© Reuters. Russian billionaire Andrei Melnichenko attends a session during Russian Economy Week organized by the Russian Federation of Industrialists and Entrepreneurs (RSPP) on February 9, 2018 in Moscow, Russia. Photograph: Sergei Karpukhin/Reuters


By David Gauthier Villars and Gabriela Bacchinska

ISTANBUL/BRUSSELS (Reuters) – Russian businessman Andrei Melnichenko ceded ownership of two of the world’s largest coal and fertilizer companies to his wife the day before European Union sanctions, three people familiar with the matter said.

Melnichenko, who made his fortune in the years after the collapse of the Soviet Union in 1991, relinquished his stakes in coal producer SUEK AO and fertilizer company EuroChem Group AG on March 8, on his 50th birthday, leaving his wife, Alexandra Melnichenko, the people said beneficial ownership of the companies.

By March 8, Melnichenko had owned the two companies through a series of trusts and corporations stretching from Moscow and the Swiss city of Zug to Cyprus and Bermuda, according to legal files reviewed by Reuters.

Since 2006, Melnichenko’s wife has been behind her husband on the list of beneficial owners of the two companies in trust documents, according to the three people, who spoke on condition of anonymity because they are not allowed to speak publicly about the couple’s assets. People said that meant she would inherit the corporate ownership if her husband died.

However, when the war in Ukraine began in February, Melnichenko became increasingly concerned that he would be subject to the European Union’s sanctions regime against Russia, people familiar with the matter said. On March 8, Melnichenko notified the trustees of his resignation as a beneficiary, People said. This led to the same series of changes in the trust documents that would have occurred if the businessman had died, making his wife the beneficiary.

Reuters was not able to reach Melnichenko and his wife for comment.

A spokesman for Russia-based SUEK did not respond to messages seeking comment. Switzerland-based EuroChem has confirmed that Alexandra Melnichenko has replaced her husband as beneficial owner.

“After the departure of its founder, the ownership of the primary benefit of a fund that owns 90 percent of the International Fertilizer Company has automatically passed to his wife,” the company said in a statement to Reuters on Wednesday.

The Swiss newspaper Tages-Anzeiger first published about the role of Melnichenko’s wife in EuroChem. Its role in SUEK, as well as the timing of the change of ownership and other details are reported here for the first time.

Forbes magazine last year ranked Melnichenko, who founded SWIC and Eurochem two decades ago, as the eighth richest man in Russia with an estimated fortune of $18 billion.

The European Union imposed sanctions on Melichenko on March 9, citing his alleged proximity to the Kremlin, as part of a Western attempt to punish Russian President Vladimir Putin for the February 24 invasion of Ukraine. The penalties – which include a freeze on his assets, a ban on him entering the EU, and a ban on EU bodies supplying him with money – do not apply to his wife or the couple’s daughter and son.

On March 15, the UK also added Russian Melnichenko, born in Belarus to a Ukrainian mother, to its sanctions list. Switzerland imposed sanctions on him the next day.

In a statement to Reuters in March after the imposition of European Union sanctions, the businessman said the war in Ukraine was “really tragic” and called for peace. A Melnichenko spokesman said at the time that he had “no political affiliations.”

Western governments have imposed sweeping sanctions on Russian companies and individuals in an attempt to force Moscow to withdraw.

But some sanctioned Russian businessmen, including Roman Abramovich and Vladimir Yevtushnikov, transferred their assets to friends and family members, raising doubts about the effectiveness of these attempts to pressure Moscow.

Melnichenko, whose residence in the Swiss Alpine town of St. Moritz was registered until he faced penalties, instructed him to change ownership of his business from a sanctuary near Kilimanjaro, where he celebrated his birthday with, according to one person. a favour. A Boeing (NYSE: 737) plane bearing the billionaire’s signature “A” on the fuselage touched down in Tanzania on March 5, from Dubai, according to flight-tracking service Flightradar24.

Melnichenko’s lawyer did not respond to questions about the Kilimanjaro trip.

