The Kleptocrats’ Money-Laundering Middleman Who Did Deals With Trump 1

Kleptopia: How Dirty Money is Conquering the World is the terrifying true story of how kleptocrats—those who rule through corruption—are uniting, clandestinely fusing their business interests, and forming alliances.

From Budapest to Beijing, Harare to Riyadh, they have seized power and are busily guzzling their nations’ wealth. There is nothing they will not do to maintain control. Those who dare to cross them are massacred on the Kazakh steppe and brutalized during Zimbabwe’s sham elections; those who threaten to spill their secrets have their mouths permanently closed.

What they crave is legitimacy—for their money and their power. That means hijacking democracies, harnessing the rule of law to protect their own lawless fortunes and destroy their enemies’.

So they need people who can remove the stain from both by rewriting the past. They need middlemen who can move between these two worlds. Characters like the charming, mercurial Russian-born Brooklyn fraudster Felix Sater. He has the connections—connections that go all the way to the White House. —Tom Burgis

Excerpt:

The U.S. unemployment rate passed 10 percent in October 2009. Christmas was approaching, and half a million Americans were losing their jobs each month. In a Brooklyn courthouse, one American was pleading for a second chance. A third chance, if you counted the time he stabbed that guy as well as the mafia-backed stock fraud he was up for today. Felix Sater was forty-three. Today he would learn whether a judge would take the next twenty years from him. His mother and his sister were in court. Elsewhere, his three daughters awaited news.

Felix was not short of material from which to compose the autobiography he would place before the Honorable I. Leo Glasser. After public school in Brooklyn he had put himself through college at Pace University in Manhattan, studying accounting. A few blocks south of the campus lay Wall Street. This was the 1980s, the Wall Street of Gordon Gekko. Greed was good. Felix qualified as a broker and was soon making money at Bear Stearns, then at Lehman Brothers. He was still only twenty-five when, one night in 1991, as men of Wall Street do, he went out to a bar in Midtown—El Rio Grande—and drank too much. A fellow drinker got into an argument with Felix about a woman. Felix seized a margarita glass and smashed it into the man’s face. He went down for a year. His broker’s license was revoked, so when he got out he had no legal way to get paid for his financial knowhow. A boyhood friend offered him the chance to come in on a scam. It was a pump-and-dump: you acquired stock in bullshit companies, talked some suckers into driving up the price by spending their savings buying the shares, then sold your own. Felix knew how to set up front companies to launder the proceeds. Soon the racketeers had made and washed $40 million.

“I’m not proud of what I have done,” Felix told Judge Glasser. With his paunch and his fleshy face, the dark hemispheres under his eyes, he looked as though no day of his life was easy. He could also flash a smile of unencumbered glee, but this was a solemn occasion. “I had to find money for an appeal that my lawyer was trying to file and I didn’t have a job. I had a four-month-old daughter at that moment, legal bills mounting, personal bills.” In time, Felix told the judge, he came to despise himself for his part in the scam. He did not want to be involved in criminal activity, he said; to get away from it, he went to Russia, the land of his father, and worked in telecoms. And there began his next chapter.

One night in Moscow, an American defense contractor got talking to Felix over dinner. When Felix went to the bathroom, the contractor followed him. In the safety of the gents, he surreptitiously arranged a rendezvous for the following day at an Irish pub. There he proceeded to recruit Felix for U.S. intelligence. Felix was well suited to the task. He spoke fluent Russian, and wanted thrills. Moreover, for reasons he did not expound in the letter his lawyers had sent Judge Glasser before the hearing, he knew people in Russian intelligence, too. Knew them sufficiently well, in fact, that when an American spy asked him to help gather information on an anti-missile system, he was able to get inside the military installation where the Russians kept it. Somehow, he could sidle up to the Americans’ most prized targets. He helped them track down a batch of Stinger anti-aircraft missiles that the CIA had provided to the Afghan mujahideen back when the U.S. supported their cause against the invading Soviets. Islamist terrorism was fast becoming a priority for those charged with securing America: in 1998 al Qaeda blew up the U.S. embassies in Kenya and Tanzania, killing more than two hundred people. The FBI was trying to trace its leader, Osama bin Laden. When the pump-and-dump scam was discovered and Felix flew home to face the consequences, he handed over a piece of paper on which he had written five of bin Laden’s satellite-phone numbers. He pleaded guilty to racketeering, a crime that carried a twenty-year prison sentence, for his part in what the police commissioner called “Goodfellas meet the Boiler Room.” But, apart from forfeiting a house in the Hamptons, he was allowed to remain at liberty, with his court file sealed, while he endeavoured to prove his worth as a law enforcement asset.

