The wire transfer was just one of millions that ricochet through the global financial system every day. Starting at the Zurich branch of a Russian state bank, $800 million zipped through Citigroup Inc. in New York before landing in a small bank in Lebanon.
Source: bloomberg By Jack Farchy and Javier Blas
The payment came from Russian oil giant Rosneft PJSC –- a loan to the cash-strapped government of the breakaway region of Kurdistan in northern Iraq that would be repaid with barrels of crude.
It was the opening tranche of a $6 billion torrent of cash that made a similar journey over the next two years. But the account didn’t belong to the Kurdish government. The money flowed to a company registered in the tax haven of Belize, with a mailing address in Cyprus, and controlled by a Pakistani-born businessman: Murtaza Lakhani.
A veteran of the oil industry’s most challenging jurisdictions, Lakhani was using his company’s account at Lebanon’s BankMed SAL as the clearing house for Kurdistan’s new-found oil wealth.
Disclosed as part of a lawsuit, the billions of dollars that flowed in and out of the account offer a rare window into the inner workings of the global oil trade.
It’s a tale of petrodollars and power in the Middle East, linking the world’s largest commodity traders with local politicians, the Kremlin and even the family of Lebanon’s former prime minister. The lawsuit, a dispute between Lakhani’s company and BankMed, provides hundreds of pages of wire transfers, emails, and ledgers, providing a payment-by-payment insight into his role at the heart of one of the hottest oil trades in recent years: selling Kurdish crude.
Lakhani’s relationship with the Kurdish government was extraordinary for a private individual. Through his company, IMMS Ltd., Lakhani handled payments from Rosneft and oil traders like Vitol Group and Trafigura Group; he made payments for foreign companies to which the Kurdistan Regional Government owed money; and he transferred hundreds of millions of dollars to the Kurdish finance ministry itself.
The set-up may spur campaigners to amplify calls for greater transparency in the oil industry. It remains unclear how much money Lakhani was making from handling Kurdistan’s cash flows. The use of the BankMed accounts has also exacerbated the region’s economic woes because a banking crisis in Lebanon left some of the funds marooned in Lakhani’s company’s account.
“Oil trading remains secretive in far too many countries, which creates space for potential controversies such as this one,” said Alexandra Gillies, an adviser at the Natural Resource Governance Institute. “The trading companies and the governments involved have a responsibility to be more transparent and follow due process.”
The Kurdish Ministry of Natural Resources said in a statement that it agreed to use IMMS’s account in 2017 because it had “no other viable options.” Lakhani’s company was “only a service provider and is only paid fees by the KRG according to its contract.”
A spokesman for Lakhani said that all banking transactions carried out by IMMS on behalf of the Kurdish government were instructed, approved and countersigned by the Kurdish Ministry of Natural Resources. “These operations were always done in full compliance with local laws and regulations and with full transparency between all parties,” the spokesman said.
For the trading companies that dealt with him, Lakhani is an awkward counterpoint to the recent trend of publicly disavowing the use of middlemen, or “agents.” In private, the traders argue that Lakhani wasn’t their man: he was the agent of the Kurds, and they paid through him because the Kurdish authorities instructed them to do so. The size of the deals suggests they had few qualms. In just one three-month period last year, Vitol, Trafigura and smaller trading house Petraco Oil Group paid a combined total of more than $1 billion into the account of Lakhani’s company, according to data disclosed in the lawsuit.
Trafigura and Petraco declined to comment, while Vitol said it had stringent controls to ensure compliance with all laws and regulations.
For Lakhani, playing middleman for the Kurdish government reprised a role he’d perfected over his career.
The 58-year-old businessman has been working in hot spots of the oil trading world for decades. Known for his wide network of contacts, he is equally at home in the discreet world of Swiss finance as the oil fields of Iraq.
Asked a few years ago to describe his role in the oil industry, he told the Financial Times: “I get my hands dirty.” (Lakhani’s spokesman said that he had meant he was “prepared to work hard in a ‘hands on’ manner, often in a small team.”) Despite his role at the heart of some of the world’s hottest oil deals, however, he eschews the limelight, only occasionally speaking in public and rarely allowing himself to be photographed.
Born in Karachi in 1962 but raised in England and Canada, Lakhani began his career in commodities helping with his family business trading rice, cotton and wheat. On an old personal web page, he said that in the 1980s he “moved his focus to oil trading, concentrating on some of the most challenging markets in the world.”
Soon, that meant Iraq under Saddam Hussein, working as an agent for Glencore Plc, the world’s largest commodity trader. Describing himself as Glencore’s “man in Baghdad,” Lakhani received a monthly fee of $5,000 to help the company buy Iraqi crude.
At the time, Iraq could only sell its crude via a system known as the oil-for-food program, administered by the United Nations. But with demand for oil booming, Saddam found a loophole in the early 2000s, asking traders to pay a surcharge to his government outside the UN system.
