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 Louise Whitestone 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

1.
ACTION

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

prohibiting Louise Whitestone 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 Ms Whitestone failed to act with integrity whilst a

relationship manager at Julius Baer International Limited (“JBI”) between July 2010

and December 2011, when she was approved by the Authority to perform the CF30

(Customer) controlled function. Ms Whitestone acted recklessly in relation to the

overall conduct of the relationship of the Julius Baer Group of companies (“Julius

1

Baer”) with the Yukos Group and with the Finder associated with the Yukos Group,

Dmitri Merinson.

2.2.
Ms Whitestone was employed by JBI in London as a relationship manager on the

Russian and Eastern European Desk. The Russian and Eastern European Desk had a

dual reporting line, reporting to JBI’s Management Committee and also maintaining

a functional reporting line to Thomas Seiler, Sub-Regional (Market) Head for Russia

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

JBI are both part of the Julius Baer Group. In respect of the conduct of the relationship

with the Yukos Group and Mr Merinson, Ms Whitestone routinely sought approval for

the arrangements she negotiated from Mr Seiler and Gustavo Raitzin, the Regional

Head for Latin America, Spain, Russia, Central and Eastern Europe and Israel at BJB

from January 2010 until March 2011, who had responsibility for the line management

of Mr Seiler. Mr Seiler was also a member of JBI’s Board of Directors from 30 March

2011 onward.

2.3.
Ms Whitestone negotiated Julius Baer’s entry 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 and Ms Whitestone’s understanding was that he had

responsibility for oversight and control of financial operations at two of the Yukos

Group Companies, Yukos Capital and Yukos International. Ms Whitestone negotiated

the Finder’s arrangements with Mr Merinson and Daniel Feldman, who was a director

of various Yukos Group Companies, including the sole director of Yukos Capital. She

did so on the understanding that, if Finder’s fees were paid to Mr Merinson, Mr

Feldman 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

2.4.
In order to effect these commission payments to Mr Merinson, Ms Whitestone

facilitated arrangements whereby Julius Baer charged the Yukos Group Companies

unusually high levels of commission for executing large foreign exchange (“FX”)

transactions. These FX transactions took place in August 2010, November 2010 and

August 2011. The majority of the commission generated was then transferred to Mr

Merinson, on Mr Feldman’s instructions and in accordance with the Finder’s

arrangements negotiated with Mr Merinson and Mr Feldman, although Julius Baer

also benefited significantly from the transactions. Ms Whitestone also became aware

in August 2010 that Mr Merinson intended to transfer a proportion of the commission

he received from Julius Baer to Mr Feldman, and in April 2011 that Mr Merinson

transferred to Mr Feldman an amount equal to 50% of the First and Second

Commission Payments, but did not inform either Compliance or her senior managers.

2.5.
Ms Whitestone was responsible for managing the relationship with Mr Merinson and

Yukos on a day-to-day basis. There were numerous suspicious features to this

relationship, all of which were known to Ms Whitestone who must have been aware

of the obvious risks arising from the relationship. Ms Whitestone failed to have regard

to those risks, which included that in effecting significant payments to Mr Merinson

pursuant to Finder’s arrangements, Julius Baer might be facilitating or even

participating in financial crime, and failed to take appropriate action in light of them.

In failing to do so, Ms Whitestone was reckless. In particular:

(1)
In July 2010, Ms Whitestone met Mr Feldman and Mr Merinson and negotiated

Finder’s arrangements for Mr Merinson. Under these arrangements, it was

agreed that Mr Merinson would receive a ‘one-off’ payment, totalling around

1% of the total assets on the Yukos Capital account, which could be generated

from a large USD/GB CoY on which Julius Baer would apply 1.4% commission,

with 70% of this paid to Mr Merinson. In return, Mr Merinson and Mr Feldman

would arrange for Yukos Capital to deposit a sum in the region of GBP 280

million to GBP 430 million with Julius Baer, with further substantial funds to

follow. Contrary to the provisions of BJB’s Co-operation with Finders Policy,

these arrangements were not reflected in Mr Merinson’s written Finder’s

agreement, which instead provided that Mr Merinson would receive the

standard Finder’s fee of 25% of the net income generated by BJB from clients

introduced by Mr Merinson. In negotiating these arrangements, Ms Whitestone

3

recklessly failed to have regard to the following obvious risks of which she 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 arrangements involved a breach of Mr Merinson’s and Mr

Feldman’s duties to the relevant Yukos Group Companies, and the

improper payment of what were in effect Yukos’ funds to Mr Merinson

(and, because of the involvement of Mr Feldman, the sole director of Yukos

Capital, in approving the arrangements, potentially to Mr Feldman).

(2)
Between 11 and 13 August 2010, on the instructions of Mr Feldman, Ms

Whitestone helped to facilitate the First FX Transaction, in which Julius Baer

converted 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. There was no proper commercial rationale for the payment to Mr

Merinson. Furthermore, the trading approach used to execute the transaction,

which included ensuring that the rate charged to Yukos Capital was above the

worst rate for the day, had the effect that the amount charged for the

combination of Julius Baer’s commission and the commission payment that was

to be made to Mr Merinson would not be obvious, and that anyone with cause

to examine Yukos Capital’s records would not be put on notice that the

commission was of an unusual size. Ms Whitestone recklessly failed to have

regard to the obvious risk, of which she must have been aware, that the First

FX Transaction was undertaken in breach of Mr Merinson’s and Mr Feldman’s

duties to Yukos Capital, was not in the interests of that company, and was made

in order to facilitate the improper diversion of funds from Yukos Capital to Mr

Merinson (and potentially to Mr Feldman), in a way which would not be obvious

to someone other than Mr Feldman and Mr Merinson.

(3)
On 16 August 2010, Mr Merinson informed Ms Whitestone that he intended to

transfer a proportion of the First Commission Payment to Mr Feldman, but

although she made a record of Mr Merinson’s intention she did not inform her

senior managers or Compliance. Thereafter, she facilitated the First

Commission Payment. In doing so, Ms Whitestone recklessly failed to have

regard to the obvious risk, of which she must have been aware, that the

arrangements which she had set up at Mr Merinson’s and Mr Feldman’s request

were improper, were in breach of their duties to the relevant Yukos Group

Companies, were not in the interests of those companies, and amounted to an

improper diversion of funds from Yukos Capital to Mr Merinson and Mr Feldman.

She also recklessly failed to have regard to the obvious risk, of which she must

have been aware, that, by omitting to inform Compliance and her senior

managers about Mr Merinson’s stated intention to transfer a proportion of his

commission to Mr Feldman, they would be deprived of significant information

about the risks posed by the arrangements.

(4)
In October 2010, Ms Whitestone negotiated and agreed with Mr Feldman and

Mr Merinson amendments 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 Ms Whitestone recklessly failed to have regard to

the obvious risk, of which she 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.

5

(5)
In November 2010, Ms Whitestone helped to facilitate the Second FX

Transaction, 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. Ms Whitestone recklessly failed

to have regard to the obvious risk, of which she must have been aware, that

the transaction was executed in a way which meant that the level of commission

would not be obvious to someone other than Mr Feldman and Mr Merinson, and

that it 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.

(6)
In late November 2010, Ms Whitestone requested approval for the payment of

the Second Commission Payment to Mr Merinson. In doing so, she recklessly

failed to have regard to the obvious risks identified above of which she must

have been aware.

(7)
On 7 April 2011, Ms Whitestone’s assistant arranged for half of the commission

received by Mr Merinson to be paid to Mr Feldman. Ms Whitestone was aware

of this payment, as was her line manager at JBI. The payment reflected Mr

Merinson’s intention, made known to Ms Whitestone on 16 August 2010, to

transfer a proportion of his commission to Mr Feldman, and was a crystallisation

of the risk that the arrangements which she had set up at Mr Merinson’s and

6

Mr Feldman’s request amounted to an improper diversion of funds from Yukos

to Mr Feldman as well as to Mr Merinson. Ms Whitestone did not inform

Compliance or her senior managers of the payment and recklessly failed to

have regard to the obvious risk, of which she must have been aware, that they

would be unaware of the conflicts of interest arising from Mr Merinson

transferring a proportion of the commission he received to Mr Feldman, who

had been responsible for approving the commission.

(8)
Ms Whitestone was aware of and helped to facilitate the Third FX Transaction,

which was executed in August 2011 and in which EUR 7 million was converted

into USD for Fair Oaks. The transaction used the same trading approach as for

the First and Second FX Transactions and was executed with a high margin, to

allow Julius Baer to fund both its commission and a commission payment to Mr

Merinson, which on this transaction amounted to CHF 64,518.89 and was paid

(together with other commission due to Mr Merinson) on 1 February 2012.

There was no proper commercial rationale for the commission payable to Mr

Merinson. Ms Whitestone failed to have regard to the obvious risk, of which she

must have been aware, that this transaction was undertaken in breach of Mr

Merinson’s and Mr Feldman’s duties to the relevant Yukos Group Companies,

was not in the interests of those companies, and was undertaken to divert funds

improperly to Mr Merinson (and potentially to Mr Feldman).

2.6.
Ms Whitestone’s reckless conduct occurred in the context of a number of further

occasions where Mr Merinson and/or Mr Feldman made requests which ought to have

caused Ms Whitestone, given the matters cumulatively known to her at the time of

the requests, to have questioned Julius Baer’s arrangements with Mr Merinson and

the Yukos Group Companies and to have raised concerns about them with senior

managers at Julius Baer or with Compliance:

(1) On 16 August 2010, Ms Whitestone 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”. Ms Whitestone should have

recognised the risk that this could have been an attempt by Mr Merinson to

disguise the true nature of the payment and, in light of the other suspicious

elements of the arrangements, it ought to have caused her concern.

7

(2) In January 2011, tasked to negotiate a new Finder’s agreement with Mr

Merinson that would record his entitlement to receive 70% of commission

earned in transactions in respect of new inflows of funds, generated through

a trading approach that was not commercially beneficial to Yukos Group

Companies, Ms Whitestone sought approval for Mr Merinson’s request that a

term be included that the agreement should not be disclosed to anyone other

than Mr Feldman. Mr Merinson’s request should have caused Ms Whitestone

to be suspicious, and she should have recognised the risk that it was an

attempt to hide the fees that had been paid to Mr Merinson.

(3) On 1 February 2011, Ms Whitestone sought BJB Compliance’s approval for Mr

Feldman’s request that draft letters he had been asked to sign confirming

that the payments to Mr Merinson were approved, be amended to include the

wording ‘I sign on the understanding that you will be providing me with

confirmation of Julius Baer’s commitment to confidentiality’. She did so

without drawing attention to the fact that she had been told on 16 August

2010, that Mr Merinson intended to share a proportion of the First

Commission Payment with Mr Feldman.
Ms Whitestone should have

recognised the risk that Mr Feldman’s request was an attempt to hide the

payments to Mr Merinson.

2.7.
Ms Whitestone’s conduct fell below that expected of an approved person. As a result

of her failure to have regard to the obvious risks described in paragraph 2.5 above,

of which she must have been aware, and to take appropriate action in light of them,

Ms Whitestone was reckless and failed to act with integrity in relation to the conduct

of Julius Baer’s relationship with Mr Merinson and Yukos. As a consequence, the

Authority considers that Ms Whitestone 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.

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 in Switzerland,

Guernsey, Bahamas, and Singapore);

“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;

“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 Ms Whitestone 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 the 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 clients

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.
Ms Whitestone was employed by JBI as a relationship manager on JBI’s Russian and

Eastern European Desk from 1 January 2009 until 28 November 2012, reporting to

the JBI Line Manager. During that period, Ms Whitestone held the CF30 (Customer)

controlled function. Prior to joining JBI, Ms Whitestone had held the CF21 (Investment

adviser) controlled function at a wealth and asset management firm from 12 April

2005 to 31 October 2007, and the CF30 controlled function at the same firm from 1

November 2007 to 12 December 2008.

4.3.
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. Mr Seiler reported to

Mr Raitzin, Regional Head for Latin America, Spain, Russia, CEE and Israel, from

January 2010 until March 2011. Mr Raitzin was an employee of BJB and a member of

BJB’s Executive Board. After March 2011, Mr Seiler reported to another Senior

Executive at BJB who also held a position on the Board of JBI. From 30 March 2011

until 18 June 2014, Mr Seiler was also a non-executive director of JBI and approved

by the Authority as a CF2 (Non-executive director) controlled function holder.

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 Mr 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.
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. 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.

4.13.
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

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

4.14.
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’s 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 paid to Finders by Julius Baer.

4.15.
Ms Whitestone therefore believed, as a result of what was discussed at the meeting

on 7 July 2010, that Julius Baer could secure further business if it facilitated payment

to Mr Merinson of a large sum of money. In negotiating the level of fees that Julius

Baer proposed to charge Yukos Capital, she was aware that Julius Baer needed to

increase its usual fees in order to take into account both the commission it required

and the proposed retrocession payment to Mr Merinson.

4.16.
Ms Whitestone stated to the Authority in interview that Mr Feldman told her Yukos

wished BJB to pay Mr Merinson a Finder’s fee in order to incentivise him and reward

him for assisting Yukos with its litigation. However, the Authority has seen no written

records to confirm this; Ms Whitestone did not record this in her contact report or in

any subsequent correspondence regarding the proposed payment. Ms Whitestone

told the Authority she did not probe Mr Feldman’s explanation at the time, for

example, by seeking to understand why Yukos wished to remunerate Mr Merinson,

an employee who received a salary of USD300,000 per annum from Yukos, via a

Finder’s fee rather than paying him directly.

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

(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.

(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.

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.
Later in the afternoon of 7 July 2010, Ms Whitestone left the office to go on leave

until 2 August 2010.

4.22.
On 8 July 2010, Ms Whitestone’s assistant completed a ‘Finder’s Assessment Form’

for Mr Merinson which was signed on behalf of Ms Whitestone by the JBI Line

Manager. The form did not record that a large ‘one-off’ payment had been agreed

with Mr Merinson, even though it contained a field to be completed where a ‘special

model’ of remuneration had been agreed.

4.23.
Ms Whitestone’s assistant also emailed Mr Merinson a written 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 but, in her covering email to Mr

Merinson and Mr Feldman, Ms Whitestone’s assistant stated that the ‘one off payment

that [Ms Whitestone] has discussed and confirmed with you will be organised

separately from [the Finder’s] agreement (in case you wonder why it is not included)’.

Mr Merinson signed and returned the Finder’s agreement which he dated 7 July 2010.

4.24.
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.

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. This was also Ms Whitestone’s

understanding. 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 Capital 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 any third party 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 with 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, Julius Baer 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.

4.30.
Mr Seiler forwarded Ms Whitestone’s email to the JBI Line Manager and stated

‘Between our discussion and the situation we have now I am missing an update. In

the meantime I could talk to Louise.’ Mr Seiler and Mr Raitzin subsequently 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. Mr Seiler was also aware that the JBI Trader made use of the

volatility of the FX trading to maximise the commission, rather than securing best

execution for Yukos Capital, Julius Baer’s client, and charging the standard

commission rate for a transaction of this size.