He kept up his intelligence work, now under the auspices of the FBI. After the September 11, 2001 attacks, he once again demonstrated his miraculous ability to win the confidence of America’s enemies. He cultivated the personal assistant to the Taliban leader Mullah Omar and identified some of al Qaeda’s American money launderers. He posed as a money launderer himself so convincingly that he was able to infiltrate two transnational crime networks, jetting to Cyprus and Turkey to play his roles. And there was little he did not know about Russian organized crime. He fed the Americans information on the Red Mafiya, the oligarchs’ criminal connections, even a scam involving accident insurance claims in the U.S.

Today in court it was his FBI handler, Leo Taddeo, who addressed the judge. Taddeo, a former Marine, was effusive. Felix had shown himself willing to turn on his criminal comrades. He had teamed up with the Cosa Nostra. Then he had shopped them. “I’m here today on his behalf,” Taddeo said. “I hope that his family can get on with their lives and he can go on to be prosperous and a good dad and husband. I know he is.”

“Felix was getting a reputation as a man it was unwise to cross.”

Felix’s lawyer took up the story. Two moments of weakness, one when drunk and the other at the behest of an old friend, should not define a life, he argued. His only known infraction since the pump-and-dump scam had been a couple of weeks earlier when, driving home after dinner out with his wife, he had narrowly failed a breath test.

Felix now spoke himself. “I guess the worst thing that is going to happen and is happening is the blight I put on my children and I will now, in the past and in the future, try to do good deeds, try to be a positive member for my family and for my community, to in some way hopefully balance out the mountain of garbage I heaped on my own life.”

The moment Felix had waited for through those eleven years had arrived. “I’m going to impose,” began the judge who had sent John Gotti away for life without parole, “a fine of $25,000.” That was it. The court file would remain sealed. Glasser had one final admonition. “Next time you go to dinner with your wife,” he told Felix, “drink more modestly.”

Quite apart from his wife’s mother and sister having been abducted, her father being on the run, and his own parents declared enemies of the Kazakh dictator, Iliyas Khrapunov had a new problem: Felix Sater had gone weird. Iliyas had always thought of Felix as having two winning attributes: charisma and storytelling. But he could be considerate, too. Now more than ever, Iliyas and his family needed people they could trust.

A few years back, he had been taken by the idea of trying his hand at real estate. His mother had done property deals; his grandfather had been minister of construction in Soviet Kazakhstan. At first Iliyas thought of doing modular housing for students. It was Felix Sater, the loyal old family friend and occasional business partner, who had convinced him that luxury real estate was the way to go, top-end stuff. He was at Iliyas’ wedding party in Geneva in 2007 and said to him: Find a project and we’ll do it together.

Felix was on a roll. He fancied himself as a real estate rainmaker, a big man in the biggest game in New York. Protected from his past by his deals to spy for the FBI and the CIA, he had built a property business with his neighbor on Long Island and fellow transplant from the Soviet Union to the West, the Kazakh moneyman Tevfik Arif. Over in Manhattan, in SoHo, they had raised a skyscraper; in Florida and Arizona, they planned hotels. All told, they said, their company, Bayrock, had cut deals on real estate worth $2.5 billion. And Felix was getting a reputation as a man it was unwise to cross. An offending business partner on a project in Arizona said Felix warned him he would send over a cousin who would electrocute his balls, cut off his legs, and leave his body in the boot of a car (before later changing his mind and agreeing with Felix that they actually had an “excellent relationship”).

Iliyas looked for a project and found one close to home: an old hotel at the far end of Lake Geneva. He and Felix made plans to convert it into “ultra-luxury” residences. When Iliyas set up his own fund, he asked Felix to help him fulfil his next ambition: to crack America. With his father-in-law, the Kazakh oligarch Mukhtar Ablyazov, in hiding, Iliyas could prove himself as the family’s new moneyman. Trading in individual houses or apartments, sure, you could do that. Iliyas recommended to his sister and her husband that they should spend three million buying and flipping three apartments in the SoHo skyscraper Felix Sater had helped to erect. But Iliyas wanted bigger deals. This time, it was him bringing the money and Felix seeking the right opportunity. He found it in the northern suburbs of Cincinnati, on a state highway, between an Ikea and a graveyard.

