5. May 2016 / ADAM VALČEK,TOM NICHOLSON,MARTINA RAÁBOVÁ
Daniel Futej earned €195 million from the Dôvera private insurer, but he is not among the richest Slovaks, and may have been overseeing the shares for Juraj Široký.
The one-time co-owner of the Dôvera private health insurer, Bratislava-based lawyer Daniel Futej, planned to use the profits from the health insurer in 2012 for construction in the Bahamas, according to the Panama Papers, documents leaked from the Panama-based Mossack Fonseca law firm.
The Sme daily analysed the documents in cooperation with the Czech Centre for Investigative Journalism. The money that Futej intended to use in the Bahamas came from a complicated and unusual accounting operation when the Dôvera and Apollo private health insurers were merged in 2009. The profits that Futej intended to invest in the Caribbean come from a health insurer that runs a business with public resources. The timing of Futej’s intentions to invest in the Caribbean, coincide with Slovak oligarch Juraj Široký's plans to build a villa in the Bahamas, which would support the long held speculation dating back six years that Futej owned 50 precent of Dôvera’s shares on behalf of Široký. Futej denies such claims and says that he “never sold or rented any real estate to” Široký in the Bahamas.
Dôvera is currently controlled by the Penta financial group, which last year bought Futej’s shares. Penta denied that Široký was involved with the insurer in the past. They also insist that the operation that earned Futej €195 million, and a similar account to Penta, was legal.
Why did Futej agree with Penta to create a €400-million “fictitious” profit? What is he doing with the money he earned from Dôvera? And how did Široký finance the construction of his villa in the Caribbean?
Futej’s land in Bahamas?
Futej owned a share in the Dôvera insurer through a Cyprus-based shell company Prefto Holdings Limited.
In 2012, Dôvera sent the dividends amounting to €25 million to the account of Prefto.
At that time, Futej had already been dealing with the potential construction in the Bahamas for several weeks. On June 12, he gave an assignment to lawyers from Mossack Fonseca through Jiří Myslivec from the Waberia Consulting company.
The correspondence is not clear about how exactly Futej wanted to invest in the real estate. Myslivec in a message from June 13 admits that he does not have enough information, and writes that he keeps receiving more details about the project from his client. The messages therefore include partial information and unanswered questions.
For instance in the June 13 message, Myslivec wrote to Mossack Fonseca that “the client took steps to purchase land, now he is looking for a structure to finance construction and ownership”.
Further messages do not state clearly whether Futej had already purchased the land or whether he was only planning to do so. Mossack Fonseca staff were confused and repeatedly asked follow up questions.
“If Mr Futej already purchased real estate at Bahamas, and it appears he did, it should have been part of this transaction,” lawyer Lucia E. Broughton who cooperated with Mossack Fonseca on the case, wrote on August 3, 2012. She added it would help if Futej provided copies of documents about the purchase of the land, to make sure everything was alright.
The question about land ownership however remained unanswered in the e-mail communication.
Do they have internet banking?
Despite the confusion Futej decided to use Mossack Fonseca services, which Myslivec confirmed on June 29, 2012, saying that his client was interested in founding a company in the Bahamas and opening an account in a local bank.
Panama-based lawyers at that time founded a clean shell company, Mondrain International, that they subsequently transferred to Futej, who had the certificate of shares issued on his own name.
Myslivec wanted the lawyers in Panama to open a bank account for Mondrain in the local bank.
“Our client wants to use the bank account for payments to local suppliers, craftsmen, developers, and so on,” Myslivec wrote in a message from June 25, 2012. He also asked whether the local banks had internet baking, how secure it was, and how long it takes to transfer money between banks.
Bank: He must come personally
Lawyers from Mossack Fonesca found out that the Canada-based RBC, with a branch in the Bahamas, was wiling to open an account for Mondrain only if the company owner, Futej, came to Nassau in person.
Futej was planning to travel to the island at that time anyway, so he had no problem to stop by the bank. He made an appointment fro August 9, 2012. The following Monday, August 13, Myslivec wrote to Mossack Fonseca that his client reported to him that the meeting was not successful. The RBC refused to open the account without additional information from Futej.