4.31.
Earlier on 16 August 2010, Ms Whitestone met with Mr Merinson, with Mr Feldman

attending the meeting by telephone. According to Ms Whitestone’s note of the

meeting, Mr Merinson asked that the payment of commission be made to him with

the payment reference ‘Investment Capital Gain’. Mr Merinson also informed Ms

Whitestone that he was ‘going to transfer a proportion of the commission away to

Daniel Feldman’s Julius Baer account’. Ms Whitestone did not raise any concerns or

take any other steps in relation to Mr Merinson having informed her of his intention

to share the commission paid to him by Julius Baer with Mr Feldman. Although

recorded in her file note, it seems that, except for her assistant (who entered the file

note on JBI’s system) and possibly the JBI Line Manager (who in April 2011 authorised

two cash transfers from Mr Merinson’s personal account for the benefit of Mr Feldman

(see paragraph 4.76 below)), Ms Whitestone did not at any time share this information

with anyone else at Julius Baer, despite having the opportunity to do so. In particular,

Ms Whitestone did not mention this information in the email that she sent to BJB

Compliance, Mr Seiler and Mr Raitzin later that day (see paragraph 4.29 above), which

updated them on the current situation with Yukos Capital, including matters that had

been raised by Mr Feldman in the meeting.

4.32.
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 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 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 Ms Whitestone.

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 Finder’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. At no point

in this correspondence did Ms Whitestone inform BJB Compliance of Mr Merinson’s

intention to share the commission paid to him by Julius Baer with Mr Feldman. Ms

Whitestone should have realised that this meant that Mr Feldman’s confirmation would

not resolve BJB Compliance’s conflict of interest concerns.

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 (see paragraph 4.74 below).

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’. Ms Whitestone does not appear to have questioned the

commercial rationale for Yukos agreeing to these arrangements.

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

proposed arrangements.

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 Region 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 the 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 further 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.

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% retrocession 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 1.33855.

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 the 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 Seiler’s and 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

30

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. However,

despite her knowledge of these matters, Ms Whitestone did not question the probity

of Mr Feldman’s instructions.

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 (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, Mr Seiler did not raise 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, in an email that was not copied

to Ms Whitestone (although he spoke to her before emailing BJB Senior Manager A),

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 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.

Second Commission Payment to Mr Merinson

4.60.
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)’.

4.61.
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 Switzerland in order to enable BJB Switzerland 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.

4.62.
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 Merinson’s request for confidentiality

4.63.
On 5 January 2011, it was agreed during a conference call involving Ms Whitestone,

Mr Seiler, and other senior BJB staff that Mr Merinson should be offered a Finder’s

agreement with BJB Bahamas. Following the conference call, BJB Senior Manager A

sent an email to the BJB Bahamas Senior Manager on 6 January 2011 titled ‘URGENT

Finder agreement to be prepared ASAP URGENT’, asking him to prepare a Finder’s

agreement based on terms defined in an attached appendix. BJB Senior Manager A

added: ‘Please note that additionally to terms defined in this appendix, it was agreed

VERBALLY to accept three further 70% retrocession transactions between now and

23/11/11 […] all three of these can now only be used for new funds […] for

transactions where the price/rate booked to the client is at least better than the worst

rate/price of the day’. The requirement that the rate booked to the client had to beat

the worst available price on the day, is consistent with the trading approach adopted

in respect of the First and Second FX Transactions. The adoption of this trading

approach for potentially three further retrocession transactions indicates that senior

management within Julius Baer (including Mr Seiler) were aware of and supported

the trading approach that had been adopted in respect of the First and Second FX

Transactions.

4.64.
On 7 January 2011, Ms Whitestone met with Mr Merinson and discussed, among other

things, Mr Merinson entering into a Finder’s agreement with BJB Bahamas. During

the meeting, Mr Merinson requested that the agreement should include restrictions

limiting Julius Baer’s ability to disclose his role as Finder on the Yukos accounts to

anyone other than Mr Feldman. This request should have caused Ms Whitestone to

be suspicious, but she did not recognise the risk that an attempt was potentially being

made to hide the fees that had been paid to Mr Merinson.

4.65.
On 19 January 2011, Ms Whitestone requested that BJB Compliance approve the

change requested by Mr Merinson, stating that, ‘since this wording is very general’,

Mr Merinson was concerned that the information could be disclosed ‘incorrectly’. Ms

Whitestone informed the BJB Bahamas Senior Manager and BJB Compliance that ‘this

client group is extremely sensitive about banks disclosing information and I think this

is a fair request’.

4.66.
On 24 January 2011, BJB Compliance responded to Ms Whitestone to inform her that

BJB would not agree to this request, explaining ‘complete transparency of any finders’

agreement should be ensured within the Yukos Group structure’. BJB Compliance said

that it could consent to wording limiting disclosure of the Finder’s agreement only to

clients introduced by Mr Merinson. BJB Compliance also asked Ms Whitestone to

provide confirmation that the terms of Mr Merinson’s Finder’s agreement with BJB

were known to Mr Feldman and ‘ideally’ also to another Yukos director.

4.67.
On the same date, BJB Compliance emailed the JBI Line Manager and Mr Seiler to

draw their attention to:

(1)
Mr Merinson’s request that his Finder’s agreement should not be disclosed to

anyone at Yukos other than Mr Feldman;

(2)
the fact that written confirmation had not yet been received from Mr Feldman

to confirm he was aware of the payments which had been made to Mr Merinson

and of his Finder’s agreement with BJB (which had been outstanding since the

time of the First FX Transaction); and

(3)
the amount of commission charged by BJB and paid to Mr Merinson in

connection with the First and Second FX Transactions.

4.68.
BJB Compliance suggested that payment of Ms Whitestone’s 2010 bonus should be

conditional on her obtaining: (i) Mr Merinson’s signature to a copy of the Finder’s

agreement with BJB Bahamas which did not limit BJB’s right to disclose the agreement

only to Mr Feldman; and (ii) Mr Feldman’s written confirmation that he was aware of

Mr Merinson receiving Finder’s fees from BJB.

4.69.
On 31 January 2011, Ms Whitestone emailed BJB Compliance, copying in the JBI Line

Manager, stating that she would inform Mr Merinson that the restriction on disclosure

that he had requested could not be agreed and that she had previously told BJB

Compliance on 6 December 2010 that she would obtain confirmation from Mr Feldman

in February 2011.

4.70.
Following BJB Compliance’s email of 24 January 2011 raising concerns, Mr Seiler

emailed a BJB manager and requested a discussion on ‘next steps’ arising from the

concerns raised. This was followed by an email on 31 January 2011 from the JBI Line

Manager to Mr Seiler and the BJB manager, confirming he had ’had a lengthy

discussion with’ Ms Whitestone and had ‘checked the correspondence and the file

notes’ made by Ms Whitestone ‘for the relevant meetings and discussions, which are

all noted or on recorded lines – internally and externally’, and could ‘find no reason

to believe that there is anything underhand or improper going on’. Ms Whitestone

was subsequently paid a bonus of GBP 381,300.

Mr Feldman’s request for confidentiality

4.71.
On 1 February 2011, Ms Whitestone emailed BJB Compliance (copying in Mr Seiler

and the JBI Line Manager) and stated that Mr Feldman had asked that the wording ‘I

sign on the understanding that you will be providing me with confirmation of Julius

Baer’s commitment to confidentiality’ be added to the letters he was to sign

confirming the payments to Mr Merinson and that his Finder’s agreement with BJB

was known to the relevant Yukos entities. She did so without drawing attention to

the fact that she had been told on 16 August 2010, that Mr Merinson intended to

share a proportion of the First Commission Payment with Mr Feldman. Ms Whitestone

did not recognise the risk that this request was an attempt to hide the payments to

Mr Merinson from Julius Baer funded by the Yukos accounts.

4.72.
On 7 February 2011, BJB Compliance recorded in a memo which was sent to Mr Seiler

and a BJB manager, that Mr Feldman was making a ‘commitment to confidentiality’

a condition of him providing confirmation to BJB that Mr Merinson’s agreement was

‘known and accepted’ by Yukos Capital.

4.73.
On 14 February 2011, Mr Seiler and the BJB manager had a conference call with Ms

Whitestone. Following this call, the BJB manager sent an email to BJB Compliance,

copying in Mr Seiler. The email explained that their current understanding was that

Mr Merinson did not hold any official position at Yukos Capital and did not receive a

salary, but could be considered an ‘external employee’ akin to a consultant. The

Authority notes that Ms Whitestone had previously identified Mr Merinson as the Chief

Financial Officer of both Yukos International and Yukos Capital – see paragraphs 4.6

and 4.11 above. The BJB manager’s email also suggested that, due to the way in

which Yukos was structured and the nature of Mr Feldman’s role, seeking additional

confirmation regarding the payments to Merinson from someone at Yukos other than

Mr Feldman ‘would not add any value but rather irritate further’. The email also stated

that Mr Seiler and Ms Whitestone would meet with Mr Feldman and Mr Merinson at

the next opportunity in London.

4.74.
On 24 February 2011, Ms Whitestone provided BJB Compliance and Mr Seiler with

copies of letters signed by Mr Feldman for Yukos Capital and Fair Oaks on that date

(although the letters were dated 3 September 2010), confirming that: (i) he

authorised the First Commission Payment to Mr Merinson; and (ii) Mr Merinson could

36

receive Finder’s fees of 35% of net income generated by Julius Baer from future

transactions carried out for Yukos Capital and Fair Oaks. The letters included the

additional wording regarding a ‘commitment to confidentiality’ from Julius Baer that

Mr Feldman had requested. There was a reference to Yukos Capital’s approval for

‘four more opportunities’ for retrocessions in the letter confirming the First

Commission Payment. In the letter referring to Fair Oaks, Mr Feldman confirmed

approval of the 35% Finder’s fees on his own behalf and on behalf of another director

of Fair Oaks. However, that director did not sign the document. This does not appear

to have been challenged by anyone at BJB or JBI despite Mr Merinson’s

contemporaneous request to limit the disclosure of his Finder’s agreement to Mr

Feldman (see paragraph 4.64 above) and despite the fact that it had been Mr Feldman

who had approved the arrangements in the first place. The Fair Oaks letter also made

no reference to one-off retrocession payments, despite the fact that the Second

Commission Payment had already been funded by commission charged to Fair Oaks.

4.75.
On 24 February 2011, Mr Merinson annotated a copy of the Finder’s agreement he

had with BJB Zurich, requesting Ms Whitestone terminate it with immediate effect.

However, this was not actioned until later in July 2011. It appears from Ms

Whitestone’s email on 1 February 2011 that Mr Merinson was content with the

amended wording of the Finder’s agreement with BJB Bahamas and the agreement

was completed on 24 February 2011.

Onward payments from Mr Merinson to Mr Feldman

4.76.
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. The

Authority infers that Ms Whitestone was aware of these transfers at the time, since

she was copied into the email from her assistant to BJB Singapore giving instructions

for the transfers and the email refers to a discussion which Ms Whitestone had had

with BJB Singapore in which BJB Singapore had confirmed that ‘the overdraft interest

will be ‘compressed’ and [Mr Merinson] will not be charged’.
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. These

payments should have raised serious concerns for Ms Whitestone, particularly given

Mr Merinson’s and Mr Feldman’s requests that the Finder’s fees paid to Mr Merinson

be kept confidential from anyone else at Yukos. The JBI Line Manager signed the

paperwork authorising the payments. Ms Whitestone had in fact been aware of Mr

Merinson’s intention to transfer a portion of his commission to Mr Feldman since 16

August 2010 and had recorded the intention in a file note of her meeting with Mr

Merinson and Mr Feldman on this date (see paragraph 4.31 above). However, Ms

Whitestone did not inform BJB Compliance or her senior managers of the transfers

or alert them to the conflicts of interest arising from Mr Merinson, the recipient of the

retrocessions, making payments to Mr Feldman, who had been responsible for

approving the retrocessions.

Opening of Yukos Hydrocarbons account in Guernsey

4.77.
On 18 July 2011, Ms Whitestone emailed Mr Seiler, copying in the JBI Line Manager

and members of JBI’s senior management, seeking approval to open an account for

Yukos Hydrocarbons in Guernsey. The account opening for Yukos Hydrocarbons in

Guernsey was subsequently approved by Mr Seiler.

Third FX Transaction

4.78.
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’. Ms Whitestone’s

suggestion that the arrangement was so that the ultimate beneficial owners would

not be disadvantaged makes no sense in the context of seeking to achieve a large

margin. Ensuring the rate was better than the worst on the day did not avoid

disadvantage, but did have the effect of making it more difficult for a third party with

cause to examine Fair Oaks’ records to understand the nature of the arrangement.

38

4.79.
On 17 August 2011, Ms Whitestone emailed Mr Seiler and stated ‘We have done an

FX on the USD 7mil funds which came in to the Guernsey account and I’ve been

asked if we can use one of the one-off 70% deals for the trade. This would leave just

one more until 1st November 2011.’ This conversion of USD 7 million in the Guernsey

account (which was the account of Yukos Hydrocarbons) was a different transaction

to the conversion of EUR 7 million for Fair Oaks that had taken place on 15 August

2011.

4.80.
On 19 August 2011, Ms Whitestone sent a further 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)’. She concluded her email by mentioning again the

conversion of USD 7 million into EUR and that she intended to use one of the one-off

70% deals for that transaction.
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 does not have

any further correspondence on the subject of applying a one-off retrocession to the

conversion of USD 7 million to EUR on the BJB Guernsey account. The absence of a

Finder’s agreement between Mr Merinson and BJB Guernsey would have made such

a payment extremely difficult, and the Authority has inferred that the idea was

dropped as a consequence.

4.81.
On 29 December 2011, a staff member at BJB Bahamas emailed Ms Whitestone in

relation to ‘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.

4.82.
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 assets from BJB Bahamas

4.83.
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’. Mr Raitzin was also aware of this request and

did not seem to have any material issues with it, save for noting that the ‘generous

retrocession provided to the client’ was conditional upon funds remaining with Julius

Baer for three years. The account opening did not proceed.

Third Commission Payment to Mr Merinson and further account opening

4.84.
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.

4.85.
On 2 October 2012, Ms Whitestone emailed Mr Seiler, another member of JBI’s Board

and BJB Compliance seeking approval to open a BJB Switzerland account for another

Yukos company which was due to receive approximately USD 100 million before the

end of the year. On 8 October 2012, Mr Seiler and the member of JBI’s Board gave

their approval.

Termination of Ms Whitestone’s employment

4.86.
Over the course of the second half of 2011 and through 2012, concerns were raised

about Ms Whitestone’s conduct, including her failure to follow JBI and BJB policies

and procedures. On 28 November 2012, Ms Whitestone’s employment with JBI was

terminated.

