It has offices in a sleek Manhattan skyscraper. Its bonds are accessible to millions of American investors. And it holds ties to some of New York’s biggest banks.
Despite this presence on Wall Street, detailed in previously unreported financial records, Vnesheconombank (VEB) is no normal bank. It is wholly owned by the Russian state. It is intertwined with Russian intelligence. And the Russian prime minister is, by law, the chairman of its supervisory board.
Now VEB is at the center of an international firestorm that threatens to consume the Trump presidency, because the bank’s chief—a prominent graduate of Russia’s spy school—met with Jared Kushner, President Donald J. Trump’s son-in-law, during the presidential transition.
That meeting is the focus of a federal counterintelligence investigation about possible collusion between the Trump campaign and the Russian government.
Three years ago, in response to Moscow’s military intervention in Ukraine, the Obama administration imposed sanctions on VEB that have effectively kept it from taking on most new business in the US.
Since then, however, VEB has quietly kept up appearances on Wall Street in the event that sanctions would be lifted, according to interviews with American bankers and former government officials.
That moment appeared to be nearing with Trump’s victory. And so the bank’s chief, Sergey N. Gorkov, traveled to New York in December for what he described as a “roadshow” promoting the bank that was largely hinged on the prospect of improved diplomatic and business relationships between the US and Russia.
During that trip, The New York Times has found, Gorkov met with bankers at JPMorgan Chase, Citigroup and another, unidentified US financial institution.
Goldman Sachs bankers also tried to arrange a meeting but ultimately had a scheduling conflict. The meetings, which are not prohibited by sanctions, were confirmed by three people briefed on the discussions but unauthorized to speak publicly about them.
None of the US banks were new to VEB. Citi and JPMorgan had long, established relationships clearing financial transactions for VEB in the US, activities not affected by the sanctions.
And before the sanctions, securities filings show, Goldman and others had helped the Russian bank issue bonds, activity that was blocked by the sanctions and that VEB was eager to resume.
After a few painful years, continuing Western borrowing had become a pressing priority for Moscow. The Russian Finance Ministry has spent about $10 billion to prop up the bank over the past three years, according to banking analysts.
On that same trip, Gorkov met with Kushner. The nature of the meeting, which remains in dispute, followed a session between Kushner and the Russian ambassador, Sergey I. Kislyak, about opening a communications channel with Russian officials during the presidential transition, according to current and former US officials.
The Federal Bureau of Investigation and congressional investigators are now scrutinizing whether Kushner may have met with Gorkov to help establish a direct line to Russia’s president, Vladimir Putin, or for other reasons not cited by the White House.
The White House and VEB have issued contradictory statements about the purpose of the Gorkov meeting.
The White House has said that Kislyak requested the meeting and that “Mr. Kushner was acting in his capacity as a transition official”. But VEB said Gorkov had met with Kushner, who was still running his family’s real-estate company, to discuss business.
The statement said VEB’s management had met with “a number of representatives of the largest banks and business circles of the US”, a claim supported by the Times’s reporting about Gorkov’s meetings with banks in New York.
VEB has not disclosed specifics of the conversation with Kushner, which is of keen interest to investigators. Kushner’s hunt for overseas investors for his company’s financially troubled Manhattan office tower on Fifth Avenue has been documented by The Times. While such an investment would not fit the profile of VEB’s past lending, it would have been possible for Gorkov to relay such information to other Russian banks. It is not known, however, whether the subject was raised in the meeting.
The subject of sanctions was also freshly topical in December. The rolling back of sanctions was an essential part of Gorkov’s strategy in visiting New York, and was central to the health of his bank.
The next month, during Trump’s first week in office, administration officials signaled they were considering lifting the sanctions that stemmed from the conflict in Ukraine.
Separately, Michael T. Flynn, the former national security adviser, had several phone conversations late last year with Kislyak, the Russian ambassador.
In one, the two men discussed additional sanctions imposed by the Obama administration in response to the Russian government’s efforts to disrupt the 2016 presidential election.
The meeting with Kushner was not VEB’s only connection to Trump’s campaign or associates.
A banker who pleaded guilty last year to spying for Russia out of VEB’s office in New York was part of an unsuccessful Russian scheme to recruit Carter Page, an American businessman who later became a Trump campaign adviser, as a spy.