The communication in the Panama Papers only goes until August 16, 2012 and it is not clear whether it also continued after that. It is not clear whether Futej really built a property in the Caribbean.
Futej no, Široký yes
The Sme daily tried to find traces of the transaction directly at the Bahamian offices and in the archives. The local land registry shows that Futej does not own anything there, and never did, and neither did the Mondrain International company that he intended to use for the construction in Bahamas.
The Panama Papers do not make it clear why the lawyer Broughton suggested in August 2012 that Futej might already own real estate on the island.
The land registry however contains several records about the property of oligarch Juraj Široký. In 2012 he bought land in the Old Fort Bay neighbourhood on the New Providence island, where the capital Nassau is located.
The records show Široký purchased the land on November 8, 2012 and paid USD1.3 million for it, plus USD130,000 as taxes and fees. It is not clear whether the villa was already under construction.
Builders knew whom they were building for
One year before Široký became the official owner of the real estate, the local craftsmen knew already who the land was being prepared for.
The website of the Florida-based architectonic studio Olsen Associates there is a reference that was used to design and build the beach in Old Fort Bay for Široký. They did so in 2011.
Sme did not reach Olsen Associates for comment.
Široký’s villa in the Bahamas was also constructed by another Florida-based company, Pro-Air Co. According to the reference on their website, they did the air conditioning for Široký’s villa. The company wrote to Sme that they did the project as assigned by the “owner” of the real estate. They did not specify the owner’s name, saying that all information was confidential.
What do Široký and Futej say?
How is it possible that the construction companies knew one year in advance that they were preparing the villa for Široký although he was not the official owner of the land? Široký’s spokeswoman Michaela Kováčik Grendelová asked. Široký saw no reason to talk about his private life. She repeated the same answer to questions how Široký financed the construction of his villa in 2012 and whether the invoices were paid by Futej.
“As Mr Široký said before, he did not own a share in the Dôvera insurer, and therefore he sees no reason to react to its dividends and other speculation connected with Dôvera or with Mr Futej,” she said when asked whether the money invested in the villa came from the Dôvera dividends.
She also said that Široký had no information about the Mondrain International company .
Futej admitted to his intention to invest in the Caribbean and said that the account was not open in the local banks and that he also did not proceed with the investment, Futej & Partners law firm spokesman Ľuboš Schwarzbacher told Sme.
“No finances went through Mondrain, the company owns no property in the Caribbean, which can also be confirmed from the cadastre,” he said.
He also ruled out any connection between his intention and Široký who in 2012 built a villa in the Bahamas.
“The Mondrain company has no connection with Mr Široký, it never sold or rented any real estate to him,” Schwarzbacher said.
How the money was transferred
In 2014 the Nový Čas daily published information, without citing a source, that Široký’s villa cost USD6 million (€5.2 million). It is not clear from the article which villa, because Široký also owns another house in another neighbourhood apart from the property in Old Fort Bay.
Futej was also ready to invest €5 million for construction on the island, according to the Panama Papers. Futej planned to transfer part of the dividends on the account of his Berison Limited company, based in Belize. He then wanted to lend the money to himself from Berison for “personal purposes”, to build.
Such tactics might be a way to cover the transfer of money to other people. If anyone wanted to inconspicuously pay for the construction of a villa for someone else, they could do it so that they would provide a loan to the person in the background, without ever demanding it back, according to experts.
“In such case the flow of finances would be a textbook example of how the profit can get from formal shareholder to the real owner, that is the person that really enjoys the benefits of the results of the company,” partner at the TaylorWessing law firm Andrej Leontiev explained.
Where was the money taxed?
The Panama Papers, for the first time, reveal that financial flows behind Prefto Holdings Limited, Futej’s company that hasn’t been very transparent until now, probably went through various tax havens. Therefore it is fair to ask where and how Futej taxed the profits from Dôvera.
“Only the properly documented resources were to be used for investing,” Schwarzbacher said on behalf of Futej.
