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
Thomas
Seiler
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

Reference
Number:
TXS01622

1.
ACTION

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

prohibiting Thomas Seiler from performing any function in relation to any regulated

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

firm, pursuant to section 56 of the Act.

2.
SUMMARY OF REASONS

2.1.
The Authority considers that, between July 2010 and August 2011, Mr Seiler acted

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

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

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

Merinson. Further, Mr Seiler recklessly made inaccurate and misleading comments

regarding that relationship in December 2012.

2.2.
Mr Seiler was employed as the Sub-Regional (Market) Head for Russia and Eastern

Europe at Bank Julius Baer & Co. Ltd. (“BJB”) in Switzerland from 2008 to 2014.

Mr Seiler had responsibility for functional line management of the Russian and

1

Eastern European Desk at Julius Baer International Limited (“JBI”), a firm

authorised by the Authority. On 30 March 2011, Mr Seiler was also appointed to

the Board of Directors of JBI and approved by the Authority to perform the CF2

(Non-executive director) controlled function. His misconduct was undertaken in

both his role as a Sub-Regional (Market) Head at BJB and, from 30 March 2011,

as a non-executive director of JBI.

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

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

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

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

day conduct of Julius Baer’s relationship with certain companies in the Yukos Group

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

European Desk.

2.4.
Mr Seiler approved 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. As Mr Seiler was aware, Mr

Merinson was an employee of the Yukos Group. Mr Seiler approved these

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

Daniel Feldman, who was a director of various Yukos Group Companies, including

the sole director of Yukos Capital, would ensure that the Yukos Group placed large

cash sums with Julius Baer from which Julius Baer could generate significant

revenues. Pursuant to these Finder’s arrangements (which were initially agreed in

July 2010 and amended in October 2010), Mr Merinson received three commission

payments: in September 2010, December 2010 and February 2012. The rates of

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

rates paid to individuals for introducing business to Julius Baer. In the course of

the Finder’s relationship, Julius Baer paid Mr Merinson commission of

approximately USD 3 million.

2.5.
In order to effect these commission payments to Mr Merinson, Mr Seiler approved

of 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 approved by Mr Seiler, although Julius Baer also benefited

2

significantly from the transactions. Although the Authority has not seen any

evidence that Mr Seiler was aware at the time, in April 2011, JBI also facilitated

Mr Merinson’s transfer to Mr Feldman of half of the commission he received from

BJB as a result of the first two FX transactions.

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

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

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

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

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

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

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

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

financial crime. In particular:

(1)
In July 2010, Mr Seiler approved of Julius Baer entering into Finder’s

arrangements with 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 approving these

arrangements, Mr Seiler recklessly failed to have regard to the following

obvious risks of which he must have been aware:

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

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

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

b. The risk that the 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

3

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

Yukos Capital, in approving the arrangements, potentially to Mr

Feldman).

(2)
In August 2010, the First FX Transaction was carried out, 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. Mr Seiler approved

the First Commission Payment and thereby approved the arrangements by

which the commission was generated in the First FX Transaction. In doing

so, Mr Seiler recklessly failed to have regard to the obvious risk, of which

he 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).

(3)
In October 2010, Mr Seiler approved amendments proposed by Mr Merinson

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

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

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

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

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

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

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

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

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

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

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

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

the interests of those companies and were designed to divert funds

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

to Mr Feldman).

(4)
In November 2010, the Second FX Transaction was carried out, in which

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

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

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

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

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

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

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

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

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

was no proper commercial rationale for Yukos to adopt such an

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

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

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

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

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

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

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

the Second Commission Payment and thereby approved the arrangements

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

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

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

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

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

(5)
In the event, before the Second Commission Payment was made, Mr Seiler

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

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

concerns, Mr Seiler was tasked with putting in place an ‘acceptable

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

‘regularise pending issues’. In the circumstances, Mr Seiler must have been

aware that there was a risk that the arrangements with Mr Merinson were

improper, but he recklessly did not take any steps to prevent the Second

Commission Payment, which was ultimately paid to Mr Merinson on 31

December 2010, before Mr Seiler had taken the actions he was tasked with.

