“Sham” Trusts

Written By: on CORPORATE INVESTIGATIONS, FORENSIC ACCOUNTING NEWS

Key Points.

  • If a trust is found to be a sham, asset protection may be lost
  • A forensic accountant can assist you with global asset tracing exercises and investigations into complicated company and/or trust structures

In a recent case, five trusts set up by a former Russian banker were found to be a sham.

The background to this matter goes back to 2008, when Sergei Viktorovich Pugachev, a Russian Oligarch and founder of MezhProm Bank held assets including a Red Square property, a shipyard, the largest coking coal mine in the world and more, with an estimated worth of USD$15bn. However following the 2008 global financial crisis MezhProm lost its banking license and he lost a significant part of his wealth.

He fled Russia in 2011 but retained an interest in significant assets.

The creditors of Mezhprom successfully obtained a worldwide freezing injunction in 2014 and focused their attention on assets in five New Zealand trusts which were set up by Mr Pugachev in December 2011, and between July and November 2013, believed to be collectively worth approximately USD100 million.

In the High Court Judgment, Birss J concluded:-

…all the assets in these trusts as belonging to him and intended to retain ultimate control. The point of the trusts was not to cede control of his assets to someone else, it was to hide his control of them. In other words Mr Pugachev intended to use the trusts as a pretence to mislead other people, by creating the appearance that the property did not belong to him when really it did…” [424] and


…Mr Pugachev of his beneficial ownership of the trust assets, then they are shams and should not be given effect to.”

How can JLA assist?


JLA is experienced in global asset tracing, from bank and securities, to ownership and directorship of public and private companies, and to investment trusts through research and statements analysis. We can perform investigation into complicated company or trust structures, business valuations using various valuation methodologies, and quantify the impact to financial statements if fraud is identified.

Directors of JLA are also regularly appointed as trustees of estates of liquidations of wind-up companies.

The full judgement can be downloaded here:
http://www.bailii.org/ew/cases/EWHC/Ch/2017/2426.html