The JBI Line Manager notifies JBI Compliance of potentially suspicious

activities

4.87.
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 the

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.

4.88.
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 […]’.

4.89.
On 22 May 2014, 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. JBI informed the

Authority of this on 7 July 2014.

Related litigation

4.90.
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.

4.91.
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.

Ms Whitestone’s remuneration

4.92.
As a relationship manager at JBI, Ms Whitestone’s personal remuneration was linked

to the income derived from the client relationships that she managed. She received

a monthly base salary and a formula-based bonus which was determined both by the

net new assets attracted into the accounts she managed and by the return achieved

by investing those assets in line with the client’s instructions.

4.93.
In 2009, Ms Whitestone received a bonus of GBP 34,500. In 2010, largely as a result

of the inflow of money into the Yukos accounts she managed and the activities on

those accounts, her bonus (which was paid in 2011) increased significantly to GBP

381,300. In 2012, she was paid a bonus of GBP 98,400.

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.

5.3.
As a result of the facts and matters described above, Ms Whitestone’s conduct has

fallen short of the minimum regulatory standards and the Authority considers she is

not fit and proper because she lacks the requisite integrity. A person may lack

integrity where he or she acts recklessly.

5.4.
Ms Whitestone was reckless in relation to the overall conduct of Julius Baer’s

relationship with Mr Merinson and Yukos. She 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)
On 7 July 2010, Ms Whitestone met Mr Feldman and Mr Merinson, and later

that day reported to the JBI Line Manager and to Mr Seiler, to whom she had a

functional reporting line, 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, whom she described as the introducer (or Finder)

registered on the Yukos Capital account, 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

Finder’s 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 negotiating these arrangements with Mr Feldman and Mr Merinson, Ms

Whitestone recklessly failed to have regard to the following obvious risks of

which she 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. Ms Whitestone 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.

b. Given Mr Feldman’s involvement in approving these arrangements, as 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,

and the indication that agreeing the payment to Mr Merinson was a

condition of funds remaining with Julius Baer (with more to come), the risk

that the arrangements involved a breach of both Mr Merinson’s and Mr

Feldman’s duties to the relevant Yukos Group Companies, and the

improper payment of what were in effect Yukos’ funds to Mr Merinson (and

potentially to Mr Feldman).

(3)
Between 11 and 13 August 2010, on the instructions of Mr Feldman, Ms

Whitestone and the JBI Trader facilitated the First FX Transaction, in which

approximately GBP 271 million received from Yukos Capital was converted into

USD. It was agreed with Mr Feldman that the commission charged by Julius

Baer would be used to fund the ‘one-off’ payment to Mr Merinson and Julius

Baer’s own commission, as had been discussed and agreed on 7 July 2010. 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. There was no proper commercial rationale for the payment to Mr

Merinson. Furthermore, the trading approach used to execute the First FX

Transaction 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

Yukos Capital was above the worst rate for the day, had the effect that anyone

with cause to examine Yukos Capital’s records would not be put on notice that

the commission was of an unusual size. Ms Whitestone recklessly failed to have

regard to the obvious risk, of which she must have been aware, that the First

FX Transaction was undertaken in breach of Mr Merinson’s and Mr Feldman’s

duties to Yukos Capital, was not in the interests of that company, and was made

in order to facilitate the improper diversion of funds from Yukos Capital to Mr

Merinson (and potentially to Mr Feldman), in a way which would not be obvious

to someone other than Mr Feldman and Mr Merinson.

(4)
On 16 August 2010, Mr Merinson informed Ms Whitestone that he intended to

transfer a proportion of the First Commission Payment to Mr Feldman’s Julius

Baer account, but although she made a record of Mr Merinson’s intention she

did not inform her senior managers or Compliance. Thereafter, she facilitated

the First Commission Payment. In doing so, Ms Whitestone recklessly failed to

have regard to the obvious risk, of which she must have been aware, that the

arrangements which she had set up at Mr Merinson’s and Mr Feldman’s request

were improper, were in breach of their duties to the relevant Yukos Group

Companies, were not in the interests of those companies, and amounted to an

improper diversion of funds from Yukos Capital to Mr Merinson and Mr Feldman.

She also recklessly failed to have regard to the obvious risk, of which she must

have been aware, that, by omitting to inform Compliance and her senior

managers about Mr Merinson’s stated intention to transfer a proportion of his

commission to Mr Feldman, they would be deprived of significant information

about the risks posed by the arrangements.

(5)
In October 2010, Ms Whitestone negotiated and agreed with Mr Feldman and

Mr Merinson amendments 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. These arrangements were approved by Mr

Seiler and Mr Raitzin. There was no proper commercial rationale for these

arrangements and Ms Whitestone recklessly failed to have regard to the obvious

risk, of which she 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.

(6)
On 23 November 2010, Ms Whitestone, with help from the JBI Trader, facilitated

the Second FX Transaction, in which approximately USD 68 million of Yukos

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

Transaction) was converted 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. As with the First FX Transaction, 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 for 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. Ms Whitestone nonetheless

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

been aware, that the transaction was executed in a way which meant that the

level of commission would not be obvious to someone other than Mr Feldman

and Mr Merinson, and that it 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.

(7)
In late November 2010, Ms Whitestone requested approval for the payment of

the Second Commission Payment to Mr Merinson. In doing so, she recklessly

failed to have regard to the obvious risks identified above of which she must

have been aware.

(8)
On 7 April 2011, Ms Whitestone’s assistant arranged for half of the commission

received by Mr Merinson to be paid to Mr Feldman. Ms Whitestone was aware

of this payment, as was the JBI Line Manager. The payment itself reflected Mr

Merinson’s intention, made known by him to Ms Whitestone on 16 August 2010,

to transfer a proportion of his commission to Mr Feldman, and was a

crystallisation of the risk that the arrangements which she had set up at Mr

Merinson’s and Mr Feldman’s request amounted to an improper diversion of

funds from Yukos to Mr Feldman as well as to Mr Merinson. Ms Whitestone did

not inform Compliance or her senior managers of the payment and recklessly

failed to have regard to the obvious risk, of which she must have been aware,

that they would be unaware of the conflicts of interest arising from Mr Merinson

transferring a proportion of the commission he received to Mr Feldman, who

had been responsible for approving the commission

(9)
Ms Whitestone was aware of and helped to facilitate the Third FX Transaction,

which was executed in August 2011 by the JBI Trader and in which EUR 7 million

was converted into USD for Fair Oaks. The transaction used the same trading

approach as for the First and Second FX Transactions and was executed with a

high margin, to allow Julius Baer to fund both its commission and a commission

payment to Mr Merinson, which on this transaction amounted to CHF 64,518.89

and was paid (together with other commission due to Mr Merinson) on 1

February 2012. There was no proper commercial rationale for the commission

payable to Mr Merinson. Ms Whitestone failed to have regard to the obvious

risk, of which she must have been aware, that the Third FX Transaction was

undertaken in breach of Mr Merinson’s and Mr Feldman’s duties to the relevant

Yukos Group Companies, was not in the interests of those companies, and was

undertaken to divert funds improperly to Mr Merinson (and potentially to Mr

Feldman).

5.5.
Ms Whitestone’s reckless conduct occurred in the context of a number of further

occasions where Mr Merinson and/or Mr Feldman made requests which ought to have

caused Ms Whitestone, given the matters cumulatively known to her at the time of

the requests, to have questioned the arrangements with Mr Merinson and the Yukos

Group Companies and to have raised concerns about them with senior managers at

Julius Baer or with Compliance:

(1) On 16 August 2010, Ms Whitestone sought approval (which was refused by

BJB Legal) for Mr Merinson’s request that the First Commission Payment be

referenced as “Investment Capital Gain”. Ms Whitestone should have

recognised the risk that this could have been an attempt by Mr Merinson to

disguise the true nature of the payment and, in light of the other suspicious

elements of the arrangements, it ought to have caused her concern.

(2) In January 2011, tasked to negotiate a new Finder’s agreement with Mr

Merinson that would record his entitlement to receive 70% of commission

earned in transactions in respect of new inflows of funds, generated through

a trading approach that was not commercially beneficial to Yukos Capital or

Fair Oaks, Ms Whitestone sought approval for Mr Merinson’s request that a

term be included that the agreement should not be disclosed to anyone other

than Mr Feldman. Mr Merinson’s request should have caused Ms Whitestone

to be suspicious, and she should have recognised the risk that it was an

attempt to hide the fees that had been paid to Mr Merinson.

(3) On 1 February 2011, Ms Whitestone sought BJB Compliance’s approval for Mr

Feldman’s request that draft letters he had been asked to sign confirming

that the payments to Mr Merinson were approved, be amended to include the

wording ‘I sign on the understanding that you will be providing me with

confirmation of Julius Baer’s commitment to confidentiality’. She did so

without drawing attention to the fact that she had been told on 16 August

2010, that Mr Merinson intended to share a proportion of the First

Commission Payment with Mr Feldman.
Ms Whitestone should have

recognised the risk that Mr Feldman’s request was an attempt to hide the

payments to Mr Merinson.

5.6.
An annual staff training programme was in operation throughout the 2009 to 2012

period when Ms Whitestone worked as a relationship manager on the Yukos accounts.

The scope of the annual staff training was expanded in 2009 to include sanctions,

fraud and market conduct as well as anti-money laundering. Financial crime alerts

and regulatory updates were also issued regularly in 2009 and 2010 covering topics

including fraud and anti-money laundering. JBI also introduced an anti-fraud policy

in 2009. In July 2011, JBI introduced an anti-bribery and corruption policy and all

staff were provided with anti-bribery and corruption training. In addition, from July

2011, a Julius Baer Group policy combatting fraudulent and improper activities

required staff to report such matters to management and to raise any potential issues

they became aware of in the control environment. Despite these measures, all of

which sought to highlight the risks of financial crime, Ms Whitestone failed to question

the appropriateness of the Finder’s arrangements.

5.7.
There was no proper commercial rationale for the unusual and elaborate steps

requested by Mr Feldman and implemented by Ms Whitestone and Julius Baer to

generate funds for the benefit of Mr Merinson. Ms Whitestone had a key role in

negotiating the Finder’s arrangements with Mr Merinson and Mr Feldman, and in

managing the relationship with Mr Merinson and Yukos. As Ms Whitestone was aware

of the numerous suspicious features to this relationship, she must have been aware

of the obvious risks arising from it, including that Mr Feldman and Mr Merinson were

acting contrary to the interests of Yukos and using Finder’s arrangements and

commission payments on FX transactions to obscure the payments to Mr Merinson

(and after 16 August 2010, onwards to Mr Feldman) of very large sums of money.

Although the Authority recognises that Ms Whitestone recorded and made the JBI

Line Manager, Mr Seiler, Mr Raitzin, Compliance and others at Julius Baer aware of

much of her conduct of this relationship, she did not disclose to her senior managers

or to Compliance the fact that Mr Merinson intended to, and later did, transfer a

proportion of his commission to Mr Feldman, which was an obvious sign that the

arrangements which she had set up at Mr Merinson’s and Mr Feldman’s request were

improper. By failing to have regard to the obvious risks arising from the relationship

with Mr Merinson and Yukos, and the payment of commission pursuant to that

relationship, and by failing to take appropriate action in light of those risks, Ms

Whitestone acted recklessly. As a result, Ms Whitestone breached Statement of

Principle 1 of the Authority’s Statements of Principle for Approved Persons, which at

the relevant times required approved persons to act with integrity in carrying out

their controlled functions.

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 Ms Whitestone’s misconduct, involving a lack of integrity, the

Authority considers that Ms Whitestone 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 Ms Whitestone under section 56 of the Act in those terms.

6.2.
In deciding to impose a prohibition order on Ms Whitestone, the Authority has had

regard to the guidance in Chapter 9 of EG. The Authority has, in particular, taken

account of the fact that Ms Whitestone’s misconduct occurred several years ago and

that, at the relevant times, she was junior to Mr Seiler and Mr Raitzin, both of whom

approved many of her actions. However, the Authority considers that the seriousness

of Ms Whitestone’s misconduct, which involved her 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 more than two years, in breach of Statement of Principle 1, is such that Ms

Whitestone poses a serious risk to confidence in the UK financial system.
The

Authority considers that it is appropriate to impose a prohibition order on Ms

Whitestone 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 Ms Whitestone

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 Ms Whitestone, Mr Merinson and Mr

Feldman, whether or not set out in Annex B.

8.
PROCEDURAL MATTERS

8.1.
This Notice is given to Ms Whitestone 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 website:

The Tribunal

8.4.
Ms Whitestone 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, Ms Whitestone has 28 days from the date on which this Notice

is given to her 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 Chamber,

Fifth Floor, Rolls Building, Fetter Lane, London EC4A 1NL (tel: 020 7612 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

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/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

copied may not publish the Notice or any details concerning it unless the Authority

has published the Notice or those details.

8.11.
However, the Authority must publish such information about the matter to which a

decision notice or final notice relates as it considers appropriate. The persons to

whom this Notice is given or copied should therefore be aware that the facts and

matters contained in this Notice may be made public.

Authority contacts

8.12.
For more information concerning this matter generally, contact Rory Neary at the

Authority (direct line: 020 7066 7972/email: Rory.Neary2@fca.org.uk).

Tim Parkes
Chair, Regulatory Decisions Committee

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.

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.

The Authority’s Statements of Principle for Approved Persons

1.13. At the relevant times (between July 2010 and December 2011), the Statements of

Principle issued by the Authority under section 64(1) of the Act with respect to the

conduct of approved persons were set out in the part of the Handbook entitled

“Statements of Principle and Code of Practice for Approved Persons” (“APER”).

1.14. APER 2.1.2P set out the Statements of Principle. These included Statement of Principle

1: “An approved person must act with integrity in carrying out his controlled function.”

ANNEX B

REPRESENTATIONS

Ms Whitestone’s Representations

1. A summary of Ms Whitestone’s key representations (in italics), and the Authority’s
conclusions in respect of them, is set out below.

Recklessness and lack of integrity

2. Ms Whitestone does not accept that she acted recklessly or with a lack of integrity.
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, the correct
test for recklessness is that which was applied by the Tribunal in Tinney2, and provides
that the key issues when defining recklessness are: (i) awareness of a risk that exists or
will exist; and (ii) that it is unreasonable to take that risk having regard to the
circumstances as the person in question believes them to be.

3. A consideration of whether Ms Whitestone acted recklessly must therefore be fact specific
and should be made on an ex ante basis, by considering what were the circumstances
existing at the time as she knew or believed them to be, rather than with the benefit of
hindsight. That is particularly important in this case, as the Authority has viewed it on
the basis that a fraud was perpetrated on the Yukos Group by Mr Feldman and Mr Merinson
and has applied that hindsight on the basis that Ms Whitestone must have known of the
risk that this was the case.

