WASHINGTON – Israel Aerospace Industries, Israel’s largest aerospace and aviation manufacturer, transferred at least $155 million to two companies whose name have been associated with large-scale money laundering for the Azerbaijani government, according to leaked bank reports for the period between 2012 and 2014. The reason for the payments by state-owned IAI remains unclear.
The story came to light as part of a leak of thousands of banking documents that ultimately ended up in the hands of the International Consortium of Investigative Journalists.
LISTEN: How COVID killed Bibi’s legacy and resurrected his archrival
The investigation reveals that the money transfers began shortly after IAI signed a $1.6 billion arms deal, one of the largest in its history, with Azerbaijan. Nevertheless, a source familiar with the details of the deal said that as far as he knows the amount didn’t include payments to any intermediary.
IAI offered the following laconic response: “Israel Aerospace Industries is a government company that operates in strict compliance with the provisions of the law. As a defense company, and in keeping with company policy, it doesn’t address or respond to information about its business activities other than as required by law.”
The payments appear in more than a dozen Suspicious Activity Reports, or SARs, compiled by Deutsche Bank officials and submitted to the Financial Crimes Enforcement Network, or FinCEN, the U.S. Treasury Department entity responsible for combatting illegal financial activity, including money laundering and funding for terrorism. The reports, along with thousands of others from banks worldwide, were leaked originally to BuzzFeed News and then passed on to the ICIJ, which shared them with 108 media outlets and some 400 journalists around the world, including Shomrim.
It’s important to stress, of course, that the submission to FinCEN of a SAR doesn’t mean that the individual or company mentioned in the document has done anything illegal. The transactions could be part of totally legitimate business activities that were carried out in a way that aroused the suspicion of the financial institution that reported them.
- Failed U.S. expansion behind resignation of Israel Aerospace Industries' CEO
- Inside the shadowy world of Israeli arms dealers
- Israeli arms exports up 77 percent, Saudi Arabia is world's biggest importer, report shows
The list of entities and banks mentioned in the Deutsche Bank reports concerning IAI is long and includes Israeli and foreign banks, through which payments were made from customers such as Alitalia, Indian Aerospace Industries, RwandAir, Ethiopian Airlines, Russia’s Rossiya Airlines, the Kenya Police and others. The reports also include a long list of entities to which the IAI itself transferred monies, such as the Defense Ministry, aeronautical companies around the world and so forth. Sticking out like sore thumbs among the recipients of these payments are two companies – Jetfield Networks and Larkstone – that don’t seem to match the profile of the Israeli company’s other suppliers.
Founded in New Zealand in 2009, Jetfield moved its operations to the Marshall Islands some three years later. There, according to bank documents obtained by Italian newspaper L’Espresso, the “legitimate heir” of the company branched out into the field of consulting services. Before then, according to the same documents, the company had reported to the banks that it was engaged in commerce, including buying and selling construction equipment. The company’s beneficiary is a man by the name of Javid Huseynov, an Azerbaijani born in 1961. Huseynov is also the beneficiary of Larkstone, a company that operates out of Estonia.
Jetfield’s relocation to the Marshall Islands became official in early February 2012, about the same time that Israeli and international media reported the signing of the huge contract between IAI and the Azerbaijani government – the product of a close and multifaceted relationship between Israel and Azerbaijan that remains, for the most part, hidden from public view. Israel buys oil from Azerbaijan, and the Azerbaijanis purchase arms and agricultural equipment from Israel. The Israeli government, according to foreign media reports, attaches great strategic importance to Azerbaijan due to its long border with Iran. The human rights violations that occur in Azerbaijan have not constituted an obstacle to ties.
In its latest report, U.S.-based organization Freedom House, an independent watchdog that ranks countries by their standards of democracy and human rights, notes that “power in Azerbaijan’s authoritarian regime remains heavily concentrated in the hands of Ilham Aliyev, who has served as president since 2003, and his extended family. Corruption is rampant, and the formal political opposition has been weakened by years of persecution. The authorities have carried out an extensive crackdown on civil liberties in recent years, leaving little room for independent expression or activism.”
An embargo on the sale of weapons to Azerbaijan, imposed in February 1992 by the Organization for Security and Co-operation in Europe, has also not deterred Israel from doing business with Azerbaijan.
Negotiations over the deal between IAI and Azerbaijan began some two years before the contract was announced, and talks with various IAI sources reveal that very few company officials were in the know. Deliveries began about two years after the deal was signed and continued for at least five years. According to Israeli and international media reports, the deal included the sale of drones and missile-defense systems. For the Azerbaijanis, it was a deal of extraordinary proportions, amounting to more than half the country’s overall annual defense budget of $3.2 billion.
