Gareth Vaughan probes Westpac's successful court battle to dump a company associated with a Russian oligarch as a customer, wondering if our banks are acting with higher moral standards than our government

A recent High Court judgment, backing Westpac New Zealand's right to withdraw banking services from a company associated with Russian oligarch Alexander Abramov, raises an interesting ethical and moral question.

The question is; If a wealthy overseas individual is investing significant money in New Zealand, that's creating jobs and doing useful things here, do we care about where the money comes from?

The case stems from Targa Capital fighting Westpac's decision to withdraw from providing banking services to Targa and close Targa’s bank accounts.

Targa is a New Zealand registered company formed in 2016 for the purpose of funding Helena Bay Holdings, which owns and operates the luxury Helena Bay Lodge in Northland.

In his judgment Justice Neil Campbell sets out that Helena Bay Holdings is loss-making and depends on Targa. It employs about 25 staff in Northland. Furthermore, Campbell says, for 10 years it has worked to eradicate predators from the 340 hectare property around Helena Bay Lodge with kiwi returning after a gap of 100 years. 

Additionally Targa is now an active investor in the NZ property and funding sector, including investing with Ockham Group and via a lending syndicate. Targa is currently involved in development projects with an estimated completion value of about $750 million which, in turn, employ an estimated 200 workers, Justice Campbell says.

Thus we have a company using money to help save our beloved national bird and tackle our housing crisis. Those are certainly two worthy causes. Additionally it's employing, and helping employ, a significant number of New Zealanders and spending money into the local economy.

But where did the money come from and why?

Endurance Capital Ltd is the sole shareholder of both Targa and Helena Bay Holdings, which have the same three directors. They are Christopher Seel, described in the judgment as an Auckland-based NZ businessman and investor, Geoffrey Hosking, a partner at law firm Anthony Harper; and Ian Cochrane, a NZ citizen living in Moscow. Seel is listed in Companies Office records as sole shareholder of Endurance.

Endurance holds its shares in Targa and Helena Bay Holdings on trust under the terms of the Raglan Trust, of which it is the sole trustee. The judgment says the Raglan Trust was settled in 2009 to benefit Abramov and his family.

Abramov is co-founder of and significant shareholder in Evraz, Russia’s largest steel company. As the war in Ukraine rages following Russia's invasion in February 2022, Evraz has denied its steel is used in Russian tanks.

Justice Campbell notes the discretionary beneficiaries of the Raglan Trust included Abramov, his wife and children until recently. And over the course of several years Abramov has gifted about $260 million to the Raglan Trust or to Helena Bay Holdings.

In March 2022, shortly after Russia invaded Ukraine, Endurance passed a resolution as trustee of the Raglan Trust. Noting the potential for NZ sanctions against wealthy Russians with investment interests in NZ, Endurance decided a emergency event had arisen in respect of Abramov. 

"The effect of that resolution was that Mr Abramov was deemed to be suspended as a beneficiary of the Raglan Trust. That deemed suspension remains in effect. Mr Abramov’s wife and children have not been deemed to be suspended as beneficiaries," Justice Campbell said.

The judgment goes on to say Abramov was originally the appointor under the Raglan Trust, having the power to remove and appoint trustees. However, this changed in October 2018 when the trust deed was amended, Abramov is no longer the appointor and no longer has this power. But the amendment made provision for a “protector.”

"The protector has a degree of negative control over the Raglan Trust, because the appointor is defined as the protector and the trustee acting together. It is also an available interpretation of the amended trust deed that the protector has the power to remove the existing trustee and appoint a new trustee," Justice Campbell explains.

"Clause 29.11 provides that the protector may remove all of the trustees provided this will not leave fewer than two individual or one corporate trustee 'whether by virtue of a contemporaneous appointment of any new trustee or otherwise'. It is arguably implicit in this provision that the protector has the power to make that contemporaneous appointment. Targa submitted that the power to appoint new trustees was bestowed solely on the appointor, under cl 13.1. However, cl 29.11 bestows powers on the protector that are additional to those in cl 13.18 For that reason, I consider it an available (and reasonable) interpretation that the protector can remove all trustees and appoint a new trustee," Justice Campbell says.

"The protector is a Swiss banker, Nicola Maurice. There is an association between Mr Maurice and Mr Abramov. The United Kingdom Companies House records Mr Maurice as being a person with 'significant control' in respect of several United Kingdom entities linked to Mr Abramov."

In April 2022 Abramov was designated in Australia as being subject to targeted financial sanctions and a travel ban.  The United Kingdom imposed financial sanctions on  Abramov in November 2022. However, NZ chose not to impose financial sanctions on Abramov, but in October last year our government did impose travel-related sanctions on Abramov and his immediate family.

