This Decision Notice has been referred to the Upper
Tribunal to determine whether to dismiss the reference
or
remit
it
to
the Authority
with
a
direction
to
reconsider and reach a decision in accordance with the
findings
of
the
Tribunal.
Therefore,
the findings
outlined in this Decision Notice reflect the Authority’s
belief as to what occurred and how it considers the
behaviour
of
Gustavo
Eugenio
Raitzin
should
be
characterised.
The
proposed action outlined in the
Decision
Notice
will
have
no
effect
pending
the
determination
of
the
case
by
the
Tribunal.
The
Tribunal’s decision will be made public on its website.

DECISION NOTICE

To:
Gustavo Eugenio Raitzin

Date of birth: October 1958

1.
ACTION

1.1.
For the reasons given in this Notice, the Authority has decided to make an order

prohibiting Gustavo Raitzin from performing any function in relation to any

regulated activities carried on by an authorised or exempt person, or exempt

professional firm, pursuant to section 56 of the Act.

2.
SUMMARY OF REASONS

2.1.
The Authority considers that, between August and December 2010, Mr Raitzin

acted recklessly and with a lack of integrity in respect of his management and

oversight of the relationship of the Julius Baer Group of companies (“Julius Baer”)

with the Yukos Group and with the Finder associated with the Yukos Group, Dmitri

Merinson.

2.2.
Mr Raitzin was employed as the Regional Head for Latin America, Spain, Russia,

Central and Eastern Europe and Israel at Bank Julius Baer & Co. Ltd. (“BJB”) in

Switzerland from January 2010 until March 2011. In that position, Mr Raitzin had

responsibility for the line management of Thomas Seiler, Sub-Regional (Market)

Head for Russia and Eastern Europe at BJB.
Mr Seiler had responsibility for

1

functional line management of the Russia and Eastern European Desk at Julius

Baer International Limited (“JBI”), a firm authorised by the Authority. Mr Raitzin

also sat on BJB’s Executive Board from 2005 until July 2017, where he held the

position of non-executive director.

2.3.
The Russian and Eastern European Desk had dual reporting lines up to JBI’s

Management Committee and to Mr Seiler, as Sub-Regional (Market) Head. As Sub-

Regional (Market) Head, Mr Seiler’s direct reports included the JBI relationship

manager, Louise Whitestone, who had responsibility for the day-to-day conduct of

Julius Baer’s relationship with certain companies in the Yukos Group and with Mr

Merinson, and who was employed as part of the Russian and Eastern European

Desk.

2.4.
In July 2010, Julius Baer entered into Finder’s arrangements with Mr Merinson in

which Julius Baer agreed to pay fees (known as ‘Finder’s fees’) to Mr Merinson for

introducing Yukos Group Companies to Julius Baer. Mr Merinson was an employee

of the Yukos Group. Julius Baer entered into these arrangements on the

understanding that, if Finder’s fees were paid to Mr Merinson, Daniel Feldman, who

was a director of various Yukos Group Companies, including the sole director of

Yukos Capital, would ensure that the Yukos Group placed large cash sums with

Julius Baer from which Julius Baer could generate significant revenues. Pursuant

to these Finder’s arrangements (which were initially agreed in July 2010 and

amended in October 2010), Mr Merinson received three commission payments: in

September 2010, December 2010 and February 2012. The rates of commission

paid to Mr Merinson by Julius Baer were far in excess of the standard rates paid to

individuals for introducing business to Julius Baer. In the course of the Finder’s

relationship, Julius Baer paid Mr Merinson commission of approximately USD 3

million.

2.5.
Mr Raitzin approved the First and Second Commission Payments in the knowledge

that Julius Baer had entered into these Finder’s arrangements with Mr Merinson

and that Mr Merinson was an employee of the Yukos Group. He thereby approved

the arrangements by which the commission was generated, which involved Julius

Baer charging the Yukos Group Companies unusually high levels of commission for

executing large foreign exchange (“FX”) transactions. These FX transactions took

place in August 2010 and November 2010 (a third FX transaction took place in

August 2011 after Mr Raitzin had left his position as the Regional Head). The

majority of the commission generated was then transferred to Mr Merinson, on Mr

2

Feldman’s instructions and in accordance with the Finder’s arrangements approved

by Mr Seiler and Mr Raitzin, although Julius Baer also benefited significantly from

the transactions. Although the Authority has not seen any evidence that Mr Raitzin

was aware at the time, in April 2011, JBI also facilitated Mr Merinson’s transfer to

Mr Feldman of half of the commission he received from BJB as a result of the first

two FX transactions.

2.6.
Notwithstanding the unusual nature of the arrangements and the significant

revenues which Julius Baer stood to earn from them, Mr Raitzin recklessly failed

to have regard to the obvious risks arising from Julius Baer’s relationship with Mr

Merinson and Yukos and failed to take appropriate action in light of them. Mr

Raitzin, who was an experienced financial services professional, must have been

aware of those risks, including the risk that in agreeing to the arrangements with

Mr Merinson and in approving significant payments to Mr Merinson pursuant to

those arrangements, Julius Baer might be facilitating or even participating in

financial crime. It appears to the Authority that, had Mr Raitzin objected to the

arrangements or arranged for them to be properly investigated, it is unlikely that

they would have proceeded. In particular:

(1)
In August 2010, at a time when he was aware that Julius Baer had entered

into Finder’s arrangements with Mr Merinson in July 2010, Mr Raitzin

approved the First Commission Payment and thereby approved both those

Finder’s arrangements and the arrangements by which the commission was

generated in the First FX Transaction. The First FX Transaction involved

Julius Baer converting approximately GBP 271 million received from Yukos

Capital into USD. The trading took place at rates 11 times Julius Baer’s

standard commission rate for FX transactions of this size, and resulted in

commission totalling in excess of USD 2.3 million being charged to Yukos

Capital; 80% of the commission was paid to Mr Merinson and the remaining

20% (approximately USD 469,000) was retained by Julius Baer. This

constituted a return of 0.11%, which was itself more than double its

standard commission on an FX transaction of this size. Mr Raitzin gave his

approval after he was made aware that Ms Whitestone had sought approval

(which was refused by BJB Legal) for a request by Mr Merinson that the First

Commission Payment be referenced as “Investment Capital Gain”, which

should have caused Mr Raitzin to recognise the risk that this was an attempt

by Mr Merinson to disguise the true nature of the payment. In giving his

3

approval, Mr Raitzin recklessly failed to have regard to the following obvious

risks, of which he must have been aware:

a. The risk that there was no proper commercial rationale for any payment

to Mr Merinson or for a Finder’s agreement with Mr Merinson, which

related to the introduction of Yukos Capital to Julius Baer; and

b. The risk that the Finder’s arrangements and the First FX Transaction

involved a breach of both Mr Merinson’s and Mr Feldman’s duties to the

relevant Yukos Group Companies, were not in the interests of those

companies, and were made in order to facilitate the improper diversion

of funds from Yukos Capital to Mr Merinson (and, because of the

involvement of Mr Feldman, the sole director of Yukos Capital, in

approving the Finder’s arrangements and the First FX Transaction,

potentially to Mr Feldman).

(2)
In October 2010, Mr Raitzin approved amendments proposed by Mr

Merinson and Mr Feldman to the original Finder’s arrangements, under which

Mr Merinson’s Finder’s fee was increased from 25% to 35% of net income

generated by Julius Baer, and under which he was permitted to receive four

additional ‘one-off’ payments, calculated as 70% of Julius Baer’s commission

on four large transactions, relating to new inflows of funds, to take place by

October 2011. Only the increase in Mr Merinson’s share of net income was

documented. In return, among other things, Yukos’ funds were to remain

with Julius Baer for at least three years. There was no proper commercial

rationale for these arrangements and, in approving them, Mr Raitzin

recklessly failed to have regard to the obvious risk, of which he must have

been aware, that these arrangements were in breach of Mr Merinson’s and

Mr Feldman’s duties to the relevant Yukos Group Companies, were not in

the interests of those companies and were designed to divert funds

improperly from the Yukos Group Companies to Mr Merinson (and potentially

to Mr Feldman).

(3)
In November 2010, the Second FX Transaction was carried out, in which

Julius Baer converted approximately USD 68 million of Yukos funds (which

formed a portion of the funds converted into USD by the First FX

Transaction) into EUR. The trading approach, which mirrored that adopted

in the First FX Transaction and was agreed with Mr Feldman, involved a large

daily rate range and Fair Oaks (a Yukos Group company of which Mr Feldman

was a director) paying just above the worst rate available in the market, so

that the spread between that and the rate at which Julius Baer transacted

would cover both the commission required by Julius Baer and a further

commission payment which would be made to Mr Merinson as Finder. There

was no proper commercial rationale for Yukos to adopt such an

arrangement. The transaction took place at a rate approximately 30 times

higher than Julius Baer’s standard commission rate for transactions of this

size, and resulted in commission in excess of USD 1 million being charged

to Fair Oaks; 70% of this sum was paid to Mr Merinson, and the remaining

30% (approximately USD 320,000) was retained by Julius Baer and

constituted a return of 0.47%. This was itself far in excess of Julius Baer’s

standard commission on an FX transaction of this size. Mr Raitzin approved

the Second Commission Payment and thereby approved the arrangements

by which the commission was generated in the Second FX Transaction. In

doing so, Mr Raitzin recklessly failed to have regard to the obvious risk, of

which he must have been aware, that the transaction formed part of an

improper scheme to divert funds to Mr Merinson (and potentially to Mr

Feldman) in breach of their duties to the relevant Yukos Group Companies.

(4)
In the event, before the Second Commission Payment was made, Mr Raitzin

became aware of concerns that had been raised about the Second FX

Transaction by a senior manager in BJB Bahamas. In response to those

concerns, Mr Raitzin set Mr Seiler the task of putting in place an ‘acceptable

framework’ for Ms Whitestone and the bank to operate in and asked him to

‘regularise pending issues’, and did not make any further enquiry into the

concerns which had been expressed. In the circumstances, Mr Raitzin must

have been aware that there was a risk that the arrangements with Mr

Merinson were improper, yet he recklessly proceeded to confirm his approval

of the Second Commission Payment, which was ultimately paid to Mr

Merinson on 31 December 2010, before Mr Seiler had taken the actions that

Mr Raitzin had tasked him with.

2.7.
As a result of the above, Mr Raitzin was reckless and failed to act with integrity.

As a consequence, the Authority considers that Mr Raitzin is not fit and proper to

perform any function in relation to any regulated activities carried on by an

authorised or exempt person, or exempt professional firm.

5

3.
DEFINITIONS

3.1.
The definitions below are used in this Notice:

“the Act” means the Financial Services and Markets Act 2000;

“the Authority” means the body corporate previously known as the Financial

Services Authority and renamed on 1 April 2013 as the Financial Conduct Authority;

“BJB” means Bank Julius Baer & Co. Ltd., a company incorporated in Switzerland;

“BJB Bahamas” means Julius Baer Bank (Bahamas) Limited, a company

incorporated in the Bahamas;

“the BJB Bahamas Senior Manager” means the senior manager at BJB Bahamas

who raised concerns about the Second FX Transaction;

“BJB Compliance” means BJB’s compliance department and collectively members

of that department, which was based in Switzerland;

“BJB Guernsey” means BJB’s Guernsey branch;

“BJB Legal” means BJB’s legal department and collectively members of that

department, which was based in Switzerland;

“BJB Senior Manager A” means one of the senior managers at BJB;

“BJB Senior Manager B” means another of the senior managers at BJB;

“BJB Singapore” means BJB’s Singapore branch;

“BJB Switzerland” means BJB’s office in Zurich;

“Booking Centre” means an entity of the Julius Baer Group which had permission

to provide clients with banking, dealing and custody services. The Julius Baer

Booking Centres were all located in countries outside of the UK (including

Switzerland, Guernsey, Bahamas, and Singapore);

6

“Commission Payments” means payments made to Mr Merinson by Julius Baer

following the execution of the First FX Transaction, the Second FX Transaction and

the Third FX Transaction;

“the First Commission Payment” means the payment made to Mr Merinson on or

around 1 September 2010;

“the Second Commission Payment” means the payment made to Mr Merinson on

31 December 2010;

“the Third Commission Payment” means the payment made to Mr Merinson on 1

February 2012;

“Compliance” means BJB Compliance and/or JBI Compliance;

“Co-operation with Finders Policy” means BJB’s policy document titled “Cooperation

with Finders” which was effective from 11 June 2010;

“CoY” means a derivate instrument combining a foreign exchange linked deposit

with a currency option, with the aim of providing a higher yield or return than that

available for a standard deposit. The foreign exchange linked deposit is higher risk

than a normal deposit as it is exposed to foreign exchange rate movements;

“Fair Oaks” means Fair Oaks Trade and Investment Limited;

“Finder” means an external third party engaged by Julius Baer with the sole task

of introducing potential clients to Julius Baer in return for commission, also referred

to by Julius Baer as an introducer;

“FX” means forex or foreign exchange;

“FX Transactions” means the First FX Transaction, the Second FX Transaction and

the Third FX Transaction;

“First FX Transaction” means collectively the series of FX transactions conducted

by Julius Baer for Yukos Capital between 11 and 13 August 2010;

7

“Second FX Transaction” means collectively the series of FX transactions conducted

by Julius Baer for Fair Oaks on 23 November 2010;

“Third FX Transaction” means the FX transaction converting EUR 7,000,000 into

USD conducted by Julius Baer for Fair Oaks pursuant to an order placed on 15

August 2011;

“JBI” means Julius Baer International Limited;

“JBI Compliance” means JBI’s compliance department and collectively members of

that department, based in London;

“the JBI Line Manager” means Ms Whitestone’s line manager at JBI;

“the JBI Trader” means the trader at JBI who was involved in the FX Transactions;

“Julius Baer Group” or “Julius Baer” means the Julius Baer Group of companies

which includes: BJB, BJB Bahamas, BJB Singapore, BJB Guernsey, BJB Switzerland

and JBI;

“RDC” means the Regulatory Decisions Committee of the Authority (see further

under Procedural Matters below);

“the Tribunal” means the Upper Tribunal (Tax and Chancery Chamber);

“the Warning Notice” means the warning notice given to Mr Raitzin dated 23 April

2020;

“Yukos”, “Yukos Group” or “Yukos Group Companies” means the Yukos group of

companies which includes Yukos Capital, Yukos International, Yukos Hydrocarbons

and Fair Oaks;

“Yukos Capital” means Yukos Capital S.a.R.L.;

“Yukos Hydrocarbons” means Yukos Hydrocarbons Investments Limited; and

“Yukos International” means Yukos International UK BV.

4.
FACTS AND MATTERS

JBI corporate structure

4.1.
JBI is a UK incorporated company and wholly owned subsidiary, together with

BJB, of Julius Baer Group. The Julius Baer Group undertakes private banking and

is based in Switzerland. JBI has been authorised since 2001 to provide investment

advisory and management services, but it is not authorised as a bank in the UK.

Consequently, JBI’s clients are also clients of BJB and it is BJB which provides

them with custodian, dealing and banking services via its Booking Centres. JBI’s

revenues are therefore dependent on the amounts that BJB determines should be

allocated to it, as it is BJB that earns revenue from the activities generated from

clients introduced by JBI, and JBI does not charge its clients directly.

JBI’s Russian and Eastern European Desk

4.2.
From January 2010 to 30 March 2011, Mr Raitzin was employed by BJB as the

Regional Head for Latin America, Spain, Russia, Central and Eastern Europe and

Israel. Mr Raitzin was also a member of BJB’s Executive Board from 2005 until

July 2017, where he held the position of non-executive director. From March 2011

until December 2017, Mr Raitzin was the CEO of Julius Baer Latin America.

4.3.
Ms Whitestone was employed by JBI as part of JBI’s Russian and Eastern European

Desk from 1 January 2009 until 28 November 2012, reporting to the JBI Line

Manager. JBI’s Russian and Eastern European Desk reported to JBI’s Management

Committee. It also had a functional reporting line to Mr Seiler, the Sub-Regional

(Market) Head for Russia and Eastern Europe, who was an employee of BJB, and

who therefore had functional line management responsibility for Ms Whitestone.

During the period that he was employed by BJB as the Regional Head for Latin

America, Spain, Russia, Central and Eastern Europe and Israel, Mr Raitzin was the

line manager of Mr Seiler.