“The danger of erasing money’s past was that if you didn’t record an alternative history, someone else might.”

The Tri-County Mall was described by one local with the misfortune to work there as a “legit shithole.” It was approaching the nadir of its decline, hastened by the Great Recession, and was up for sale. Technically, what was for sale was a note of the mall’s debts. On April 16, 2013, the county sheriff conducting the auction received a bid by email from Tri-County Mall Investors LLC, submitted by one of Felix’s people. The bid, offering $30 million, made many claims for the investors, though it neglected to mention the source of their funds or the name of Iliyas Khrapunov. Perhaps that was wise: By then his parents and father-in-law, having dared to cross the ruling strongman, had been declared thieves by Kazakhstan. And anyway, that was why everyone in U.S. real estate used LLCs: so you could do your deals in privacy, no questions asked. The bid won.

The danger of erasing money’s past was that if you didn’t record an alternative history, someone else might. Front companies were blank pages: anyone could write on them. Felix Sater understood dirty money. He had made dirty money, moved dirty money, traced dirty money. He understood that, in this arena, things that Westerners saw as contradictory could be simultaneously true. Was Iliyas’ father-in-law Ablyazov a crook or a dissident? Both, as Felix saw it. On any given day, he, Felix Sater, could choose the story that suited him best.

After successfully taking control of a Cincinnati shithole, Felix and Iliyas needed to complete the final step: the flip. Felix found a buyer through one of his high-society acquaintances, Neil Bush, younger brother to George W. In August 2013, a group of Asian investors who had appointed Neil Bush as their chairman bought the mall for $45 million. It was a peach of a deal for Iliyas and Felix: Money with a past had been replaced with the proceeds of an Ohio property transaction, with a 50 percent profit to boot, all sorted within four months. The buyers paid their money into an account that Felix controlled, completing a spectacular example of the sort of real estate deal-making on which he prided himself. So much so, in fact, that he considered himself entitled to a greater share of the spoils than Iliyas was willing to pay.

In Geneva, Iliyas received a message from Felix asking him to go to a serviced office building for a telecall. When Felix’s face appeared on the screen, Iliyas thought he looked agitated. Then Felix announced: “I know about the Kazakh stuff.” By this he meant that he knew where Iliyas’ money was coming from: his wife’s father, Mukhtar Ablyazov, a fugitive certified by London courts as a thief who had stolen billions.

“I’ll keep the money safe,” Felix went on.

Iliyas asked him to return the money. Yes, he had once enjoyed a leg-up from Ablyazov. After his wedding to Ablyazov’s daughter Madina, his mother Leila had given him $10 million to get started in real estate and had persuaded his new father-in-law to do the same. But Iliyas maintained that the money from Ablyazov had been a loan, and that he had had to give it back when the Kazakh ruler Nursultan Nazarbayev seized Ablyazov’s bank, BTA, in 2009. The money Felix had been investing for Iliyas in the U.S. did belong to someone who required discretion, but it was not, Iliyas insisted, Ablyazov. It was Gennady Petelin, a wealthy Russian reformer who had joined the opposition, been arrested, and fled, and whose son had married Iliyas’ sister.

“Trust me,” Felix said. “I know people. I’ll keep it safe.”

Iliyas felt betrayed. He wanted to sue. But Petelin had fled Russia and come to the U.S. seeking asylum. He could not risk his name being associated with Ablyazov, as it certainly would be if Iliyas and Felix went to court. Iliyas had no choice but to settle. He accepted defeat in this hand of the game of secrets and split the profits from the sale of their $45 million Ohio shithole half and half with Felix.

But Felix was not a man to extract anything less than maximum value from an advantage. There were others who liked Iliyas’ story the way Felix told it and would pay for the recounting.

Just before midnight on November 8, 2016, Felix Sater called a car to collect him from his home on Long Island. His value in the game of secrets was about to go through the roof. He was already a top-level player. BTA Bank, now under the control of a fast-rising businessman close to Kazakhstan’s ruling family, was paying him a cool million to help with the pursuit of Ablyazov, Iliyas, and their money through the U.S. courts. When Felix sat down for his deposition, he declared that Iliyas had betrayed him, not the other way around. He was asked about his Cincinnati shithole shakedown. “In the middle of the transaction, Iliyas tried to fuck me and it blew up all our business,” he said. “I wanted to make sure that I received my just and due entitlement.”