4. The Authority has concluded, on the basis of the evidence it has seen, that Ms Whitestone
must have been aware of the obvious risks arising from Julius Baer’s relationship with Mr
Merinson and Yukos, and that she failed to have regard to those risks and failed to take
appropriate action in light of them. As a consequence, the Authority considers that Ms
Whitestone acted recklessly, and without integrity.

5. Given its conclusion that Ms Whitestone 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 Ms Whitestone’s submissions regarding the correct test for
recklessness.

6. The Authority agrees that a consideration of whether Ms Whitestone acted recklessly
should not be made with the benefit of hindsight, and the Authority has sought to avoid
doing so in reaching its decision.

1 Stewart Owen Ford and Mark John Owen v The Financial Conduct Authority [2018] UKUT 0358 (TCC)
2 Andrew Tinney v The Financial Conduct Authority [2019] UKUT 0227 (TCC)

The Authority’s investigation

7. This case has been characterised by significant, unjustifiable and unexplained delays, none
of which have been caused or contributed to by Ms Whitestone. There was a delay of five
years from the end of the events in question to the start of the investigation and a further
delay of over three years until the Warning Notice was given to Ms Whitestone. These
delays have resulted in a situation where the limitation period for taking disciplinary action
has expired and Ms Whitestone’s culpability has been exaggerated in order to justify a
prohibition order.

8. The stress on Ms Whitestone of these proceedings and in particular the length of time the
investigation has taken has been considerable. In addition, the lengthy delays have
caused unfairness in terms of Ms Whitestone’s ability to recall relevant events and give
instructions.

9. The Authority acknowledges that delays occurred in the investigation into Ms Whitestone
and that it would have been preferable for the investigation to have concluded at an earlier
date, in particular if that would have alleviated any stress caused to Ms Whitestone by
these proceedings. Notwithstanding the delays, the Authority does not agree that Ms
Whitestone’s culpability has been exaggerated in order to justify a prohibition order. The
decisions to issue the Warning Notice and this Decision Notice were taken by members of
the RDC, who are separate to the Authority staff involved in conducting the investigation
into Ms Whitestone and recommending that a prohibition order be imposed.

10. The Authority also considers that the time taken to conclude the investigation does not
diminish the seriousness of the misconduct set out in this Notice, which the Authority
considers justifies the imposition of a prohibition order. The Authority has taken into
account Ms Whitestone’s concern that the delays have unfairly affected her ability to recall
relevant events and to give instructions, but considers that its conclusions are supported
by the contemporaneous evidence.

Quality of evidence

11. The nature and quality of the evidence in this case gives rise to concern. A number of
documents have been redacted and are difficult to follow. Ms Whitestone and her legal
representatives also identified obvious deficiencies and gaps in the evidence produced,
and that there were missing documents which the Authority had not identified or obtained
from JBI or BJB. As a result of Ms Whitestone’s legal representatives pointing this out
after the Warning Notice had been given to Ms Whitestone, the Authority made further
enquiries which led to the discovery of further evidential documents.
In the
circumstances, Ms Whitestone has no confidence that JBI has taken a fair and even-
handed approach to its disclosure obligations, and similarly has no confidence that the
Authority has satisfied itself about this.

12. The evidence of the JBI Line Manager is also of concern. At times his evidence has been
presented by the Authority’s Enforcement team as unreliable, whilst at other times they
have relied heavily on statements made by him. In many significant respects, his account

of events is provably untrue, characterised by self-interest and contradicted by other
evidence. His evidence and motives must therefore be treated with caution.

13. It appears that the JBI Line Manager may have been deriving income from the Yukos
Hydrocarbons relationship in respect of which he was the relationship manager, via a
Finder which was an offshore nominee company operated by the father of another
relationship manager at JBI who worked closely with the JBI Line Manager. This matter
goes directly to the honesty, integrity and credibility of the JBI Line Manager, but the
Authority has declined to investigate it and has not provided appropriate disclosure.

14. The case against Ms Whitestone is based primarily on contemporaneous documentation,
much of which was written by Ms Whitestone herself. Ms Whitestone’s correspondence
and file notes recording meetings with Mr Feldman and Mr Merinson are not redacted. The
vast majority of the documents containing redactions were already redacted when
obtained by the Authority from BJB’s regulator in Switzerland, and the Authority
understands that they were redacted pursuant to Swiss Banking Secrecy laws. Some of
these documents were subsequently provided unredacted, pursuant to the Authority’s
enquiries after the Warning Notice was given to Ms Whitestone. The Authority considers
that the limited redactions that remain, when read in context with the unredacted
material, are unlikely to contain information that would be materially relevant to the case
against Ms Whitestone.

15. The Authority acknowledges that the further enquiries made after the issue of the Warning
Notice, which led to the discovery of further evidential documents, should have been made
at an earlier date, and that it was questions raised by Ms Whitestone’s legal
representatives which led to these documents being obtained. However, the Authority
does not consider that there are any reasonable grounds to believe that JBI has not taken
a proper approach to its disclosure obligations.

16. The Authority recognises that the reliability of the JBI Line Manager’s evidence is
questionable and so has only accepted statements made by him where there is other
corroborating evidence. The conclusions it has reached regarding the conduct of Ms
Whitestone are not reliant on the JBI Line Manager’s evidence.

17. The Authority does not consider Ms Whitestone’s submission regarding the JBI Line
Manager’s relationship with the Finder for the Yukos Hydrocarbons account to be relevant
to the question of whether Ms Whitestone acted recklessly in respect of the conduct of
Julius Baer’s relationship with Mr Merinson and Yukos. As mentioned above, the Authority
has not relied on the JBI Line Manager’s evidence in reaching its conclusions regarding Ms
Whitestone’s conduct.

Ms Whitestone’s background

18. Hard work and integrity are central to Ms Whitestone and her family’s ethos and way of
life. Ms Whitestone embodies those qualities in her approach to her studies, her
commitment to her family’s charitable endeavours and her determination to fund her
studies by working in catering and administrative roles, rather than relying solely on her

family for financial support. There is nothing in her background to suggest she is a person
who lacks integrity or who takes unreasonable risks.

19. Testimonials provided by people who know Ms Whitestone in a personal capacity or have
worked with her demonstrate that an allegation that she acted with a reckless lack of
integrity is wholly inconsistent with her character.

20. Ms Whitestone’s background and upbringing did, however, leave her ill equipped to
recognise and cope with the toxic work environment and culture that she encountered at
JBI. At the time of the relevant events, she did not have the professional or life experience
to recognise the warning signs in the relationship with Mr Merinson and Mr Feldman which,
with the benefit of hindsight, were there. In this, she accepts that she was naïve. This
led her to rely heavily on the experience of, and approvals from, Mr Seiler, Mr Raitzin and
others within JBI and BJB who were involved in the relevant matters.

21. In hindsight, Ms Whitestone recognises that she derived too much comfort from the
approvals of her senior managers within Julius Baer and from the assurances she was
given by Mr Feldman and Mr Merinson, as well as from the image of integrity that they
both consistently portrayed to her. She also recognises that she was out of her depth in
respect of Yukos as a client and the various transactions under consideration; she did not
have the professional or life experience to deal with a case which involved such large sums
of money and such complexities. This should have been recognised by JBI/BJB and in
particular the JBI Line Manager, Mr Seiler and Mr Raitzin, and steps should have been
taken to provide her with support and oversight. Instead, they were concerned only with
fee generation and did not themselves recognise or take steps to deal with any potential
conflict of interest issues or possible fraud. In addition, JBI was institutionally unaware of
the relevant legal and regulatory issues that arose and so was unable to provide a stable
control environment to support its employees. For someone in Ms Whitestone’s position
at the relevant time, given all these factors, to characterise her conduct as a reckless lack
of integrity is unfair and wrong.

22. The Authority notes Ms Whitestone’s submissions that her background does not suggest
she is a person who lacks integrity, and has had regard to the testimonials provided in
support of Ms Whitestone, but considers that the evidence relating to her conduct at the
material times supports its conclusion that she acted recklessly and without integrity.

23. The Authority also considers that, even if the work environment at JBI was very different
to the environment in which Ms Whitestone was brought up, that does not explain or
excuse her failure to have regard to the obvious risks arising from the relationship with
Mr Merinson and Yukos, of which she must have been aware, and to take appropriate
action in light of them, as outlined in section 5 of this Notice.

24. Although the Authority recognises that Ms Whitestone sought approvals from senior
managers within Julius Baer, in particular Mr Seiler and/or Mr Raitzin, in relation to the
Finder’s arrangements with Mr Merinson, the FX Transactions and the Commission
Payments, and made them and others at Julius Baer aware of much of her conduct of the
bank’s relationship with Mr Merinson and Yukos, she did not disclose to her senior
managers or to Compliance the fact that Mr Merinson intended to, and later did, transfer
a proportion of his commission to Mr Feldman, which was an obvious sign that the

arrangements were or might be improper. Further, any failures on the part of her senior
managers in giving approvals, and on the part of JBI in not ensuring that there was an
adequate governance and control environment in relation to the management and
oversight of Finder’s arrangements at the relevant times, do not absolve Ms Whitestone
of responsibility for her own reckless failings.

Ms Whitestone’s early employment

25. Ms Whitestone performed extremely well in her previous roles before joining JBI, but her
experience in banking and as a relationship manager was relatively limited. Before joining
JBI, she worked at another Swiss bank in London, initially in an administrative role as an
assistant to two relationship managers, before being promoted to a junior relationship
manager position in 2007. Her clients were small in terms of numbers and monetary
value. She only had limited involvement with Finders’ arrangements and no previous
experience with managing or undertaking FX transactions before the Yukos FX
transactions.

26. The Authority notes that Ms Whitestone held more junior roles before joining JBI and that
her previous experience as a relationship manager was not extensive. However, it also
notes that Ms Whitestone was an approved person from April 2005 and that, by the time
that Ms Whitestone was negotiating the arrangements with Mr Feldman and Mr Merinson,
she had been an approved person for over five years. She also received training at JBI,
and JBI had relevant policies in place, that highlighted the risks of financial crime. The
Authority considers that the risks that Ms Whitestone failed to have regard to were obvious
and that she must have been aware of them, and that it was not necessary to have any
experience of Finders’ relationships or of FX transactions to realise that the arrangements
that she negotiated or facilitated were suspicious, had no proper commercial rationale and
were likely to be improper. In the circumstances, Ms Whitestone’s failure to question the
appropriateness of the Finder’s arrangements was reckless.

Ms Whitestone’s employment at JBI

27. Ms Whitestone was a junior relationship manager at JBI. When she joined JBI in November
2008 she made clear her limited previous experience. From the outset, she was not
offered any training, appropriate management support or professional development.
Instead, she was put under pressure by the JBI Line Manager to start marketing to clients
on the basis that JBI would not tolerate her generating insufficient revenues. She
nevertheless attempted to comply with the instructions of her seniors and to do her job
well. She always made contact reports or records of meetings with clients, save where a
conversation took place on a recorded line and no dealing instructions or similar were
given.

28. Ms Whitestone did not receive any adequate training in respect of the matters that arose
in this case. To be effective, it was important that training addressed the main risks in
the business, including risks associated with Finders. However, the training did not deal
with these risks, and indeed could not effectively do so as it is clear that JBI/BJB was
institutionally unaware of many of these risks.

29. At JBI/BJB there was almost a complete lack of knowledge of any of the legal and
regulatory issues relating to Finders, conflicts of interest, inducements or breach of

fiduciary duty, and Finders’ relationships with employees, officers and fiduciaries were
common. The Co-operation with Finders Policy was deficient and there was a lack of
adequate policies and procedures on the relevant issues, no relevant or adequate training,
and no clear management guidance. In addition, the culture was toxic, fostered by the
JBI Line Manager. It was an environment in which mistakes would inevitably be made by
anyone.

30. Ms Whitestone took steps to ensure that both her line management and functional
reporting lines were kept informed about matters relating to the Yukos accounts. Although
Ms Whitestone was keen to ensure that all relevant personnel were kept informed, JBI’s
matrix management structure created confusion and uncertainty as to who had ultimate
responsibility for decision-making and who Ms Whitestone was meant to be reporting to
at any given time.

31. The JBI Line Manager had a central role in events and was aware of all the salient issues.
He was a difficult line manager to work for and was disinclined to manage his team
properly. He did not provide any mentoring or guidance for Ms Whitestone, an
inexperienced relationship manager, but instead waged a long-running campaign to take
over Ms Whitestone’s Yukos relationships or obtain a share of her bonus from the FX
Transactions.

32. It is apparent from JBI’s conduct throughout this matter that its intention has been to
minimise its responsibility by seeking to place the blame on Ms Whitestone. In addition,
Mr Seiler and Mr Raitzin have attempted to minimise their own culpability and involvement
by laying the blame for the relevant events on Ms Whitestone.

33. As mentioned in paragraph 5.6 of this Notice, an annual staff training programme was in
operation when Ms Whitestone was a relationship manager on the Yukos accounts, and
this programme included training on sanctions, fraud, market conduct and anti-money
laundering. Comprehensive details of attendees at many of the training events are not
available, but there is clear evidence that Ms Whitestone attended training on client due
diligence and anti-money laundering around December 2010. Relevant training materials
also made it clear that, where there is no clear proper commercial rationale for a
transaction, it should be escalated. In any event, even if the training she received did not
cover risks associated with Finders and other risks which arose in relation to the
relationship with Mr Merinson, the Authority considers that the risks were obvious to a
person in Ms Whitestone’s position and that she must have been aware of them.

34. The Authority agrees that, at the relevant times, there were deficiencies in JBI’s
governance and its control environment in relation to the management and oversight of
Finder’s arrangements, and that JBI failed to ensure that it had adequate policies and
procedures in place to identify and manage the risks arising in relation to Finder’s
relationships connected to its clients. However, it is not the case that there were no
relevant controls or policies in place. For example, the Co-operation with Finders Policy
set out the procedure that was required to be followed in respect of agreeing and recording
the payment of non-standard remuneration to Finders. Further, the Authority considers
that these failures do not relieve Ms Whitestone of her responsibility for her own failings.
A relationship manager in Ms Whitestone’s position should not have allowed the
relationship to proceed in the way that it did. However, at no point did Ms Whitestone

question the situation or raise any concerns to anyone at JBI or BJB, despite being aware
of all the suspicious elements of the relationship with Mr Merinson and Yukos.

