapter in a saga that has brought about its downfall. In March last year, the FCA barred it from nearly all regulated activities, restrictions that pushed it into administration. The regulator has been examining Dolfin’s practices since at least 2019 over concerns about its visa business and potential conflicts of interest.  

 

Dolfin used a complicated series of transactions that allowed wealthy Chinese clients pay just 400,000 pounds ($542,000) for Tier-1 Investor Visas that by law require an investment of at least 2 million pounds, according to an FCA supervisory notice. The firm’s administrators told creditors on Jan. 28 that the FCA’s investigation is ongoing. A spokeswoman for the regulator declined to comment. 

 

With the fate of the Chinese investors in limbo, the Dolfin case once again drew attention to the U.K.’s Tier-1 Investor Visas, showing how easily the system can be manipulated. For years, as the program was mostly used by rich Russians and members of the the ruling elites of former Soviet republics, campaigners protested that such visas are a route for dirty money to enter the U.K. Now, amid concerns about the influence of Russian money, Britain is preparing to end the golden-visa regime, a person familiar with the matter said on Wednesday. 

 

The U.K. has delivered at least 12,000 such visas since the system’s inception in 1994. About 6,000 are being reviewed for national security risks, William Wallace, a lawmaker in the House of Lords, said in parliament last week.

 

“We have imported corruption and with it the danger that corrupt overseas wealth will in turn corrupt our own society and democracy,” Wallace said as he pushed the government to publish its audit of older visas.

 

For Dolfin, the visa service was an exotic side businesses. Founded in 2013 by Denis Nagy and Roman Joukovski, with offices a stone’s throw from the Ritz Hotel in central London, Dolfin offered main-line financial services, including at one point providing advice to ex-Goldman Sachs economist and British peer Jim O’Neill’s blind trust and offering “discretionary” management services for clients with assets held by Credit Suisse Group AG. The visa business, however, was its undoing.

 

The FCA in its supervisory notice to Dolfin said the firm’s “visa business was so clearly unlikely to comply with Tier 1 visa requirements that Dolfin would appear to have known, or at the very least had reasonable cause to believe, that it was facilitating the commission of a breach.”

 

Adam Stephens, a joint special administrator for Dolfin, said he cannot comment on investigations into the firm’s past business activities. Dolfin’s co-founders Nagy and Joukovski declined to comment on the record on the FCA’s findings.

 

“Mr Joukovski and Mr Nagy had no material involvement in the FCA investigation which gave rise to the conclusions set out in the FCA Supervisory Notice,” a spokeswoman for them said in an email. She said as far as the co-founders are aware, “the visa scheme was in full compliance with all applicable laws and regulations.”The Chinese investors who got their visas through Dolfin say they believed the process was legitimate. The Home Office is still scrutinizing their visas, but for now they can’t apply for an extension or an indefinite leave to remain. 

 

Dolfin marketed its visa services to these clients offering five options code-named “Jade,” “Gold,” “Silver,” “Platinum” and “Palladium” that used a convoluted set of transactions to secure golden visas with less than the required amount of investment, the FCA supervisory notice says.

 

Like many firms catering to global elites, Dolfin drew in clients with an office that exuded grandeur and legitimacy. It was in a building on Berkeley Street that houses some of the biggest names in global investing, including hedge funds Millennium Capital Partners and King Street Capital Management and private equity titan Bain Capital. The top-floor office Dolfin occupied until 2021 was impressive for a firm that lost 1.4 million pounds in 2019.

 

In a slick video on YouTube entitled “The future of finance today” a few years ago, Nagy went over the genesis of the firm that had rapidly grown into a company with more than 100 employees. Staffers made cameo appearances, talking about the “dynamic” environment, with shots of views from the office over Mayfair stretching all the way to the iconic BT Tower. 

 

The glowing presentation belied the often chaotic goings-on at the firm. Compliance was something of a revolving door, according to former employees of the firm. Some said they were horrified by the shortcuts management took in regulated activities, quitting before their own reputations took a hit. The co-founders’ spokeswoman said Dolfin’s operations were in line with FCA regulations.