5

(6)
In January 2011, notwithstanding that he had been tasked with putting in

place an ‘acceptable framework’ and to ‘regularise pending issues’, Mr Seiler

agreed that Ms Whitestone should negotiate new Finder’s arrangements with

Mr Merinson, including that Mr Merinson would be entitled to receive 70%

of the commission earned on transactions in respect of new inflows of funds,

generated through a trading approach that was consistent with that adopted

for the First and Second FX Transactions. In doing so, Mr Seiler recklessly

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

that there was no proper commercial rationale for such an arrangement and

that the trading approach 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 August 2011, Mr Seiler was informed by Ms Whitestone that one of the

four 70% retrocession payments that he (and Mr Raitzin) had previously

approved would be used in respect of a FX transaction in which EUR 7 million

was converted into USD for Fair Oaks (the Third FX Transaction). Mr Seiler

was not specifically informed that 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 later paid (together with other commission due

to Mr Merinson) on 1 February 2012. However, having approved the

arrangements by which the commission was generated in the First and

Second FX Transactions, Mr Seiler must have been aware of the obvious risk

that the Third FX Transaction had no proper commercial rationale, that it

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

relevant Yukos Group Companies, that it was not in the interests of those

companies, and that it was undertaken to divert funds improperly to Mr

Merinson (and potentially to Mr Feldman). However, he recklessly failed to

have regard to that risk and did not take any steps to prevent the Third

Commission Payment.

(8)
In December 2012, when asked by BJB Compliance to provide his comments

on an email setting out extensive concerns about the arrangements with Mr

Merinson, Mr Feldman’s involvement in those arrangements, and the

payments made pursuant to them, Mr Seiler gave inaccurate and/or

6

misleading statements. In doing so, he recklessly failed to have regard to

the truth of his statements.

2.7.
Mr Seiler’s reckless conduct occurred in the context of a number of further

occasions where matters were brought to his attention which ought to have

caused him, given the matters cumulatively known to him at the time and given

his experience as a senior financial services professional, to have questioned and

raised concerns about Julius Baer’s arrangements with Mr Merinson and the Yukos

Group Companies, rather than approve them and continue to support them as the

relationship progressed:

(1) In 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”. Mr Seiler 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 him concern and to follow-up with

further investigation into the arrangements.

(2) In January 2011, Ms Whitestone sought approval for Mr Merinson’s request

that a term be included in a new Finder’s agreement that the agreement

should not be disclosed to anyone other than Mr Feldman. When this request

was drawn to Mr Seiler’s attention, it should have caused him to be suspicious

and to pursue a further investigation into the arrangements, and he should

have recognised the risk that it was an attempt to hide the fees that had been

paid to Mr Merinson.

(3) In February 2011, Mr Seiler was made aware that Mr Feldman had requested

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’. Mr Seiler should have recognised the risk that

Mr Feldman’s request was an attempt to hide the payments to Mr Merinson

but he did not raise any concerns, including when the letters were provided

containing such wording and signed only by Mr Feldman.

(4) In July 2011, Ms Whitestone’s line manager at JBI emailed Mr Seiler and

questioned the ethics of the payments to Mr Merinson, the size of the

7

commission charged and the high-risk nature of the Yukos relationship and

raised doubts about whether sufficient assurances had been obtained relating

to the transparency of the payments. Mr Seiler took no action in response and

proceeded to approve the opening of an account for Yukos Hydrocarbons with

BJB Guernsey.

2.8.
As a result of Mr Seiler’s failure to have regard to the obvious risks described in

paragraph 2.6 above, of which he must have been aware, and to take appropriate

action in light of them, Mr Seiler was reckless and failed to act with integrity. His

failure to act with integrity partly occurred after he had been appointed to the role

of non-executive director at JBI holding the CF2 (Non-executive director)

controlled function, on 30 March 2011, in breach of 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. Following his appointment to this role, Mr Seiler permitted

the Finder’s arrangements with Mr Merinson to continue without taking any

meaningful steps to address the risks arising from Julius Baer’s relationship with

Yukos and Mr Merinson. As a consequence of his lack of integrity, the Authority

considers that Mr Seiler 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

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 Mr Seiler 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.
Mr Seiler was employed as the Sub-Regional (Market) Head for Russia and Eastern

Europe for BJB from 2008 to 2014. From January 2010 to 30 March 2011, he

reported to the Regional Head for Latin America, Spain, Russia, CEE and Israel for

BJB, Gustavo Raitzin, who was 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.

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

Desk from 1 January 2009 until 28 November 2012. JBI’s Russian and Eastern

European Desk reported to JBI’s Management Committee. It also had a functional

reporting line to Mr Seiler, as the Sub-Regional (Market) Head, who therefore had

functional line management responsibility for Ms Whitestone.