Tax consultant and founding partner of the audit company BMB Leitner, Renáta Bláhová, noted that shell companies cannot enjoy the benefits of the contract on preventing double taxation, when they have no real business activities in Cyprus.
“In such case there are several alternatives how to tax the income flowing through the shell company, for instance the income of the beneficial owner might be perceived as another income that the Slovak Republic can tax ex-post,” Bláhová said. This might concern money, but also property, she added.
How did they “earn” the millions?
The Penta investment group that had owned Dôvera together with Prefto Holdings for six years, has never looked into what Futej was doing with the money.
“He doesn't have information about what we do with our dividends either,” Eduard Maták, a partner at Penta, told Sme last year. “We honour the fundamental rule that it is his own resources.”
From October 16, 2015, Prefto does not appear in the ownership structure of the health insurer. Last year, Penta bought Futej’s share from him.
Money paid from the health insurer to Penta and Prefto are not typical dividends. In fact, it is the balancing of the so-called obligation towards shareholders. This obligation is created through a complicated and rare accounting operation that Prefto and Penta agreed upon when merging Apollo and Dôvera in 2009.
It happened so that the smaller health insurer, Apollo, bought the larger insurer, Dôvera, and then retained the name Dôvera. After the purchase, experts evaluated the value of Dôvera as €470 million higher than before the purchase.
It was merely an accounting increase in value, as the company did not gain any real property or money. The value increased through the new evaluation of the number and structure of clients of the merged insurer Dôvera. Based on the law, this value is not considered when a health insurer is sold.
In 2010 the shareholders decided that about €412 million from the €470 million would be entered in the books as “an obligation towards shareholders”. Dôvera however did not possess that money and thus the insurer took a loan and started paying it off to Futej and Penta gradually.
The operation as legal, but unusual. If Dôvera and Apollo simply merged, there would be no space to create such large profit.
The Council for Budgetary Reponsibility viewed this transaction critically. When health insurer pay profits to their shareholders, it increases the country’s deficit, since health insurers handle public finances.
"The risks are not negligible,” the council wrote in Novmber 2014, alluding to the fact that by the end of 2013, the sum of undivided profits from all health insurers was €250 million. “In the event of sufficient liquidity in the future they might be paid our and negatively affect the deficit.”
Audit company BMB Leitner in its analysis of the transaction for the foundation Stop Corruption and the doctor’s unions noted that in this case , €375 million from the public health insurance landed on the accounts of shareholders for 2011-2014, which is €215 million more than the insurer really earned.
If the business results in 2009 did not include the impact of the sale of the enterprise (the merger of Apollo and Dôvera), the profit of the insurer would be at €9 million, Dôvera wrote in its annual report.
BMB Leitner compiled from publicly accessible data an overview of the business of the Dôvera health insurer for 2009-2014. It turns out that the health insurer made profit of just €160 million, less than half of the €400-million fictitious profit that emerged from the merger.
Radovan Pala, partner at the TaylorWessing law firm, noted that such a transaction is problematic in terms of the basic principle that a stock company cannot return the shareholders what they invested in it. They can only be paid dividends from the profits.
If the law cannot prevent the shareholders from “paying out” profits that originate from other than business activities in advance, they are thus immune from business failure, Pala told Sme. There is then no motivation for the businessperson to make a profit.
It’s not possible to tell whether Futej has used the money to his own benefit or to the benefit of other persons. There is no proof of any ties to Široký in the case of his intention to finance the construction of real estate in the Bahamas.
The full story is buried in these unanswered questions.
It is a known fact that Futej earned €195 million in the insurer. That is wealth that comes close to the value of wealth of businessman Viliam Pancik (€230 millon), the 15thrichest Slovak according to the Forbes magazine. Pancik gets rich on investing into real estate in the HB Reavis development group.
To compare, Czech magazine Tyzden last year estimated the wealth of known Slovak oligarch Vladimir Poor at €184 million, which is less than what Futej earned on Dôvera.
Penta Investment Group is the financial partner of NAMAV company, which is 45-percent shareholder of Petit Press, the co-owner of The Slovak Spectator.