Yukos Group accounts with Julius Baer

4.4.
The Yukos Group comprises a number of holding companies incorporated in

various jurisdictions which own the residual non-Russian assets of the Russian oil

group of the same name. The Yukos Group was declared bankrupt in disputed

circumstances in 2006 and a number of companies in the group have been and

continue to be involved in litigation in an effort to recover monies to distribute to

shareholders and creditors.

4.5.
Between November 2009 and 28 November 2012, Ms Whitestone acted as a JBI

relationship manager for certain of the Yukos Group Companies. During this

period, the Yukos Group Companies held the following accounts with Julius Baer:

(1)
Yukos Hydrocarbons, a company incorporated in the British Virgin Islands,

opened an account with BJB Singapore in 2008 (in respect of which the JBI

Line Manager was the relationship manager) and an account with BJB

Guernsey in July 2011 (in respect of which Ms Whitestone was the

relationship manager);

(2)
Yukos Capital, a company incorporated in Luxemburg, opened an account

with BJB Switzerland in November 2009 and an account with BJB Bahamas

in July 2010 (Ms Whitestone was the relationship manager for both

accounts); and

(3)
Fair Oaks, a company incorporated in the British Virgin Islands and the

wholly owned subsidiary of Yukos Hydrocarbons, opened an account with

BJB Bahamas in September 2010 (with Ms Whitestone as the relationship

manager).

4.6.
Ms Whitestone dealt principally with two individuals, Mr Feldman and Mr Merinson,

in relation to the Yukos Group Companies’ accounts. In June 2009, Ms Whitestone

recorded that Mr Merinson, a Russian citizen residing in the Netherlands, was

employed as the Financial Controller and Treasurer for Yukos International (the

parent company of Yukos Capital). She described him in an email dated 9 October

2009 to Mr Seiler as the Chief Financial Officer of both Yukos Capital and Yukos

International, and in an email dated 13 November 2009 to BJB Compliance,

copying in Mr Seiler, as the Chief Financial Officer of Yukos Capital. In so describing

Mr Merinson, irrespective of his precise job title, Ms Whitestone conveyed her

understanding that Mr Merinson had responsibility for oversight and control of

financial operations at Yukos International and Yukos Capital. He was a Yukos

employee throughout the period of JBI’s relationship with the Yukos Group

Companies. Mr Feldman was a lawyer, practising in the United States of America.

He was also the sole director of Yukos Capital, and a director of Yukos

Hydrocarbons and Fair Oaks.

4.7.
Figure 1 below illustrates the above information regarding the Yukos Group and

accounts held by companies within the group at Julius Baer:

Finders at JBI

4.8.
One of the ways that JBI obtained new business was through ‘Finders’. BJB defined

Finders (also called ‘introducers’) in its Co-operation with Finders Policy as ‘natural

and legal persons … who introduce potential clients to [BJB] in return for

remuneration. The sole task of the finder is to introduce clients to [BJB]’.

Agreement for Mr Merinson to act as Finder for Yukos

4.9.
In June 2009, Ms Whitestone had a meeting with Mr Merinson at which they

discussed the opening of an account for Yukos International. It was also agreed

that Mr Merinson would be set up as a Finder and Mr Merinson completed the

documents required to open a personal account.

4.10.
Ms Whitestone subsequently arranged for a personal account for Mr Merinson to

be opened with BJB Singapore in July 2009. Mr Merinson provided Ms Whitestone

with ‘comprehensive background information both on himself and the company’.

Ms Whitestone compiled and signed a due diligence report on Mr Merinson (which

was required in order to open his account) which stated that Mr Merinson had

‘established’ Yukos International and still worked there as the ‘Financial Controller

and Treasurer’. Ms Whitestone also completed an account opening form which

described Mr Merinson as an employee of Yukos International and his position as

‘Advisor’. BJB Singapore (Legal and Compliance) sought approval from Mr Seiler,

as the Sub-Regional (Market) Head for Russia, for the opening of Mr Merinson’s

account, and provided him with copies of due diligence information and

information from Merinson’s account opening forms. Mr Seiler responded by giving

his approval.

4.11.
In October and November 2009, Ms Whitestone corresponded with Mr Seiler and

others, including BJB Compliance, regarding the opening of accounts for Yukos

International and Yukos Capital. Ms Whitestone explained to Mr Seiler that she

had discussed the account openings with Mr Merinson, describing him as ‘my

Russian contact […] the Chief Financial Officer of both companies […]’. In a

subsequent email to BJB Compliance regarding the opening of an account for

Yukos Capital, to which Mr Seiler was copied, she also explained that ‘When I need

to communicate with the client, I will contact Dmitri Merinson, my Russian contact

who is the CFO of Yukos Capital S.a.R.L. and who attends all the board meetings’.

4.12.
A memorandum was sent to Mr Raitzin on 3 November 2009 by a BJB senior

manager regarding the opening of the Yukos International account which

described it as not ‘plain-vanilla’, due to its directors being US residents, but

recommended to Mr Raitzin that it should nonetheless be approved. The

memorandum was copied to Mr Seiler and noted that Mr Seiler would be happy

to discuss the matter with Mr Raitzin in more detail. In his covering email, the BJB

senior manager informed Mr Raitzin that, as Mr Raitzin was about to go on a

business trip, he would take the matter up with another BJB manager, who replied

on 5 November 2009, copying in BJB Compliance but not Mr Raitzin, that he had

no objection.

4.13.
An account for Yukos Capital was opened with BJB Switzerland on 13 November

2009. The account opening was approved by Mr Seiler and BJB Compliance; the

JBI Line Manager was also aware of the account opening request. It appears that

Mr Raitzin’s approval for the opening of the Yukos Capital account was not sought.

The Authority has found no evidence that Mr Merinson was referenced as a Finder

on any documentation relating to the opening of the Yukos Capital account.

4.14.
On 7 July 2010, Ms Whitestone met with Mr Feldman and Mr Merinson. They told

her they were expecting a large payment to be made to Yukos Capital (in the

region of £280 million to £430 million), as a result of a successful litigation award.

4.15.
According to Ms Whitestone’s notes of this meeting, Mr Feldman asked if Julius

Baer could pay a ‘one-off fee’ to Mr Merinson totalling around 1% of the total

assets on the account. Ms Whitestone told Mr Feldman that this ‘could only be

done if the bank has a guaranteed [return on assets] of at least 1.2% so that we

still get 20 basis points’. Mr Feldman agreed to this. Ms Whitestone notes also

stated that existing funds would remain with, and further funds would be paid

into, Yukos’ accounts with Julius Baer, if the bank could arrange the ‘one off

retrocession payment’. This payment was to be funded by a CoY on which Julius

Baer would charge commission of 1.4%, 70% of which would then be paid to Mr

Merinson as a Finder’s fee, a proportion far in excess of the standard rates

typically paid to Finders by Julius Baer.

4.16.
The effect of what was discussed at the meeting on 7 July 2010 was that if Julius

Baer facilitated payment to Mr Merinson of a large sum of money, Mr Merinson

and Mr Feldman would ensure that Yukos Capital would place significant funds

with BJB.

4.17.
In an email dated 7 July 2010, Ms Whitestone outlined to Mr Seiler the

arrangements she had discussed with Mr Feldman and Mr Merinson and asked for

his approval. She also copied the JBI Line Manager into the email. Ms Whitestone

explained in her email:

(1)
The proposed arrangement involved payment of a ‘one-off fee’ to Mr

Merinson, whom she referred to as the ‘introducer registered on the [Yukos

Capital] account’, equating to approximately 1% of the total assets on the

Yukos Capital account. In her email Ms Whitestone noted that ‘this is just to

indicate the kind of amount that they are hoping Mr Merinson will receive

although of course contractually it could not be worded like that’.

(2)
She had told Mr Feldman that the payment to Mr Merinson could only be

done if Julius Baer had a guaranteed return on assets of at least 1.2% so

that it maintained its margin of 20 basis points. Mr Seiler was therefore

aware that the proposed payment was to be funded by Yukos.

(3)
The fee to be paid to Mr Merinson could be generated from a large ‘USD/GBP

CoY’ on which Julius Baer would apply 1.4% commission and pay 70% of

this to Mr Merinson. Ms Whitestone also stated that as part of the

arrangement Julius Baer would not be required to pay Mr Merinson the

standard Finder’s fee of 25% of the bank’s net revenues (which it appears

had previously been agreed in principle with him) ‘until at least 1 year after

the credit of the funds to the [Yukos Capital] account’.

4.18.
Ms Whitestone stated, ‘If we can do this for the client, the funds will stay with us

[…] there will be further substantial funds to come’. The non-standard one-off fee

to be paid to Mr Merinson was therefore directly linked to the promise of significant

future inflows from the Yukos Group. The level of funds proposed, as well as the

political sensitivities relating to dealing with Yukos, made Yukos a significant client

for Julius Baer.

4.19.
The Authority has not identified any documents confirming Mr Seiler’s approval of

the arrangements set out in Ms Whitestone’s email. However, there is no evidence

that Mr Seiler objected to the proposed arrangements and, given that his approval

was expressly sought and that payment on similar terms was subsequently made

to Mr Merinson, the Authority has concluded that it is highly likely that Mr Seiler

did approve them. Mr Seiler appears not to have raised any concerns with the

proposed arrangements or to have queried why Yukos could not simply transfer

funds direct to Mr Merinson if it wished to pay him a large sum of money.

4.20.
Shortly after sending her email on 7 July 2010, Ms Whitestone met with Mr

Merinson and Mr Feldman again. (During that meeting, after the matters outlined

below were discussed, they were joined by a JBI colleague from another

department.) The contact report stated that at this meeting, Mr Feldman informed

Ms Whitestone that Yukos Capital was due to receive the equivalent of

approximately USD 422m in GBP, that the funds would need to be converted to

USD, and that the intention was that commission of up to USD 1,250,000 would

be generated on the FX transaction, 80% of which would be paid to Mr Merinson.

The remaining 20% of the commission (up to USD 250,000) would be retained by

Julius Baer, giving a return to Julius Baer of six basis points. The contact report

was incorrectly dated 7 August 2010, was filed on JBI’s system on 19 August

2010, and appears to have been drafted after the First FX Transaction took place

(see paragraph 4.26 below). The Authority considers this might account for the

differences between the information recorded in this report and Ms Whitestone’s

notes of the meeting earlier that day.

4.21.
On 8 July 2010, Mr Merinson entered into a Finder’s agreement with BJB which

provided for payment of Finder’s fees equal to 25% of the net income generated

by BJB from clients introduced by Mr Merinson (one of four standard remuneration

models used by BJB for Finders). The agreement did not refer to the large ‘one-

off’ payment that had been agreed. Mr Merinson signed and returned the Finder’s

agreement which he dated 7 July 2010.

4.22.
Contrary to usual procedure and in particular to the provisions of BJB’s Co-

operation with Finders Policy, the non-standard remuneration agreed with Mr

Merinson was not recorded in a side-letter or an appendix to the Finder’s

agreement. The Authority has not seen any evidence that, at the time BJB entered

into the Finder’s agreement with Mr Merinson, Compliance staff at JBI or BJB were

aware that a large ‘one-off’ payment had been separately agreed with Mr

Merinson.

4.23.
On 16 July 2010, a BJB senior manager sent an email to the JBI Line Manager

requesting details of the proposed Finder’s arrangement with Mr Merinson so that

BJB Senior Manager B could ‘quickly discuss’ it with Mr Raitzin, whose approval of

the non-standard terms of the agreement was required under BJB’s Co-operation

with Finders Policy. The email added that Mr Seiler ‘already supports the case’.

The JBI Line Manager responded with the following details: ‘an initial inflow of gbp

280mn, aiming for a return of 140bps this year (to make the payout economically

justifiable); out of the 280mn a separate 30mn pot (have to double-check this

figure, but I’m pretty sure it’s correct for active advisory – have to check the

agreed fee with louise’. The Authority infers that, following this email exchange,

Mr Raitzin was made aware of Julius Baer’s entry into Finder’s arrangements with

Mr Merinson.

4.24.
On 22 July 2010, BJB Compliance sent an email to Mr Raitzin and BJB Senior

Manager B under the subject ‘High Risk Client Approval’. The email attached

account approval documentation from BJB Bahamas and enhanced due diligence

completed by Ms Whitestone relating to the opening of a Yukos Capital account at

BJB Bahamas. BJB Compliance noted that it had no issues with the account

opening and asked that the form attached to the email was signed.

First FX Transaction

4.25.
On 11 August 2010, approximately GBP 271 million was received into Yukos

Capital’s account with BJB Switzerland.

4.26.
Between 11 and 13 August 2010, on the instructions of Mr Feldman who confirmed

in a handwritten note dated 12 August 2010 his awareness of the rates used for

the transactions, Ms Whitestone and the JBI Trader arranged for currency trades

to be executed by BJB on behalf of Yukos Capital, converting GBP 271,233,490 to

USD 422,419,038. The transactions were executed by BJB at an average market

rate of 1.566051, but Yukos Capital was charged the rate of 1.5574. The

difference between the two rates was taken by BJB as commission, generating

commission in excess of USD 2.34 million from the transaction and resulting in a

commission rate of approximately 0.55% of the principal sum converted, which

with Mr Feldman’s agreement was to fund both the one-off payment to Mr

Merinson and the commission required by BJB. At the time, Julius Baer usually

applied an FX commission rate of 0.15% for amounts over CHF 1 million and

0.05% for conversions over CHF 5 million. The commission rate charged on this

transaction was therefore approximately 11 times the standard commission rate

for a transaction of this size. Mr Raitzin informed the Authority that this high level

of commission did not reflect the costs of executing this specific transaction, but

rather what Julius Baer required to cover the overall costs of servicing a private

banking relationship with Yukos, including the payment of a Finder’s fee to secure

that business. However, the Authority does not consider that there was a proper

commercial rationale for making a payment to Mr Merinson in this way; if Yukos

had wished to pay Mr Merinson it could have done so directly, rather than through

such an arrangement.

4.27.
Ms Whitestone, Mr Feldman and Mr Merinson were present while the JBI Trader

instructed BJB to carry out the trades, including while trading was conducted

overnight. Ms Whitestone’s contact report and a subsequent email dated 16

August 2010 to BJB Compliance, Mr Seiler and Mr Raitzin, copying in the JBI Line

Manager, stated that Mr Feldman and Mr Merinson had remained in JBI’s offices

from 8am on Thursday morning until 9am on Friday morning and the JBI Trader

had guided them in order ‘to get the best possible rate and thereby maximise the

commission’. Ms Whitestone informed the Authority at interview that there was

‘a pre-agreed commission level that was going to have to be charged for the

foreign exchange’, and that ideally that level should not result in the rate charged

to Yukos being worse than the worst rate over those two days. The Authority

considers that the trading approach used was intended to ensure that the overall

rate achieved, after the addition of a commission rate which was to fund BJB’s

commission and Mr Merinson’s retrocession payment, would be no worse than the

worst rate available on the market on the day, with the consequence that anyone

with cause to review Yukos Capital’s records would simply see the booked rate

(1.5574), and would be unaware that the transaction had been executed at a

much more favourable rate by BJB and that the commission was of an unusual

size.

4.28.
Ms Whitestone met a member of JBI’s Board shortly after the trades had been

executed. The Board member then emailed Mr Seiler on 13 August 2010, copying

in the JBI Line Manager, to ‘share [his] excitement’ about Ms Whitestone’s

‘success’. In his email, he noted that ‘assets in excess of 300mUSD have arrived

and that an FX transaction to convert them from GBP into USD has yielded about

USD 500,000 in commission for JB’. In fact, as noted above, BJB had generated

commission of approximately USD 2.34 million from the transaction, but it

retained approximately USD 500,000 after payment of the Finder’s fee to Mr

Merinson. This was twice the amount that had been anticipated when the FX

transaction had been discussed at Ms Whitestone’s second meeting with Mr

Merinson and Mr Feldman on 7 July 2010.

