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. Last Updated: 07/27/2016

Anatomy of a diamond scam




With the help of top Russian bureaucrats, the California-based company Golden ADA made away with $180 million in diamonds and gold from state reserves. Now the long arm of Moscow law is reaching for the scam's alleged mastermind, and he is threatening to tell all.


Mark Whitehouse reports.


Who wants to kill Andrei Kozlenok? That's the question that will face the Greek Supreme Court on April 3, when the alleged con man, the main protagonist in one of the international diamond trade's most bizarre and complex scams, appeals to stop his extradition to Russia.


If Kozlenok arrives in Moscow, his trial could expose the role of top government officials in Golden ADA, a shady California-based enterprise that squandered some $180 million in gold and diamonds from Russia's state reserves. He managed to elude Moscow's grasp for more than two years until last month, when Greek police arrested him at the request of Russian Interpol.


Kozlenok has asked for Greece's protection, saying that his enemies in Russia will kill him before he reaches the stand. In a possible sign of the stakes involved, his longtime partner in Moscow, Sergei Dovbysh, mysteriously died last month in police custody as he was awaiting the verdict of another trial related to Golden ADA.


"I am more than sure that, given this last incident, I shall not have more than two or three days to live if I am extradited to Russia," Kozlenok, 39, wrote from his cell in Athens' Koridallos prison. "There is a strong effort to silence all innocent individuals who, not having other ways to protect themselves, at one point are forced to make public all the information they possess."


Golden ADA exemplifies the scale of plunder that was possible in the chaotic ruins of the Soviet Union, when bureaucrats enjoyed immense power but little clear-cut responsibility. The Finance Ministry, the Foreign Trade Ministry, the State Customs Committee and the now-defunct State Committee for Precious Metals and Precious Stones all had some connection to the gold and diamonds that wound up in Golden's control, but not one official has yet been brought to trial.


The company's brash largess prompted a feeding frenzy in California, attracting the attention of local newspapers, the U.S. Federal Bureau of Investigation and special investigators from the Internal Revenue Service. Its sprawling empire included a state-of-the-art diamond-cutting facility in San Francisco, a chain of gas stations, a $20 million jet, exotic cars, speedboats and multimillion dollar homes.


Since 1995, the Russian government has been battling in and out of California courts to get some of its money back. It could soon announce a settlement with Golden's bankruptcy trustee and the IRS, which slapped a $63 million claim on the company's assets, but in any case, Russia will recover only cents on the dollar.


"The Russians will get some money, we'll get some money, and what happens back in Moscow is what happens," said Jay Weill, an assistant U.S. attorney representing the IRS. "There's so much intrigue and mystery about this that I'm sure we'll never know the whole truth."


TRUE STORY


If the Golden ADA saga had not occurred in real life, it could have been invented by the great Russian writers Ilf and Petrov, whose satirical tales featured hapless con men and scams gone awry.


The story begins at Moscow's prestigious Plekhanov Institute, from which young graduate Kozlenok, like many of his classmates, entered the budding world of Russian business. In the early 1990s, he set up a wholesale business in cognac and tires along with Dovbysh, who lived in the same apartment building.


By 1992, according to court documents, the two were falling behind on their debts to Russian banks, a situation that at the time could lead to broken limbs or worse. Searching for a way out, they gained an introduction to Yury Sorokin, head of the state diamond-cutting factory Krystal. The man who vouched for them, according to the documents, was Yevgeny Bychkov, who headed the State Committee for Precious Metals and Precious Stones, also known as Roskomdragmet.


Bychkov claims that he had been introduced to Kozlenok by Deputy Finance Minister Anatoly Golovati. Now a top official in the president's administration, Golovati refused to comment.


Kozlenok and Dovbysh cut a deal with Krystal worth 20 million rubles, or ab out $90,000 at that year's average exchange rate, under which they promised to build housing for the factory's employees. The money was paid, but they never even started to build the housing.


Under a second deal, Krystal sent about $1.3 million to San Francisco, where Kozlenok was supposed to set up a retail outlet, providing security, advertising, consulting, transportation and insurance.


Krystal's money became the seed capital for Golden ADA, which Kozlenok set up in late 1992 with himself as majority shareholder and Bychkov as a board member. He also gave 20-percent stakes to David and Ashot Shagirian, two Russian-speaking U.S. citizens who reportedly had previously worked as curb painters, entrusting them with executive responsibilities.


From that point, Golden ADA grew fast. In early 1993, Bychkov, the sole official responsible for allocating valuables from the state reserve, signed two contracts entrusting the company with $90 million worth of Russian polished diamonds and replicas of tsarist coins, supposedly as collateral for a $500 million loan from Bank of America. Soon after the ink dried, Russian government transport planes delivered some five tons of coins and diamonds to Golden ADA in San Francisco.


The Bank of America loan, which Bychkov said would have been used for the development of Russia's gold-mining industry, was probably never meant to happen. "The bank was not involved in lending money to Russia in 1993," said David Lingelbach, the bank's chief representative in Russia. "As a business scheme, this is something that we as an institution would want to stay as far away from as possible."