4.4.
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

4.5.
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.

4.6.
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).

4.7.
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.

4.8.
Figure 1 below illustrates the above information regarding the Yukos Group and

accounts held by companies within the group at Julius Baer:

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

4.10.
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.

4.11.
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.

4.12.
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’.

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

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

JBI Line Manager was also aware of the account opening request. The Authority

has found no evidence that Mr Merinson was referenced as a Finder on any

documentation relating to the opening of the Yukos Capital account.

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

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

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

award.

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

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

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

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

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

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

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

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

with BJB.

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

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

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

explained in her email:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

for Julius Baer.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

notes of the meeting earlier that day.

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

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

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

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

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

agreement which he dated 7 July 2010.

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

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

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

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

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

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

Merinson.

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

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

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

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

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

4.24.
On 23 July 2010, Mr Seiler sent an email to the JBI Line Manager in relation to

the Yukos relationship, in which he stated: ‘Roughly a year ago [Ms Whitestone]

came to me saying that the ac opening was not accepted. I told [her] to give me

all the information so I could take it up with the relevant people. After talking to

compliance and legal I was able [to] make them reassess the decision and ac

opening was approved. I think that part of the success (renumeration) [sic.]

should be allocated at my discretion. Whats your opinion?’ This email suggests

that Mr Seiler was close to the detail of the Yukos relationship and had intervened

to allay concerns raised by BJB Legal and BJB Compliance when the Yukos Capital

account was opened with BJB Switzerland in November 2009.

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 Mr Seiler’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 anyone with cause to review Yukos Capital’s records would

simply see the booked rate (1.5574), and would be unaware that the transaction

had been executed at a much more favourable rate by BJB and that the

commission was of an unusual size.

4.28.
Ms Whitestone met 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.

The Authority considers that Mr Seiler would have appreciated that the amount of

commission which Julius Baer had generated from the First FX Transaction was

significantly in excess of the amount that would normally be associated with a

large FX trade.

4.30.
Mr Seiler 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.
On 19 August 2010, Ms Whitestone requested, copying in Mr Seiler and Mr Raitzin,

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

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

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

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

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

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

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

raised suspicions for Mr Seiler.

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

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

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

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

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

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

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

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

Capital depended on Mr Merinson receiving the First Commission Payment.

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.

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 4.78 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’.

4.42.
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 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’.

4.43.
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 as 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.

4.44.
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.

4.45.
The Authority has seen no evidence that JBI Compliance or BJB Compliance were

informed or consulted about the proposal at this time.

4.46.
On 23 November 2010, Mr Merinson signed an addendum to his Finder’s

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

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

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

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

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

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

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

Ms Whitestone copied Mr Seiler and Mr Raitzin into an email asking for a new

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

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

payments’ that had been agreed.

Second FX Transaction

4.47.
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’.

4.48.
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.

4.49.
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.

4.50.
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 4.42 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

4.51.
As for the First FX Transaction, the trading approach used in relation to the Second

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

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

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

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

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

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

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

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

contemporaneous notes of her meeting with Mr Feldman on 23 November

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

depended on the range being sufficiently large.

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

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

range had been reached.

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

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

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

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

day.

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

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

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

4.52.
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.

4.53.
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 4.54 below).

Mr Seiler’s knowledge of the Second FX Transaction

4.54.
On 24 November 2010, Ms Whitestone emailed Mr Seiler and Mr Raitzin and

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

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

Whitestone’s email stated:

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

retrocession transactions for the conversion of USD68mil into EUR.

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

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

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

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

them with just three 70% retrocession transactions between now and

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

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

retrocession to be transferred to Dmitri Merinson is approximately

USD742,000 (70%)’.

4.55.
Ms Whitestone therefore highlighted the importance of the two cent range and

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

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

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

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

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

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

Julius Baer.

4.56.
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, neither Mr Seiler nor Mr Raitzin raised

this with Ms Whitestone. Mr Raitzin emailed Mr Seiler separately and stated, ‘your

jurisdiction and judgment, let me know later’. Mr Seiler replied to Ms Whitestone

later that day (copying in Mr Raitzin) stating ‘I approve’ and Mr Raitzin then

replied, ‘No objection’. In approving this retrocession payment to Mr Merinson,

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

instructions to Ms Whitestone.