First Commission Payment to Mr Merinson

4.29.
As mentioned in paragraph 4.27 above, on 16 August 2010, Ms Whitestone

emailed BJB Compliance, Mr Seiler and Mr Raitzin, copying in the JBI Line Manager,

providing details of the First FX Transaction. Ms Whitestone’s email confirmed the

amount of total commission, the amount earned in commission by Julius Baer (11

basis points) and that 80% of the commission, equal to USD 1,877,152.74, should

be transferred to Mr Merinson as the Finder on the account. The Authority

considers that Mr Raitzin would have appreciated that the amount of commission

which Julius Baer had generated from the First FX Transaction was significantly in

excess of the amount that would normally be associated with a large FX trade.

4.30.
Mr Seiler and Mr Raitzin verbally confirmed to Ms Whitestone their approval of the

First Commission Payment to be made to Mr Merinson. The Authority has not seen

any evidence that either Mr Seiler or Mr Raitzin questioned the commercial

rationale of Yukos Capital in agreeing the First FX Transaction or what interest

Yukos Capital would have in maximising the commission payable.

4.31.
On 19 August 2010, Ms Whitestone requested, copying in Mr Seiler and Mr Raitzin,

that the First Commission Payment be paid to Mr Merinson and, as requested by

Mr Merinson, that payment be made ‘preferably with the payment reference

“Investment Capital Gain” ([…] to ensure that it is not classified as employment

income which is taxed differently in the Netherlands)’. BJB Legal refused to agree

to this request but did agree that it could be stated that the payment was not

employment income. It was obvious that if the payment was referenced as an

‘Investment Capital Gain’ this would be an untrue statement. This should have

raised suspicions for Mr Raitzin.

4.32.
BJB Compliance raised concerns about the proposed payment to Mr Merinson,

noting that commission of 80% on an FX trade was not in line with Mr Merinson’s

Finder’s agreement with BJB and that Mr Raitzin’s approval would be required as

the payment of an 80% Finder’s fee exceeded BJB’s ‘maximum standards’. Mr

Raitzin responded on 20 August 2010, copying in Mr Seiler (amongst others),

stating ‘We are in front of a “fait accompli” so not much room for objection, unless

we wish to transfer the relationship to another financial institution’. This suggests

that Mr Raitzin considered that Julius Baer’s banking relationship with Yukos

Capital depended on Mr Merinson receiving the First Commission Payment. Mr

Raitzin confirmed at interview that he approved of the transaction and was in full

agreement with it, but said that at the time he thought Mr Merinson was an

independent consultant.

4.33.
At interview, Mr Raitzin recalled a conference call taking place at his behest

between himself, Mr Seiler and Ms Whitestone prior to any fees being paid to Mr

Merinson, so that Mr Raitzin could ask Ms Whitestone about the connection

between Mr Merinson and Yukos. He said that Ms Whitestone told him during that

call that Mr Merinson was a former employee of Yukos and was currently acting as

a consultant to Yukos. It appears that during that call Mr Raitzin approved the

payment of a large retrocession to Mr Merinson after satisfying himself that the

transaction was commercially beneficial to the Julius Baer Group. Mr Raitzin said

he could not recall the precise date of the call, but that it was definitely prior to

any payment being made to Mr Merinson as it was he (i.e. Mr Raitzin) who insisted

on a one-off payment for Mr Merinson’s Finder’s fee. Ms Whitestone told the

Authority that she was open about Mr Merinson’s employment relationship with

Yukos. Mr Seiler did not refer to the call at interview and the Authority has seen

no evidence to confirm whether a call took place at this time or the contents of

any discussions, but Ms Whitestone had previously told Mr Seiler and others that

Mr Merinson was a current employee of Yukos (see paragraphs 4.6 and 4.11

above) and also told BJB Compliance this on 19 August 2010 (see paragraph 4.34

below). The Authority infers from the evidence it has seen that Mr Raitzin was

aware that Mr Merinson was an employee of the Yukos Group at the time he

approved the First Commission Payment.

4.34.
Also on 19 August 2010, a member of BJB’s Business & Operational Risk Division

emailed BJB Compliance and stated that their attention had been drawn to the

First FX Transaction. They explained that they had taken a closer look at the

relationship with Yukos and the transaction documentation and had a number of

questions, including in respect of the role of Mr Merinson. Later that day, at BJB

Compliance’s request, Ms Whitestone emailed BJB Compliance ‘a little background

on the recent inflow to the JB Zurich account of Yukos Capital SaRL’. In respect of

Mr Merinson’s role, Ms Whitestone stated: ‘The finder registered on these accounts

is Dmitry Merinson who works as the Financial Director for Yukos International

U.K. BV. This is a Dutch company within the Yukos group structure and it is

indirectly the ultimate 100% shareholder of Yukos Capital SaRL. He does not have

signing power on any of the group’s companies or bank accounts but he is heavily

involved in choosing which banks should hold funds awarded to subsidiary

companies of Yukos International U.K. BV. he introduced the business to me and

is registered on the accounts for which I am the Relationship Manager as the Finder

(in accordance with his JB Finder agreement).’

4.35.
On 1 September 2010, BJB Compliance asked Ms Whitestone in an email if there

was an agreement between Yukos Capital and Mr Merinson that he was entitled to

receive Finder’s fees from BJB and, noting that Ms Whitestone had stated that he

was the ‘Financial Director for Yukos International’, stated that this ‘needs to be

clarified for conflict of interest issues’. Ms Whitestone called BJB Compliance and

explained that Mr Feldman knew about BJB’s agreement with Mr Merinson and the

large one-off payment that was being made to him. Ms Whitestone agreed with

BJB Compliance that she would get written confirmation from Mr Feldman

expressly confirming this. She informed BJB Compliance later that day that she

had spoken to Mr Feldman and he was happy to provide written confirmation, but

he had already left London to catch a flight. BJB Compliance confirmed that Ms

Whitestone could obtain Mr Feldman’s written confirmation when she next met

with him.

4.36.
On or around 1 September 2010, the First Commission Payment of approximately

USD 1.75 million was paid into Mr Merinson’s BJB Singapore account by BJB. This

appears to have been the amount payable after deducting VAT, the gross amount

being approximately USD 1.87 million. Mr Seiler signed a letter to Mr Merinson

dated 3 September 2010 regarding the payment which stated that BJB confirmed

that ‘contrary to [the Finder’s Agreement], this represents a one-off payment and

no further payments are or will become due with respect to the specific client

introduced’.

4.37.
On 3 September 2010, Ms Whitestone’s assistant sent an email to Mr Feldman and

another Fair Oaks director, copying in Ms Whitestone, confirming that the new Fair

Oaks account was open and that JBI would proceed to make a transfer from the

Yukos Capital account to the Fair Oaks account as per their instructions. On 7

September 2010, the other Fair Oaks director asked for confirmation of the credit

to Fair Oaks’ account. Ms Whitestone confirmed the transfer of USD 422,144,704

the same day.

Amendment to Mr Merinson’s Finder’s agreement with BJB

4.38.
Ms Whitestone met with Mr Feldman and Mr Merinson on 13 October 2010. She

did not obtain the written confirmation BJB Compliance had requested from Mr

Feldman at this time, although Ms Whitestone told the Authority that she provided

Mr Feldman with draft letters to be signed by himself and another director of Yukos

Hydrocarbons in September or October 2010. The letters were finally signed, by

Mr Feldman only, on 24 February 2011.

4.39.
During their meeting, Mr Feldman informed Ms Whitestone that Yukos Capital was

due to receive approximately USD 400 million from four successful pieces of

litigation. Ms Whitestone agreed that she would try to secure the following terms:

(1)
an increase in the Finder’s fee recorded in Mr Merinson’s Finder’s agreement

from 25% to 35% of the net income generated by Julius Baer from clients

introduced by Mr Merinson; and

(2)
four additional ‘one-off’ payments to Mr Merinson, calculated as 70% of

Julius Baer’s commission on four large transactions to take place by October

2011.

4.40.
Ms Whitestone agreed to try to secure the above terms so long as:

(1)
Julius Baer could charge Yukos 12 basis points on un-invested assets (at

that time around USD 372 million); and

(2)
a proposed payment of USD 50 million from Yukos Capital’s account with

Julius Baer would be paid into the Yukos Hydrocarbons account with BJB

Singapore rather than to an account with another bank (the funds would

thus stay within Julius Baer).

4.41.
From her notes of the meeting, it is clear that Ms Whitestone’s expectation was

that in respect of each large inflow of funds to Yukos Capital’s account Julius Baer

would arrange for an FX transaction ‘which would immediately earn the bank up

to 15 basis points, while up to 35 basis points would be paid to [Mr Merinson]’.

Those funds would then remain with Julius Baer ‘for at least 3 years charging even

for custody of non-invested assets’.

4.42.
On or around 13 October 2010, Ms Whitestone met with Mr Raitzin and discussed

the proposed arrangement. At interview, Mr Raitzin said that he gave his approval

in principle and told Ms Whitestone to keep her line management informed and to

discuss the proposal with other senior BJB staff.

4.43.
On 15 October 2010, Ms Whitestone sought approval from Mr Raitzin to the

proposal by email, copied to Mr Seiler. The approval of Mr Raitzin, as the Regional

Head, for the non-standard remuneration rate was required under the Co-

operation with Finders Policy. The proposal put forward by Ms Whitestone again

involved Julius Baer increasing its usual fees in order to take into account both the

payment of a retrocession to Mr Merinson and the commission required by Julius

Baer, whilst also ensuring that Julius Baer retained large sums already deposited

with it and would receive further large inflows. Mr Raitzin emailed Mr Seiler and

BJB Senior Manager A stating that ‘Your recommendation should be prior’.

4.44.
On 22 October 2010, BJB Senior Manager A, following a discussion with Mr Seiler,

sent an email to Ms Whitestone (copying in Mr Seiler and the BJB Bahamas Senior

Manager) asking her to send a short and simple business case to justify the

increase in the Finder’s fees for Mr Merinson, including estimating recurrent income

to which the proposed 35% Finder’s commission rate would apply and ‘one shot

transaction income’ to which the proposed rate of 70% would apply. Ms Whitestone

responded, by email dated 25 October 2010 (copying in Mr Raitzin as well as Mr

Seiler and the BJB Bahamas Senior Manager), that she had discussed the proposal

in detail with Mr Raitzin when he was in London and he had given her ‘the

impression that he understood the scenario and would respond positively to my

request very quickly’. She also set out her expectations of the future inflows of

cash to Julius Baer from Yukos Capital and the potential revenues this would

generate, which she indicated would be in jeopardy if Mr Merinson’s Finder’s

agreement rate was not raised to be in line with the rate he had apparently agreed

with another financial institution:

(1)
For 2011, she estimated gross revenues of USD 4,258,475 and net revenues

of USD 1,946,950; the difference of USD 2,311,525 being the amount to be

paid to Mr Merinson. Of the gross revenue for 2011, USD 2,345,000 was

expected to be generated by one-off large transactions. Ms Whitestone’s

email explained that there would be ‘an opportunity to do one-off high

revenue-yielding transactions’ on each inflow and that it was proposed to

pay Mr Merinson 70% of commission on four large transactions. The net

income for Julius Baer from these transactions was estimated at USD

703,791.

(2)
For 2012, she estimated gross revenues of USD 987,600 and net revenues

of USD 641,340; again, the difference being the amount to be paid to Mr

Merinson.

4.45.
On 25 October 2010, Mr Raitzin emailed BJB Senior Manager A and Ms Whitestone

to say that he was on vacation but had ‘discussed the issue with [Mr Seiler] prior

to giving my no objection’. Ms Whitestone and Mr Seiler subsequently had a

meeting to discuss the proposal and on 28 October 2010, Mr Seiler emailed BJB

Senior Manager A and Ms Whitestone, copying in Mr Raitzin, stating that he

approved the ‘next steps of the relationship’. The Authority has seen no evidence

that any of Ms Whitestone, Mr Raitzin, Mr Seiler or BJB Senior Manager A queried

why Mr Feldman wished to ensure that Mr Merinson received non-standard

retrocessions of this size, despite the fact such payments would significantly drive

up Yukos’ transaction costs.

4.46.
The Authority has seen no evidence that JBI Compliance or BJB Compliance were

informed or consulted about the proposal at this time.

4.47.
On 23 November 2010, Mr Merinson signed an addendum to his Finder’s

agreement with BJB. This included the increased Finder’s fees of 35% of the net

income generated by BJB, but, contrary to usual procedure and in particular to

the provisions of BJB’s Co-operation with Finders Policy, did not record the four

‘one-off’ payments agreed based on 70% of Julius Baer’s net revenues from four

large transactions. Mr Raitzin should have been aware of this as Ms Whitestone

sent an email to him and Mr Seiler the following day which attached the addendum

signed by Mr Merinson.
In addition, prior to this, on 28 October 2010, Ms

Whitestone copied Mr Raitzin and Mr Seiler into an email asking for a new Finder’s

agreement for Mr Merinson to be prepared giving him 35% of BJB’s net revenues

rather than 25%, but which made no reference to the four ‘one-off payments’ that

had been agreed.

Second FX Transaction

4.48.
Also on 23 November 2010, Ms Whitestone arranged for the JBI Trader to carry

out a further set of FX transactions on Fair Oaks’ BJB Bahamas account at

commission rates which exceeded Julius Baer’s standard margin rate – the Second

FX Transaction. Ms Whitestone emailed Mr Feldman immediately before the

transactions took place, to keep him informed of the approach being adopted by

the JBI Trader. The funds used for the Second FX Transaction comprised a portion

of the funds which had been converted into USD by the First FX Transaction; the

sum of approximately USD 68 million was converted to EUR 50,040,473,

generating a total commission of USD 1,062,000. The reason for the transaction

was set out in a letter from Mr Feldman and another Fair Oaks director to Ms

Whitestone dated 17 November 2010, which stated that EUR 50 million was

needed ‘to cover potential expenses incurred by the group’.

4.49.
Ms Whitestone agreed with Mr Feldman that Mr Merinson could utilise one of the

four 70% retrocession payments previously approved by Mr Seiler and Mr Raitzin

in relation to the Second FX Transaction. Ms Whitestone did not inform JBI or BJB

senior management of the Second FX Transaction, or of the intention to use one

of the four 70% retrocessions payments in relation to it, prior to the trading taking

place.

4.50.
The Second FX Transaction converted USD 68 million at a market rate of

1.338855. The rate charged to Fair Oaks was 1.3589, which included the total

commission charged (USD 1,062,000, a rate of approximately 1.56%), 30% of

which was retained by Julius Baer. Julius Baer’s retained commission was

equivalent to it charging Yukos a commission rate of 0.47% of the principal

amount, i.e. approximately nine times Julius Baer’s standard FX commission rate

for transactions of this size. The total commission rate (1.56%) for the Second FX

Transaction was approximately 30 times higher than Julius Baer’s standard FX

commission rate for transactions of this size and consequently significantly higher

than a client would normally pay Julius Baer for an FX transaction.

4.51.
The commission charged for the Second FX Transaction (1.56%) was much higher

than that outlined by Ms Whitestone in her email of 15 October 2010 (see

paragraph 4.43 above), in which she had stated her intention to charge 0.5% for

executing ‘large FX deals’ with Julius Baer retaining 0.15% of the principal amount

in commission and 0.35% of the principal amount being transferred to Mr

Merinson. No commercial reason was given for why Mr Feldman was willing for

Fair Oaks to pay significantly more commission (nearly three times more) than he

had previously negotiated on behalf of Yukos Capital, namely 0.55%.

Trading approach for the Second FX Transaction

4.52.
As for the First FX Transaction, the trading approach used in relation to the Second

FX Transaction had the effect of maximising the commission achieved and thereby

the revenue of Julius Baer and commission payable to Mr Merinson, in a way that

the Authority considers would not be readily apparent to an auditor or anyone

else inspecting the records of Fair Oaks. Ms Whitestone and the JBI Trader were

responsible for JBI’s use of this trading approach and Mr Feldman approved of it.

(1)
Ms Whitestone agreed with Mr Feldman in advance of the Second FX

Transaction that an intra-day range of two cents in the USD/Euro exchange

rate was required before any trading could take place. Ms Whitestone’s

contemporaneous notes of her meeting with Mr Feldman on 23 November

2010 record that the use of one of the four 70% retrocession payments

depended on the range being sufficiently large.

(2)
Ms Whitestone and the JBI Trader monitored the daily range (and updated

Mr Feldman as to the same), commencing trading only when the two cents

range had been reached.