35. The Authority has taken into account the fact that Ms Whitestone took steps to ensure
that her line management and her functional reporting lines were made aware of much of
her conduct of the relationship with Mr Merinson and Yukos. Although the Authority
accepts that JBI’s matrix management structure had the potential to cause some
confusion, it is clear that Mr Seiler and Mr Raitzin were more important than the JBI Line
Manager in the management structure, and that Ms Whitestone appreciated that fact.
Whilst the JBI Line Manager was aware of the broad terms of the arrangements, he was
not included in much of the correspondence between Ms Whitestone, Mr Seiler and Mr
Raitzin. However, despite reporting primarily to Mr Seiler and Mr Raitzin with respect to
Yukos and Mr Merinson as Finder, Ms Whitestone did not disclose to them that Mr Merinson
intended to, and later did, transfer a proportion of his commission to Mr Feldman, which
was an obvious sign that the arrangements were or might be improper and which omission
undermines her contention that she acted with integrity. The Authority does not consider
that JBI’s matrix management structure, or the fact that Mr Seiler and Mr Raitzin
themselves acted recklessly in giving approval to the Finder’s arrangements, FX
transactions and payments of commission, excuses Ms Whitestone’s reckless conduct in
relation to Julius Baer’s relationship with Mr Merinson and Yukos.

36. The Authority accepts that the JBI Line Manager was less than diligent in his management
of Ms Whitestone and provided little oversight of the way in which she conducted the
relationship with Mr Merinson and Yukos. However, the contemporaneous records do not
suggest that she felt out of her depth. Rather, they give the impression that Ms Whitestone
was a confident relationship manager, and that the JBI Line Manager was supportive of
her in respect of the relationship, at least until early 2011.

37. The Authority has taken into account all relevant evidence in reaching its conclusions
regarding who should be held responsible for the misconduct which occurred in respect of
Julius Baer’s relationship with Mr Merinson and Yukos. Irrespective of any submissions
made by JBI, Mr Seiler and Mr Raitzin, the Authority considers that the contemporaneous
records clearly support its conclusion that Ms Whitestone acted recklessly and with a lack
of integrity in respect of her conduct of this relationship.

The Yukos Group

38. Ms Whitestone’s understanding of the Yukos Group was informed by its portrayal in the
press as having a reputation for fighting the corruption of the Russian State. Her overall
impression was that Yukos officers were making significant personal sacrifices to expose
corruption and embezzlement and get justice for the shareholders.

39. In Ms Whitestone’s early conversations with Mr Merinson, he explained the broad
background of the Yukos Group structure, and the ultimate beneficiaries of the assets held
therein, which was consistent with the impression she had gained from press sources. Ms
Whitestone trusted both Mr Merinson and Mr Feldman and believed the explanations that
they gave to her. With the benefit of hindsight, she now realises that she was taken in by
both of them and used by them in order to effect what now appears to have been a fraud.
She accepts she was naïve and that she made mistakes in accepting their explanations

without sufficiently questioning the underlying rationale for the arrangements put in place.
However, she denies she was reckless; at no stage did she consider there was a risk that
the arrangements were not legitimate.

40. The Authority notes Ms Whitestone’s submissions regarding her initial understanding of
the Yukos Group, but also that the contemporaneous documents do not contain any
evidence in support of these submissions.

41. The Authority considers that Ms Whitestone did not need the benefit of hindsight to
appreciate that there were numerous suspicious features to the relationship with Mr
Merinson and Yukos. The Authority considers that the risks arising from the relationship
were so obvious that Ms Whitestone must have been aware of them and that it was
reckless of Ms Whitestone not to have regard to the risks or to take appropriate action in
light of them.

Ms Whitestone’s early meetings with Mr Merinson and Mr Feldman

42. After Ms Whitestone’s move to JBI, she first spoke to Mr Merinson by telephone in May
2009, and first met him face-to-face in June 2009. They discussed the opening of a
personal account for Mr Merinson and for him to be set up as a Finder with a view at that
stage to introducing some of the original shareholders of one of the Yukos Group
companies before assets held within the Yukos Group structure were distributed to them.
The possibility of opening an account for Yukos International was also discussed, but they
did not discuss the possibility of Mr Merinson becoming a Finder for any Yukos company.
She accepts that she was aware at that stage of Mr Merinson’s employment by a Yukos
Group company.

43. During an early meeting, Mr Merinson told Ms Whitestone that Yukos Hydrocarbons
already had an account at JBI with the JBI Line Manager as the relationship manager, and
that Mr Feldman, a Yukos Hydrocarbons director, had previously met the JBI Line Manager.
Mr Merinson said that he could provide whatever additional information and
documentation was required by Julius Baer. This gave Ms Whitestone comfort that the
sole director of Yukos Capital had already been through JBI Compliance and that Mr
Merinson was trusted by the other Yukos officers.

44. At no stage did Ms Whitestone hide information from her colleagues regarding the identity
and roles of Mr Merinson and Mr Feldman and the source of funds that it was proposed
would be received on the Yukos Capital account, which was plainly legitimate.

45. Ms Whitestone’s contemporaneous note of her meeting with Mr Merinson in June 2009
states: “We will also set him up on a Finder’s agreement.” There is no mention in that
note or in any of the other contemporaneous records that this was with a view to
introducing some of the original Yukos shareholders.
However, the Authority
acknowledges that there are also no records which explicitly state that the intention at
that stage was to set up Mr Merinson as a Finder for a Yukos company.

46. The Authority accepts that Ms Whitestone would have been aware that Yukos
Hydrocarbons already had an account at JBI, with the JBI Line Manager as the relationship
manager, but does not consider that that excuses Ms Whitestone’s failure to have regard

to the obvious risks arising from the Finder’s arrangements for Mr Merinson, which she
negotiated with Mr Merinson and Mr Feldman in July 2010.

47. The Authority acknowledges that Ms Whitestone informed certain colleagues of the identity
and roles of Mr Merinson and Mr Feldman, and that the source of the funds was not in
question. However, the Authority notes that she did not share all relevant information; in
particular, she failed to disclose to her senior managers or to Compliance that Mr Merinson
intended to, and later did, transfer a proportion of his commission to Mr Feldman.

Relevant Events

July 2010 – Julius Baer’s entry into Finder’s arrangements with Mr Merinson

48. The Finder’s arrangements that Ms Whitestone negotiated with Mr Feldman and Mr
Merinson were based on an explanation provided by Mr Feldman and Mr Merinson which
appeared to be plausible. They explained that Yukos officers were incentivised in respect
of their role in the success of the Yukos litigation and the personal risk inherent in being
associated with Yukos, that Yukos officers and shareholders were keen to incentivise
people such as Mr Merinson to help recoup assets for the shareholders, that Mr Merinson
was not able to participate in a bonus pool and that it was therefore decided that the
preferred way to remunerate him was through him becoming an introducer of Yukos
business to a bank, and that he should liaise with the chosen bank to determine if they
would accommodate such an arrangement. Ms Whitestone was under the impression that,
if JBI had refused the request, Yukos would have found another way to remunerate Mr
Merinson.

49. Ms Whitestone questioned the Finder’s arrangements and the explanations she was given
appeared to tally with information previously provided by Mr Feldman and Mr Merinson,
her own research into Yukos and the fact that no concerns were expressed by Compliance
or the senior managers to whom she appropriately referred the proposals.

50. Mr Feldman was the sole director of Yukos Capital, a director of other Yukos Group
Companies, had worked for Yukos for many years and was clearly trusted by the other
Yukos officers. He is a practising US attorney, which added to the picture of him being a
man of integrity. Mr Feldman said that he would be remunerated for his part in the
successful litigation, so his and Mr Merinson’s interests seemed to be aligned with the
interests of the beneficiaries of the assets to be held at JBI.

51. As the sole director of Yukos Capital, Mr Feldman was in a position to approve and consent
to the arrangements. The fact that he was a full party to all relevant discussions and the
approval of the arrangements gave Ms Whitestone comfort that he and Yukos considered
the Finder’s arrangements to be in Yukos’ interests.
Therefore, his involvement in
negotiating the arrangements appeared to Ms Whitestone at the time to be a positive
factor, as it demonstrated that the ultimate client was aware of and approved the
arrangements.

52. Ms Whitestone appropriately escalated the issue of Mr Merinson becoming a Finder to
Compliance, the JBI Line Manager and Mr Seiler. None of these raised any concerns
regarding the commercial rationale of the arrangements, whether they were in Yukos’ best

interests, whether there was a conflict of interest or any other matters. As a junior
relationship manager and largely inexperienced in terms of a relationship of this size and
in terms of Finder’s arrangements generally, Ms Whitestone relied heavily on their
considerable experience and their advice.

53. It was Mr Seiler who first raised the issue of Mr Merinson being remunerated on the basis
of one-off retrocessions on specific transactions, rather than paying Mr Merinson a high
ongoing percentage, and it was he who suggested that Mr Merinson receive 70% of JBI’s
commission and that it was not unusual for the bank to pay 1-1.5% on net new money.
It was also Mr Seiler who informed her that the pricing of any business would have to
reflect a minimum return for JBI as well as accommodating the retrocession to Mr
Merinson, and that JBI would need to generate 40-50 basis points by the end of the year
and 20 basis points per annum thereafter if the funds stayed more than six months, in
order to justify the high risks of dealing with Yukos. The primary concerns of Mr Seiler
and the JBI Line Manager were the potential return on assets and the promise of significant
inflows in the future. Such arrangements as regards Finders was totally outside Ms
Whitestone’s previous experience and she was not in a position to suggest such
arrangements herself. Mr Merinson’s request for a Finder’s fee of 1% of the total assets
on the account therefore appeared to be consistent with what Mr Seiler had told her and
appeared to be an attempt by Mr Merinson to achieve Yukos Capital’s objective, using
what Mr Seiler had proposed.

54. The JBI colleague from another department who joined Ms Whitestone at the second of
the meetings on 7 July 2010 would have been aware of what was being proposed. He had
considerable experience and so should have been perfectly placed to assess Mr Merinson
and Mr Feldman and identify any concerns with what was being proposed. The note of
that meeting, which was wrongly dated 7 August 2010, was written retrospectively and
probably no earlier than 16 August 2010, after the First FX Transaction had taken place
and over a month after the meeting took place. It is likely that, in writing the note of the
later meeting, Ms Whitestone conflated information that she was aware of at the time of
writing, which would account for certain of the differences in the information recorded in
the two notes. The increase in Mr Merinson’s commission from 70% to 80% must have
been agreed when Ms Whitestone was on wedding leave, which is also consistent with the
note of the second meeting of 7 July 2010 reflecting in part what was agreed following
that meeting.

55. Detailed discussions took place between Ms Whitestone and Mr Seiler following her email
of 7 July 2010. Mr Seiler was aware of all the details, including that Mr Merinson was a
Yukos employee.

56. As the JBI Line Manager was handling the relationship whilst Ms Whitestone was on
wedding leave, was Ms Whitestone’s line manager and had access to the notes that Ms
Whitestone had stored on JBI’s system, he would also have been aware of all the details.
The signing of the Finder’s agreement and the fact that no written agreement appears to
have been obtained regarding the one-off retrocession occurred whilst Mr Whitestone was
on wedding leave and was dealt with by the JBI Line Manager, so Ms Whitestone should
not be blamed for his failures in this regard.

57. As far as Ms Whitestone was concerned, the banking relationship between Yukos Capital
and BJB was not dependent upon the retrocession to Mr Merinson. Discussions regarding
the funds generated from the Yukos litigation being kept in accounts opened with BJB had
commenced and had been ongoing for many months before the issue of Mr Merinson
becoming a Finder or receiving a retrocession had ever been raised.

58. With the benefit of hindsight, these matters may be seen as indications of fraud, but it is
not appropriate to judge Ms Whitestone’s conduct and whether she was reckless on the
basis of hindsight. Ms Whitestone did not at the time appreciate a risk that all was not as
it seemed, and nor did any of Compliance or senior management to whom she
appropriately referred and escalated the proposed arrangements.

59. The Authority has not seen any supporting evidence for Ms Whitestone’s submission
regarding her understanding of why Mr Merinson could not be remunerated directly by
Yukos. Ms Whitestone did not record at the time that Mr Feldman and Mr Merinson gave
her such an explanation or pass the details on to senior management, and in interview
she was unable to answer questions regarding why Yukos sought to pay Mr Merinson
through the Finder’s arrangements.
Mr Merinson was, and was understood by Ms
Whitestone to be, an officer of Yukos, so even if this was the explanation provided by Mr
Feldman and Mr Merinson, the Authority considers that it should not have appeared
plausible to Ms Whitestone.

60. The Authority has not seen any contemporaneous evidence that Ms Whitestone questioned
the Finder’s arrangements. There was an obvious risk that there was no proper
commercial rationale for the arrangements, yet there is no contemporaneous evidence
that Ms Whitestone questioned why Yukos would wish to pay such a large sum of money
to an employee or why it would wish to do so through a Finder’s agreement. Instead, her
email of 7 July 2010 to Mr Seiler, copying in the JBI Line Manager, simply outlined the
arrangements that she had discussed with Mr Feldman and Mr Merinson and asked for his
approval.

61. The Authority considers that the suspicious nature of the Finder’s arrangements, and Mr
Feldman’s involvement in approving them, as the sole director of and signatory for Yukos
Capital, meant that there was an obvious risk that Mr Feldman, despite being a practising
US attorney, was or might have been acting in breach of his duties to the company and
that he might also personally stand to benefit from them (which subsequently happened).

62. The Authority does not agree that Ms Whitestone appropriately escalated the issue of Mr
Merinson becoming a Finder to Compliance. 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 agreed with Mr
Merinson. The fact that the arrangements were known by the JBI Line Manager, and
approved by Mr Seiler, does not excuse Ms Whitestone’s own reckless behaviour in
negotiating them.

63. Although there is no evidence in support of Ms Whitestone’s contention that it was Mr
Seiler who had the idea of the amount and way to pay Mr Merinson, the Authority
acknowledges that it is unlikely that Ms Whitestone suggested such arrangements. Ms
Whitestone’s note and email of 7 July 2010 regarding her meeting with Mr Feldman and

Mr Merinson suggest that the idea was Mr Feldman’s. The Authority accepts that Mr Seiler
was interested in the arrangements and was concerned to ensure the returns that BJB
could earn from the relationship merited the risk.

64. The Authority has not seen any evidence that the JBI colleague who joined Ms Whitestone
at the second meeting of 7 July 2010 understood at the time that a large part of Julius
Baer’s profit on the FX transaction would be paid to Mr Merinson. Ms Whitestone’s contact
report for the meeting suggests that he only joined it after the payments of commission
to Julius Baer and Mr Merinson had been discussed. The Authority considers it is plausible
that the apparent drafting of Ms Whitestone’s contact report after the First FX Transaction
had taken place could account for differences between the information recorded in this
report and Ms Whitestone’s notes of the meeting earlier that day. However, it does not
necessarily follow that the increase in Mr Merinson’s commission from 70% to 80% must
have been agreed when Ms Whitestone was on wedding leave, and there is no
contemporaneous evidence that either the JBI Line Manager or Mr Seiler negotiated the
proposed arrangements when she was away from the office.