For IAI, too, the deal was almost unprecedented in size, the result of what one of the sources interviewed for this report defined as “a honeymoon” with the Shiite republic that began somewhere around 2007.
‘No clear commercial purpose’
“This report is submitted,” begins one of the documents sent by Deutsche Bank to the U.S. authorities, “because Israel Aerospace Industries is involved in the production of arms, which is a high-risk industry [in terms of money laundering].” The report then goes on to include information on several large money transfers, in round amounts, that were made “without a clear commercial purpose.” According to Deutsche Bank, IAI said the payments were for “management and consulting services” provided by the two companies.
The payments to Jetfield began in June 2012, just months after the deal with Azerbaijan was signed, with a transfer of close to $30 million, followed by an additional $6 million in October and repeated transfers in the months that followed. An analysis of Deutsche Bank’s reports to FinCEN shows that by 2014 more than $116 million had been transferred to Jetfield, with Larkstone receiving around $39 million in the same period. In one instance, according to the bank reports, IAI transferred about $8 million to Jetfield for the purchase of helicopter rotor blades. “Deutsche Bank wasn’t able to independently confirm the purpose of the transfer of funds,” the report notes.
The money transfers to Jetfield and Larkstone raise questions primarily due to information about the two companies that emerged in the following years. Bank documents, which were leaked in 2017 and served as the basis for a series of investigative reports published by the Organized Crime and Corruption Reporting Project called “The Azerbaijani Laundromat,” revealed that 2.5 billion euros ($2.96 billion at current exchange rates) had been channeled through companies with very close ties to the Azerbaijani regime to four companies registered in Britain, through which the money was then allegedly laundered. Jetfield, according to the OCCRP investigation, was one of the companies through which some of the money ($109 million) was channeled. Larkstone was part of the system, too.
According to the documents leaked in 2017, the money, which flowed out of Azerbaijan between 2012 and 2014, was used, among other things, to purchase luxury goods for government officials in Azerbaijan, but also allegedly for bribes. More than 2 million euros that left Azerbaijan, with a portion going through Jetfield, for example, ended up in 2012 in the bank account of Italian politician Luca Volontè, Rome’s representative to the Parliamentary Assembly of the Council of Europe, a European Union body that keeps track of human rights violations and threats to democratic institutions. The Italian police believe that, in return for the payment, Volontè undertook to soften European Council reports on Azerbaijan. The investigation, which was launched as far back as 2015, is ongoing.
The questions only get bigger in light of material uncovered in a worldwide investigation underway into the Estonian branch of Danske Bank of Denmark, which allegedly served as a conduit for money laundering to the tune of some $200 billion. Both Jetfield and Larkstone managed accounts at the bank, and internal bank correspondence uncovered during the investigation touches on the companies’ ties with IAI.
In one internal email, Oksana Lindmets, a Danske Bank employee and suspect in the affair, provided details about a meeting with representatives of Jetfield in Baku in January 2012. The company, she writes, is part of an array of firms, including Larkstone, that are engaged in “marketing, research, legal, financial and tax consulting, and also the finding of partners.” Its principal customers, Lindmets adds, “are international companies that wish to offer their services and other goods to various government ministries in Azerbaijan (Defense, Communications, etc.).”
Lindmets noted in her email (sent in June 2012, a few months after IAI signed its deal with Azerbaijan) that Jetfield had already signed contracts with IAI. The email explicitly stated that Jetfield wasn’t involved in the buying or selling of equipment, and that it would be providing consulting and office management services for IAI, locating local partners and so forth. Jetfield, according to the email, would receive a brokerage fee amounting 9.9% of the value of the deals.
Another email, dealing with Larkstone this time, was sent in February 2013 and concerned the transfer of $11.5 million from IAI to the company. This contract was unusual, Lindmets wrote, as it didn’t deal with consulting services. According to the email, Larkstone had been contracted by IAI to purchase trucks and a generator to be transferred to Azerbaijan. A third email noted that Larkstone might be involved in the construction of a training base in Azerbaijan on behalf of IAI.
IAI business deals require the approval of the company’s board of directors, as well as that of SIBAT, the Israeli Defense Ministry’s International Defense Cooperation Directorate. According to former IAI officials, regulations regarding the payment of commission fees are very stringent, and the same goes for the due diligence that companies that work with IAI undergo. These regulations, a former senior IAI official, have been even more strictly adhered to since Israel joined the Organization for Economic Cooperation and Development more than a decade ago. In any event, none of the people with whom we spoke were familiar with the names Jetfield, Larkstone or Huseynov.
This report has been written with the assistance of Shomrim, the Center for Media and Democracy.