(3)
The worst rate of the day on 23 November 2010 was 1.3625. JBI executed

the first and second tranches making up the Second FX Transaction at a rate

of 1.33855. The rate charged to Fair Oaks was 1.3589, just over two cents

more than the rate of 1.33855 and slightly better than the worst rate of the

day.

(4)
Anyone with cause to review Fair Oaks’ records would simply see the booked

rate, 1.3589 inclusive of commission, and would be unaware that the

transaction had been executed at a much more favourable rate by BJB.

4.53.
The Authority has not seen any evidence of there being any commercial rationale

for Mr Feldman requiring a range of two cents in order to trade and does not

consider there to be any such rationale. Fair Oaks did not benefit from what should

have been a favourable move in the direction of the USD/Euro price during the

afternoon of 23 November 2010. However, making use of the volatility of the FX

trading and the ‘2 cent range’ would, and in fact did, generate a very significant

level of commission for Julius Baer and Mr Merinson.

4.54.
Moreover, trading within the daily range also had the effect that the commission

charged was effectively obfuscated within the booked rate, limiting the possibility

that the large commission payment to Julius Baer would be identified and

examined by Yukos or its auditors. Scrutiny of the payments to Julius Baer and

subsequently to Mr Merinson would also have been hindered by the absence of

any written agreement relating to the 70% payment to Mr Merinson and the lack

of written client instructions in relation to the Second FX Transaction. The driving

factor in the trading was therefore not to secure best execution for Fair Oaks, but

to generate commission for Julius Baer and Mr Merinson, and there was a clear

risk that the arrangements were being structured in this way to limit the possibility

of the commission being detected. In fact, it is clear that if the range had been

too narrow, no trading would have taken place (see paragraph 4.55 below).

Mr Raitzin’s knowledge of the Second FX Transaction

4.55.
On 24 November 2010, Ms Whitestone emailed Mr Seiler and Mr Raitzin and

requested approval for a payment of USD 742,000 to Mr Merinson, being 70% of

the commission generated by BJB for executing the Second FX Transaction. Ms

Whitestone’s email stated:

‘Daniel Feldman asked me if they could utilise one of the four 70%

retrocession transactions for the conversion of USD68mil into EUR.

Otherwise, they would simply convert the USD into EUR as and when

invoices are received. This also depended on the range of the EUR:USD rate

being large (around 2 cents) over the course of our meeting today (i.e. from

8am to 6pm UK time). I agreed to this confirming that this would then leave

them with just three 70% retrocession transactions between now and

November 2011 … The range was such that we were able to execute the

FOREX yesterday, gaining net revenues for JB of USD320,000. The

retrocession to be transferred to Dmitri Merinson is approximately

USD742,000 (70%)’.

4.56.
Ms Whitestone therefore highlighted the importance of the two cent range and

the option to utilise one of the 70% retrocession payments, without which no

trading would have taken place. Ms Whitestone also explained that Mr Feldman

had indicated that if one of the 70% retrocessions could not be utilised he would

simply convert USD to EUR as and when invoices were received, an approach that

would have resulted in much lower commission payments by Fair Oaks. Her email

also confirmed the substantial commission paid to Mr Merinson and retained by

Julius Baer.

4.57.
Mr Seiler responded (copying in Mr Raitzin and others) the same day, stating that

he did not recall agreeing to four ‘one-off’ payments of 70% of BJB’s net revenue,

although he did recall approving one, and said he did not ‘support this set up’. Ms

Whitestone replied to the email (again copying in Mr Raitzin and others) attaching

a copy of Mr Seiler’s email of 28 October 2010, reminding him that he had

previously approved the arrangement. The arrangements that Mr Seiler had

previously approved were actually based on transactions and retrocession

payments relating to new inflows of cash to Julius Baer from Yukos, whereas the

Second FX Transaction involved a portion of the same funds which had been

converted into USD by the First FX Transaction; however, neither Mr Seiler nor

Mr Raitzin raised this with Ms Whitestone. Mr Raitzin emailed Mr Seiler separately

and stated ‘your jurisdiction and judgment, let me know later’. Mr Seiler replied

to Ms Whitestone later that day (copying in Mr Raitzin) stating ‘I approve’ and Mr

Raitzin then replied ‘No objection’. In approving this retrocession payment to Mr

Merinson, neither Mr Seiler nor Mr Raitzin questioned the probity of Mr Feldman’s

instructions to Ms Whitestone.

4.58.
On 25 November 2010, the BJB Bahamas Senior Manager raised concerns with

BJB Senior Manager A about the Second FX Transaction, jn an email that was not

copied to Ms Whitestone, and asked that they be escalated to Mr Raitzin ‘and/or’

Mr Seiler. In this and subsequent emails, the BJB Bahamas Senior Manager raised

the following concerns (amongst others):

(1)
He noted that Ms Whitestone, Mr Feldman and Mr Merinson had ‘[..] worked

out with the dealing room in [Zurich] (by-passing Nassau) a spread of

almost 1.5% on a $68 mio against Euro’, questioning ‘How can such a

spread be negotiated from a [sic.] ethical standpoint?’. He added: ‘It also

seems that [Ms Whitestone] is ready to do just about anything for these

intermediaries which may put the bank at risk if/when officers of the

company look at what is taking place’.

(2)
He questioned Mr Raitzin’s and Mr Seiler’s awareness of the commission

generated: ‘I understand that [Mr Raitzin] and [Mr Seiler] authorized these

4 transactions… However, they do not know how these intermediaries are

profiting from these. The spread in this case is EUR 760,766!’. As noted

above, Mr Raitzin and Mr Seiler were in fact fully aware of the commission

being charged by Julius Baer and the amount it had agreed to pay to Mr

Merinson from the transaction.

(3)
He noted that the Second FX Transaction could violate fundamental banking

regulations, including Julius Baer’s obligations of best execution, market

practices and fiduciary obligations, noting also the lack of appropriate

authorisation from an officer of Fair Oaks for the Second FX Transaction.

(4)
He also confirmed that a google search of Mr Merinson showed that he was

a manager at Yukos International. He suggested that Ms Whitestone should

explain further her relationships with Mr Feldman and Mr Merinson, and ‘who

are the real “forces” in the driver seat’.

(5)
He also questioned the apparent lack of an investment strategy (noting that

the Second FX Transaction used a portion of the funds from the First FX

Transaction).

4.59.
The BJB Bahamas Senior Manager stated that the proposed payment to Mr

Merinson would be withheld until discussions with Mr Seiler ‘and/or’ Mr Raitzin

had taken place and that he required the relationship to be ‘validated by hierarchy’

prior to taking any further steps to effect payment.

4.60.
It appears that the BJB Bahamas Senior Manager’s concerns were escalated to Mr

Raitzin and, as a result, Mr Raitzin asked Mr Seiler to put in place ‘an acceptable

framework’ for Ms Whitestone to operate within in the future, without making any

further enquiry into the concerns which had been expressed.

Second Commission Payment to Mr Merinson

4.61.
On 14 December 2010, BJB Senior Manager A emailed Ms Whitestone, copying in

Mr Seiler, stating that he had spoken to Mr Raitzin and Mr Seiler and had

requested that the paperwork to pay Mr Merinson’s retrocession be prepared. It

was noted that due to the amount of money involved, Mr Raitzin, as Chairman of

the Board of Directors of BJB Bahamas, needed to sign the documents.

4.62.
On 17 December 2010, BJB Senior Manager A emailed Mr Seiler, copying in Mr

Raitzin and BJB Senior Manager B, stating that Mr Raitzin had told him that Mr

Seiler needed to ‘define an acceptable framework for [Ms Whitestone] and the

bank to operate in’. BJB Senior Manager A suggested this would include (among

other things):

(1)
getting ‘a signature from someone above [Mr Merinson] to ensure

transparency of retro’;

(2)
transaction orders and instructions ‘to be properly documented and signed

by client’; and

(3)
‘define acceptable spread range (based on transaction side [sic.] and

product)’.

4.63.
On 21 December 2010, BJB Senior Manager A emailed a memorandum to Mr

Raitzin for his ‘review and approval’ (copying in Mr Seiler). BJB Senior Manager A

stated ‘please note that as per your request, I’ve asked Thomas to provide us and

Louise with an acceptable framework to operate this particular relationship in the

future. Thomas being on holiday we can expect this framework early next year.’

He also stated that Ms Whitestone is ‘pushing for at least a payment before

Christmas to the finder, rest of payment is due on a yearly basis as per frequency

of payment defined in finder agreement. Therefore, in order to proceed I need

your approval as Chairman of the Board’. Mr Raitzin replied to Mr Seiler and BJB

Senior Manager A on 22 December 2010, ‘No objection for payment. Please

regularise pending issues and set up correct framework. Last time it comes to my

approval without Market Head [i.e. Mr Seiler] approval’.

4.64.
The Authority has identified an unsigned memorandum titled ‘Information

Memorandum to the Board related to Russian business introduced to Julius Baer

Bank and Trust Nassau thereafter “the Bank” 17th day of December 2010’ which

WHEREAS, it was noted that the Bank Julius Baer & Co. AG, Zurich (Julius

Baer Zurich) entered into a finder agreement (agreement) dated July 8th,

2010 with new conditions signed on 23.11.2010 with D.M., for the

introduction of accounts to the Julius Baer Group.

WHEREAS, it was further noted that the Bank has benefited from this

agreement, by way of accounts opened in its books.

30

NOW, THEREFORE, BE IT RESOLVED that a payment in the amount of CHF

786,387.44 for Q3 and Q4.2010 be made to Julius Baer Zurich so that they

can meet their obligations under said agreement. This payment being based

on the calculation attached, which forms part of this Memorandum and being

pre-approved by Thomas Seiler, Market Head CEE, Russia’.

4.65.
The memorandum included a signature block for Mr Raitzin (as Chairman of the

Board) under the words ‘Reviewed with no objections’. The memo attached four

calculations showing the 25% and 35% retrocessions due to Mr Merinson in Q3

and Q4 2010 and the 70% retrocession payable in relation to the Second FX

Transaction. The Authority considers that this is the memorandum that was

attached to the email from the BJB Senior Manager to Mr Raitzin asking for his

approval on 21 December 2010.

4.66.
Mr Seiler stated at interview that he discussed the payment of the Second

Commission Payment with BJB Senior Manager A and Mr Raitzin and they ‘resolved

that as a group of three’. BJB Senior Manager A stated at interview that Mr Raitzin

took over responsibility for the issue. Mr Raitzin’s evidence at interview was that

Mr Seiler and BJB Senior Manager A approved the payment of the Second

Commission Payment to Mr Merinson before he gave his approval. The evidence

suggests that all three were involved in discussions relating to the payment of the

fee and that Mr Raitzin’s final approval was required before the payment to Mr

Merinson could be made.

4.67.
On 22 December 2010 Mr Raitzin, on behalf of the Board of BJB, approved a

payment of CHF 786,387.44 from BJB Bahamas (where the Second FX Transaction

was booked) to BJB Zurich in order to enable BJB Zurich to pay Mr Merinson fees

including a ‘one-off’ of 70% of the commission received by BJB on the Second FX

Transaction. Mr Raitzin and Mr Seiler were aware that the ‘framework’ Mr Raitzin

had requested, which was designed to address the concerns of the BJB Bahamas

Senior Manager, had not been put in place at this time and would not be until

‘early next year’, but nonetheless Mr Raitzin approved the Second Commission

Payment and Mr Seiler took no steps to prevent it.

4.68.
The Second Commission Payment totalling CHF 723,977 was paid by BJB

Switzerland into Mr Merinson’s personal BJB Singapore account on 31 December

2010.

Mr Raitzin ceases to be Regional Head

4.69.
From March 2011, Mr Raitzin ceased to be Regional Head for Latin America, Spain,

Russia, Central and Eastern Europe and Israel and became the CEO of BJB in Latin

America. Mr Seiler no longer reported to Mr Raitzin and instead reported to Mr

Raitzin’s replacement as Regional Head, another BJB senior manager. Mr Raitzin

accordingly ceased to have responsibility for the oversight of the Yukos

relationship.

Onward payments from Mr Merinson to Mr Feldman

4.70.
On 7 April 2011, Ms Whitestone’s assistant arranged for two cash transfers to be

made from Mr Merinson’s personal account for the benefit of Mr Feldman. Ms

Whitestone had previously been informed, on 16 August 2010, that Mr Merinson

‘was going to transfer a proportion of the commission away to Daniel Feldman’s

Julius Baer account’ but, although she recorded this in a file note, did not share

this information with anyone else at Julius Baer, except for her assistant and

possibly the JBI Line Manager. Ms Whitestone was copied into her assistant’s email

to BJB Singapore giving instructions for the transfers and the Authority infers that

she was aware of them. The total amount transferred was USD 1,262,451, exactly

50% of the commission fees paid to Mr Merinson by Julius Baer in the First and

Second Commission Payments. The JBI Line Manager signed the paperwork

authorising the payments. The Authority has seen no evidence that Mr Raitzin

knew about the transfers at this time or of Mr Merinson’s intention to share his

commission with Mr Feldman.

Third FX Transaction

4.71.
On 15 August 2011, the JBI Trader sent an email to Mr Feldman, copying in Ms

Whitestone, to confirm that a trade had been placed to sell EUR 7 million and to

buy USD for Fair Oaks. Mr Feldman confirmed the trade on the same day. On 16

August 2011, a staff member at BJB Bahamas emailed Ms Whitestone and others

to confirm the trade and questioned why the bank had made such a high margin

on the trade. In reply, Ms Whitestone stated, ‘The agreement with the client was

that for any foreign exchanges, the rate booked to the client would always have

to be at least 8 basis points above the low of the day so that the ultimate beneficial

owners cannot be disadvanted (sic). This transaction complies with that

agreement. In order to achieve a large margin on such FX trades, [the JBI Trader]

has to exclusively monitor the rate all day (which means he can do nothing else)

and our hope is that this commitment to the trade is then rewarded by the margin

achieved’.

4.72.
On 19 August 2011, Ms Whitestone sent an email to Mr Seiler and copied in the

JBI Line Manager, a member of JBI’s Board and others, and stated ‘even though

both you and Gustavo fully pre-approved the four one-off 70% transactions

already, I am writing to refresh memories and to ensure that [a member of the

JBI Board] is kept fully in the loop (we will be using one of the one-off

retrocessions for the conversion of EUR7mil into USD)’. The member of JBI’s Board

responded to Ms Whitestone’s email to thank her for keeping him informed. Later

that day, Mr Seiler emailed a BJB manager and stated ‘what do you think?’ The

Authority has seen no evidence that Mr Raitzin was informed of the Third FX

Transaction at the time or that he was involved in approving it or the Third

Commission Payment (see paragraph 4.78 below).

4.73.
On 29 December 2011, a staff member at BJB Bahamas emailed Ms Whitestone

in relation to the ‘2011’s transactions’ and stated ‘I wanted confirmation that we

are only to pay out one one-off retrocession for the conversion of EUR7mil into

USD on 15th August. This is the only one that I have in my records also so I just

wanted to ensure that we were on the same page’. Ms Whitestone replied to

confirm that was correct.

4.74.
The calculations undertaken by the staff member at BJB Bahamas show that CHF

64,518.89 was paid to Mr Merinson in respect of the Third FX Transaction.

Request by Ms Whitestone to open a Fair Oaks account at BJB Guernsey

in order to transfer Fair Oaks asset from BJB Bahamas

4.75.
In December 2011, Mr Raitzin was part of discussions following a request from

Yukos to open an account for Fair Oaks with BJB Guernsey.

4.76.
On 5 December 2011, Ms Whitestone emailed Mr Seiler and copied in BJB

Compliance, JBI Compliance and JBI senior management, and requested Mr

Seiler’s approval to open another account for Fair Oaks at BJB Guernsey. In the

email, she explained that Mr Merinson and Mr Feldman wanted to transfer funds

from BJB Bahamas on account of a leak of information. She added that Mr

Merinson ‘only has one “one-off” retrocession left this year and he has no intention

of entering into a Finder agreement with Guernsey’ although she noted that there

was ‘a possibility that the finder will seek to request one-off retrocessions for new

inflows… but no retrocessions will be deducted from fees paid for annual custody

fees or daily trading’. BJB Compliance responded that the reasons for the transfer

were not ‘sufficiently plausible’ and that a transfer would involve making a

notification in the Bahamas and the prior agreement of regulators in Guernsey.