65. The Authority has not seen any contemporaneous evidence of discussions between Ms
Whitestone and Mr Seiler after 7 July 2010 and before the First FX Transaction, although
it considers it possible that they took place. The Authority notes, however, that on 16
August 2010 Mr Seiler forwarded Ms Whitestone’s email of that date to the JBI Line
Manager, saying “Between our discussion and the situation we have now I am missing an
update.” This suggests that Mr Seiler was not aware of all of the details of the
arrangements that Ms Whitestone agreed with Mr Feldman and Mr Merinson, although the
Authority considers that, at least as a result of Ms Whitestone’s email of 7 July 2010 to
him, he would have been aware of the key aspects of the arrangements and agrees that
he would have been aware that Mr Merinson was an employee.

66. Although the JBI Line Manager signed the ‘Finder’s Assessment Form’ for Mr Merinson on
behalf of Ms Whitestone on 8 July 2010, and should have known as a result of being copied
into Ms Whitestone’s email of 7 July 2010 to Mr Seiler that the form did not reflect the
reality of the arrangements that were contemplated, the Authority does not agree that Ms
Whitestone bears no responsibility for the fact that the written Finder’s agreement did not
refer to the large ‘one-off’ payment that had been agreed. The Authority considers it most
likely that Ms Whitestone’s assistant was implementing Ms Whitestone’s instructions, in
particular as other internal Julius Baer correspondence regarding the agreement at that
time involving Ms Whitestone’s assistant copied in Ms Whitestone to relevant
communications and did not refer to the JBI Line Manager. In any event, Ms Whitestone
was provided with a copy of the signed Finder’s agreement, but at no point did she suggest
that it should be amended to document the ‘one-off’ payment or question why this did not
cover all elements of what had been agreed.

67. The Authority considers it unlikely that Ms Whitestone would have believed that the
banking relationship between Yukos Capital and BJB was not dependent upon the payment
of the retrocession to Mr Merinson. Her own note and email regarding the 7 July 2010
meeting made it clear that she understood that these arrangements were being proposed
in return for the funds coming to BJB.

68. The Authority agrees that these matters should not be viewed with the benefit of hindsight.
The Authority has reached its conclusion that Ms Whitestone acted recklessly in
negotiating these arrangements having regard to the information known to Ms Whitestone
at the time, which is apparent from the matters that she recorded in her notes and
correspondence. The arrangements gave rise to obvious risks which Ms Whitestone must
have been aware of and failed to have regard to. The support of her senior managers for
the arrangements does not mean that these risks were not obvious and does not excuse
her conduct.

August 2010 – the First FX Transaction and First Commission Payment

69. There is no clear evidence that there was a “standard” commission rate, or what such a
rate was, of if there was, whether relevant personnel at JBI/BJB, in particular Ms
Whitestone, were aware of it. In any event, Ms Whitestone had no experience of
conducting FX trades and was not aware of any “standard” commission.

70. The charging of higher one-off transaction fees on the FX Transactions should be seen in
the context of significant discounts on ongoing custody, advisory and transaction fees. Ms
Whitestone believed that commission rates were in practice set commercially in the
context of the whole relationship with a client and this is what happened in this case.

71. The First FX Transaction took place in tranches over a period of time to get the best market
rate possible so that the commission did not make the client’s price worse, and so Ms
Whitestone regarded the fact that the JBI Trader acted ‘to get the best possible rate and
thereby maximise the commission’ as being in both JBI’s and the client’s best interests.
The fact that this trading approach also had the effect that anyone reviewing Yukos
Capital’s books would not have been able to detect the commission rate is the application
of hindsight. This was not considered by anyone at JBI at the time.

72. Mr Feldman was involved in every stage of the discussions, was present during the trades
and provided written confirmation that the rates achieved were in accordance with his
instructions. As Mr Feldman was the sole director of Yukos Capital with ultimate authority
to agree and sign off on the arrangements, this provided reassurance that the client
considered the proposals to be in Yukos Capital’s interests. The fact that his agreement to
the commission charged was to facilitate the improper diversion of funds from Yukos
Capital to Mr Merinson, and potentially to Mr Feldman, was not apparent to anyone at the
relevant time.

73. Ms Whitestone appropriately escalated the discussions and proposals to Compliance and
senior management who gave their support. It must have been apparent to at least Mr
Seiler and the JBI Line Manager that the commission was substantially in excess of the
normal rate and had been agreed in order to pay the large one-off Finder’s fee to Mr
Merinson, but at no stage were any concerns raised regarding the arrangements or the
commission rates being charged. The issue of whether the transaction was being
conducted in breach of Mr Merinson’s and Mr Feldman’s duties to Yukos Capital was also
not raised by anyone from whom she sought approval and guidance during the discussions
and then execution of the First FX Transaction. As a junior relationship manager with
limited experience of Finder’s agreements and transactions of this type, Ms Whitestone
relied heavily on her superiors for advice and guidance.

74. BJB Compliance was aware prior to the First Commission Payment being paid that Mr
Merinson was employed by Yukos. BJB Compliance asked Ms Whitestone to obtain written
confirmation from Mr Feldman regarding the one-off payment to Mr Merinson and the
ongoing 25% retrocession. Ms Whitestone readily agreed to this but was not able to
obtain it straightaway due to Mr Feldman being about to board a flight to the US. BJB
Compliance therefore told her she could give the letters to Mr Feldman to sign when she
next saw him. She provided him with the letters in September 2010, but forgot to ask him
for the signed versions when she met him in October and November 2010. BJB
Compliance subsequently confirmed in December 2010 that it was acceptable for Ms
Whitestone to obtain the signed letters, when she next met with Mr Feldman in February
2011.

75. This is not a case of Ms Whitestone having appreciated a risk that all was not as it seemed
but nevertheless recklessly having gone on to take the risk. There is no evidence that Ms
Whitestone at the time appreciated any risk and was therefore reckless.

76. The Authority considers that the evidence supports its conclusion that, 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. In any event, it is clear that the commission
for the transaction was far in excess of the usual rate achieved. Regardless of whether
Ms Whitestone was aware of the standard commission rates, as a result of the matters
that she was aware of at the time, she must have been aware of the obvious risk that the
First FX Transaction was, or at least might be, improper.

77. Ms Whitestone’s understanding 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 (which included the
payment of a Finder’s fee to Mr Merinson approved solely by Mr Feldman, so as to secure
the business), does not mean that it was reasonable for her to 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 using a third party.

78. The Authority considers that the trading approach used was not intended to ensure best
execution for the client, but rather 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. This had the consequence that any third party with cause to review Yukos
Capital’s records would simply see the booked rate, 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. The Authority considers that Ms Whitestone must
have been aware that there was therefore an obvious risk that the FX Transaction was
undertaken in order to facilitate the improper diversion of funds from Yukos Capital to Mr
Merinson (and potentially to Mr Feldman), in a way which would not be obvious to
someone other than Mr Feldman and Mr Merinson; however, Ms Whitestone did not have
regard to this risk or challenge the trading approach.

79. The Authority considers that it was not appropriate for Ms Whitestone to be reassured by
Mr Feldman’s involvement in the First FX Transaction, in circumstances where there was
no proper commercial rationale for the transaction and, as far as she was aware, nobody
else at Yukos was aware of the relevant details, and considers that Ms Whitestone acted
recklessly in not having regard to the obvious risks arising from the transaction.

80. Whilst the Authority recognises that neither Mr Seiler nor the JBI Line Manager raised
concerns regarding the First FX Transaction and the First Commission Payment, the
Authority considers that, notwithstanding that Ms Whitestone was a more junior
employee, she was sufficiently experienced that she must have been aware of the obvious
risks relating to the transaction.

81. The Authority acknowledges that, following the First FX Transaction and prior to the
payment of the First Commission Payment, Ms Whitestone provided details of the
transaction to BJB Compliance and also informed BJB Compliance that Mr Merinson was
both the Finder registered on the Yukos accounts and a Yukos employee. However, Ms
Whitestone did not inform BJB Compliance or her senior managers that Mr Merinson
intended to share the commission paid to him by Julius Baer with Mr Feldman.
Accordingly, she must have realised that BJB Compliance’s request that Mr Feldman
provide written confirmation that he was aware of the Finder’s agreement and the
retrocession payment would not resolve the conflict of interest concerns.

82. The Authority considers that Ms Whitestone must have appreciated the risks relating to
the First FX Transaction and that she acted recklessly in not having regard to them.

16 August 2010 – Ms Whitestone’s awareness of Mr Merinson’s intention to share his
commission with Mr Feldman

83. Ms Whitestone questions the authenticity of the file note of the 16 August 2010 meeting,
including whether it has been edited at any point after 17 August 2010. There are two
versions of this file note and they contain material differences. JBI’s legal representatives’
explanation of these differences, in particular that it is likely due to one version being
printed before an upgrade to JBI’s systems, and the other version afterwards, makes little
sense; it is believable that a migration may change some formatting issues, but it would
not change fundamental content.

84. Ms Whitestone does not recall being informed that Mr Merinson was intending to pay part
of his commission to Mr Feldman. She did not at the time question Mr Merinson’s motives
or whether he was acting in Yukos’ best interests. With the benefit of hindsight, if she
was told this, it should have caused her to question this and whether it gave rise to any
conflict of interest issues, but she did not appreciate the potential significance at the time.

85. Ms Whitestone accepts that if she was given this information, the better course would
have been to escalate it to Compliance and senior management.
However, her
understanding was that Compliance and her senior managers, in particular the JBI Line
Manager, had access to her contact reports and were monitoring them on a regular basis.
This is supported by the JBI Line Manager’s claim that he reviewed her records thoroughly.
Further, JBI’s annual client review process involved printing out every meeting report from
the previous 12 months in relation to the relevant client.
Ms Whitestone therefore

expected that any concerns or issues would be picked up and flagged with her as part of
this regular review process. However, neither the JBI Line Manager nor anyone else ever
raised this issue with her.

86. If Ms Whitestone was given this information, she did not make a deliberate decision to
withhold it from Compliance and senior management. If that was the case, it would make
no sense for her to openly enter this information in a note which was saved on JBI’s
system, in circumstances in which it appears that she was the only JBI employee informed
of Mr Merinson’s intention. In addition, if the commission-sharing arrangement was part
of a pre-arranged plan by Mr Merinson and Mr Feldman to share in illicit gains, it makes
no sense for them to have told anyone at JBI about this. Mr Merinson allegedly telling Ms
Whitestone about the commission-sharing which she then recorded in a file note is
therefore totally inconsistent with this being a “red flag”.

87. The Authority does not consider there are any reasonable grounds for questioning the
authenticity of the 16 August 2010 meeting note or for believing that it is anything other
than an accurate record of the note that Ms Whitestone took. Whilst there are minor
formatting differences between the two versions of the note, there are no material
differences in the substantive content. The Authority considers there is no reason to doubt
JBI’s legal representatives’ explanation that the minor formatting differences are as a
result of a system upgrade and considers this is supported by the fact that similar
formatting differences can be seen between the old and new versions of Ms Whitestone’s
note of her second meeting with Mr Merinson and Mr Feldman on 7 July 2010.

88. The fact that Mr Merinson intended to share his commission with Mr Feldman was very
significant information and a clear ‘red flag’ which must have caused Ms Whitestone to be
aware of the risk that the Finder’s arrangements were set up for the benefit of Mr Feldman
and Mr Merinson, not Ms Whitestone’s client.

89. The Authority acknowledges that Ms Whitestone recorded Mr Merinson’s intention to share
the commission with Mr Feldman in her file note and that it could be questioned why she
would do so, if she deliberately decided that the information should not be shared with
colleagues. However, the fact that Ms Whitestone did not inform Compliance or her senior
managers of the commission sharing proposal, in circumstances where she informed them
of other matters that had been raised by Mr Feldman in the same meeting, leads the
Authority to conclude that she recklessly failed to have regard to the obvious risk that
Compliance and her senior managers would thereby by deprived of significant information
about the risks posed by the arrangements.

90. Although there is no contemporaneous evidence that the JBI Line Manager was aware in
August 2010 of Mr Merinson’s intention, he signed off the actual transfer to Mr Feldman
in April 2011. However, even if he was aware, this does not excuse Ms Whitestone’s
failure to inform Compliance and her senior managers, given the significance of the
information.

72

16 August 2010 – Mr Merinson’s request that the First Commission Payment be made with
the reference ‘Investment Capital Gain’

91. Ms Whitestone understood that Mr Merinson’s request was to ensure that the First
Commission Payment was not classified as employment income in the Netherlands, where
Mr Merinson was resident. Mr Merinson was not employed by Yukos Capital and the
purpose of the retrocession as she understood it, although linked to his role within the
Yukos Group, was not employment income in any traditional sense. Combined with her
knowledge of the wording of Finder’s agreements, the request at the time appeared to
have a plausible rationale.

92. Ms Whitestone escalated the issue appropriately and the initial reaction of an experienced
BJB senior manager was that the request might be possible. There was no suggestion
from him, Mr Raitzin or anyone else that the request was improper or that this called into
question Mr Merinson’s integrity. Ms Whitestone relied upon the advice and guidance of
those senior to her.

93. Although with the benefit of hindsight it can be seen that this request may have been
suspicious, the risk of this was not apparent to Ms Whitestone at the time.

94. The Authority considers that there was no plausible acceptable rationale for Mr Merinson’s
request. It was obvious that referencing the payment as an ‘Investment Capital Gain’
would be an untrue statement.
However, rather than questioning the request, Ms
Whitestone sought approval for it and did not recognise the risk that this could have been
an attempt by Mr Merinson to disguise the true nature of the payment. Further, as she
had described Mr Merinson in November 2009 as the Chief Financial Officer of Yukos
Capital, it appears that Ms Whitestone’s understanding was that Mr Merinson was an
employee of Yukos Capital, and, as is explained above, her case is that the Finder’s
arrangements were a way of remunerating Mr Merinson. This therefore raises the question
of why she would believe that it was appropriate for the payment not to be classified as
employment income.

95. Ms Whitestone did not escalate the issue, but instead asked for the reference to be
included because she could not insert the reference herself. It was a BJB senior manager
who referred the request to BJB Legal, which resulted in different wording being used. In
the circumstances, in particular given the matters cumulatively known to her at the time,
Mr Merinson’s request should have caused Ms Whitestone concern.

October 2010 – amendments to Mr Merinson’s Finder’s arrangements

96. The increase in Finder’s fees for Mr Merinson from 25% to 35% and the proposal for Mr
Merinson to receive up to four one-off retrocessions involved a corresponding reduction in
custody fees from 0.20% to 0.12%, so should be seen in the context of the total pricing
for the client.

97. Mr Feldman was a director of both Yukos Capital and Fair Oaks, was plainly supportive of
the proposed revised arrangements and had the power to authorise them. There was
nothing about the demeanour of either Mr Feldman or Mr Merinson that caused Ms

Whitestone to have any concern about their commitment to the best interests of the
relevant Yukos companies.

98. Ms Whitestone escalated the matter appropriately to all relevant senior management, who
gave approvals and did not raise any concerns about the proposals or the commercial
rationale behind them.

99. Ms Whitestone believes that BJB Senior Manager A told her that one-off retrocessions were
agreed on a verbal basis and, given his seniority and the fact that she had no involvement
in drafting Finder’s agreements, she did not question this.