The judgment also notes that the Overseas Investment Office (OIO) made decisions on applications by Targa in January 2020 and again in August 2021. In both instances the OIO described Targa as “ultimately controlled” by Abramov. In the Westpac court hearing Justice Campbell says Seel maintained the OIO was “simply wrong”. 

He also highlights a press release from Foreign Minister Nanaia Mahuta last October imposing the travel ban on Abramov. Key details from the press release feature below.

“The 51 oligarchs [being sanctioned] are members of Russia’s economic elite. They own assets and provide services with economic or strategic relevance to Russia, such as steel, oil, gas, coal, phosphate, tobacco, banking, telecommunication, and transport companies,” says Nanaia Mahuta.

“Amongst them is Alexander Abramov, who has links to New Zealand. Also being sanctioned is Evraz plc, a steel company that produces more than 25% of all Russian railway wheels and almost all of Russia’s rail lines. Mr Abramov is the founder and former CEO of Evraz, as well as its second largest shareholder.

“I have sought, and taken, extensive advice before deciding to sanction Mr Abramov. I have factored in his connections to the local economy and the impact that applying full sanctions would have on small businesses and livelihoods connected with his business interests.

“If full sanctions were applied, the disruption felt by New Zealanders is likely to be greater than that felt by Mr Abramov himself, who does not live here and only has a small proportion of his wealth invested in New Zealand.

“Taking this into account, I have taken a tailored approach to sanctions. Mr Abramov and his family members will be subject to a travel ban, and their aircraft and vessels will be banned from entering our airspace and ports.

“The intention of our sanctions is to exert pressure on Russia, not punish innocent New Zealanders. We hope that the considered actions we are taking will encourage Mr Abramov to voice concerns about Russia’s war on Ukraine.

“Although I am advised that his representatives in New Zealand insist he has not played a role in the invasion and has not lived in Russia since 2016, as a leading businessman with links to Russia’s political and economic elites I expect he has the influence to speak up and be heard.

“Oligarchs play a crucial role in fuelling Russia’s war by providing economic and strategic support to the Russian Government through their activities. Aotearoa New Zealand stands with the global community in condemning Russia’s illegal war. We also condemn the overnight attacks on Ukrainian civilians and call for Putin to be held to account,” Nanaia Mahuta said.

One way of looking at what Mahuta's saying is it's a pragmatic decision made in relation to a complex issue.

It is interesting to note, however, that we have a bank that won't work with companies associated with Abramov but a government that won't prevent Abramov associated companies operating in NZ even though two of NZ's key allies have implemented financial sanctions against him.

Actually it's more than just one bank. It's more like the whole banking industry.

"Westpac’s decision not to have a continuing relationship with Targa aligns with decisions made by other New Zealand banks. The ASB Bank has closed accounts held by Targa and by Helena Bay Holdings. Mr Seel deposes that he has made enquiries with several other New Zealand banks, none of which is prepared to provide banking facilities to Targa. I acknowledge that declining to accept a new customer is not the same as deciding to terminate an existing customer. Nonetheless, the decisions by the ASB Bank to close accounts and the decision by other banks not to open accounts suggest that Westpac’s approach to its sanctions risk is not unreasonable when compared to banking practice in this country," Justice Campbell said.

Our major banks being subsidiaries of Australian banks is certainly a factor here. Westpac NZ's parent is the Westpac Banking Corporation and ASB's in Commonwealth Bank of Australia. Westpac Banking Corporation and Westpac's Australian resident directors are bound by Australia’s sanctions regime, the judgment notes.

Early last month RNZ, citing a police intelligence report, reported that Abramov's links to NZ had been considered a threat to the integrity of overseas sanctions against his business partner Roman Abramovich.

Abramovich is the Russian oligarch sanctioned by the UK government and forced to sell the Chelsea Football Club. Abramovich's 19 year ownership of Chelsea led a major shake-up of English football with player transfer fees soaring and Chelsea experiencing far and away the most successful period in its history.

Russian oligarchs are extremely wealthy business leaders with political connections. To maintain their status oligarchs have needed to avoid falling foul of President Vladimir Putin, Russia's powerful leader for more than 20 years. Transparency International notes that; "The vast wealth that Russia's kleptocrats have amassed helped Putin tighten his grip on power...For more than two decades, corrupt officials and politically connected people in Russia have laundered vast amounts of money and parked their illicit gains abroad."

"Corruption is endemic in Russia, where people have been robbed of any opportunity to influence matters in their country. Public institutions in Russia are almost completely captured by the executive government, and as a result fail to hold power to account," Transparency International says.

Many countries effectively turned a blind eye to this for years, until Putin's blood soaked invasion of Ukraine made this untenable. 

NZ's banks are now saying "no" to companies and money associated with a Russian oligarch. But our government is not. Are we okay with this?

Meanwhile, in his judgment Justice CampbellI concluded; "...I find there is no serious issue to be tried that Westpac would be acting unconscionably in closing Targa’s accounts."

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