Ms Whitestone asked what the maximum amount the client could transfer would

be to avoid the notification requirements. BJB Compliance responded on 13

December 2011, stating that it viewed the request as ‘highly unusual and still not

sufficiently justified’ and adding ‘Furthermore it is not up to the bank to advise on

what is acceptable rationale for the transfer, either the client can give us a

plausible reason or not’. The account opening did not proceed.

4.77.
On 15 December 2011, Mr Raitzin attended a teleconference with Ms Whitestone

and other BJB senior managers to discuss the proposed transfer from the Fair

Oaks account at BJB Bahamas to the Yukos account at BJB Guernsey. In the

meeting minutes, it is noted that Mr Raitzin raised the issue of the retrocession

payments provided to the client upon the condition that ‘the funds stayed with JB

Bahamas for 3 years’. In relation to the proposed transfer from Fair Oaks to BJB

Guernsey, Mr Raitzin stated that it would need to be made clear that there was

no financial gain to the client or the Finder from the move.

Third Commission Payment to Mr Merinson

4.78.
On 1 February 2012, the Third Commission Payment was paid into Mr Merinson’s

personal BJB Singapore account in the sum of CHF 373,256. The Third

Commission Payment was made up of two sums. The first sum was paid under Mr

Merinson’s Finder’s agreement with BJB being 35% of the income generated from

the Yukos Capital and Fair Oaks accounts during 2011. The second sum was from

commission earned on the Third FX Transaction. This brought the total amount of

the three commission payments to Mr Merinson to approximately USD 3 million.

The JBI Line Manager notifies JBI Compliance of potentially suspicious

activities

4.79.
On 28 November 2012, Ms Whitestone’s employment with JBI was terminated.

On 30 November 2012, the JBI Line Manager sent an email to JBI Compliance

detailing potentially suspicious activities involving Ms Whitestone, Mr Merinson

and Mr Feldman. The email stated that Ms Whitestone ‘proposed a non-standard

[Finder’s] agreement for [Mr Merinson] in order to bring this business to [Julius

Baer] (approx. USD400 million)’. The email referred to the FX Transactions and

payment of retrocession fees to Mr Merinson, and also explained that Mr Merinson

had made a payment to Mr Feldman from his Julius Baer account.

4.80.
The email concluded: ‘I suspect that once DM's deal with JB is found out, we could

be open to legal action from Yukos and in breach of FSA and FINMA regulations

and potentially the UK Bribery Act 2010 […]’.

4.81.
Despite the seriousness of the matters addressed in the JBI Line Manager’s email

and the fact that JBI was quickly able to substantiate some of these matters, JBI

did not report them to UK law enforcement until 22 May 2014. It subsequently

did not provide the details to the Authority until 7 July 2014, some 19 months

after receiving the JBI Line Manager’s email.

4.82.
On or around 27 February 2014, Yukos informed JBI that it wished to close its

accounts with BJB and that JBI should liquidate the assets it was holding in its

accounts. Up until this point, the new relationship manager for the Yukos accounts

(who was unaware of the unusual transactions and commission arrangements)

and Mr Seiler had continued to discuss additional business opportunities with Mr

Merinson and Mr Feldman.

4.83.
On 8 April 2014, an internal meeting took place between Mr Raitzin and other BJB

senior managers to discuss next steps. It was agreed that Mr Raitzin would

address BJB’s intention to compensate the client for the inflated margin and that

Mr Feldman and Mr Merinson should participate by repaying their Finder’s fees.

4.84.
On 21 May 2014, Mr Raitzin and another BJB senior manager attended a meeting

with Mr Merinson, during which he ‘explained that the requested confirmation by

the Y-Group board on the finder’s set up cannot be obtained’. It was recorded that

during the meeting Mr Merinson showed ‘cooperation to participate in the

compensation payment’.

4.85.
On 22 May 2014, an internal call was held which Mr Raitzin attended. It was

agreed that a suspicious transaction report should be filed in the affected

jurisdictions.

4.86.
On the same day, JBI reported potential acts of bribery and corruption to UK law

enforcement. It referred to payments made by Julius Baer to Mr Merinson in

Finder’s fees and stated that the payments may have been tainted by a scheme

by Mr Merinson and Mr Feldman to defraud entities in the Yukos Group.

4.87.
On 6 June 2014, there was a meeting between Mr Merinson and Mr Raitzin. A note

of the meeting reported that Mr Raitzin told Mr Merinson that his offer of

participation in the compensation was not sufficient and that Mr Raitzin said to Mr

Merinson that BJB was ready to compensate Yukos up to 3 million USD. Mr

Merinson responded that it was not necessary as changes in the Yukos Group

board were expected after which the respective confirmation of the Finder’s set

up could be obtained.

4.88.
On 12 June 2014, Mr Merinson called Mr Raitzin and stated that there were

contemporaneous Yukos Group minutes approving the transaction which could be

provided. Mr Merinson offered to meet Mr Raitzin to find a solution. Mr Raitzin

responded that negotiations could only be with the Yukos Group.

Related litigation

4.89.
Mr Merinson’s employment with Yukos ended on 1 January 2016. Yukos

International, Yukos Capital and Yukos Hydrocarbons instituted court proceedings

against Mr Merinson in England on 3 May 2017 alleging, among other things, that

he had breached his employment contract by taking “kickbacks” amounting to

millions of pounds from financial institutions with which he was charged with

negotiating the Yukos Group’s financial and banking arrangements and that he

knew or must have known that the fee sharing arrangement with Julius Baer was

in breach of his obligations under his employment contract. Yukos also instituted

court proceedings in the US against Mr Feldman, alleging, among other things,

that Mr Feldman breached fiduciary duties owed to companies for which he was a

director and misappropriated monies for personal gain.

4.90.
Julius Baer brought its concerns regarding the payments to Mr Merinson to the

attention of the Yukos Group and on 31 May 2018 it provided restitution for losses

incurred by the Yukos Group plus interest.

5.
FAILINGS

5.1.
The regulatory provisions relevant to this Notice are referred to in Annex A.

Lack of fitness and propriety

5.2.
The Authority will have regard to a number of factors when assessing the fitness

and propriety of a person, including the person’s honesty, integrity and reputation.

36

5.3.
As a result of the facts and matters described above, Mr Raitzin’s conduct has

fallen short of the minimum regulatory standards and the Authority considers he

is not fit and proper because he lacks the requisite integrity. A person may lack

integrity where he acts recklessly.

5.4.
Mr Raitzin was reckless in relation to the conduct of Julius Baer’s relationship with

Mr Merinson and Yukos. He must have been aware of the obvious risks arising

from this relationship, but failed to have regard to those risks and failed to take

appropriate action in light of them.

(1)
In July 2010, Julius Baer entered into Finder’s arrangements with Mr

Merinson, which were negotiated by Ms Whitestone with Mr Feldman and Mr

Merinson.
These arrangements were entered into after Ms Whitestone

reported to the JBI Line Manager and Mr Seiler on 7 July 2010 that:

a. Mr Feldman had indicated that he would arrange for Yukos Capital to

deposit a sum with Julius Baer representing an inflow of funds from a

successful litigation award, which he expected would be between £280

million and £430 million.

b. Mr Feldman, the sole director of and sole signatory for Yukos Capital,

had also asked whether Julius Baer would be able to make a ‘one-off’

payment to Mr Merinson, of around 1% of the total assets on the

account.

c. She had responded that Julius Baer would need a guaranteed return on

assets of at least 1.2%, that the fee to Mr Merinson could be generated

from a large USD/GB CoY on which Julius Baer would apply 1.4%

commission and pay 70% of this to Mr Merinson, and that Mr Merinson

would not receive for at least one year the standard Finder’s fee of 25%

of the net income generated by BJB from clients introduced by Mr

Merinson (which it appears had previously been agreed in principle with

him and which, contrary to the provisions of BJB’s Co-operation with

Finders Policy, was subsequently the only payment mentioned in Mr

Merinson’s written agreement that he entered into the following day).

d. On that basis, she was told that the funds would remain with Julius Baer

on the Yukos Hydrocarbons account and that there would be further

substantial funds to come.

(2)
In August 2010, at a time when he was aware that Julius Baer had entered

into Finder’s arrangements with Mr Merinson, and that Mr Merinson was a

Yukos employee, Mr Raitzin approved the First Commission Payment. Mr

Raitzin thereby approved both the Finder’s arrangements which Julius Baer

had entered into with Mr Merinson and the arrangements by which the

commission was generated in the First FX Transaction. The First FX

Transaction involved Julius Baer converting approximately GBP 271 million

received from Yukos Capital into USD. The trading took place at rates 11

times Julius Baer’s standard commission rate for FX transactions of this size,

and resulted in commission totalling in excess of USD 2.3 million being

charged to Yukos Capital; 80% of the commission was paid to Mr Merinson,

and the remaining 20% (approximately USD 469,000) was retained by

Julius Baer. This constituted a return to Julius Baer of 0.11%, which was

itself more than double its standard commission on an FX transaction of this

size. Mr Raitzin gave his approval after Ms Whitestone had sought approval

(which was refused by BJB Legal) for Mr Merinson’s request that the First

Commission Payment be referenced as “Investment Capital Gain”, which

should have caused Mr Raitzin to recognise the risk that this was an attempt

by Mr Merinson to disguise the true nature of the payment. In giving his

approval, Mr Raitzin recklessly failed to have regard to the following obvious

risks, of which he must have been aware:

a. The risk that there was no proper commercial rationale for any payment

to Mr Merinson or for a Finder’s agreement with Mr Merinson, which

related to the introduction of Yukos Capital to Julius Baer. Mr Raitzin did

not question why Yukos would wish to pay such a large sum of money

to an employee and why, even if it did want to reward Mr Merinson, it

would want to do so through a Finder’s relationship with Julius Baer;

and

b. Given the involvement of Mr Feldman, the sole director of and signatory

for Yukos Capital and the only person at Yukos (other than Mr Merinson)

known to be aware of the arrangements, in approving the Finder’s

arrangements and in the First FX Transaction, the risk that the

38

arrangements and the First FX Transaction involved a breach of both Mr

Merinson’s and Mr Feldman’s duties to the relevant Yukos Group

companies, were not in the interests of those companies, and were

made in order to facilitate the improper diversion of funds from Yukos

Capital to Mr Merinson (and potentially to Mr Feldman).

(3)
In October 2010, Mr Raitzin approved amendments proposed by Mr Feldman

and Mr Merinson to the original Finder’s arrangements, under which Mr

Merinson’s Finder’s fee was increased from 25% to 35% of net income

generated by Julius Baer, and under which he was permitted to receive four

additional ‘one-off’ payments, calculated as 70% of Julius Baer’s commission

on four large transactions, relating to new inflows of funds, to take place by

October 2011. Only the increase in Mr Merinson’s share of net income was

documented. In return, among other things, Yukos’ funds were to remain

with Julius Baer for at least three years. There was no proper commercial

rationale for these arrangements and, in approving them, Mr Raitzin

recklessly failed to have regard to the obvious risk, of which he must have

been aware, that these arrangements were in breach of Mr Merinson’s and

Mr Feldman’s duties to the relevant Yukos Group Companies, were not in

the interests of those companies, and were designed to divert funds

improperly from the Yukos Group Companies to Mr Merinson (and potentially

to Mr Feldman).

(4)
In November 2010, the Second FX Transaction was carried out, in which

Julius Baer converted approximately USD 68 million of Yukos funds (which

formed a portion of the funds converted into USD by the First FX

Transaction) into EUR. The trading approach (which mirrored that adopted

in the First FX Transaction and was agreed with Mr Feldman) involved a

large daily rate range and Fair Oaks paying just above the worst rate

available in the market, so that the spread between that and the rate at

which Julius Baer transacted would cover both the commission required by

Julius Baer and a further commission payment which would be made to Mr

Merinson as Finder. There was no proper commercial rationale for Yukos to

adopt such an arrangement. The trading approach had the effect that the

amount charged for the combination of Julius Baer’s commission and the

retrocession payment that was to be made to Mr Merinson would not be

obvious; and by ensuring that the rate charged to Fair Oaks was above the

worst rate of the day, had the effect that anyone with cause to examine Fair

Oaks’ records would not be put on notice that the commission was of an

unusual size. The Second FX Transaction took place at a rate approximately

30 times higher than Julius Baer’s standard commission rate for transactions

of this size, and resulted in commission in excess of USD 1 million being

charged to Fair Oaks; 70% of this sum was paid to Mr Merinson, and the

remaining 30% (approximately USD 320,000) was retained by Julius Baer

and constituted a return of 0.47%. This was itself far in excess of Julius

Baer’s standard commission on an FX transaction of this size. Mr Raitzin

approved the Second Commission Payment and thereby approved the

arrangements by which the commission was generated in the Second FX

Transaction. In doing so, Mr Raitzin recklessly failed to have regard to the

obvious risk, of which he must have been aware, that the transaction formed

part of an improper scheme to divert funds to Mr Merinson (and potentially

to Mr Feldman) in breach of their duties to the relevant Yukos Group

Companies.

(5)
In the event, before the Second Commission Payment was made, Mr Raitzin

became aware of the concerns that had been raised about the Second FX

Transaction by the BJB Bahamas Senior Manager. In response to those

concerns, Mr Raitzin set Mr Seiler the task of putting in place an ‘acceptable

framework’ for Ms Whitestone and the bank to operate in and asked him to

‘regularise pending issues’, and did not make any further enquiry into the

concerns which had been expressed. In the circumstances, Mr Raitzin must

have been aware that there was a risk that the arrangements with Mr

Merinson and Yukos were improper, yet he recklessly proceeded to confirm

his approval of the Second Commission Payment, which was ultimately paid

to Mr Merinson on 31 December 2010, before Mr Seiler had taken the actions

that Mr Raitzin had tasked him with.

5.5.
There was no proper commercial rationale for the unusual and elaborate steps

requested by Mr Feldman and implemented by Julius Baer to generate funds for

the benefit of Mr Merinson. Mr Raitzin was an experienced financial services

professional and held a senior position with BJB. Mr Raitzin must have been aware,

given his experience and in light of the matters set out above, of the obvious risks

arising from Julius Baer’s relationship with Mr Merinson and Yukos. However,

rather than object to the Finder’s arrangements or arrange for them to be properly

investigated, Mr Raitzin continued to support them as the relationship progressed,

and approved the payment of the First and Second Commission Payments

pursuant to the arrangements. In doing so, he acted recklessly and with a lack of

integrity.

6.
SANCTION

6.1.
The Authority has the power to prohibit an individual under section 56 of the Act

if it appears to the Authority that the individual is not a fit and proper person. In

light of the serious nature of Mr Raitzin’s misconduct, involving a lack of integrity,

the Authority considers that Mr Raitzin is not a fit and proper person to perform

any function in relation to any regulated activity carried on by an authorised

person, exempt person or exempt professional firm. The Authority considers that

it is therefore appropriate and proportionate in all the circumstances to impose a

prohibition order on Mr Raitzin under section 56 of the Act in those terms.

6.2.
In deciding to impose a prohibition order on Mr Raitzin, the Authority has had

regard to the guidance in Chapter 9 of EG. The Authority has, in particular, taken

account of the fact that Mr Raitzin’s misconduct occurred several years ago and

that he has never carried out a financial services role in the UK or been an

approved person. However, the Authority considers that the seriousness of Mr

Raitzin’s misconduct, which involved him recklessly failing to have regard to the

obvious risks arising from Julius Baer’s relationship with Mr Merinson and Yukos

and the payment of significant amounts of commission pursuant to that

relationship, and failing to take appropriate action in light of those risks, over a

period of several months, is such that Mr Raitzin poses a serious risk to confidence

in the UK financial system. The Authority considers that it is appropriate to impose

a prohibition order on Mr Raitzin in order to advance the Authority’s operational

objectives of securing an appropriate degree of protection for consumers and of

protecting and enhancing the integrity of the UK financial system.

7.
REPRESENTATIONS

7.1.
Annex B contains a brief summary of the key representations made by Mr Raitzin

and by Mr Merinson and Mr Feldman (as persons with third party rights in respect

of the Warning Notice) and how they have been dealt with. In making the decision

which gave rise to the obligation to give this Notice, the Authority has taken into

account all of the representations made by Mr Raitzin, Mr Merinson and Mr

Feldman, whether or not set out in Annex B.