Bychkov claims that under the contracts, the valuables were to remain the property of the Russian government. That, however, did not stop Golden ADA from melting down the coins and selling the diamonds.


BONANZA


Toward the end of 1993, Kozlenok and the Shagirians went on a mind-boggling spending binge. Over three days in October, they bought three yachts in Marina Del Rey for a total of $1.2 million. They paid $3.8 million for three homes in the upscale neighborhoods of Orinda and Lafayette, located outside San Francisco, and millions more for condominiums in the affluent Lake Tahoe neighborhood of Fleur du Lac. One day, they laid out $377,000 for a Rolls Royce limousine and $366,000 each for two Aston Martins. They acquired a $20 million Gulfstream jet with crew, a $1.7 million helicopter, a number of Scarab speedboats and apartments in San Francisco.


Local businesspeople joined in on the bonanza, charging sky-high prices for many of the luxury goods. Charles Sims, the bankruptcy trustee who is now trying to find and dispose of Golden ADA's assets, said he won a court judgment against Yamaha Corp. for jacking up the price of several boats. "They took advantage of the people," he said. "We sued them, and they gave us the money back."


Kozlenok wrote from jail, responding to questions from The Moscow Times, that the cars, boats, homes and other toys were needed to project a "solid financial image." He said Golden ADA was formally participating in a "social program," under which managers and employees of Russian mining companies would be treated to an "exclusive vacation in the United States as a reward for their hard work in the difficult conditions of Russia's Far North."


Bychkov, for one, did get some mileage out of the assets. He said in an interview that he made frequent visits to Golden ADA in California, beginning in December 1993, and that he flew on the Gulfstream, though to a destination other than the United States. "When we started to ask them where the money came from, they said they got a loan," he said.


Leonid Gurevich, a diamond expert who worked as Bychkov's deputy from November 1993, said that Kozlenok spent a lot of time at Roskomdragmet's offices in Moscow as well, acting as if he had the run of the place. "He hardly ever came out of Bychkov's office," he said. "He was a constant guest."


Not all of Golden's investments were sheer luxury. The company paid $10.6 million for a building at 999 Brannan St. in San Francisco -- previously appraised at $6 million -- where it set up a jewelry mart and the most modern diamond-cutting facility the city had ever seen, with state-of-the-art machinery, a palm-scanning security system and diamond-cutting experts imported from Russia.


Bychkov, who attended the facility's gala grand opening in early 1994, said the project was designed as a way around the De Beers diamond cartel, with which Russia was negotiating a new sales contract. Through its Central Selling Organization, De Beers controls about 70 percent of the world's $7 billion raw-diamond market.


If it really intended to challenge De Beers, Golden ADA chose a strange location in San Francisco -- far away from any of the world's major diamond-trade centers. "From the point of view of the diamond business, you couldn't think of anything more stupid," Gurevich said.


Soon after the factory opened, Bychkov signed a new contract with a Moscow-based Golden ADA subsidiary, Zvezda Urala, under which the diamond-cutting factory received $88 million in Russian rough diamonds to be reworked and returned to Russia. The diamonds were shipped even though Russia had still not received either a bank loan or any payment for the previous $90 million shipment. The Russian prosecutor general said Kozlenok immediately sold the diamonds in Antwerp.


In a recent interview with the Moscow newspaper Pravda-5, Kozlenok said that Bychkov "carefully controlled" Golden ADA's activities, and that "not one decision could be made without his agreement."


Bychkov, now a vice president at the Russian bank Rossiisky Kredit, said that he was duped. "The goal was to gain a foothold with these diamonds on the American market," he said. "Apparently, a mistake happened. I just don't understand why [Kozlenok] acted as he did, from the point of view of business."


Bychkov stresses that he was not the only government official whose approval was necessary for the project. He said then-Finance Minister Boris Fyodorov signed a document needed to export the gold and diamonds. Export documents also required the signatures of officials from the Foreign Trade Ministry and the State Customs Committee.


Fyodorov, now a member of the Russian parliament, has said he ordered the government administration to prepare a decision on the Golden ADA contract, but never saw the actual decision. He has offered to waive his deputy's immunity to answer authorities' questions, but according to his press department, no questions have yet been asked.


DECLINE


By mid-1994, the Golden ADA scheme had started to unravel: Bychkov sent representatives to California to demand the government's money back, and the Prosecutor General's Office was getting suspicious.


In June, police raided the company's Moscow office in search of 57 kilograms of gold from the first shipment, which, according to the indictment against Dovbysh, had been melted into rings in the United States, then sent back to Russia and remelted into bars at a Zvezda Urala facility. The police claim that they found the loot in a locked room, but that Dovbysh tricked them and smuggled the gold to a garage outside of Moscow, from which it disappeared.


Under pressure, Kozlenok had a falling out with the Shagirians. Ashot Shagirian later testified that Kozlenok became infuriated after learning that the the two brothers had sent a $10 million payment to Roskomdragmet, and forced them on threat of death to sell their shares for $2.5 million each.


In August 1994, with the Shagirians gone, Kozlenok started casting about for a way to preserve Golden ADA's empire. Seeking political clout, the company made a number of generous campaign contributions, including $25,000 to the unsuccessful 1994 gubernatorial bid of Kathleen Brown.