100.
With the benefit of hindsight it appears that these arrangements facilitated the
diversion of funds from the Yukos companies to Mr Merinson, but this was a risk that was
not apparent to Ms Whitestone at the time and nor it appears to the significantly more
experienced and senior persons to whom she appropriately referred the matter for
approval.

101.
It appears from the email sent by Ms Whitestone to Mr Raitzin on 15 October 2010
that the custody fees were already 12 basis points at the time the amendments were
negotiated by Ms Whitestone, but in any event the Authority considers that there was an
obvious risk that the amendments, even if they included the reduction in custody fees,
were to the detriment of the relevant Yukos Group Companies, and to the benefit of Mr
Merinson and Mr Feldman.

102.
Given that Ms Whitestone was aware at the time that Mr Merinson intended to share
the commission he received from the First FX Transaction with Mr Feldman, she should
have been suspicious of, rather than reassured by, Mr Feldman’s support for the revised
arrangements.

103.
The fact that Ms Whitestone sought the approval of senior managers does not excuse
her own reckless behaviour in respect of the revised arrangements, in particular given
that she had not informed any of them of Mr Merinson’s intention share his commission
with Mr Feldman. There is 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 further non-standard retrocessions of such a size, despite the fact such payments
would significantly drive up Yukos’ transaction costs for no obvious benefit to Yukos. Ms
Whitestone did not raise the matter with Compliance, despite the obviously suspicious
nature of the arrangements.

104.
The Authority has not seen any evidence that Ms Whitestone discussed the amended
Finder’s agreement with BJB Senior Manager A. It was Ms Whitestone who asked for the
amended Finder’s agreement to be put together, in an email dated 28 October 2010 to a
BJB colleague, and her email made no reference to the four additional 70% retrocessions
which had been approved by Mr Seiler and Mr Raitzin. The failure to document the
retrocessions was contrary to the provisions of the Co-operation with Finders Policy and
only Mr Raitzin, not BJB Senior Manager A, had the authority to sanction it.

105.
The Authority considers that the risks pertaining to the revised arrangements must
have been obvious at the time to Ms Whitestone, as well as to Mr Raitzin and Mr Seiler,
and that Ms Whitestone acted recklessly in negotiating and seeking approval for the
changes.

November 2010 – Second FX Transaction and Second Commission Payment

106.
Ms Whitestone did not consider it suspicious that the Second FX Transaction related in
part to the same funds that were involved in the First FX Transaction, as she believed that
investment portfolios are often traded and re-traded according to the needs and requests
of the client at any particular time. It had not been agreed that the one-off retrocessions
should only be used for new inflows of funds. The conversion of USD to EUR was a matter
that had been flagged up a few months earlier. The rationale for the conversion was
explored and Ms Whitestone was informed that it was to cover legal invoices and was
provided with the evidential basis.
She therefore considered there was a plausible
commercial rationale for the Second FX Transaction.

107.
Ms Whitestone understood that the Yukos Group and its shareholders wanted to
incentivise Mr Merinson, so their interests were aligned.

108.
It did not seem to Ms Whitestone at the time that Mr Feldman wanted the Second FX
Transaction to take place in order to use one of Mr Merinson’s retrocessions, as opposed
to simply undertaking the conversions at a later time as and when required. Ms Whitestone
was just focused on whether the Second FX Transaction had a plausible rationale, and as
it did, she therefore reported to her superiors what Mr Feldman had said.

109.
The conversion rate must be considered in the context of the overall reduction in other
rates which affected the entire portfolio and also in the context of Mr Seiler’s view as
regards the overall revenues that JBI would need to achieve. The trading was conducted
by an experienced FX dealer, using the same technique as was employed with regard to
the First FX Transaction and which had not been questioned. Senior management
accepted the trading approach used and the amount of commission generated.

110.
Ms Whitestone did not recognise at the time that the 2% range had the effect of
maximising the commission that could be earned by Mr Merinson and BJB while hiding the
commission from an auditor or other person scrutinizing the transaction. She understood
that the range was a JBI initiative to achieve a market rate which was no worse than the
worst rate of the day and was therefore a way to accommodate the needs of both Mr
Merinson and JBI. Mr Feldman played an active part in the arrangements and he and
another Fair Oaks director had signed the investment proposal regarding the need to have
EUR 50 million available to pay litigation costs, so as far as she was concerned the
transaction and the retrocession were properly authorised.

111.
Ms Whitestone discussed the proposed transaction with Compliance and the JBI Line
Manager in advance. She also obtained approvals from senior management for the
payment of the retrocession, in which she set out the total commission that had been
achieved. Her senior managers did not raise with her any concern regarding any of these
arrangements.

112.
Ms Whitestone was not a party to the concerns expressed by the BJB Bahamas Senior
Manager and the discussions that then ensued. However, she did have a conversation
with him, following which, as far as she was concerned, he seemed comfortable with the
arrangements.

113.
With the benefit of hindsight, Ms Whitestone now sees that Mr Merinson and Mr
Feldman may in fact have been perpetrating a fraud, but this was not apparent to her at
the time. The fact that no-one raised this issue with her, in particular Mr Seiler and Mr
Raitzin whom she had consulted at every stage of the relationship, gave her comfort in
this regard. Ms Whitestone was therefore not reckless.

114.
All of the approximately USD 68 million of Yukos funds which was converted into EUR
through the Second FX Transaction had previously been converted into USD by the First
FX Transaction; there had not been any further inflows that accounted for any part of the
sum involved. The arrangements which had been approved by Ms Whitestone’s senior
managers included ‘one-off’ payments that were to relate to new substantial inflows from
the proceeds of litigation, and it was not agreed that they could be applied to funds that
were already with BJB. There was no plausible commercial rationale for the Second FX
Transaction from Yukos’ point of view. Whilst there may have been a need to convert
funds into EUR to pay legal fees from time to time, Yukos could simply have converted
USD into EUR as and when invoices were received. Therefore, it must have been apparent
to Ms Whitestone that there was an obvious risk that the actual rationale for the
transaction was to generate substantial funds for Mr Merinson and potentially to Mr
Feldman, as well as to BJB, at BJB’s client’s expense and without a material risk of
detection.

115.
Ms Whitestone cannot reasonably have believed that Yukos’ interests in the transaction
were aligned with those of Mr Merinson and Mr Feldman, as the arrangements were such
that they were incentivised to act against Yukos’ interests.

116.
The commission rate for the Second FX Transaction was approximately 30 times higher
than Julius Baer’s standard commission rate for transactions of that size. It resulted in
Yukos paying far more than it might have saved from any reduction in other rates. The
lack of questioning of the trading approach used for the First FX Transaction within Julius
Baer did not validate Ms Whitestone’s facilitation of the same approach for the Second FX
Transaction. The driving factor in the trading was not to secure best execution for Fair
Oaks, but to generate commission for Julius Baer and Mr Merinson, and by ensuring that
the rate charged to Fair Oaks was above the worst rate for 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.
There was therefore an obvious risk that the
transaction was executed in a way which meant that the level of commission would not
be obvious to someone other than Mr Feldman and Mr Merinson.

117.
Given her knowledge of Mr Merinson’s intention to share his commission from the First
FX Transaction with Mr Feldman, the risk that Mr Feldman might have had ulterior motives
for supporting the Second FX Transaction must have been obvious to Ms Whitestone, and
it was not reasonable for her to take comfort from his involvement in the transaction.

76

118.
The Authority has not seen any evidence that Ms Whitestone discussed the proposed
transaction in advance with either Compliance or the JBI Line Manager. Although Ms
Whitestone subsequently sought and received approval from Mr Seiler and Mr Raitzin for
a payment of 70% of the commission generated by BJB for executing the Second FX
Transaction to Mr Merinson, this does not excuse her conduct in facilitating the Second FX
Transaction.
Further, although not raised at the time by Mr Seiler, the Second FX
Transaction was not consistent with the arrangements previously approved by Mr Seiler,
which were 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.

119.
The fact that the BJB Bahamas Senior Manager immediately raised concerns about the
Second FX Transaction shows its obviously suspicious nature. His email to BJB Senior
Manager A outlining his concerns, after speaking to Ms Whitestone, indicates that his
conversation with her did not make him comfortable with the arrangements.
Ms
Whitestone would have been aware that he continued to have concerns from an email he
sent to her on 30 November 2010, in which he explained that he considered it necessary
to have a proper client instruction before he could approve the Second Commission
Payment, given the unusual above-market practice fees.

120.
The Authority considers that the risks arising from the Second FX Transaction and the
Second Commission Payment were obvious at the time, not only with the benefit of
hindsight, and that Ms Whitestone must have been aware of them and acted recklessly in
failing to have regard to them.

January 2011 – Mr Merinson’s request for confidentiality

121.
The draft Finder’s agreement with BJB Bahamas included the wording, ‘at the request
of a client the Bank may inform them directly of the remuneration paid to the Finder’.
When Mr Merinson requested that disclosure of the Finder’s agreement be limited to Mr
Feldman, Ms Whitestone thought the wording was very general and could be read as giving
JBI the authority to provide this information to any client. This and the fact that Yukos
was very sensitive about banks disclosing information informed her comment that it was
a ‘fair request’. However, she told Mr Merinson that she did not think that Compliance
would agree to the request, based on the unlikelihood of BJB agreeing to any changes to
its standard documentation.

122.
Ms Whitestone escalated the issue appropriately to the BJB Bahamas Senior Manager
and BJB Compliance, and asked if BJB Compliance was available to meet with Mr Merinson
and Mr Feldman. This demonstrates that she was keen to involve BJB Compliance in this
relationship and did not suspect there was a risk that all was not as it seemed. At
interview, the BJB Bahamas Senior Manager described the request as ‘a fair question’.

123.
BJB Compliance’s response that the wording could be amended to ‘at the request of
an introduced client’ shows that they recognised that the original wording was capable of
a very wide interpretation. Ms Whitestone’s email of 31 January 2011 demonstrates that
she agreed with this amended wording, and therefore understood Mr Feldman’s and Mr
Merinson’s concern to be that the information should not be disclosed outside the
introduced client, rather than that they did not want Yukos to be informed about the

Finder’s arrangements. This belief was reinforced by the fact that both Mr Feldman and
Mr Merinson were content with the suggested wording.

124.
The fact that the JBI Line Manager informed Mr Seiler and a BJB manager that he had
checked the correspondence and the file notes made by Ms Whitestone means that he
must have seen the 16 August 2010 file note which records that Mr Merinson intended to
pass on part of his commission to Mr Feldman. The fact that he informed them that he
could ‘find no reason to believe that there is anything underhand or improper going on’
supports Ms Whitestone’s view that she did not act recklessly; it is not being alleged that
the JBI Line Manager acted recklessly, yet he had the same knowledge of the
arrangements as Ms Whitestone.

125.
Mr Merinson’s request that the draft Finder’s agreement should include amended
confidentiality wording, to the effect that Julius Baer would only be permitted to disclose
it to Mr Feldman, was an obvious sign that only Mr Feldman knew about the Finder’s
arrangements and that Mr Merinson did not want them to be revealed to others at Yukos.
Given the matters cumulatively known to Ms Whitestone at the time, including that Mr
Merinson intended to share his commission with Mr Feldman, the request should therefore
have caused her to be suspicious, but rather than raise any concerns when asking BJB
Compliance to approve it, she presented it as ‘a fair request’. The Authority therefore
does not agree that she escalated the request appropriately.

126.
There was no reason to think that Julius Baer would reveal the agreement to clients
who were not the ones introduced, and the fact that BJB Compliance agreed to amend the
original wording does not mean that it was reasonable for Ms Whitestone to consider that
Mr Merinson’s request was appropriate. Although Ms Whitestone accepted the view of BJB
Compliance, and neither Mr Feldman nor Mr Merinson challenged the new wording, Ms
Whitestone did not recognise the risk that the request was or might have been an attempt
to hide the fees that had been paid to Mr Merinson.

127.
The Authority considers it likely that, when the JBI Line Manager informed Mr Seiler
and a BJB manager that he had checked the correspondence and file notes, he was
referring to documents that Ms Whitestone had sent to him as attachments to an email
earlier that day. These attachments did not include the 16 August 2010 file note and the
Authority considers it unlikely that the JBI Line Manager read the entirety of the file notes
made by Ms Whitestone which had been saved on JBI’s systems (which are clearly
extensive) before writing to Mr Seiler and the BJB manager.

February 2011 – Mr Feldman’s request for confidentiality

128.
Ms Whitestone informed BJB Compliance (copying in Mr Seiler and the JBI Line
Manager) in her email of 1 February 2011, that Mr Feldman had asked that the letters he
signed contain wording confirming JBI’s commitment to confidentiality because he was
concerned by WikiLeaks and wanted JBI to take responsibility for the leak of any
information regarding the Yukos accounts. Although this request was raised in BJB
Compliance’s memo of 7 February 2011, no concerns were raised with Ms Whitestone,
which demonstrates that ultimately this was not something that anyone in BJB Compliance
or senior management considered to be an issue.

129.
As regards the point that Ms Whitestone did not draw attention to the fact that she
had been told on 16 August 2010, that Mr Merinson intended to share a proportion of the
First Commission Payment with Mr Feldman, as mentioned above, the JBI Line Manager
must have been aware of this fact as he had checked Ms Whitestone’s correspondence
and file notes, yet he did not raise any concern about it.

130.
Ms Whitestone had drafted these letters herself and took the initiative to add the name
of the other Fair Oaks director, without this having been required or requested by BJB
Compliance or anyone else in JBI or BJB.

131.
The Authority considers that Mr Feldman’s request for JBI to confirm its commitment
to confidentiality, in circumstances where Ms Whitestone was aware that Mr Merinson
intended to share a proportion of the First Commission Payment with him, was a further
ground for her to have suspicions regarding the legitimacy of the arrangements. As BJB
Compliance was not aware of this request, the fact that they did not raise any concerns
about it does not support Ms Whitestone’s submission that she acted properly.

132.
As mentioned above, the Authority has not seen evidence demonstrating that the JBI
Line Manager was aware at the time of Mr Merinson’s intention, but recognises that it was
the JBI Line Manager who signed off the actual transfer to Mr Feldman in April 2011.
However, this does not excuse Ms Whitestone’s failure to bring this to the attention of
Compliance or her senior managers and she should have recognised the risk that Mr
Feldman’s request was or might have been an attempt to hide the payments to Mr
Merinson.

133.
Although the letter referring to Fair Oaks included the name of the other Fair Oaks
director, that director did not sign the letter and instead Mr Feldman signed it on behalf
of both of them. This should have caused concern to Ms Whitestone, given her knowledge
of the intention for Mr Feldman to benefit personally from the Finder’s arrangements.

7 April 2011 – payment from Mr Merinson to Mr Feldman

134.
Ms Whitestone has no recollection of this payment or of any prior discussion that such
a payment was to be made. She was abroad at the time, was not able to keep track of
all the emails she was sent and had no involvement in the transactions.