8.
PROCEDURAL MATTERS

8.1.
This Notice is given to Mr Raitzin under section 57 and in accordance with section

388 of the Act.

8.2.
The following statutory rights are important.

Decision maker

8.3.
The decision which gave rise to the obligation to give this Notice was made by the

RDC. The RDC is a committee of the Authority which takes certain decisions on

behalf of the Authority. The members of the RDC are separate to the Authority

staff involved in conducting investigations and recommending action against firms

and individuals. Further information about the RDC can be found on the Authority’s

The Tribunal

8.4.
Mr Raitzin has the right to refer the matter to which this Notice relates to the

Tribunal. Under paragraph 2(2) of Schedule 3 of the Tribunal Procedure (Upper

Tribunal) Rules 2008, Mr Raitzin has 28 days from the date on which this Notice

is given to him to refer the matter to the Tribunal. A reference to the Tribunal is

made by way of a signed reference notice (Form FTC3) filed with a copy of this

Notice. The Tribunal’s contact details are: The Upper Tribunal, Tax and Chancery

9730; email: fs@hmcts.gsi.gov.uk). Further information on the Tribunal, including

guidance and the relevant forms to complete, can be found on the HM Courts and

Tribunal Service website:

8.5.
A copy of the reference notice (Form FTC3) must also be sent to the Authority at

the same time as filing a reference with the Tribunal. A copy of the reference

notice should be sent to Nicholas Hills at the Financial Conduct Authority, 12

Endeavour Square, London E20 1JN.

8.6.
Once any such referral is determined by the Tribunal and subject to that

determination, or if the matter has not been referred to the Tribunal, the Authority

will issue a final notice about the implementation of that decision.

Access to evidence

8.7.
Section 394 of the Act applies to this Notice.

8.8.
The person to whom this Notice is given has the right to access:

(1)
the material upon which the Authority has relied in deciding to give this

Notice; and

(2)
the secondary material which, in the opinion of the Authority, might

undermine that decision.

Third party rights

8.9.
A copy of this Notice is being given to the following persons, pursuant to section

393(4) of the Act, as third parties identified in the reasons above and to whom in

the opinion of the Authority the matter to which those reasons relate is prejudicial.

Each of those parties has similar rights to those mentioned in paragraphs 8.4 and

8.8 above in relation to the matters which identify him/her/it:

(1)
Dmitri Merinson

(2)
Daniel Feldman

(3)
Bank Julius Baer & Co. Ltd

(4)
Julius Baer International Ltd

Confidentiality and publicity

8.10.
This Notice may contain confidential information and should not be disclosed to a

third party (except for the purpose of obtaining advice on its contents). In

accordance with section 391 of the Act, a person to whom this Notice is given or

ANNEX A

RELEVANT STATUTORY AND REGULATORY PROVISIONS

RELEVANT STATUTORY PROVISIONS

1.1.
The Authority’s statutory objectives are set out in Part 1A of the Act, and include

the operational objectives of securing an appropriate degree of protection for

consumers and of protecting and enhancing the integrity of the UK financial system

(set out in sections 1C and 1D of the Act).

1.2.
Section 56 of the Act provides that the Authority may make an order prohibiting an

individual from performing a specified function, any function falling within a

specified description or any function, if it appears to the Authority that that

individual is not a fit and proper person to perform functions in relation to a

regulated activity carried on by an authorised person, exempt person or a person

to whom, as a result of Part 20, the general prohibition does not apply in relation

to that activity. Such an order may relate to a specified regulated activity, any

regulated activity falling within a specified description, or all regulated activities.

RELEVANT REGULATORY PROVISIONS

The Fit and Proper Test for Approved Persons

1.3.
The part of the Authority’s Handbook entitled “The Fit and Proper Test for

Employees and Senior Personnel” (“FIT”) sets out the criteria that the Authority will

consider when assessing the fitness and propriety of an individual to perform a

controlled function. FIT is also relevant in assessing the continuing fitness and

propriety of an approved person.

1.4.
FIT 1.3.1G states that the Authority will have regard to a number of factors when

assessing the fitness and propriety of a person. The most important considerations

will be the person’s honesty, integrity and reputation, competence and capability

and financial soundness.

1.5.
FIT 2.1.1G provides that in determining a person’s honesty and integrity the

Authority will have regard to all relevant matters.

The Authority’s policy for exercising its power to make a prohibition order

1.6.
The Authority’s policy in relation to prohibition orders is set out in Chapter 9 of the

Enforcement Guide (“EG”).

1.7.
EG 9.1 states that the Authority may exercise this power where it considers that,

to achieve any of its regulatory objectives, it is appropriate either to prevent an

individual from performing any functions in relation to regulated activities or to

restrict the functions which he or she may perform.

1.8.
EG 9.2.2 sets out the general scope of the Authority’s powers in respect of

prohibition orders, which include the power to make a range of prohibition orders

depending on the circumstances of each case and the range of regulated activities

to which the individual’s lack of fitness and propriety is relevant.

1.9.
EG 9.2.3 provides that the scope of a prohibition order will depend on the range of

functions that the individual performs in relation to regulated activities, the reasons

why he is not fit and proper, and the severity of risk which he poses to consumers

or the market generally.

1.10. EG 9.3.2 provides that, when deciding whether to make a prohibition order against

an approved person, the Authority will consider all the relevant circumstances of

the case which may include, but are not limited to, the following factors (among

others):

(1) whether the individual is fit and proper to perform functions in relation to

regulated activities. The criteria for assessing the fitness and propriety of an

approved person are contained in FIT 2.1 (Honesty, integrity and reputation),

FIT 2.2 (Competence and capability) and FIT 2.3 (Financial soundness);

(2) whether, and to what extent the approved person has failed to comply with the

Statements of Principle;

(3) the relevance and materiality of any matters indicating unfitness;

(4) the length of time since the occurrence of any matters indicating unfitness;

(5) the particular controlled function the approved person is (or was) performing,

the nature and activities of the firm concerned and the markets in which he

operates;

(6) the severity of the risk which the individual poses to consumers and to

confidence in the financial system; and

(7) the previous disciplinary record and general compliance history of the

individual.

1.11. EG 9.5.1 provides that, where the Authority is considering making a prohibition

order against a person who is not an approved person, the Authority will consider

the severity of the risk posed by the individual, and may prohibit the individual

where it considers this is appropriate to achieve one or more of its statutory

objectives.

1.12. EG 9.5.2 provides that, when considering whether to exercise its power to make a

prohibition order against such an individual, the Authority will consider all the

relevant circumstances of the case. These may include, but are not limited to,

where appropriate, the factors set out in EG 9.3.2.

ANNEX B

REPRESENTATIONS

Mr Raitzin’s Representations

1. A summary of Mr Raitzin’s representations, and the Authority’s conclusions in respect
of them, is set out below.

Summary of Mr Raitzin’s position

2. The case against Mr Raitzin is based on a series of inferences as to his knowledge,
each of which is incorrect and is unsupported by the contemporaneous documents.
The contemporaneous documents show that Mr Raitzin acted properly based on the
(often incorrect) information he had. He took decisions at a time when he was being
actively misled as to the true position.

3. Mr Raitzin’s role in the approval of any Finder’s relationship or payment of commission
was to review and give high-level approval to proposals (where he believed
appropriate), the detail of which was managed by specialists within the relevant market
with responsibility for the client relationship, and which had been reviewed in detail
and approved by local management, senior BJB Compliance officers specialising in the
review of high-risk customers and transactions, and the Market Head concerned. He
relied on the honesty, integrity and competence of his staff.

4. Ms Whitestone acted in her own interests and those of Mr Merinson and Mr Feldman,
not those of BJB, JBI or Yukos. She misled senior staff at Julius Baer, including Mr
Raitzin, and carefully concealed crucial information from them. In particular, she
carefully withheld three critical facts from Mr Raitzin:

a. That Mr Feldman was going to receive a kickback from Mr Merinson.
Mr
Feldman was in effect authorising the payment of Finder’s fees to himself,
rather than being an independent director acting in the best interest of Yukos.
Ms Whitestone knew this but carefully omitted it from all requests for approval.

b. That Mr Merinson was in fact a Yukos Group employee, not an independent
adviser and consultant which is what she told Mr Raitzin.

c. That Mr Merinson was in reality in control of the funds held by Yukos and was
therefore operating as a shadow director of Yukos. This was clear from a letter
that Ms Whitestone prepared in March 2010, addressed to Yukos International
but concerning the Yukos Capital account, which was signed by her and another
relatively junior JBI employee who was not ordinarily involved in that account,
and approved by Mr Merinson. The letter confirmed that JBI would not execute
transfer instructions without receiving ‘valid confirmation’ from Mr Merinson and
provided that this procedure applied ‘with no exceptions’.

5. Ms Whitestone withheld these facts because she recognised that, if Mr Raitzin was
aware of them, he would act with integrity and would not have sanctioned the Finder’s
arrangement or payments.

6. Mr Raitzin was not engaged in the detail of Mr Merinson’s Finder’s arrangements or of
the Yukos accounts and the development of the relationship. He authorised the First
and Second Commission Payments to Mr Merinson only on the basis that outstanding

concerns were resolved and proper documentation was obtained to support the
transactions. In particular, he insisted that evidence needed to be obtained that a
properly authorised representative of Yukos approved the transactions.

7. The Authority does not agree that Mr Raitzin acted properly based on the information
he had. Mr Raitzin was aware of the key features of the Finder’s arrangements with
Mr Merinson and of the arrangements by which commission was generated in the First
and Second FX Transactions. The Authority also considers that he was aware that Mr
Merinson was a Yukos employee (see paragraph 10 below). Given that he was an
experienced financial services professional, the risk that there was no proper
commercial rationale for these arrangements must have been clear to him and he
should have regarded them as suspicious.

8. The Authority agrees that it was appropriate for Mr Raitzin to place reasonable reliance
on those reporting to him. However, where he was aware of matters that gave rise to
causes for concern, he should have asked questions and sought assurance that the
proper steps had been taken, rather than fail to have regard to the risks and place the
blame on others.

9. Although Mr Raitzin did not know of Mr Merinson’s intention to share his commission
with Mr Feldman, of which Ms Whitestone was informed on 16 August 2010, he must
have been aware of the risks: (i) that there was no proper commercial rationale for
any payment to Mr Merinson or for a Finder’s agreement with Mr Merinson, which
related to the introduction of Yukos Capital to Julius Baer; and (ii) given Mr Feldman’s
involvement, that the arrangements were made in order to facilitate the improper
diversion of funds not only from Yukos Capital to Merinson, but also potentially to Mr
Feldman too.

10. As explained in paragraph 4.34 of this Notice, the Authority infers from the evidence
it has seen that Mr Raitzin was aware that Mr Merinson was a Yukos employee.

11. Ms Whitestone explained to the Authority that the procedure set out in the letter she
prepared in March 2010 was required because, although Mr Feldman was authorised
to give such transfer instructions to JBI, in light of his US residence he would need to
do so via Mr Merinson. The Authority considers that the question of whether or not Ms
Whitestone should have disclosed the contents of this letter to Mr Raitzin is irrelevant
to Mr Raitzin’s own culpability.
Irrespective of Mr Merinson’s exact role, the
arrangements were clearly suspicious and should have led Mr Raitzin to question why
Yukos would wish to pay such a large sum of money to Mr Merinson through a Finder’s
relationship with Julius Baer.

12. The Authority does not agree that Mr Raitzin approved the First and Second
Commission Payments only on the basis that concerns would be resolved. He took no
steps to address any of the concerns when approving the First Commission Payment,
and knew that the concerns had not been addressed when he approved the Second
Commission Payment.

Recklessness and lack of integrity

13. Although the Tribunal in Keydata1 stated that, where recklessness is alleged, the
standard to be applied is an objective one, that is not the appropriate test. Instead,

1 Stewart Owen Ford and Mark John Owen v The Financial Conduct Authority [2018] UKUT 0358 (TCC)

the correct test for recklessness is that which was applied by the Tribunal in Tinney2

and provides that state of mind and knowledge are essential components of
recklessness.
The person in question must be aware of a risk and it must be
unreasonable to take the risk in light of the circumstances as the person himself
believes them to be.

14. There is no basis for a finding of recklessness against Mr Raitzin. He was not aware of
the relevant key risks because he was being deceived as to the salient facts, and it
was reasonable for him to act as he did, on the basis of the (false) information that
was provided to him. He asked appropriate questions and sought clarification where
necessary. He also gave instructions to ensure that the transactions were properly
approved and authorised by Yukos and the documentation was regularised. Had he
known the truth, he would not have permitted the transactions to proceed.

15. The Authority has concluded, on the basis of the evidence it has seen, that Mr Raitzin
had sufficient knowledge of the key facts of Julius Baer’s relationship with Yukos and
Mr Merinson that he must have been aware of the obvious risks arising from the
relationship, and that he failed to have regard to those risks and failed to take
appropriate action in light of them. As a consequence, the Authority considers that Mr
Raitzin acted recklessly, and without integrity.

16. Given its conclusion that Mr Raitzin must have been aware of the risks, which supports
a finding of recklessness whichever test applies, the Authority does not consider it
necessary to respond to Mr Raitzin’s submissions regarding the correct test for
recklessness.

17. The Authority disclosed a number of documents after the Warning Notice was given to
Mr Raitzin. This late disclosure contains powerful exculpatory material relevant to Mr
Raitzin’s case and demonstrates that significant parts of the case advanced in the
Warning Notice are incorrect.

18. The Authority has failed properly to take into account the different knowledge of
different BJB and JBI staff. Where newly disclosed contemporaneous evidence falsifies
its previous case, the Authority sometimes accepts that its assumptions and inferences
of Mr Raitzin’s wrongdoing and knowledge were wrong.
But where there remain
fundamental gaps in the Authority’s case, an attempt is still made to fill the gaps with
unjustified inferences and assumptions.

19. In reaching its decision that Mr Raitzin acted with a lack of integrity, the Authority has
had regard to all relevant evidence, including the documents that were disclosed after
the Warning Notice was given to Mr Raitzin. The Authority has also had regard to the
knowledge of other BJB and JBI staff at different times. The Authority’s conclusions
with regard to the relevant facts and matters are set out in this Notice and the Authority
does not consider any of them to be based on unjustified inferences or assumptions.

2 Andrew Tinney v The Financial Conduct Authority [2019] UKUT 0227 (TCC)

Mr Raitzin’s role and responsibilities

20. Mr Raitzin was an executive director of BJB, not of JBI. His responsibilities were far
wider than the UK regulated entity and he was not personally regulated in the UK. He
had over 340 staff under his management and nine direct reports, of which seven were
very senior managers or heads of a country or group of countries. His expertise was
in Latin America and he was only an interim Region Head for Russia, Central and
Eastern Europe, which made his reliance on the senior region and Compliance staff
more acute.

21. Mr Raitzin was exceptionally busy and would regularly travel overseas for work. He
estimates he received over 100 emails a day in 2010. He did not have time to read,
still less closely analyse them, so a failure to spot something in a long email is unlikely
to be good evidence of a lack of integrity. Where a decision or judgement was required
from him, he was reliant upon his staff to provide all the material necessary, and in
good time, to enable him to reach appropriate decisions and judgements.

22. Mr Raitzin could not and did not ignore risks he was aware of. But in the absence of
evidence to the contrary, he was entitled to proceed on the basis that his staff were
honest and providing him with complete reports, and that they were doing their jobs
properly.

23. The Authority acknowledges that Mr Raitzin held a very senior position at BJB, had a
great deal of responsibility and was very busy, and has taken all these matters into
account in considering the evidence. However, there is clear documentary evidence
that Mr Raitzin was closely involved in considering and approving the arrangements
with Mr Merinson. Whilst Mr Raitzin was entitled to place some reliance on the views
of others, he was ultimately responsible for approving the arrangements, and the
Authority considers that on the facts known to Mr Raitzin, the risks arising from the
arrangements must have been obvious to him, and that he failed to have regard to
them and take appropriate action in light of them.