VEB also obtained shares in a Ukrainian steel smelter when it was sold by a business partner of Trump’s who built a Trump hotel in Toronto, according to previously undisclosed documents from the vast leak known as the Panama Papers. The VEB involvement in the smelter deal was first reported by The Wall Street Journal.
These interactions have stirred concerns over whether the bank, which few Americans have heard of despite its ties to Wall Street and big companies like Boeing, has been spreading Russian influence along with its financial footprint.
A representative for the bank would not comment.
‘This is not a bank’
VEB and Putin are inextricably linked. The bank stepped up lending after 2008 when Putin, then prime minister, became chairman of the board. And during the oil boom, VEB was seen as embodying Russia’s new financial might.
Under a 2007 law, VEB’s mandate was to lend to important but underfinanced sectors of the Russian economy, including infrastructure and businesses that help diversify the economy beyond oil dependence.
There are other government-controlled banks in Russia, Sberbank and VTB, but they are primarily retail banks. VEB serves a very different role, lending mostly to large borrowers, many of them politically connected.
To that end, VEB over the past decade has lent freely in ways that dovetail with government priorities and make it a tool of Russian soft power. The purse strings opened for two influential groups in particular: oligarchs building Olympic sites in Sochi and companies in Russian-speaking eastern Ukraine.
“This is not a bank,” said Karen Vartapetov, a public finance analyst at Standard and Poor’s. “We should rather treat this bank as a government agency. It is used by the government as a tool to invest in politically and socially important, but not always financially viable, projects.”
VEB’s role as a projector of state influence was on display in 2010 with a deal that potentially affected a Trump hotel in Toronto.
At the time, Alex Shnaider, a Russian-Canadian businessman developing the hotel, was looking to sell a steel plant in Ukraine. His Midland Resources Holding Ltd., which owned the Zaporizhstal steel factory, sold at least half its stake to a collection of five offshore companies that received funding from VEB, according to documents in the trove of files from the law firm Mossack Fonseca that were obtained by the International Consortium of Investigative Journalists.
The documents show that one year after acquiring the Zaporizhstal stake, the five companies—based in Cyprus and the British Virgin Islands—transferred it to Russian control.
In each case, the companies’ shares were “charged in favor of” VEB, meaning the bank effectively took ownership of them in exchange for financing the steel-plant acquisition.
Court papers in Canada show that Shnaider’s deal to sell the steel plant coincided with his need to cover cost overruns in the Trump deal. His lawyer initially told The Wall Street Journal last month that about $15 million from the Ukraine sale went into the $500 million Toronto project, but he later backtracked.
Nothing in the Panama Papers linked VEB’s financing to the Trump project, which Trump did not own. Rather, the deal underscored VEB’s strategy to venture into Ukraine at the behest of the Russian government.
More broadly, the bank’s plan had been to tap capital markets in New York to help finance the Ukraine lending, but the plan collapsed with the imposition of sanctions in 2014.
The bank today, not unlike Putin’s government, expanded its sway abroad in a way that appears unsustainable. Weighed down by sanctions and the oil price collapse, the Russian economy has slipped to 12th in the world, below South Korea’s, according to a World Bank ranking.
At the time sanctions were imposed, the bank’s total debt ran about $20 billion. It has since been reduced to $17 billion, according to financial disclosures at the end of last year. But the Ukraine lending in particular is affecting the balance sheet, with outstanding Ukraine debt totaling $14.2 billion at the current exchange rate, banking analysts say.
Last week the Russian business newspaper Vedomosti reported that about 40 percent of VEB’s loans were at risk of default.
Gorkov, who previously worked at the Yukos oil company and was a senior executive at Sberbank, became director of VEB in February 2016, partly with a mandate to find market solutions to the bank’s financial woes.
For Gorkov, fixing VEB would require a new focus, and that, according to the bank’s statement, became the reason for a meeting with Kushner.
The two met as Gorkov traveled to gather ideas for a new strategy for the bank, published a month after the meeting with Kushner in a document called “Strategy 2021”. It called for shifting some risks directly to the Russian budget, selling assets not considered central to the bank and trying to resume borrowing in places like the US.
The document suggested that the bank was expecting some relief from sanctions. “The forecasts for the term of the strategy predict certain decrease of geopolitical risks and gradual weakening of the restricted access to global capital markets,” it said.