A later investigation into the oil-for-food program found that Lakhani paid just over $1 million in surcharges for crude that was ultimately bought by Glencore, despite UN staff issuing warnings to traders that paying the surcharges was illegal. Lakhani himself provided UN investigators receipts for cash he’d received from Glencore –- as much as $415,000 on one occasion –- which he then transported across Switzerland before delivering it to the Iraqi diplomatic mission in Geneva.
“Mr. Lakhani was asked to attend interviews with the U.S. government to assist it with its investigation, and voluntarily provided his assistance,” Lakhani’s spokesman said. “Since 2006, Mr. Lakhani has had no further involvement with this matter.” Glencore declined to comment.
Neither Lakhani nor Glencore was ever charged with any wrongdoing in the oil-for-food affair.
More recently, he expanded his oil trading business, recruiting grandees to the boards of his various companies including Simon Murray, the former Glencore chairman, and Charles Guthrie, who’d been the most senior general in the British army.
One of his latest ventures has involved another difficult oil producer: Venezuela. For several months in 2019 and 2020, Lakhani’s company helped to ship Venezuelan crude through an obscure route — his tankers picked up the oil half way through its voyage, via a ship-to-ship transfer off the west coast of Africa. After Washington slapped sanctions on Rosneft Trading SA, one of the major shippers of Venezuelan oil, one of Lakhani’s companies, Mercantile & Maritime, said it planned to end the business linked to the country.
Lakhani’s spokesman said the Venezuelan deals were fully compliant with international law.
Then there was Kurdistan.
Lakhani had been doing business in northern Iraq for years, but his moment came in 2014, when, with the jihadist group Islamic State expanding its reach into Iraq, Kurdish fighters took over the key oil city of Kirkuk. With access to more crude, the Kurds’ long-cherished dreams of independence seemed closer. But first they needed to find buyers for their oil. And that wasn’t easy as the central government in Baghdad, which until then largely controlled all sales, threatened legal action.
Lakhani stepped in. According to his spokesman, IMMS began working with the regional government of Kurdistan in 2014, “assisting in the exporting of crude oil from the Kurdistan region through logistics, shipping and port management services.” At the time, only a handful of oil trading houses were willing to touch the oil, including Vitol, Trafigura and Petraco. “He knew exactly who would and who wouldn’t deal with us,” Kurdish Natural Resources Minister Ashti Hawrami told Reuters in 2015.
Soon the riches of Kurdistan attracted Rosneft, led by Igor Sechin, a close ally of President Vladimir Putin. In February 2017, Rosneft announced its first deal to buy Kurdish oil and in June the two sides signed an even bigger deal. Perhaps symbolically, the scions of Kurdistan’s two most important clans –- the Barzani and Talabani families –- presided over the signature of the contract. As Sechin and Hawrami inked the agreeement, smiling behind them stood Nechirvan Barzani and Qubad Talabani, who today are the region’s president and deputy prime minister, respectively. Asked whether the deal would raise eyebrows, Barzani replied: “I hope so.”
The arrival of Rosneft and its money was also a turning point for Lakhani. Just as the Russian company was readying its first payments, the Kurdish government was facing growing difficulties. Until mid-2017, the KRG had received oil revenues via a bank in Erbil that had a relationship with Commerzbank AG in Germany, and via Halkbank in Turkey. But then the U.S. started investigating Halkbank for helping to evade sanctions against Iran, freezing $200 million of the Kurdish government’s money. The Commerzbank route “was no longer viable” due to concerns about Iraq’s banking sector, according to the Kurdish Ministry of Natural Resources.
The Kurds turned, once again, to Lakhani. The businessman hit upon BankMed of Lebanon after an introduction from one of the Lebanese bank’s shareholders, according to an IMMS affidavit. The bank was well connected: it was partly owned by the country’s then prime minister, Saad Hariri, and his family. A spokesperson for Hariri denied that he or any other shareholder had introduced IMMS to BankMed.
By August 2017, IMMS had opened an account at BankMed. A month later, the emails between the company and the bank showed a growing urgency. “i know u already discussed with ML abt a sub account for IMMS,” wrote a top employee of IMMS in an email on Sep. 27, in an apparent reference to Lakhani. “What do u need to open it asap,” the employee asked, “as i will probably expecting funds soon!”
“In 2017, with no other viable options, and the KRG facing growing cash-flow problems, it agreed with IMMS (which had an account with BankMed in Lebanon), to ask BankMed to open a sub-account,” the Kurdish ministry said. “The arrangement with IMMS and BankMed was seen by the KRG as a necessary but temporary measure until other sustainable banking options became viable to the KRG.”
And so the money started to flow. A SWIFT message, disclosed in the U.S. court case, memorializes the $800 million payment on 13 December 2017 from Rosneft Trading’s account at Gazprombank JSC in Zurich to be paid, via Citibank in New York, to the IMMS BankMed account. The message notes that the money is an advance payment under “THE CRUDE OIL PURCHASE AND SALE CNTR REF 2016/KRG RN001” and reassures the banks involved that it’s fully compliant with sanctions. Two days later, IMMS placed $725 million into separate short-term deposit accounts at BankMed.