Was it now treachery to go over to the Kazakh dictator Nazarbayev’s side? Only if you did not understand the new world we were in. All these people whose money he had taken, hidden, laundered, commingled—they might look like enemies. Say Iliyas was telling the truth and his dough came from Gennady Petelin, the Russian official who had turned against Putin. Wouldn’t that make it a problem that Felix had pulled in millions from Icelandic investors whose money, his own finance director recalled him boasting, came from Russians favored by Putin? Or say Iliyas really was just a front for his father-in-law, Mukhtar Ablyazov, Nazarbayev’s most hated enemy. Surely doing business with him would be incompatible with having for a backer one of the most loyal oligarchs at Nazarbayev’s court?

Look at it one way and Felix was taking terrible risks, handling fortunes for ruthless fuckers who hated each other. But as Felix was fond of saying, it’s a mistake to look through Western eyes. Yes, there were dangers. But ultimately all these characters had more in common than divided them: They were all running from their money’s past. Tomorrow, the balance of the past could shift—if a Felix Sater or some other dirty moneyman decided to let it shift. For an appropriate fee, Felix had decided to let it shift against Iliyas and Ablyazov.

“The five families had laundered their criminal proceeds through American property for decades. Now the new kleptocrats followed them.”

When it came to picking winners, Felix Sater could be content that he had chosen the right Kazakhs, just like he had grasped how to yoke his own interests to those of the CIA and the FBI. Now an altogether more audacious bet was about to pay off.

The car pulled up outside the Hilton. Felix had booked a room, but none of those present planned to do any sleeping. For nearly three hours the excitement mounted until the place was humming. The ballroom filled with music, a fine American composition, the theme from Air Force One—a film scarcely less plausible than the exploits that had brought Felix to this point on this night, in which a crazed Russian nationalist holds a U.S. president hostage. And then, there he was, high up on the gantry, waving down to his people, the winner, the reality star, the man whose name had been the final, crucial ingredient in Felix Sater’s magic potion for transforming dirty money: Donald J. Trump.

In 2001, one of the tenants of Trump Tower had introduced himself. “I’m going to be the biggest developer in New York,” Felix Sater told Trump, “and you need to be my partner.” There was no need to discuss the criminal connections in either man’s past: Trump’s mobster associates or Felix’s days as a pump-and-dump fraudster. What mattered was that Trump needed money and Felix and his partner, Tevfik Arif, were ideally placed to capitalize on the great shift that would save him: the tide of dirty money.

The end of the Cold War had created an unprecedented opportunity to capture the wealth of nations. From Budapest to Beijing, Almaty to Abuja, the ’90s were spent in a violent contest to do so. Then came the next task: to funnel that stolen wealth to the West for safekeeping. For safekeeping and for another purpose: to complete the process of turning power that had been turned into money back into power. A global kleptocracy was born. After 9/11, banks were on orders to pay some attention to whose money they were handling, lest they abet terrorism. Conveniently, there was another route to the West that retained its secrecy: real estate. The five families had laundered their criminal proceeds through American property for decades. Now the new kleptocrats followed them.

Trump’s role would be to rent out his name. As the persona of The Apprentice had elided reality, that name had been reinvented as a success. For a percentage, Trump would append his personal brand to a skyscraper or a hotel. He would make ignorance his business: what one of those who handled the money called “wilful obliviousness.” An architecture of shell companies would keep the money incognito, and if anyone did find out who it belonged to, provide plausible deniability for those who had received it. The projects could go bust—they usually did—but that wasn’t a problem. The money had completed its metamorphosis from plunder to clean capital.

There were laundering opportunities everywhere: the Colombian businessman David Murcia Guzmán pumped the proceeds of his black-market peso scam through the Trump Ocean Club down in Panama. But the big money wanted to be in the greatest haven of all, North America. In 2008, the Trump SoHo opened. It had cost $370 million. Another $200 million half-hotel, half-condo tower in Phoenix, Arizona, was supposed to follow, but was never finished. Nor was the 24-story tower in Florida. Still, both projects had usefully recycled plenty of money. The partners’ horizons widened. Felix Sater set off for Moscow with two of Trump’s children, Ivanka and Don Jr., to drum up a scheme for a Trump Tower in the Russian capital. For all their wilful obliviousness, Trump and his people showed a pretty clear sense of the sources of the funds: “We see a lot of money pouring in from Russia,” Don Jr. said in an interview published the day Lehman Brothers collapsed in 2008.

