U.S. Commerce Secretary Wilbur Ross benefited from ties to Putin's inner circle, offshore tax leak shows

U.S. Commerce Secretary Wilbur L. Ross Jr. has a stake in a shipping firm that receives millions of dollars a year in revenue from a company whose key owners include Russian President Vladimir Putin's son-in-law and a Russian tycoon who was subject to sanctions by the U.S. Treasury Department as a member of Putin's inner circle.

Ross, a billionaire private equity investor, divested most of his business assets before joining President Donald Trump's cabinet in February, but kept a stake in the shipping firm, Navigator Holdings Ltd., which is incorporated in the Marshall Islands in the South Pacific.

Offshore entities in which Ross and other investors hold a financial stake controlled 31.5 per cent of the company in 2016, according to Navigator's latest annual report.

Among Navigator's largest customers, contributing over $68 million US ($87.3 million Cdn) in revenue since 2014, is the Moscow-based gas and petrochemicals company Sibur. Two of its key owners are Kirill Shamalov, who is married to Putin's youngest daughter, and Gennady Timchenko, the oligarch who was subject to U.S. sanctions because his activities in the energy sector, the Treasury Department said, were "directly linked to Putin."

Why would any officer of the U.S. government have any relationship with a Putin crony?- Daniel Fried, Russia expert

Another powerful owner is Sibur's largest shareholder, Leonid Mikhelson, who controls an energy company that was also subject to sanctions by the Treasury Department for propping up Putin's rule.

Ross's connections emerge from an examination of public records and a leak of millions of offshore financial documents from the Bermuda law firm Appleby obtained by German newspaper Sueddeutsche Zeitung. They were shared with the International Consortium of Investigative Journalists and its global network of media partners.

They represent the inner workings of Appleby from the 1950s until 2016. The files include documents from Appleby's corporate services division, which became independent in 2016 under the name Estera.

• Read CBC's complete coverage of the Paradise Papers leak

The leaked files showed a chain of companies and partnerships in the Cayman Islands through which Ross has retained his financial stake in Navigator.

As commerce secretary, Ross has a direct authority over trade and manufacturing policy and is an influential voice in the government on virtually any aspect of the U.S. economic relationship with other countries, including Russia. In recent years, tensions between the United States and Russia have escalated, with the U.S. imposing sanctions against Russia after its 2014 invasion of Crimea and interference in the 2016 presidential election. 

In the aftermath of the election, investigations by Congress and the U.S. Department of Justice have explored potential business ties between Russia and members of Trump's administration.

History of financing oligarchs

While several of Trump's campaign and business associates have come under scrutiny, until now no business connections have been reported between senior Trump administration officials and members of Putin's family or inner circle.

During his confirmation process, Ross was asked repeatedly about his business ties to Russia, mostly related to his former role as vice-chairman of the Bank of Cyprus, which has a long history of financing Russian oligarchs.

• Read a longer version of this article on the ICIJ website

"The United States Senate and the American public deserve to know the full extent of your connections with Russia and your knowledge of any ties between the Trump Administration, Trump Campaign, or Trump Organization and the Bank of Cyprus," a group of five Democratic senators wrote Ross after the hearing but prior to his confirmation.

Ross responded briefly to a question submitted for the hearing, saying the Russians who invested in the bank "were not my partners," but didn't respond to the senators' letter.

He was also asked about his shipping holdings and whether they could pose a conflict of interest with his duties at Commerce. But he faced no questions about Navigator — where he once was chairman of the board — and its relationship with Sibur.

Sibur is "a company with crony connections," said Daniel Fried, a Russia expert who served in senior State Department posts in both Republican and Democratic administrations. "Why would any officer of the U.S. government have any relationship with a Putin crony?"

Ross joined the board only after Navigator began dealing with Sibur and "never met" Shamalov, Timchenko or Mikhelson, said James Rockas, a spokesman for the Commerce Department.

"Secretary Ross recuses himself from any matters focused on transoceanic shipping vessels, but has been generally supportive of the administration's sanctions of Russian and Venezuelan entities," Rockas said.

Another of Navigator's major customers is PDVSA, the Venezuelan state oil company owned by the authoritarian regime of Nicolas Maduro. The Trump Administration placed sanctions on one current and one former executive at PDVSA in July 2017, and on the company itself the next month.

Commerce and conflict

The fact that Ross's Cayman Islands companies benefit from a firm controlled by Putin proxies raises serious potential conflicts of interest, experts say.

As commerce secretary, Ross has the power to influence U.S. trade, sanctions and other policies that could affect Sibur's owners. Likewise, Sibur's owners — and through them, Putin himself — could increase or decrease Sibur's business with Navigator even as Ross helps steer U.S. policy.