Lakhani’s spokesman said that the $800 million received from Rosneft in December 2017 and the $725 million in deposits made two days later were “not related in anyway” and that “any suggestion of a conflict of interest is unfounded and without merit.”
Rosneft said that its payments to IMMS’s account were “absolutely transparent and fully in line with local regulation,” and added that they had been approved and signed off by the Kurdish Ministry of Natural Resources. Gazprombank confirmed the December 2017 transaction, adding that it “strictly adheres to the rule of law in all jurisdictions in which it operates.”
Over time, the flow of money into the IMMS account grew and grew. Between December 2017 to the end of 2019, IMMS carried out more than $6 billion in banking transactions via BankMed, not only directly, but also via the accounts the Lebanese bank kept in New York with correspondent banks Citibank, JPMorgan Chase & Co., Bank of New York Mellon Corp. and Standard Chartered Plc. The banks declined to comment.
By November the following year, IMMS agreed to place $1 billion into a three-year term deposit with BankMed. The interest rate would be 10% — or $100 million a year – to be paid into a separate account.
Things started to go wrong when a banking crisis struck Lebanon late last year. As money ran short throughout the Lebanese financial system, IMMS tried to withdraw the $1 billion – but BankMed blocked it. Lakhani’s company started legal proceedings against BankMed, and soon after, the bank ended its business relationship with him, canceling several accounts.
When Lakhani tried to recover his money by suing BankMed, he opened a window on his role in Kurdistan.
The legal papers show how Lakhani’s business stretched through the global oil industry. According to a ledger that covers the period between March and May 2019, just over $2.8 billion flowed into the account at BankMed. The largest single named source of funds during that period is Vitol, through its wholly-owned subsidiary Arkham – which in three months paid $443 million into the IMMS account, according to Bloomberg calculations based on court filings.
Other traders were not far behind: Edgewater Falls, a company rivals say is connected to Petraco, paid $436 million; Trafigura paid $331 million; and Rosneft paid $182 million. On the other side, IMMS was paying the expenses of the Kurdish government. The accounts detail wire transfers to oil companies pumping crude in the region, including DNO ASA and Genel Energy Plc. IMMS also transferred money directly to the Kurdish finance ministry – some $765 million over the three months. The traders, Lakhani, and the Kurdish ministry all declined to comment on the details of the transactions. Genel said that all sources of payments due to it from the Kurdish government were subject to its due diligence; DNO did not respond to a request for comment.
On paper, the funds that got blocked appeared to be Lakhani’s own money, deposited in accounts belonging to IMMS. Still, as soon as the money was frozen, the Kurdish government ran into a financial crisis, unable to meet payments. According to an audit by Deloitte of Kurdistan’s oil revenues, the country had about $318 million locked in an account in Lebanon at the end of 2019.
It’s clear that IMMS was handling money on behalf of the Kurdish government. The court filings include payment orders to BankMed signed by Hawrami; and both Lakhani’s spokesman and the Ministry of Natural Resources said that each payment on behalf of the KRG was authorized by the ministry.
It’s less obvious from the legal filings where the Kurds’ money ends and Lakhani’s own money begins, how lucrative the business of handling the billions of dollars for Kurdish oil was, and who benefited from any profits.
IMMS was one of several companies owned by Lakhani to hold accounts at BankMed — others included Oil & Gas Management Services Group Limited, a British Virgin Islands-registered entity, and Mercantile and Maritime Energy Pte Ltd. of Singapore. And thanks to the $1 billion that IMMS deposited at BankMed, Lakhani was granted as much as $800 million in lines of credit to carry out other activities.
Lakhani’s spokesman said that the Kurdish government’s money “was not part of the $1 billion.”
“Legal and accounting safeguards were in place to ensure separation between IMMS’s funds and the KRG’s funds,” the spokesman said.
The Kurdish ministry said that “to our knowledge,” the sub-account into which its oil revenues were paid was a current account which did not accrue interest.
In early April, the lawsuit between Lakhani’s company and its Lebanese bank was settled out of court –- with the two sides “amicably resolving their disputes and dismissing all legal proceedings between them,” according to a statement. The settlement did not involve the withdrawal of any deposits or the transfer of any funds outside Lebanon, the statement added. Yet the fallout is still being felt in Kurdistan, which has yet to pay a significant chunk of the bills that were due to oil companies pumping crude in the region between November 2019 and February 2020.
The Kurdish Ministry of Natural Resources told Bloomberg that “some $250m of the KRG’s money remains stuck in the BankMed sub-account.” This money was due to be paid to oil companies pumping crude in the region between November 2019 and February 2020. The plunge in oil prices exacerbated the problem.
Lakhani’s spokesman said it would be “wholly untrue” to suggest that IMMS’s actions led to Kurdistan’s financial crisis.
Regardless, the legal battle appears to have dented Lakhani’s influence in Kurdistan. The Kurdish government in early 2020 opened an account at Citibank through which it is processing “most of its oil revenues from the buyers”, according to the Ministry of Natural Resources. However, it added: “Even now IMMS services are still needed to facilitate some of the transfers.”