Melnichenko’s transfer of ownership of SUEK and EuroChem had far-reaching effects.

After several weeks of checks, the Swiss tax authorities came to the conclusion that the two companies could continue to operate normally because Melnichenko no longer had an interest in them. SUEK and EuroChem said financial regulators in the UK and Germany had reached similar conclusions.

British and German regulators did not respond to requests for comment.

After completing the reviews in late April, SUEK and EuroChem — which generated $9.7 billion and $10.2 billion in revenues respectively last year — were able to resume making millions of dollars in interest payments to bondholders.

In recent weeks, SUEK and EuroChem have also reached out to Western clients and offered them documents showing the new ownership structure, assuring them they could continue to do business with Mr Melnichenko’s previous companies, two people familiar with the matter said.

No more payments

In Switzerland, the Economic Secretariat (SECO) announced that neither SUEK nor EuroChem were not subject to sanctions in the country.

SECO said that, to the best of its knowledge, Melnichenko is no longer a beneficiary of the trust belonging to EuroChem at a time when the European Union and Switzerland have been sanctioned.

SECO also said it had asked Eurochem for confirmation that it would not provide funds to Melnichenko.

Upon request, SECO said: “The company and its management have given SECO a written guarantee that Swiss sanctions will be fully complied with and that no money or economic resources will be made available to the sanctioned people.”

The Swiss authorities defended their decision not to extend the sanctions against Melnichenko’s wife or his ex-companies, noting that the EU authorities also did not impose sanctions on her.

“We have done exactly what the European Union has done on this issue,” Swiss Economy Minister Guy Parmelin told Swiss television on Wednesday.

Parmelin added that Switzerland also fears that sanctions against EuroChem will have dire consequences for agricultural markets at a time when fertilizer prices have risen dramatically in most parts of the world. EuroChem said it produced more than 19 million tons of fertilizer last year – about 10% of global production, according to the United Nations.

The European Commission, the EU’s executive branch, said it had no information on the transfer of Melnichenko’s assets to his wife. The commission said it was ready to fill in the loopholes that allow individuals and companies to evade its sanctions. Earlier this week, it unveiled proposals aimed at criminalizing sanctions circumvention measures, including the transfer of assets to family members across the 27-nation bloc.

Under the trust structure, independent trustees exercise control over SUEK and EuroChem, while ownership of the usufruct, which was in Melnichenko’s hands until March 8, passed to his wife.

A mathematician who once dreamed of becoming a physicist, Melnichenko left university to plunge into the chaotic – and sometimes deadly – ​​world of post-Soviet economics.

He founded MDM Bank, but it was still too young in the 1990s to engage in the privatizations under President Boris Yeltsin, which handed over the finest assets of the former great power to a group of businessmen known as the oligarchy as their political and economic clout became.

Then Melnichenko began to buy often troubled coal and fertilizer plants, which made him one of the richest men in Europe.

Announcing its sanctions, the EU said Melnichenko belonged to “the most influential circle of Russian businessmen with close ties to the Russian government.”

The European Union said in its March 9 sanctions order that Melnichenko was among dozens of business leaders who met with Putin to discuss the implications of the sanctions on the day Russia invaded Ukraine, demonstrating his close ties to the Kremlin.

A spokesman for Melnichenko at the time denied that the businessman belonged to Putin’s inner circle, and said he would challenge the sanctions in court. On May 17, Melnichenko appealed the sanctions through his appeal to the General Court of the European Union, which deals with complaints against European institutions, court documents show.

Russia describes its actions in Ukraine as a “special operation” to disarm Ukraine and protect it from fascists. Ukraine and the West say the accusation of fascism is baseless and that war is an unjustified act of aggression.

Italy confiscated Melnichenko’s luxury yacht – the €530 million, 470-foot sailing yacht A – on March 12, three days after it was placed on the EU’s sanctions list.

SUEK and EuroChem announced on March 10, the day after the European Union announced sanctions against Melnichenko and 159 other people linked to Russia, that their founder had resigned from his corporate board positions.