Richard Painter, who served as chief ethics lawyer during the George W. Bush administration, said Ross might have to recuse himself from a range of sanctions decisions. He added that while there was no inherent violation in Ross's holdings, the Navigator arrangement warrants closer scrutiny.

"Apart from those legal issues, I'd be very concerned that someone in the U.S. government was making money from dealing with the Russians, and I'd want to know the facts," Painter said.

Commerce spokesman Rockas said that Ross "has never had to seek, nor received, any ethics exemption" and abides by the "highest ethical standards." Ethics exemptions are granted to allow officials to participate in issues where there might be a conflict of interest.

20% of profits

Before joining Trump's cabinet, the 79-year-old Ross was a titan in the world of private equity, rounding up investors from around the world to put money into troubled companies in the hope of profitably turning them around.

When all went well, he and his firm made money not only on their investments and management fees, but also from a compensation system that allows the general partners, who manage private equity funds, to earn 20 per cent of any profits that exceed a certain level, according to Ross's pre-appointment financial disclosures.

The disclosure requirements weren't written with Wilbur Ross in mind.- Kathleen Clark, law professor

Many of the private equity funds involved in these investments were created and administered by Appleby. The leaked files offer a window into how Appleby helped his firm, WL Ross & Co, reap the benefits of offshore havens such as the Cayman Islands, a British territory that permits extraordinary levels of financial secrecy and allows paper companies run from New York and elsewhere to operate there tax-free. In 2015, the Cayman Islands was ranked fifth by the Financial Secrecy Index in its worldwide ratings.

The complexity of the offshore structures adds legal and reputational distance and obscures the full extent of Ross's business relationships even as it allows him to profit from them, according to tax and ethics experts consulted by ICIJ.

"The disclosure requirements weren't written with Wilbur Ross in mind," said Kathleen Clark, a law professor at Washington University who is an expert on government ethics, "and I don't think adequately provide the public or a government ethics official with an understanding of the wide variety of financial interests that he has."

Yale, Harvard

The son of a lawyer-turned-judge and a school teacher, Ross was raised in suburban New Jersey, and graduated from Yale and Harvard Business School.

In the late 1970s, he joined the British investment banking firm Rothschild Group, eventually rising to lead the firm's bankruptcy advisory practice. He met Donald Trump in 1990, when the future president's Taj Mahal casino in Atlantic City was experiencing financial trouble, and Ross represented a group of bondholders. 

Ross engineered a deal that preserved a stake in the company for Trump, reportedly telling disgruntled bondholders that the Trump name was "still very much an asset." It was a welcome assist for the future president.

Over the years, Ross has climbed to the ranks of the wealthiest U.S. individuals, with a fortune estimated by Forbes in September 2017 at $2.5 billion. He and his wife own a Palm Beach, Fla., villa down the road from Trump's Mar-a-Lago resort, another house in Southampton, N.Y., and a third home in Manhattan. 

They also own an art collection with a value that Bloomberg has estimated at $250 million, including a collection of the surrealist painter Rene Magritte valued at $100 million.

Grand Swipe

Ross was also leader — known as the Grand Swipe — of a secret Wall Street fraternity called Kappa Beta Phi and in 2012 presided over an annual ceremony in which initiates performed song-and-dance routines in drag during a feast of lamb and foie gras at a Manhattan hotel, according to a New York Magazine report.

Ross has dismissed the idea that the very wealthiest have unfair advantages, arguing in 2014 that "the one per cent is being picked on for political reasons." He added: "Education is the way that people get out of the ghetto and into, if not the one per cent, something close to it."

According to Appleby records, Ross is a shareholder and was a director of two companies established in July 2011 as general partners to control two other WL Ross & Co entities that invested in the shipping industry, which, in turn, control two WL Ross Group funds. These funds invested in several shipping companies, including Navigator, according to SEC filings and Ross' ethics disclosures.

In all, Ross's former firm, WL Ross & Co., is Navigator's largest shareholder, owning 39.4 per cent of Navigator through companies it controls. When he became commerce secretary, Ross kept his personal financial interest in some of the WL Ross entities but resigned from managing them. The ones he kept a stake in, which also include other investors, own a substantial part of the larger stake with 31.5 per cent of the shipping company's stock.

Federal ethics law requires officials to recuse themselves from matters that would have "a direct and predictable" effect on the official's or a family member's financial interest or if the official has a close relationship that might cause a reasonable person to doubt the official's impartiality. 

During his confirmation hearings, Ross sought to reassure senators that he would avoid any conflicts of interest between his business holdings and his cabinet post.

"I intend to be quite scrupulous about recusal and any topic where there is the slightest scintilla of doubt," he said.

CBC is part of the International Consortium of Investigative Journalists that produced this story but did not independently verify the specific allegations.