Private banking

24. Private banks offer a full-service banking relationship to clients with complex banking
needs. The charges agreed with clients are often substantial, reflecting the complex
due diligence and AML work needed to take on a client and the high cost of providing
a bespoke, specialist banking service. Generally, a private bank like BJB would seek
to charge fees of 100 basis points of assets held per annum (i.e. 1%) in order to be
profitable.

25. Given its political sensitivities and the extensive litigation and arbitration it was
involved in worldwide, the Yukos Group relationship was a good example of the need
for private banks and the complexity of the services they provide.

26. The Authority agrees that, given the political sensitivities and the level of funds
involved, the decision to take on Yukos as a client would have been a significant one
for Julius Baer, and acknowledges that these matters would have been factors in
determining the level of fees to charge. The Authority notes the lack of
contemporaneous evidence supporting Mr Raitzin’s assertion that BJB needed to, or
aimed to, make 100 basis points per annum from its relationship with Yukos. In any

event, BJB’s fees, whatever their level, needed to be appropriately disclosed to, and
approved by, Yukos, its client, but this did not happen.

27. In 2010, the use of Finders was ordinary commercial practice in Swiss private banking,
and BJB was no exception. Significant sums were paid by private banks to secure
business. A Finder would generally have a relationship with the client of some nature
and would usually have a degree of influence over whether the client would bank or
invest with BJB.
That is why the standard form of Finder’s agreement required
disclosure of remuneration by the Finder to the client and expressly permitted BJB to
make similar disclosures. The potential for conflicts of interest was well understood
and was ordinarily managed by BJB Compliance in a case of any complexity.

28. The fees paid to a Finder were a product of three factors: (a) fees earned by BJB; (b)
assets under management; and (c) time. A private bank is willing to pay a larger,
one-off payment on new funds to a Finder because it hopes to retain those new funds
in the longer term, and for that reason Finders were often initially paid more than the
bank was earning in fees from the client.

29. The Co-operation with Finders Policy contained three standard remuneration models.
When analysed alongside these models, the sums received by Mr Merinson were not
unusual or surprising, and this is demonstrated by the fact that BJB could have agreed
to make payments to Mr Merinson under its standard remuneration models of over
USD 3 million without any special approvals process. The fees agreed with Mr Merinson
were comparable to what BJB would have been willing to pay a Finder under its
standard terms. The fee rates and levels were usual in the market and the sums paid
to Mr Merinson were not surprising to Mr Raitzin. Julius Baer did not pay Mr Mr Merinson
under a standard remuneration model because it was more commercially
advantageous to it to agree bespoke terms.

30. Mr Merinson’s Finder’s arrangements did not reflect the usual commercial position
when BJB was taking on a client introduced through a Finder. The usual basis for such
an arrangement was that the Finder would be paid from the profits that BJB made from
the client relationship, on a periodical basis after BJB had earned it. However, in this
case, the Finder, Mr Merinson, was effectively paid by the client, Yukos, and moreover
this was not on the basis of a standard remuneration model, but through retrocession
payments which were not documented in his written Finder’s agreement. Further, Mr
Merinson was not a Finder in the usual sense, as he was not retained by BJB to locate
and introduce potential clients, but was instead employed by Yukos. Even if it was the
case that there were commercial reasons for BJB to pay Mr Merinson such levels of
fees, there was no proper commercial rationale for Yukos to pay Mr Merinson through
such a Finder’s arrangement; if Yukos had wished to pay Mr Merinson it could have
done so directly.

31. The Authority also does not agree with the submission that the fees agreed with Mr
Merinson were comparable to what BJB would have been willing to pay a Finder under
its standard terms. The initial plan, as documented in Ms Whitestone’s email of 7 July
2010 to Mr Seiler, of paying Mr Merinson a fee equivalent to approximately 1% of the
total assets on the Yukos Capital account was significantly more than BJB would have
paid under its standard terms. When the arrangements changed in October 2010, Mr
Merinson’s remuneration under his Finder’s agreement was increased from 25% to
35% of net income, which was higher than the standard model permitted, plus 70%

of revenues on large transactions. If the relationship with Yukos had proceeded as
anticipated at the time, the payments to Mr Merinson would have significantly
exceeded the highest possible payments under the standard models.

Relevant events

July 2010 Finder’s arrangements

32. Mr Raitzin did not see the Finder’s agreement entered into by Mr Merinson on 8 July
2010 or email correspondence relating to it, which indicated that Mr Merinson was not
willing to have his remuneration properly disclosed to Yukos Capital.

33. The email correspondence between a BJB senior manager and the JBI Line Manager
on 16 July 2010 shows that the JBI Line Manager supported the Finder’s arrangements,
that no discussions had been held with Mr Raitzin at that point, and that BJB Senior
Manager B planned to speak to Mr Raitzin once he had the requested information,
which would not be fully available until after Ms Whitestone returned to work in August
2010. There is no evidence that, prior to the First FX Transaction, Mr Raitzin was in
fact ever spoken to about the proposed one-off payment to Mr Merinson or that he
approved it in advance. In addition, BJB’s procedures required written approval by Mr
Raitzin, but none has been found.

34. The Authority acknowledges that there is no evidence that Mr Raitzin saw the Finder’s
agreement entered into by Mr Merinson on 8 July 2010 or email correspondence
relating to it. However, the 16 July 2010 email correspondence shows that senior
managers at BJB considered it appropriate for Mr Raitzin to be made aware of the
Finder’s arrangements, and his approval of the non-standard terms of the agreement
was required under BJB’s Co-operation with Finders Policy. In the circumstances, the
Authority infers that, following the 16 July 2010 email exchange, Mr Raitzin was made
aware of Julius Baer’s entry into Finder’s arrangements with Mr Merinson, and
considers that, when he subsequently approved the First Commission Payment, Mr
Raitzin thereby approved Mr Merinson’s Finder’s arrangements.

First FX Transaction and First Commission Payment

35. Ms Whitestone’s email of 16 August 2010 to BJB Compliance, Mr Seiler and Mr Raitzin
did not mention that Mr Merinson had informed her earlier that day that he was going
to transfer a proportion of his commission to Mr Feldman, the sole director of Yukos
Capital. The conflict of interest was obvious and serious. Instead of informing BJB
Compliance and her seniors, Ms Whitestone decided to conceal it. She must have
realised that neither Mr Raitzin nor BJB Compliance would have approved the payment,
if they had been aware that Mr Feldman would be receiving a share of the commission.

36. It appears, from an email sent by Mr Seiler to the JBI Line Manager, that Mr Seiler had
not been kept up to date with what was happening and had not approved the
retrocession arrangements. It is correct that both Mr Seiler and Mr Raitzin expressed
verbal approval for the First Commission Payment. This occurred in a telephone call
between them and Ms Whitestone, at which, in response to Mr Raitzin’s questions, Ms
Whitestone stated that Mr Merinson was a former employee and a consultant to Yukos.
Mr Raitzin therefore identified the risk of a potential conflict of interest and addressed
it. If Ms Whitestone had mentioned that Mr Merinson was a current Yukos employee
or that she knew that Mr Feldman would receive a share of the payment to Mr Merinson,
Mr Raitzin would not have approved the First FX Transaction. Ms Whitestone knew
this, which is why she did not tell him.

37. Mr Raitzin was not copied into Ms Whitestone’s email of 19 August 2010 to BJB
Compliance and was not informed of its contents.
This is consistent with Ms
Whitestone’s practice of being deliberately selective as to the information that she
provided to different people.

38. Mr Raitzin was aware that all Finders had to hold an account with BJB and were subject
to BJB Compliance review and due diligence. Mr Raitzin reasonably expected that any
concern about a relationship between a Finder and a client would have been identified
by BJB Compliance and reported to him. However, despite Mr Merinson’s role being
identified to it by a member of BJB’s Business & Operational Risk Division as a potential
area of concern and despite being informed by Ms Whitestone that Mr Merinson was
both a Finder and the Financial Director for Yukos International, BJB Compliance
considered the transaction to be plausible and did not identify the obvious conflict of
interest at that time or raise any concerns with Mr Raitzin. BJB Compliance’s failure
to do its job properly is not a proper basis for a finding of a lack of integrity against a
senior director who relied on their competence and expertise.

39. By the time Mr Raitzin was invited to give his approval of the First Commission Payment
‘as an exception’, Mr Raitzin’s reply that ‘We are in front of a “fait accompli” so not
too much room for objection, unless we wish to transfer the relationship to another
financial institution’ was correct, on the information known to him. The request had
been raised by Ms Whitestone, whom at the time he had no reason to doubt. She had
referred it to BJB Senior Manager B, who then referred it to BJB Compliance and BJB
Legal, who had approved the transaction.
Mr Raitzin could not see a basis for
undermining the contract to which Ms Whitestone had already committed the bank.
When he gave his approval, he did so on the understanding that the arrangements had
been approved by the sole director of Yukos Capital and on the express basis that they
were not concealed from Yukos.

40. Ms Whitestone’s seeking of approval for Mr Merinson’s request that the First
Commission Payment be described as an “Investment Capital Gain” was dealt with
appropriately. Two hours after the email was received in the evening of 19 August
2010, it was referred by BJB Senior Manager B to BJB Legal, who rejected the request.
Mr Raitzin was only asked to approve the transaction on the basis that the retrocession
would be described (correctly) as commission. By the time he came to review the
email chain and consider it, the request had already been analysed, rejected and
resolved. No wider review was needed, as the request was dealt with by writing a
letter confirming that Mr Merinson was not an employee of the bank.

41. Mr Seiler’s letter to Mr Merinson dated 3 September 2010 implemented Mr Raitzin’s
request for a written record that the payment to Mr Merinson was a one-off.

42. Mr Raitzin does not agree that there was no proper commercial rationale for any
payment to Mr Merinson or for Mr Merinson’s Finder’s arrangements. For Julius Baer,
the commercial rationale was to attract new funds under management; for Mr
Merinson, the rationale was to earn commission; for Yukos, the rationale was to reward
and maintain the loyalty and services of an important adviser to the company by
permitting him to earn referral commission. Further, the fees charged by BJB were
reasonable and in line with the Co-operation with Finders Policy and the costs of private
banking services in the market.

43. The purposes of the First FX Transaction were first, to sell a large quantity of sterling
to meet Yukos’ legitimate business requirement to hold its assets predominantly in US
dollars, and secondly, to charge commission sufficient to cover the costs of offering a
private banking relationship to Yukos, including the reasonable costs of securing that
business from Mr Merinson.
As a result, the commission was higher than would
ordinarily be charged on a transaction of that size. There was nothing wrong with this:
the costs of securing new business, including the remuneration of Finders, inevitably
must be reflected in the charges negotiated by a bank with its customers. If a bank
has to pay a Finder, its own charges will need to be higher to pay the agreed
compensation to the Finder.

44. There was nothing unreasonable about the level of remuneration payable to BJB or the
Finder. Applying BJB’s Co-operation with Finders Policy, the level of payment to Mr
Merinson was reasonable and commercial. The Co-operation with Finders Policy would
have permitted a much larger payment to be made on these new assets over two
years; Mr Raitzin was approving a smaller payment to be made immediately on a one-
off basis, which was a reasonable commercial decision on the information he had.

45. There is also nothing wrong with applying a substantial commission to a FX transaction,
providing that it has been agreed with the client as part of an overall fee arrangement
which makes the banking relationship commercially feasible and mutually beneficial.
In accordance with the traditional private banking model at that time, the fees charged
for a transaction did not necessarily reflect the cost of executing the specific
transaction, but the cost of the overall service.

46. As explained in paragraph 9 above, although Mr Raitzin was not made aware of Mr
Merinson’s intention to share his commission with Mr Feldman, the Authority considers
that, given the involvement of Mr Feldman, the sole director of and signatory for Yukos
Capital and the only other person at Yukos known to be aware of the arrangements,
Mr Raitzin must have been aware of the risk that the arrangements were made in order
to facilitate the improper diversion of funds not only from Yukos Capital to Merinson,
but also potentially to Mr Feldman too.

47. As explained in paragraph 10 above, the Authority infers from the evidence it has seen
that Mr Raitzin was aware that Mr Merinson was a Yukos employee. Given this and all
the other information that Mr Raitzin was aware of at the time, the Authority considers
that Mr Raitzin acted recklessly in approving the First Commission Payment.

48. The Authority understands BJB Compliance’s comment that the transaction was
“plausible” meant that they considered there were no concerns with the source of the
funds, rather than that they had considered the propriety of the First FX transaction
and the First Commission Payment. Mr Raitzin therefore had no reason to believe that
BJB Compliance had approved the arrangements with Mr Merinson or the First
Commission Payment, either at the time he gave his verbal approval or when he
confirmed his approval on 20 August 2010.

49. BJB Compliance did in fact recognise that there were conflicts of interest issues, as is
apparent from BJB Compliance’s email to Ms Whitestone of 1 September 2010.
Although these issues were not raised with Mr Raitzin, and he was not copied into Ms
Whitestone’s email of 19 August 2010 to BJB Compliance, given the information he
had, he must have been aware of the risks arising from the First FX Transaction and
the payment of a retrocession to Mr Merinson pursuant to it.

50. Although it was the case that, by the time Mr Raitzin confirmed his approval of the
First Commission Payment on 20 August 2010, BJB Legal had already refused the
request that the payment be made with the payment reference “Investment Capital
Gain”, as using such a reference would be an untrue statement, Mr Raitzin should have
recognised the risk that the request could have been an attempt to disguise the true
nature of the payment.

51. The commission rate charged on the First FX Transaction was approximately 11 times
the standard commission rate for a transaction of this size. Even if it was the case, as
Mr Raitzin submits, that the high level of commission did not reflect the costs of
executing this specific transaction, but rather what Julius Baer required to cover the
overall costs of servicing a private banking relationship with Yukos, including the
payment of a Finder’s fee to secure that business, the Authority does not agree that
there was a proper commercial rationale for making a payment to Mr Merinson in this
way. Had Yukos wished to reward Mr Merinson, it could simply have paid him directly.
There is no record of Mr Raitzin ever asking why Yukos Capital wished to pay such a
large sum to Mr Merinson or why, even if it did want to reward him, it would want to
do so through a Finder’s relationship with Julius Baer. There is also no evidence of him
asking why such arrangements would have the effect of incentivising Yukos Capital to
keep its money with BJB. In the circumstances, Mr Raitzin’s decision to approve the
First Commission Payment for commercial reasons was inappropriate and reckless.
The matter was not a ‘fait accompli’, as Mr Raitzin could have refused to approve the
payment.

October 2010 amendments to Finder’s arrangements

52. It is understandable why Mr Raitzin informed Mr Seiler and BJB Senior Manager A that
their recommendation ‘should be prior’, in respect of Ms Whitestone’s request for
approval to proposed amendments to the Finder’s arrangements in October 2010. It
was a complex proposed suite of transactions and it required proper analysis, which
was the job of the managers below Mr Raitzin.

53. The proposal was for Mr Merinson to receive 70% of commission on up to four new
transactions executed by October 2011, subject to important conditions, namely: (i)
the transactions were to be in respect of new money to the bank, derived from
successful litigation. Yukos was likely to have an additional incoming USD 400 million
and the bank wished to attract this new money; (ii) the commission to be charged
would be 50 basis points, split 70%/30% between Mr Merinson and the bank; and (iii)
the funds would be held at the bank for at least three years. These arrangements were
commercially reasonable and were in line with BJB’s Co-operation with Finders Policy.
It was not improper for BJB to remunerate Mr Merinson based on its fee income; that
was and remains standard practice.

54. The increase in commission on net income from 25% to 35% was in line with the Co-
operation with Finders Policy and was agreed, so as to match the terms of Mr
Merinson’s Finder’s agreement with those of another private bank.

55. If these arrangements were not properly documented, that is not Mr Raitzin’s fault.
He approved the arrangements in writing, by email. It was not for him to formally
document the Finder’s agreement and there is no evidence he was aware that it was
not properly documented.

56. At the time that he approved the proposal, Mr Raitzin did not know that Mr Merinson
was a director of Yukos, or that Mr Merinson was intending to pay a share of the
commission to Mr Feldman.