“Even though Trump kept on denying knowing him, Felix had high hopes for what the future might bring.”

Felix Sater was a crucial conduit. For a while, he even enjoyed the title of “Senior Adviser to Donald Trump.” His partner Tevfik Arif brought ex-Soviet moneymen to meet Donald. But they were by no means the only ones. Ex-Soviet money had multiple pipelines into Donald Trump. The brutal Russian mafioso Vyacheslav Ivankov: The luxury apartment he kept was in Trump Tower. The five condos that the brother of the Moscow don Semyon Mogilevich’s U.S. moneyman bought there: Trump sold them to him personally. The sixty-three politically connected Russians who spent $98 million on Florida property: that was Trump real estate. Dmitry Rybolovlev, a billionaire who prospered under Putin, bought Trump’s mansion in Palm Beach for $96 million, more than double what Trump had paid for it a few years earlier. Up in Toronto, the $500 million skyscraper built by a Russian-born moneyman who had cut a steel deal that included a secret $100 million payment to representatives of the Kremlin—that bore the Trump name too.

In office, Trump helped to construct a new global alliance suited to the times. It was an alliance of kleptocrats. They might at times seem like rivals, even enemies. In truth they were united in their common resolve to advance the privatization of power. And what progress they had made. With Trump’s election, they controlled the three great poles of power. In the White House, a launderer, installed with the help of Putin’s Kremlin. And in Beijing, Xi Jinping. They had prime access respectively to the great repositories of plunder: the world’s biggest economy, the riches of the former Soviet Union, the one-party state containing a fifth of humanity. Naturally, a façade of decorum was required. Putin’s billions technically belonged to his remarkably entrepreneurial close friends, such as the billionaire cellist. Xi’s relatives, not the general secretary himself, held the business interests amassed as he rose through the Chinese Communist Party.

During the election campaign, Trump had refused to follow previous candidates and publish his tax returns: Why would you just hand over the most precious currency of twenty-first-century power, the secrets of your money? After he won, he refused to divest his private companies, instead handing nominal control to his children. Visiting dignitaries could demonstrate their respect for the president by taking a suite at the Washington hotel he declined to sell. Or there were less direct routes. In the course of pursuing Mukhtar Ablyazov and his son-in-law Iliyas, the Kazakhs filed claims that Trump properties had—via Felix Sater—been used as part of one of the greatest feats of money laundering ever seen. But after Trump became president, the Kazakhs were more helpful to those around him. They quietly paid $300,000 to his lawyer and bagman, Michael Cohen.

Before his election victory, Trump had told Michael Cohen that the campaign would be a significant “infomercial” for properties branded with his name. While Trump angled for the Republican nomination, Felix was in Moscow, working on a plan for a Trump Tower there. “Business, politics, whatever it all is the same for someone who knows how to deal,” he wrote in an email to Cohen. Once Trump was president and Robert Mueller had commenced his investigation, the special prosecutor’s team began to wonder whether Trump had been secretly seeking commercial advantage from Putin’s regime while campaigning to be president. What might the Donald’s side of the deal have been? Trump said he knew nothing of it. Michael Cohen told Congress as much. But he was lying: He had called Trump’s personal lawyer again and again with news of his and Felix’s pursuit of a deal for a Trump Moscow. After Cohen pleaded guilty to perjury, Mueller’s team wrote to Trump to ask him to explain what had really gone on. But because the truth involved Trump’s conversation with his personal lawyer, he could invoke the shield of privilege. That was as far as Mueller ever got.

Felix Sater had become a minor celebrity. One of his associates was in jail, another was president. Even though Trump kept on denying knowing him, Felix had high hopes for what the future might bring, once his old partner had done what he needed to in power and could seek his rewards. “First thing I plan to do when Trump leaves office, whether it’s next week, in 2020 or four years later, is march right into his office and say, ‘Let’s build Trump Moscow.’”

From Kleptopia: How Dirty Money Is Conquering the World; Copyright © 2020 By Tom Burgis. Reprinted here with permission of Harper, an imprint of HarperCollins Publishers.