In December, Kozlenok hired Jack Immendorf, a close adviser to then-San Francisco Mayor Frank Jordan and president of the city's Recreation and Park Commission. Immendorf, who according to court documents pulled in some $2 million during his eight months as CEO, also brought on state Senator Quentin Kopp as a consultant. After a brief attempt to put the company's finances in order, Immendorf and Kopp quit.


Two new players, Andrei Chernukhin and Rajiv Gosain, arrived at Golden ADA after June 1995, when the Russian prosecutor general launched a criminal investigation of Kozlenok and Roskomdragmet. Kozlenok's Belgian lawyer, Valentine Wouters, claims that they were agents of the Russian government. Bychkov said he never knew them.


According to Wouters, Gosain and Chernukhin convinced Kozlenok and his wife, Irina, that they were in danger and should lay low for a while in Acapulco. The four went to Mexico together in September 1995, but for some reason left Alexei, Kozlenok's 8-year-old son, in San Francisco.


In Mexico, Wouters said, Gosain and Chernukhin told Kozlenok that he would never see his son again unless he signed over his stake in Golden ADA. This has never been proven, but the bankruptcy trustee Sims confirmed that the share transfer to Gosain was notarized at the U.S. Embassy in Mexico City.


Only three weeks after Kozlenok signed away the shares, the Russian government filed suit against Golden ADA in California on charges of racketeering, fraud and theft. The next week, the IRS put a $63 million lien on the company and started seizing all the assets it could find. According to Weill, the IRS has already auctioned off property worth $6.5 million, including the homes in Orinda and Lafayette.


The ensuing scandal cost Bychkov his job. In February 1996, President Boris Yeltsin fired him for "failing to fulfill government orders" and dissolved Roskomdragmet, passing its responsibilities on to the Finance Ministry.


CRIME PAYS


The wheels of justice have moved painfully slowly in solving the Golden ADA case. In February 1996, the prosecutor general charged Bychkov with abusing his official position and violating hard-currency laws, but in a strange twist of fate, Bychkov was exonerated under an amnesty called by the State Duma to commemorate the 50th anniversary of the end of World War II.


Ashot Shagirian was detained at London's Heathrow Airport in April 1997 on his way to the Caribbean. In January, he pleaded guilty in a San Francisco court to evading taxes on the $2.5 million he received in exchange for his shares. Sentencing is scheduled for April 24. According to his lawyer, Shagirian will probably get off with a fine and home detention. Shagirian's brother David is still missing.


Kozlenok had been living beyond the reach of Russian authorities in Belgium, which does not have a bilateral extradition treaty with Russia. But in January, after gaining leave from a Belgian judge and making sure that the Interpol wanted list did not include his name, he boarded a plane to Greece. While he was in the air, the Moscow Interpol office sent an arrest request to Athens, and Greek police met him at the airport.


"This case has been played like a game of chess," Wouters said. "I only can make the conclusion that they don't want their money -- the only thing they want is Mr. Kozlenok."


Last month, a Greek judge approved Russia's extradition request, but Kozlenok's lawyers appealed to the Supreme Court, which will hear the case April 3. The death of Kozlenok's former partner in Moscow will undoubtedly strengthen his position.


According to a source in the Prosecutor General's Office, Dovbysh was found hanged on a radiator by the neck of his sweater. The prosecutor has launched a criminal investigation into his death, suggesting that there is reason to believe he did not commit suicide. The autopsy revealed broken ribs, although this injury could have been inflicted during attempts to revive him.


Back in California, Russia and the IRS have been battling over the rights to Golden ADA's remains. In August, a bankruptcy court appointed Sims to track down all the assets, bank accounts and subsidiaries that the company spawned in its short history. Among other things, he has discovered a Belgian subsidiary called Calbel and a California company called Shako Energy, which owned a chain of gas stations.


"Golden ADA has assets in Belgium, Switzerland, Moscow, the United States, possibly Puerto Rico, possibly Lichtenstein," said Sims. "It's one of the most interesting, intricate cases I've ever handled, and I've handled lots of them."


Sims has hammered out an agreement, subject to a judge's approval due March 27, in which the IRS and the Russian government allow him to pay off creditors first, then split the rest. The only snag is a November 1996 settlement between the Russian government and Gosain, under which Gosain ceded control of all Golden's assets to Russia in return for as much as $6.5 million. Russia claims that Gosain did not fulfill his part of the deal, but a court must still void his claim on Golden's assets.


In any case, after all the lawyers and creditors are paid, Russia will recover far less than the $180 million it lost. "By the time it's all said and done, there might be a pot of $20 million," said U.S. attorney Weill. The creditors are owed at least $5 million, and Weill said that the IRS expects no less than the $6.5 million it has already collected.


But there remains another mystery: For some reason, Kozlenok and Gosain are still fighting in court over the ownership of Golden ADA's shares. Why, asked Sims, would they be interested in the control of a defunct company?


"There could be assets left over that even the Russian government doesn't know about," he said. "For instance, Mr. Gosain or Mr. Kozlenok might have put them someplace."