135.
The JBI Line Manager, who was fully aware of all matters relating to this client
relationship and of Mr Feldman’s role in the Yukos Group, signed off the transfers. He
raised no concerns about the transfers and did not escalate the issue to senior
management or discuss it with Ms Whitestone.

136.
Ms Whitestone was copied into the email from her assistant to BJB Singapore giving
instructions for the transfers to Mr Feldman, and the email referred to a discussion with
Ms Whitestone. Given that Ms Whitestone had been informed in August 2010 of Mr
Merinson’s intention to share his commission with Mr Feldman, and given that Yukos was
a major client for Ms Whitestone, in the circumstances the Authority infers that Ms
Whitestone was aware of the transfers at the time.

137.
The fact that the JBI Line Manager signed off the transfers and did not raise any
concerns about them does not excuse Ms Whitestone’s own failure to question the
situation or alert her senior managers or Compliance.

August 2011 – Third FX Transaction

138.
The allegation against Ms Whitestone in respect of the Third FX Transaction altered as
a result of the additional documents obtained by the Authority after the Warning Notice
was issued. It is unacceptable that it is only now, after an investigation spanning four
years, that the Authority can present a coherent picture on a key aspect of its case.

139.
Aspects of the Third FX Transaction remain unclear, for example, there are no records
of the transaction or the rate at which it was booked. Ms Whitestone considers that if she
had been aware of the details of the transaction then she would have confirmed these to
Mr Seiler and Mr Raitzin as she had done for the First and Second FX Transactions.

140.
Ms Whitestone’s correspondence with a staff member at BJB Bahamas on 16 August
2011 shows that she understood that the purpose of trading in that manner was to ensure
that the client would not be disadvantaged and is inconsistent with her having any
knowledge that the true purpose of the trading was to avoid detection. If that was the
case, it is surprising that neither the JBI Trader, the BJB Bahamas staff member, nor
anyone else at JBI/BJB with knowledge of the FX Transactions drew this conclusion.

141.
No adverse findings should be made against Ms Whitestone in respect of this
allegation, which is lacking in sufficient evidential detail and has been recast in a way that
is fundamentally different to the way in which the case was put in the Warning Notice.

142.
The Authority accepts that, as a result of its review of the further evidential documents
obtained from Julius Baer following the issue of the Warning Notice, the descriptions of
the Third FX Transaction, and of Ms Whitestone’s failings in respect of it, in the Warning
Notice were inaccurate in a number of respects. Having reviewed the relevant evidence
(including the new material), the Authority is of the view that it supports the conclusion
that Ms Whitestone acted recklessly in respect of the Third FX Transaction (as it is now
understood by the Authority). Ms Whitestone was given the opportunity to make, and did
make, submissions regarding the Authority’s revised view of the Third FX Transaction and
of Ms Whitestone’s failings in respect of it. In the circumstances, the Authority does not
consider it to be unfair for this Notice to include an amended description of the Third FX
Transaction and a finding that Ms Whitestone acted recklessly in respect of it.

143.
The Authority considers that, notwithstanding that it is not aware of the conversion
rate used, the evidence supports its view that the same trading approach was used for
the Third FX Transaction as for the First and Second FX Transactions, and that it was
executed with a high margin, to allow Julius Baer to fund both its commission and a
commission payment to Mr Merinson. As with those earlier FX Transactions, the Authority
considers there was no proper commercial rationale for the level of commission payable
to Mr Merinson and that the Third FX Transaction gave rise to the same, obvious risks as
the previous transactions.

144.
The Authority considers that Ms Whitestone’s suggestion in her email of 16 August
2011 to a BJB Bahamas staff member that the purpose of the trading was to ensure that
the ultimate beneficial owners would not be disadvantaged cannot be correct in the
context of seeking to achieve a large margin on the transaction. Instead, ensuring the
rate was better than the worst on the day had the effect that it was more difficult for a
third party with cause to examine Fair Oaks’ records to understand the nature of the
arrangement. Given the matters known to Ms Whitestone, the Authority considers that
she must have been aware of the obvious risks arising from this transaction, and that she
acted recklessly in failing to have regard to the risks and helping to facilitate the Third FX
Transaction.

Ms Whitestone’s fitness and propriety

145.
Ms Whitestone did not act recklessly and does not lack integrity. No prohibition order
should therefore be made.

146.
Ms Whitestone’s conduct occurred in the context of a very difficult and dysfunctional
working environment. She failed to recognise risks in such an environment, where others
also did not do so or were slow to do so, and where there was effectively no functioning
management, systems or controls. Ms Whitestone would now recognise the warning signs
and deal with them appropriately.

147.
Ms Whitestone accepts that she was naive and may have made errors of judgment in
certain respects. She relied heavily on the experience of, and approvals from, Mr Seiler,
Mr Raitzin and others within JBI and BJB who were involved in the relevant matters. With
the benefit of hindsight and further wisdom and experience, Ms Whitestone appreciates
that she could have done more to probe Mr Feldman’s and Mr Merinson’s explanations for
various matters, and regrets that she did not do so.

148.
Ms Whitestone was a junior relationship manager at the time of these events with
limited experience. She is a different person now in terms of maturity and life experience
and must be judged on the basis of the person that she is today.

149.
Ms Whitestone has obtained testimonies, including from senior professionals in the
financial services industry, which show that she is thought to be a person of integrity.

150.
For the reasons set out in this Notice, the Authority considers that Ms Whitestone acted
recklessly and with a lack of integrity, and that her conduct was therefore not that of a fit
and proper person. The Authority has had regard to Ms Whitestone’s submissions
regarding why she should not be prohibited, and to the relevant factors in the Authority’s
Enforcement Guide, and has concluded that, notwithstanding mitigating factors including
the passage of time and training that she has undertaken, she has not demonstrated that
she is now a fit and proper person. Further, given the seriousness and nature of her
misconduct, which involved having a central role in effecting significant payments to Mr
Merinson pursuant to Finder’s arrangements which had no proper commercial rationale,
and a failure to have regard to obvious risks relating to those arrangements and to take
appropriate action in light of them, the Authority considers that Ms Whitestone poses a

serious risk to confidence in the UK financial system. The Authority therefore considers
that it is appropriate to prohibit her, 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.

151.
The Authority acknowledges that Ms Whitestone’s conduct occurred in the context of
a difficult working environment where there were serious deficiencies in JBI’s governance,
controls, policies and procedures in relation to the management and oversight of Finders’
arrangements, and that others at Julius Baer, who were more senior than her, also failed
to act appropriately in respect of the risks arising from the relationship with Mr Merinson
and Yukos. However, the Authority does not agree that she was naïve; in the light of the
matters known to her, she must have been aware of the obvious risks arising from the
relationship, yet she failed to question the Finder’s arrangements or raise concerns about
them appropriately with senior managers at Julius Baer or with Compliance. The Authority
considers that she thereby acted recklessly.

152.
The Authority agrees that Ms Whitestone’s fitness and propriety should be judged on
the basis of the person she is today and has had regard to the testimonies provided by
her which support her submission that she is a person of integrity. However, the Authority
considers these need to be balanced against the nature of her conduct in this case, which
demonstrates recklessness and a clear lack of integrity. Overall, the Authority considers
that, in considering her current fitness and propriety, it is appropriate to give most weight
to her reckless conduct with regard to Julius Baer’s relationship with Mr Merinson and
Yukos.

Training and competence

153.
The training and guidance provided to Ms Whitestone by JBI was either inadequate or
lacking. She has since taken significant steps to undertake training on the legal and
regulatory issues that arose and to improve her knowledge of such issues.

154.
The Authority has taken into account Ms Whitestone’s attendance at training courses,
but does not consider that this displaces its concerns regarding her integrity.

Length of time since the events in question

155.
Even if the Authority concludes that Ms Whitestone has acted recklessly, that does not
mean that a prohibition order must be imposed, as is clear from the Tribunal’s decision in
the case of Tinney. That is particularly the case where the relevance and materiality of
the historic matters indicating unfitness are outweighed by other factors. These events
were very historic, occurring 9-11 years ago.

156.
The events and the significant delay that has occurred in the Authority’s investigation
has had a significant impact on Ms Whitestone’s personal circumstances. The case of
Selvarajan3 shows that this is a relevant factor in considering whether it is necessary and
proportionate to impose a prohibition order.

3 Selvarajan v GMC [2008] EWHC 182 (Admin)

157.
The Authority agrees that a prohibition order does not necessarily follow from a
conclusion that an individual acted recklessly. The Authority recognises that the relevant
events occurred some time ago, but in the circumstances, having regard to the
seriousness and nature of her misconduct, the Authority does not consider that Ms
Whitestone has demonstrated that she is now a fit and proper person.

158.
Similarly, the Authority does not agree that any impact that this matter might have
had on Ms Whitestone’s personal circumstances outweighs the serious risk that she poses
to confidence in the UK financial system and to the Authority’s consumer protection and
integrity operational objectives.

Severity of risk which Ms Whitestone poses to consumers and to confidence in the financial
system

159.
Ms Whitestone poses no risk to consumers or to confidence in the financial system.
She has learned hard lessons as a result of her actions and the Authority can be confident
that, faced with the same situation again, she would act differently.

160.
Ms Whitestone recklessly failed to have regard to the obvious risks arising from the
relationship with Mr Merinson and Yukos, including that in effecting significant payments
to Mr Merinson pursuant to Finder’s arrangements in the knowledge that he intended to
share them with Mr Feldman, Julius Baer might be facilitating or even participating in
financial crime, and to take appropriate action in light of them. The Authority considers
that the seriousness and nature of this misconduct demonstrates that Ms Whitestone
poses a serious risk to consumers and to confidence in the financial system, and that this
remains the case notwithstanding the passage of time.

Previous disciplinary history and general compliance record

161.
Apart from this matter, Ms Whitestone has an unblemished record in every other
respect and in every other aspect of her life.

162.
The Authority acknowledges that Ms Whitestone has no other disciplinary findings
against her and has taken this into account, but overall considers the seriousness of her
misconduct outweighs this and other mitigating factors.

Lack of action against the JBI Line Manager

163.
The JBI Line Manager was closely involved with the events in question, including the
original Finder’s arrangements and the arrangements regarding the First FX Transaction,
and approved the payment from Mr Merinson to Mr Feldman in April 2011. He was also
kept actively updated and informed throughout the Yukos relationship and informed the
Authority that he reviewed file notes and correspondence saved on JBI’s system. He made
various factual claims to the Authority that lack credibility. His email of 30 November 2012
contains a number of false statements and inaccuracies and is clearly a retrospective
attempt to protect his own position by putting distance between himself and the events in
question, whilst seeking to exculpate himself and blame Ms Whitestone.

164.
In the circumstances, if the Authority considers that Ms Whitestone acted recklessly,
the same allegation should be made against the JBI Line Manager, however, the Authority

is not taking action against him. The Authority should act fairly and consistently.
Therefore, if no criticism is being made of the JBI Line Manager’s conduct in respect of
many of the same matters, it follows that the relevance and materiality of these matters
in respect of Ms Whitestone’s conduct must be limited.

165.
The Authority has reached its conclusion that Ms Whitestone acted recklessly and that
it is appropriate to prohibit her, having regard to the relevant evidence in this case,
including the submissions that it has received from Ms Whitestone.
The Authority’s
decisions on whether or not to take action against other persons, including the JBI Line
Manager, are not relevant considerations in deciding on the appropriate action to take
with regard to Ms Whitestone’s own conduct. The Authority also notes that Ms Whitestone
had a far greater involvement in the relevant events than the JBI Line Manager who,
although aware of the broad terms of the arrangements, was not copied into much of the
correspondence between Ms Whitestone, Mr Seiler and Mr Raitzin.

Alternatives to a Prohibition Order

166.
The limitation period has expired for the Authority to impose a disciplinary penalty on
Ms Whitestone, so the only alternatives to a prohibition order are for the Authority to issue
a private warning or take no action. It is the fault of the Authority that it is in this position.
A prohibition order should not be imposed simply because no other public sanction is
available.

167.
If the Authority considers it is appropriate to mark Ms Whitestone’s conduct, a private
warning would be adequate in terms of public protection and proportionate in all the
circumstances.

168.
A full prohibition order is an extremely wide and draconian measure, which would
effectively end any prospect of Ms Whitestone ever resuming a career in financial services
and would have a devastating effect on her public reputation. If the Authority nevertheless
decides that a prohibition order must be made, it would be appropriate to limit the scope
of such an order to specified functions and the Authority should indicate that it is minded
to revoke the order on Ms Whitestone’s application after a short period of time.

169.
The Authority considers that it would not be appropriate to give Ms Whitestone a
private warning in the light of the seriousness of her misconduct. A private warning would
not secure the same degree of protection for consumers or the UK financial system.

170.
The Authority also considers that it would not be appropriate to impose a more limited
prohibition order. In the light of Ms Whitestone’s lack of integrity, the Authority considers
that there is no function which Ms Whitestone is fit to perform and that it is therefore
appropriate to impose a full prohibition order. The Authority also does not consider it is
appropriate to indicate that it would be minded to revoke the prohibition order on Ms
Whitestone’s application after a short period of time, given its concerns with Ms
Whitestone’s conduct. However, pursuant to section 56 of the Act, it is open to Ms
Whitestone to apply for the revocation of a prohibition order. The Authority would then
consider at the time, whether it is appropriate to grant that application, taking into account
all relevant circumstances, including evidence relating to Ms Whitestone’s fitness and
propriety since the date of this Notice.

Mr Merinson’s Representations

171.
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.

172.
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.

173.
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.

174.
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.

175.
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.

176.
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.

177.
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.

178.
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.

179.
The Authority acknowledges that senior individuals in the Julius Baer group were
familiar with the proposed arrangements from an early stage and supported them.

180.
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

181.
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.

182.
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.

183.
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.

184.
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.

185.
Mr Feldman’s request to Julius Baer to keep details of the transactions confidential was
aimed at keeping the information confidential from Yukos’ adversaries in the litigation.
This was Yukos’ policy and a common request made to service providers that Yukos dealt
with.

186.
It is unfair to lay the blame on Ms Whitestone. All of her superiors were aware of the
fee arrangements for the Yukos accounts and nobody objected.

187.
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.

188.
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. In any event, the payment by Mr
Merinson, the recipient of the retrocessions, of exactly half of his commission, to Mr
Feldman, who had been responsible for approving the retrocessions, gave rise to obvious
conflicts of interest.

189.
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.

190.
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.

191.
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.

192.
As explained in this Notice, notwithstanding the knowledge of others within Julius Baer,
including senior managers, of Mr Merinson’s Finder’s arrangements, the Authority
considers that the evidence demonstrates that Ms Whitestone acted recklessly in relation
to the overall conduct of Julius Baer’s relationship with Mr Merinson and Yukos.