57. The Authority agrees that it is reasonable for a person in Mr Raitzin’s position to take
into account the views of senior managers reporting to him before making a decision
on whether to approve proposed arrangements. However, the Authority notes that at
interview, Mr Raitzin said that he gave his approval in principle to the proposed revised
Finder’s arrangements for Mr Merinson at a meeting with Ms Whitestone on or around
13 October 2010, before it was discussed with other senior BJB staff. Further, even
though Mr Raitzin discussed the arrangements with Mr Seiler before stating that he did
not object to them, it was Mr Raitzin who had ultimate responsibility for approving the
amendments to the Finder’s arrangements. In addition, the Authority notes that Mr
Raitzin did not rely on advice from BJB Legal or BJB Compliance in making his decision
to approve the arrangements.

58. As explained above, although the Authority accepts that there is no evidence that Mr
Raitzin was aware that Mr Merinson was intending to transfer a share of his commission
to Mr Feldman, it considers that, given the involvement of Mr Feldman, the sole director
of and signatory for Yukos Capital and the only other person at Yukos known to be
aware of the arrangements, Mr Raitzin must have been aware that there was a risk
that the arrangements were made in order to facilitate the improper diversion of funds
not only from Yukos to Merinson, but also potentially to Mr Feldman too.

59. As explained above, the Authority considers that the evidence shows that, at this time,
Mr Raitzin was aware that Mr Merinson was a Yukos employee. As with the original
arrangements, there was no proper commercial rationale for the revised
arrangements, and Mr Raitzin Mr Raitzin failed to have regard to the obvious risk that
the arrangements were in breach of Mr Merinson’s and Mr Feldman’s duties to the
relevant Yukos companies, were not in the interests of those companies, and were
designed to divert funds improperly from the Yukos companies to Mr Merinson and,
given his involvement, potentially to Mr Feldman. There is no evidence that Mr Raitzin
queried why Mr Feldman wished to ensure that Mr Merinson received such large non-
standard retrocessions, when such payments would significantly drive up Yukos’
transaction costs.

60. Mr Raitzin should have been aware that the addendum to Mr Merinson’s Finder’s
agreement with BJB did not document the arrangements with Mr Merinson properly.
He was copied into an email from Ms Whitestone dated 28 October 2010 asking for the
revised Finder’s agreement to be prepared, on the basis that Mr Merinson should
receive 35% of BJB’s net revenues rather than 25%, and stating that this had been
approved by Mr Seiler and Mr Raitzin. The email made no reference to the four
additional 70% retrocessions which had been agreed by Mr Seiler and Mr Raitzin.
Further, Ms Whitestone’s email of 24 November 2010 to Mr Seiler and Mr Raitzin
seeking approval of the payment of the Second Commission Payment attached the new
addendum to Mr Merinson’s Finder’s agreement, which in accordance with Ms
Whitestone’s email of 28 October 2010, showed only an increase in his share of net
income to 35% and made no mention of any entitlement to retrocession payments.

Second FX Transaction and Second Commission Payment

61. None of the communications between BJB Compliance and Ms Whitestone in
September 2010 regarding the need to get written confirmation from Yukos for the

First FX Transaction due to conflict of interest issues were relayed to Mr Raitzin prior
to him approving the Second Commission Payment.

62. Ms Whitestone departed from the approved revised Finder’s arrangements in arranging
the Second FX Transaction. First, the Second FX Transaction was booked with a
commission of more than triple the level that had been approved by Mr Raitzin and Mr
Seiler. Secondly, Ms Whitestone permitted the Second FX Transaction to take place
over existing funds, rather than new funds.

63. By saying to Mr Seiler ‘your jurisdiction and judgement’, Mr Raitzin was making clear
that the first review and recommendation needed to be made by Mr Seiler, following
which Mr Raitzin would consider whether to give his approval.
As was his usual
practice, Mr Raitzin was insistent that the proper approval and review process should
be followed and respected.

64. Mr Raitzin’s ‘no objection’ was altered as new information was provided to him
regarding concerns raised by the BJB Bahamas Senior Manager. These concerns were
raised by BJB Senior Manager A with him at a meeting on 13 December 2010. Mr
Raitzin was concerned, although he only received a high-level summary and did not
see the BJB Bahamas Senior Manager’s emails, and took prompt and decisive action
to deal with them. He instructed BJB Senior Manager B to ensure that the issues were
resolved, that the resolution was properly documented in writing and that he was
copied into the email to Mr Seiler. All of these steps were carried out. The fact that
the concerns raised by the BJB Bahamas Senior Manager were addressed is
inconsistent with a suggestion that Mr Raitzin acted recklessly.

65. Mr Raitzin’s email of 22 December 2010 gave two instructions: to regularise the
pending issues and to set up a correct framework. The framework was an entirely
proper, clear written delegation of responsibility to Mr Seiler to resolve the potential
conflict of interest and other issues. It is clear from the email that Mr Raitzin was
directing that the ‘pending issues’ be regularised as part of his approval of the Second
Commission Payment; his direction for regularisation of the issues did not only cover
future transactions. Mr Raitzin was also justifiably concerned that Ms Whitestone was
tending to come to him directly, rather than after prior management review.

66. It was not necessary to suspend payment to Mr Merinson pending completion of all of
the steps identified. The commission had already been charged to Yukos and the
question was whether to pay 70% of it to Mr Merinson’s account, which was ultimately
a commercial judgement for Mr Raitzin.

67. The Authority acknowledges that there is no evidence that Mr Raitzin was made aware
of the steps that BJB Compliance had requested Ms Whitestone to take to address
conflict of interest issues relating to the Finder’s arrangements. However, it does not
appear that Mr Raitzin was reliant on BJB Compliance, as there is no evidence that BJB
Compliance was informed or consulted about the revisions to the Finder’s
arrangements or about the propriety of paying Mr Merinson the Second Commission
Payment, notwithstanding the concerns raised about the Second FX Transaction by the
BJB Bahamas Senior Manager.

68. The Authority notes that the commission charged for the Second FX Transaction was
much higher than that outlined by Ms Whitestone in her email of 15 October 2010, and
also that Mr Raitzin and Mr Seiler had agreed arrangements based on new inflows of
cash to Julius Baer, whereas the Second FX Transaction involved a portion of the same

funds which had been converted into USD by the First FX Transaction. Mr Raitzin,
however, did not raise these differences with Ms Whitestone and simply stated that he
had no objection to Mr Seiler’s approval of the payment to Mr Merinson. In doing so,
Mr Raitzin thereby approved the arrangements by which the commission was
generated in the Second FX Transaction. The fact that Mr Seiler had already given his
approval of the payment does not absolve Mr Raitzin of responsibility for his decision
to give approval or mitigate his failure to have regard to the obvious risks associated
with the Second FX Transaction.

69. The Authority considers it likely that Mr Raitzin was made aware of the details of the
BJB Bahamas Senior Manager’s concerns. The BJB Bahamas Senior Manager stated
that he would withhold payment until discussions with Mr Seiler ‘and/or’ Mr Raitzin had
taken place, and BJB Senior Manager A subsequently discussed the matter with both
of them. Further, the framework that Mr Seiler was tasked by Mr Raitzin to put in
place, as explained by BJB Senior Manager A in his email of 17 December 2010 which
was copied to Mr Raitzin, included points that appeared to be designed specifically to
address the concerns raised by the BJB Bahamas Senior Manager. Although Mr Raitzin
asked Mr Seiler to put in place ‘an acceptable framework’ for Ms Whitestone to operate
within in the future and to ‘regularise pending issues’, Mr Raitzin did not make any
further enquiry into the concerns which had been expressed.

70. The Authority does not agree that Mr Raitzin’s approval of the payment was given on
the condition that the various issues would first be resolved; the Second Commission
Payment was paid to Mr Merinson before Mr Seiler had taken the actions that Mr Raitzin
had tasked him with, and Mr Raitzin was aware when he gave his approval that the
framework he had requested would not be in place until ‘early next year’. In the
circumstances, Mr Raitzin must have been aware that there was a risk that the
arrangements with Mr Merinson and Yukos were improper, and so, notwithstanding
any commercial reasons for the payment, it was reckless of him to give his approval.

71. The evidence does not support a finding that Mr Raitzin lacks integrity and so a
prohibition order is inappropriate. In any event, a prohibition does not follow
automatically from a reckless lack of integrity, as is clear from the Tribunal’s decision
in Tinney.

72. A decade has passed since the relevant events. Mr Raitzin has never been regulated
by the Authority and has never lived or worked in the UK, save for occasional business
trips. He retired in 2017 and has no intention of conducting any regulated business in
the UK or elsewhere. There is therefore no risk to the UK financial system. Prohibition
is protective, not punitive, and it is not obvious what prohibition will in practice achieve.

73. Mr Raitzin gave a full account of his conduct to the Swiss regulator, which has not
taken any steps to discipline him.

74. For the reasons set out in this Notice, the Authority considers that Mr Raitzin acted
recklessly and with a lack of integrity, and that his conduct was therefore not that of a
fit and proper person. The Authority agrees that a prohibition order does not
necessarily follow from a conclusion that an individual acted recklessly but, having had
regard to the relevant factors in the Authority’s Enforcement Guide, has concluded that
the seriousness of Mr Raitzin’s misconduct is such that it is appropriate to impose a
prohibition order.

75. The Authority recognises that the relevant events occurred about a decade ago, but
does not consider that the passage of time means that Mr Raitzin is now a fit and
proper person or that he no longer poses a risk to confidence in the UK financial system.

76. Mr Raitzin was in a role which meant that decisions he made had the potential to affect
how JBI, a UK authorised firm, conducted its business and whether it complied with its
regulatory obligations. It was drawn to Mr Raitzin’s attention in September 2010 that,
in such a position, his actions might fall within the Authority’s regulatory remit. Mr
Raitzin must have appreciated the risk that, in agreeing to the arrangements with Mr
Merinson, and in approving significant payments to Mr Merinson pursuant to those
arrangements, Julius Baer, including JBI, might be facilitating or even participating in
financial crime. Had Mr Raitzin objected to the arrangements or arranged for them to
be properly investigated, it appears to the Authority unlikely that they would have
proceeded. Accordingly, the Authority considers that the fact that Mr Raitzin has never
been regulated by the Authority or worked in the UK does not mean that he poses no
risk to the UK financial system. Further, unless a prohibition order is imposed, there
can be no guarantee that Mr Raitzin will not in future undertake a function in respect
of a regulated activity carried on by a UK authorised person, notwithstanding his
current intentions.

77. The Authority does not consider it is inappropriate for it to impose a prohibition order
to advance its consumer protection and integrity objectives, in circumstances where
an overseas regulator could have taken similar action but has not done so.

Mr Merinson’s Representations

78. The Warning Notice misrepresents Mr Merinson’s activities and relationships. He was
never the Chief Financial Officer of Yukos Capital or of any other Yukos Group entity.
Instead, he was employed by Yukos International, with his duties largely restricted to
bookkeeping and financial control.

79. He was therefore not involved in determining the fees that the respective Yukos entities
paid to Julius Baer. Those fees mainly reflected the difficulties that Julius Baer had
with the onboarding of a group with as controversial a history as Yukos.

80. The Finder’s fees paid to him by Julius Baer were approved by an authorised
representative of the respective Yukos Group Companies on behalf of which the
transactions were undertaken. The arrangements were also made aware to various
directors within the wider Yukos Group, yet no objections were raised at the time.

81. His contractual arrangement with Julius Baer were known from the outset to those at
the top level of Julius Baer, as it was concluded upon Julius Baer’s own initiative.

82. His business relationship with Mr Feldman was limited to a loan provided to him at
arm’s length, on which Mr Feldman paid interest in line with the market. There was
never any intention to hide this arrangement, or any of the other arrangements, from
either Julius Baer or Yukos. This is apparent from the fact that the transfers to Mr
Feldman involved his account at Julius Baer.

83. There is substantial evidence that Mr Merinson was employed by Yukos and, in
particular, that he had an official role at Yukos International, the parent company of
Yukos Capital. Irrespective of his precise job title, Ms Whitestone’s understanding,

based on due diligence and meetings with him and Mr Feldman, was that Mr Merinson
had responsibility for oversight and control of financial operations at Yukos
International and Yukos Capital. This was reflected in the fact that in June 2009 she
described him as the Financial Controller and Treasurer for Yukos International, in
October 2009 she described him as the Chief Financial Officer of both Yukos Capital
and Yukos International, and in November 2009 she described him as the Chief
Financial Officer of Yukos Capital.

84. The contemporaneous documents demonstrate that Mr Merinson was involved in
determining the fees paid by Yukos entities to BJB. For example, he was present at
the meetings on 7 July 2010 at which the key terms of the arrangements were
negotiated; he was present in JBI’s offices, when the First FX Transaction took place
in August 2010; and he was present at the meeting on 13 October 2010, when further
retrocessions and amendments to the terms of the arrangements were discussed.

85. There is no evidence that the arrangements were known to anyone in the Yukos Group
other than Mr Feldman, with whom Mr Merinson shared the commission he received
from the First and Second Commission Payments.

86. The Authority acknowledges that senior individuals in the Julius Baer group were
familiar with the proposed arrangements from an early stage and supported them.

87. The Authority considers that Mr Merinson’s assertion that his payment of exactly half
the commission he received from the First and Second FX Transactions to Mr Feldman
was pursuant to a loan is not credible. The Authority has not seen any evidence of a
loan agreement or of interest payments from Mr Feldman to Mr Merinson.

Mr Feldman’s Representations

88. Mr Merinson was never the Chief Financial Officer of Yukos Capital nor any other Yukos
Group company, and had no official role at Yukos Capital nor Yukos International whilst
Mr Feldman was a director of Yukos Capital.

89. Mr Merinson did not share his commission with Mr Feldman, nor was there any pre-
arranged agreement to do so. Instead, Mr Merinson gave Mr Feldman an arms-length
documented loan, on which he made interest payments from the outset. This was
done transparently as Mr Merinson sent Mr Feldman the money directly from his Julius
Baer account.

90. The conversion from GBP to USD was known throughout the Yukos Group. Yukos knew
the original amount in GBP and the amount in USD that was ultimately deposited and
were satisfied. FX rates are readily available so the fees paid could be determined.
Others at Yukos could have also asked him about the fees, but did not do so. Instead,
they lauded the arrangement with Julius Baer for the lowest custody fees being paid
by the Yukos Group to any bank.

91. The fees paid for the FX Transaction were not exorbitant. Even if it was considered
that they were higher than normal, that would reflect the politically sensitive nature of
doing business with Yukos. There was tremendous pressure to bank the money and to
do so quickly, but the political sensitivities meant there were few choices. To apply
business norms to a far from normal business situation is unfair.

92. Mr Feldman’s request to Julius Baer to keep details of the transactions confidential was
aimed at keeping the information confidential from its adversaries in the litigation. This
was Yukos’ policy and a common request made to service providers that Yukos dealt
with.

93. As mentioned above, there is substantial evidence that Mr Merinson was employed by
Yukos and, in particular, that he had an official role at Yukos International.

94. Mr Feldman’s submission regarding Mr Merinson’s sharing of the commission payments
with him is not credible. The Authority has not seen any evidence of a loan agreement
or of interest payments from Mr Feldman to Mr Merinson.

95. The Authority does not dispute that others in Yukos may have known about the
conversion of GBP to USD. However, the Authority disagrees that they could have
calculated the charges by looking at the exchange rate. Although it would have been
possible to identify that the conversion was at a rate above the worst rate for the day,
the actual charges, and the fact that the majority of them were being paid to Mr
Merinson, and then shared with Mr Feldman, would not have been apparent. The
Authority therefore considers it unlikely that the Yukos Group would have been
satisfied, if they had known the real cost. Further, whilst the custody fees were
transparent to the Yukos Group, the retrocession arrangements, which were not in
Yukos’ interests, were not transparent and there is no evidence that these were known
of or approved.

96. Mr Feldman’s submission that the high charges for the First FX Transaction reflected
BJB’s interest in being remunerated for taking the political risk of having Yukos as a
client ignores the fact that 80% of the amount charged was paid to Mr Merinson and
shared with Mr Feldman. In addition, the same logic does not apply to the further one-
off retrocessions negotiated in October 2010. The Authority does not accept that the
political sensitivities justified the arrangements agreed by Mr Feldman.

97. The Authority does not agree that disclosure of the remuneration arrangements for Mr
Merinson were sensitive matters that Yukos needed to keep secret. Rather, they were
sensitive for Mr Merinson and Mr Feldman, because they wished to keep them hidden
from Yukos.