 

In the visa business, Dolfin had 97 clients -- all from China and its semi-autonomous regions. Here’s how its most-popular “gold” option worked, according to the FCA’s supervisory notice: 

 

First, the visa applicant gets a family member to act as the owner and sole director of a special purpose vehicle set up in an offshore jurisdiction like the British Virgin Islands. The SPV then “borrows” 1.6 million pounds worth of bonds from a Dolfin-affiliated company, which it then sells to another Dolfin-connected entity for 1.6 million pounds. Next, the family member declares a dividend from the SPV of 1.6 million pounds, sending it to the applicant’s account at Dolfin. The applicant then pays 400,000 pounds into the account and asks Dolfin to invest the 2 million pounds, which the wealth manager does through securities connected to family members, directors, or other associates. 

 

The transactions essentially resulted in the applicant shelling out just 400,000 pounds for the visa. The scheme was retrospectively signed off by immigration lawyers, but the FCA says the lawyers weren’t told the whole story. 

 

Dolfin isn’t the first firm to be accused of gaming the system. Years ago, Maxwell Asset Management Ltd., another facilitator of golden visas, had a process in which it loaned money to clients with the proviso that the funds be invested in an entity called Eclectic Capital Management. Eclectic, held by the wife of Maxwell’s owner Dimitri Kirpichenko, plowed almost all that money into Russian companies rather than U.K. ones, court documents show, defeating the purpose of the investment visas.

 

The Home Office rejected the applications, arguing that Eclectic’s investments didn’t comply with the rules. The decision was challenged by some investors and last year the Court of Appeal accepted that the applications complied with the letter if not the spirit of the law. 

 

“I have not reached these conclusions with any enthusiasm,” Judge Andrew Popplewell said, ruling that the decision to deny Maxwell clients a visa was incorrect. “This result is, however, a product of the drafting of the rules.”

 

The Home Office is asking the U.K.’s highest court to look at the Maxwell case. Several attempts to reach Maxwell and Eclectic for a comment were unsuccessful.In the Dolfin case, the Home Office hasn’t sent any letters of refusal yet, according to two people familiar with the situation. Much as in the Maxwell case, the ultimate decision may lie with a court. Some of Dolfin’s clients have hired Jackson & Lyon LLP, the law firm used by the Maxwell visa applicants. The firm said it represents a number of Dolfin’s Tier 1 investors and will determine the best course of action if their visas are revoked.

The Home Office declined to comment on the Dolfin case, but a spokeswoman said the department “will not tolerate abuse of the system.”

 

Further complicating matters for Dolfin, the FCA said in its supervisory notice that its broadened probe -- beyond visas -- found transactions suggesting an “unacceptable risk of the Firm being used for the purposes of financial crime.” 

 

It revealed Dolfin’s “significant and ongoing connections” with an ultra-high net worth client who had been subject to a U.K. Unexplained Wealth Order. The client is Nurali Aliyev, the grandson of Kazakhstan’s long-time leader Nursultan Nazarbayev, according to two people familiar with the matter. SourceMaterial and openDemocracy revealed Aliyev’s identity as Dolfin’s mystery client last month.

For many U.K. lawmakers, Aliyev’s business in the country is emblematic of London’s role in the world of financial crime. 

 

“Britain has opened our borders, our property market, our financial structures to the Kazakh ruling class enabling them to launder their illicit wealth and to spend it,” lawmaker Margaret Hodge said in Parliament this month, calling for Aliyev to be added to the list of Kazakh elites under anti-corruption sanctions. 

 

She cited a Chatham House report showing that about 330 million pounds of U.K. real estate belongs to the extended Nazarbayev family. Lawyers for Aliyev didn’t respond to messages seeking comment, but in a 2020 case overturning a wealth order, Aliyev said accusations against him and his family are “entirely without merit.” Dolfin’s administrators and co-founders declined to comment on any business by the firm with Aliyev.

 

Meanwhile, some of Dolfin’s Chinese Tier-1 clients’ money appears to have been invested in companies with links to the firm’s past and present directors. For example, some of it was plowed into bonds issued by Artek Group Plc, a company owned by Nagy and Joukovski’s wife, people familiar with the matter said. The spokeswoman for Dolfin’s co-founders declined to comment on the investment. 

 

Unlike Dolfin, Artek is still in business. In fact, its office is on Berkeley Street, right across where Dolfin used to be.