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Gunvor Efforts to Shake Off Past Still Haunted by Russian Roots

Nov. 6 (Bloomberg) — Long before the U.S. slapped sanctions on Gunvor Group Ltd. co-founder Gennady Timchenko over his ties to Vladimir Putin, the company was working to reduce its exposure to Russia.

The world’s fifth-largest independent oil-trading firm diversified into metals, opened offices in Asia, bought refineries in Europe and invested $400 million for a stake in a Montana coal mine. Last month, it said it wanted to sell the bulk of its physical Russian assets, which include an oil terminal and pipeline stakes.

Now, a money-laundering investigation of Timchenko by U.S. prosecutors has thrust Gunvor’s links to Russia back to the forefront and put its diversification strategy under threat. The Cyprus-based company, which got its start trading crude produced by Russian firms including OAO Rosneft, is again on the defensive, trying to downplay any connections to Russia and Timchenko.

“Even if they have diversified, the legacy lives on,” Craig Pirrong, a finance professor at the University of Houston, said in a phone interview.

The U.S. Attorney’s Office in Brooklyn is investigating Timchenko, a Russian electrical engineer who amassed a multi billion-dollar fortune in commodities, as part of a money laundering probe, according to two people familiar with the matter. Prosecutors are trying to determine whether Timchenko, 61, who is alleged to be part of Russian President Putin’s inner circle, sought to launder tainted funds through the U.S. financial system, one of the people said.

Access to Credit

Despite cutting ties with Timchenko and reducing its exposure to Russia, the investigation may hinder Gunvor’s ability to access credit to finance its operations and put trades at risk, said Pirrong.

“Their ability to conduct business is dependent on their access to funding,” said Pirrong. “They are fighting against fear, uncertainty and doubt.” He recently published a research paper on the role of commodity traders in the global financial system that was funded by Gunvor competitor Trafigura Beheer BV.

“Timchenko has absolutely nothing to do with this company anymore,” Seth Pietras, a Geneva-based Gunvor spokesman, said by phone.

Gunvor has not been informed of any money laundering investigation involving the company or Timchenko, who is no longer a Gunvor shareholder, he said. The company hasn’t been served with any subpoenas or been asked for documents by U.S. officials since 2011.

Business as Usual

Timchenko, who has a home in Geneva’s affluent lakeside suburb Cologny, hasn’t been to Gunvor’s office in the city since he was hit with U.S. sanctions, Pietras said.

Volga Group, Timchenko’s company, said in a statement that he isn’t aware of any investigation and has always conducted his business activities in strict compliance with the law.

It was business as usual for Gunvor’s trading operations today, after news of the investigation was first reported by The Wall Street Journal, said Pietras.

“Gunvor is the most scrutinized trading house in the industry, and our banking partners know us very well,” he said. “Even after our former shareholder was sanctioned, we have increased our financing lines.”

Gunvor, which earned net income of $308 million on revenue of $91 billion in 2013, had to scramble to keep banks and counter parties on-side after Timchenko was sanctioned in March. Some banks and other trading firms were initially spooked after the U.S. Department of Justice alleged that Putin “has investments in Gunvor and may have access to Gunvor funds.”

No Links

Gunvor denies Putin has or has ever had any links to the company.

Gunvor subsidiary Castor Americas Inc. and four employees were served with subpoena’s by U.S. prosecutors three years ago, according a bond prospectus filed by Gunvor last year. A subpoena demanded documents relating to “Castor’s oil trading activities, among other matters,” the company said in the prospectus.

Timchenko sold his 44 percent interest in Gunvor to fellow co-founder and billionaire Torbjorn Tornqvist on March 19, the day before he was sanctioned in response to Russia’s actions in Ukraine.

Tornqvist, a Swedish national, and Timchenko, who holds both Russian and Finish passports, started what is now Gunvor in the late 1990s. Leveraging Timchenko’s Russian connections and Tornqvist’s experience as crude trader, they handled Russian oil exported from the Gulf of Finland. The firm grew rapidly, trading crude from Russian producers including state-controlled OAO Rosneft, and by the mid 2000s handled as much one-third of Russia’s seaborn oil exports.

Diversification Efforts

The company began trading coal, natural gas and biofuels in 2009 and opened a trading office in Dubai in 2011, according to its website. It purchased a one-third stake in the Signal Peak coal mine in Montana for $400 million in 2012, the same year it bought a refinery in Ingolstadt, Germany, for $150 million, and a refinery in Antwerp, Belgium for $7.9 million.

Gunvor says it hasn’t traded any oil produced by Rosneft in more than two years and Russian oil now accounts for less than 20 percent of its trading activities.

“We are doing less in Russia than we used to do and we are quite happy with that,” Tornqvist, Gunvor’s chief executive officer, said in an interview in September 2013.

Artwork in the CEO’s office at the time, included a print of Andy Warhol’s Red Lenin. The pop art portrait of the communist revolutionary, sat on the floor of his office, leaning against a wall.

Tornqvist didn’t say whether the painting was about to be hung up or had recently been taken down.

–With assistance from Christie Smythe in Brooklyn and Del Quentin Wilber in Washington.

To contact the reporter on this story: Andy Hoffman in Geneva at ahoffman31@bloomberg.net To contact the editors responsible for this story: Will Kennedy at wkennedy3@bloomberg.net Will Wade, Carlos Caminada

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