UK Fintech Borrowed from Tycoon-Backed Firm With ‘Concerning Ties’ to Russia

by James · May 11, 2023

(Bloomberg) — When Mikhail Nadel, a banker once accused of looting Kyrgyzstan’s biggest lender, wanted help getting his British payments going, he turned to a tycoon with alleged ties to Russian intelligence and organized crime .

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Dzing Finance, the fintech managed by Nadel, borrowed €5.3 million ($5.8 million) in 2021 from an entity backed by the family of Oleg Boyko to fuel its growth. The loan deal came months after the Senate Intelligence Committee said Boyko had “concerning ties” to the Russian state and crime. Canada and Australia sanctioned him last year after Moscow’s invasion of Ukraine, citing his alleged ties to the Kremlin.

Both Nadel and Boyko have consistently denied any wrongdoing. Dzing has not been accused of any impropriety. And while the loan is outstanding, Boyko’s family has left the company behind over the past year.

Still, the coming together of the two businessmen highlights the kind of challenges emerging in Britain’s electronic money and payment institutions that move more than £1 billion ($1.3 billion) a day. The Financial Conduct Authority, which has issued licenses to hundreds of lightly regulated payments firms, including London-based Dzing, said in March it intended to take “more assertive action” soon against problematic players, without specifying any in particular.

An FCA spokesman declined to comment. Nadel confirmed the loan in a LinkedIn message to Bloomberg News. Larisa Shishkina, a spokeswoman for Finstar Financial Group — the private equity firm Boyko co-founded and chairs — denied his or his family’s personal involvement in providing the loan.

Dzing, which bills itself as a “fast-growing neobank”, is one of a number of UK firms offering payment services such as transaction processing, prepaid cards, overseas money transfers and digital wallets. They describe themselves as alternatives to old-fashioned banks, but critics including Transparency International say some of them open a door to dirty money.

Many of them lack proper controls, while some pose an “unacceptable risk” to customers and have “high fraud rates”, the FCA wrote on March 16 in a so-called Dear CEO letter to the heads of payment institutions. Cracking down on fraud in the sector is a key priority for the regulator, according to the financial crime plan unveiled by the government that month.

Read more: London Payments Firm Moves $1B a Month Despite Red Flags

Investors and managers at electronic money institutions must pass a “fit and proper” test, according to the FCA’s industry rulebook. Still, Transparency International UK, the British arm of the global anti-corruption group, sounded the alarm in a 2021 report, saying more than a third of EMIs licensed by the regulator have red flags linked to their activities, owners or directors.

“Our research has raised questions about the quality of checks on those behind companies in this area,” said Ben Cowdock, head of research at Transparency International UK.

Long before he helped found Dzing in 2018, Nadel was chairman and controlling shareholder of AsiaUniversalBank, or AUB, Kyrgyzstan’s largest lender. Global Witness and the International Monetary Fund are among bodies that have alleged that AUB was involved in widespread crime, including money laundering, under the regime of then-President Kurmanbek Bakiyev.

A 2010 uprising brought down Bakiyev’s administration and the authorities seized AUB. Nadel was convicted in absentia of fraud and money laundering, but he has denied any wrongdoing and has said the charges were politically motivated.

Boyko, meanwhile, built a fortune across banking, gambling and commodities, much of it amassed since the 1990s through Finstar.

Nadel’s and Boyko’s paths cross through Dzing, which won an FCA license in 2019. While Nadel oversees operations, the latest UK filings show Tatjana Orlova, the ex-wife of seafood magnate Vitaly Orlov, as the controlling shareholder.

The company’s website states that “The world needs some DZING!” It invested £5.5m in product development in 2020 and 2021, with plans to have plowed in a further £7.1m by the end of this year, Dzing’s UK accounts show.

That spending has been supported by 5.3 million euros of short-term “convertible loans” – debt that can be exchanged for shares – owed to an unidentified creditor of Dzing’s parent company, according to its latest accounts. This is Tirona Ltd., according to Nadel and Finstar spokeswoman Shishkina. It is a Cypriot company historically controlled by Boyko and his family.

Dzing received the loan before the February 2022 invasion of Ukraine and subsequent Western sanctions, but not long after the US Senate Intelligence Committee publicly accused Boyko of wrongdoing. The panel investigated an American businessman as part of a larger investigation into alleged election interference by the Kremlin, and released a 966-page report in August 2020 outlining his relationships with several “oligarchs” including Boyko.

“Boyko has significant ties to the Russian government, to Russian intelligence and security services, and to organized crime,” the report said. In a heavily redacted section, the committee also cited press reports that Boyko had been involved in a “Kremlin-backed foreign election influence operation” in Moldova.

Regime employees

The war in Ukraine prompted Canada and Australia to sanction Boyko last April, and Ottawa placed him on a list of people described as “close associates of the Russian regime”. Shishkina, the spokeswoman for Boyko’s PE firm, said it was conducting the “necessary legal work” to have the restrictions lifted.

The UK, the EU and the US have not sanctioned Boyko. In a statement on the company’s website last year, the tycoon said his heart was broken by the conflict in Ukraine. Citing his family’s roots in the country, he said he is concerned for the safety of all Ukrainians and called for an end to the war.

Still, after the sanctions, Boyko’s relatives have divested their stake in Tirona and the family no longer holds any shares, according to Guy Middleton, a spokesman for Riga, Latvia-based 4finance SA, a consumer lender owned by Tirona. Shishkina said Boyko is no longer interested in European assets and is instead focusing on Southeast Asia.

Tirona’s shareholders are now considering what to do with the investments, including the loan to Dzing, Middleton said.

“It is important that the FCA pays close and ongoing attention to those who control firms that provide payment services,” said Cowdock of Transparency International UK, commenting broadly on the need for tighter industry controls. “A failure to do so opens the door to suspicious wealth, which could put the UK financial system at risk.”

–With assistance from Aaron Eglitis and Irina Reznik.