How Family That Runs Azerbaijan Built an Empire of Hidden Wealth

On October 31, 2003, Ilham Aliyev, the newly elected president of Azerbaijan, stood behind a podium and a profusion of white flowers to address presidents, prime ministers and 2,000 other guests assembled at the Respublika Palace. First touching the constitution and then the Koran, Aliyev swore to serve his people. That night, fireworks lit up the sky of the Azeri capital, Baku.

Aliyev’s election to lead this energy-rich former Soviet republic bordering both Russia and Iran had been all but guaranteed. His ailing father, Heydar, an ex-KGB officer, had served in the same role for the previous 10 years. Election monitors reported that police had beaten and detained political opponentsin line with the country’s reputation for repression.

Becoming president wasn’t Aliyev’s only ascension during 2003. Using a network of secretive companies in offshore tax havens, his family, advisers and allies set about acquiring expensive overseas homes and positions in the country’s valuable industries and natural resources, including the family’s majority control of a major gold mine that has been unknown until now.

The new details of the Aliyev offshore empire emerge from secret records obtained by the International Consortium of Investigative Journalists, the German newspaper Süddeutsche Zeitung and other media partners from Mossack Fonseca, a Panama- headquartered law firm that helps to set up hard-to-trace corporate structures for clients. The more than 11 million documents reviewed by ICIJ and its partners – emails, bank accounts and client records – represent the inner workings of Mossack Fonseca for nearly 40 years, from 1977 to December 2015.

Family Alliances

The records show that, in mid-2003, 12 months before the October presidential election, Fazil Mammadov, Azerbaijan’s tax minister, began to create AtaHolding, which has since become one of the country’s biggest conglomerates. Mammadov, influential in his own right, subsequently invited President Aliyev’s family to join him, cementing a potentially potent and advantageous business and political partnership.

AtaHolding is a corporation that has significant interests in Azerbaijan’s banking, telecommunications, construction, mining, oil and gas. Its most recent corporate filing in 2014 shows it held over $490 million in assets.

The leaked files show that the tax minister created a company in Panama through Mossack Fonseca named FM Management Holding Group S.A. Stand-in directors — straw men supplied by Mossack Fonseca — concealed the fact that Mammadov was involved.

Mammadov then created a second offshore entity – this time a foundation – called UF Universe Foundation. Panama foundations are subject to strict confidentiality laws. Anyone who discloses information about them can be fined or imprisoned.

The files show that two years later, in 2005, Aliyev’s wife, the fashion-conscious, collagen-infused first lady and member of Parliament, Mehriban Aliyeva, became one of two managers of the UF Universe Foundation, alongside the tax minister, Mammadov.

In attachments to a “High Importance” email sent to Mossack Fonseca in February 2005 by a lawyer representing the Azeris, documents proposed that then six-year-old Heydar Aliyev, the president’s son who is known in the files as “A1,” be made the beneficiary of 20 percent of the foundation’s proceeds. The plan also proposed that the president’s two daughters, Leyla, then 19 and Arzu, then 17, would hold 15 percent each. Mammadov’s son held 30 percent while Ashraf Kamilov, a former tax ministry official, and other former tax officials held smaller stakes. So, too, did AtaHolding’s chairman, Ahmet Erentok.

So the secrecy had three layers:

  1. The UF Universe Foundation, which controlled
  2. FM Management, the Panama company set up by Mammadov, which owned shares in
  3. a United Kingdom-based company named Financial Management Holding Limited.

According to a flowchart shared with Mossack Fonseca in 2005, the UK company held 51 percent of shares in AtaHolding Azerbaijan.

While there is no doubt that these secret companies existed and paid hundreds of dollars to Mossack Fonseca in administrative fees, it is unclear whether or not the proposed structure to benefit President Aliyev’s teenage and pre-teen children and other prominent Azeris was ever adopted.

UF Universe Foundation was closed in January 2007. Then, in February 2014, months after President Aliyev was sworn in for his third term, a London-based lawyer sought to reactivate the Foundation and FM Management Holding Group. Mossack Fonseca was happy to oblige and issued an invoice in exchange for reactivating the company worth nearly $9,000.

Most recently, majority ownership — 51 percent — of AtaHoldings was held by Hughson Management Inc., according to AtaHolding’s online annual report. A 2010 letter signed by Mossack Fonseca listed Aliyev’s daughters, Arzu and Leyla, and Swiss lawyer Mestelan as directors.

ICIJ sought comments from all individuals named in this article and received no responses. In response to previous reports about the family’s holdings, the President’s spokesman said the daughters “are grown up and have the right to do business.”

Friendship with U.S.

Despite global criticism of Azerbaijan’s mounting authoritarianism, the Aliyev regime has been a friend of successive U.S. administrations. The United States has spent hundreds of millions of dollars on the Aliyevs’ Azerbaijan, including millions for military and security training. Azerbaijan’s government is one of the largest buyers of influence in Washington D.C. and, together with its lobbyists, spent at least $4 million in 2014 alone burnishing the country’s image. The country has taken members of Congress on all-expenses-paid visits to Azerbaijan, lavishing the lawmakers with silk scarves, crystal tea sets and rugs.

Azerbaijan’s importance in energy, as a supply route to American troops in Afghanistan and its potential role in the fight against ISIS makes the United States a reluctant critic, said former U.S. ambassador to Azerbaijan Richard D. Kauzlarich, now adjunct professor at George Mason University.

“Being where it is – bordered by Russia and Iran in a very unstable geopolitical environment – is a factor that makes it among the more unique countries in the region,” said Kauzlarich, who was U.S. ambassador to Azerbaijan from 1994-1997.

Its levels of corruption and elite control of the economy make it stand out in a part of the world where these things aren’t unusual, he added.

“The franchising out of economic activity to families and clans that are important for maintaining the current regime in power is not an unusual pattern,” said Kauzlarich. “However, it certainly has been perfected in Azerbaijan.”

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