4.57.
On 25 November 2010, the BJB Bahamas Senior Manager raised concerns with

BJB Senior Manager A about the Second FX Transaction 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).

4.58.
The BJB Bahamas Senior Manager stated that the proposed payment to Mr

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

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

prior to taking any further steps to effect payment.

Second Commission Payment to Mr Merinson

4.59.
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

30

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)’.

4.60.
On 21 December 2010, BJB Senior Manager A emailed a memorandum to Mr

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

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

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

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

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

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

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

your approval as Chairman of the Board [of BJB Bahamas]’. Mr Raitzin replied to

Mr Seiler and BJB Senior Manager A on 22 December 2010, ‘No objection for

payment. Please regularise pending issues and set up correct framework. Last time

it comes to my approval without Market Head [i.e. Mr Seiler] approval’.

4.61.
Mr Seiler was not copied in to the correspondence from the BJB Bahamas Senior

Manager, but given that he was tasked by Mr Raitzin with putting in place an

acceptable framework to address the concerns raised and was liaising with BJB

Senior Manager A who was in contact with the BJB Bahamas Senior Manager, the

Authority has inferred that he must have been aware of the concerns raised

concerning the size of the retrocession payment to Mr Merinson, the lack of

appropriate client authorisation for the Second FX Transaction and Mr Merinson’s

links to Yukos.

4.62.
The Authority has identified an unsigned memorandum titled ‘Information

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

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

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

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

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

introduction of accounts to the Julius Baer Group.

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

agreement, by way of accounts opened in its books.

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

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

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

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

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

4.63.
The memorandum included a signature block for Mr Raitzin (as Chairman of the

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

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

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

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

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

approval on 21 December 2010.

4.64.
Mr Seiler stated at interview that he discussed the payment of the Second

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

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

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

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

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

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

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

Merinson could be made.

4.65.
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.

4.66.
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

4.67.
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.

4.68.
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 (and subsequently Mr Seiler when it was brought to his attention) to

be suspicious, but she (and subsequently Mr Seiler) did not recognise the risk that

an attempt was potentially being made to hide the fees that had been paid to Mr

Merinson.

4.69.
Ms Whitestone asked BJB Compliance to approve the amendment proposed by Mr

Merinson. 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.

4.70.
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.

4.71.
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.

4.72.
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.

4.73.
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

4.74.
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. Mr Seiler 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.

4.75.
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. The memo provided Mr

Seiler with an overview of the Yukos accounts at BJB, the commercial terms agreed

in relation to the Yukos business, the Finder’s agreement and retrocession

arrangements with Mr Merinson, and the compliance issues arising. According to

the memo, Ms Whitestone provided information that Mr Merinson was the Financial

Director at Yukos International and was ‘heavily involved in choosing which banks

should hold funds awarded to subsidiary companies of [Yukos International]’. It

set out payments into/out of the accounts of Yukos Capital and Fair Oaks. It also

noted that Yukos International was indirectly the 100% shareholder of Yukos

Capital.

4.76.
The memo raised three main compliance issues connected to all of the above: (i)

conflict of interests; (ii) cross border payment of retrocessions; and (iii)

reputational risk. In relation to the conflict of interests, it stated: ‘The business

[Mr Merinson] introduces to the bank is related to his professional activity within

the Yukos corporate structure. We have requested that we receive written

confirmation from […] Feldman, that this agreement is known and accepted by

Yukos Capital. [Mr Feldman] is now making it conditional for his signature on this

confirmation that he obtains a “commitment to confidentiality” from BJB […] In

any case, it should be considered whether to obtain additional comfort from a

superior group entity should also confirm its awareness of these arrangements,

e.g. the Stichting Yukos (Dutch foundation)’.

4.77.
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. This 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 to Mr Seiler as the Chief Financial Officer of 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.

4.78.
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 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 (including Mr Seiler)

despite Mr Merinson’s contemporaneous request to limit the disclosure of his

Finder’s agreement to Mr Feldman (see paragraph 4.68 above) and despite the

fact that it had been Mr Feldman who had approved the arrangements in the first

36

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.

4.79.
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.

Mr Seiler becomes a non-executive director of JBI

4.80.
On 30 March 2011, Mr Seiler became a non-executive director of JBI and was

approved by the Authority to perform the CF2 (Non-executive director) controlled

function.

Onward payments from Mr Merinson to Mr Feldman

4.81.
On 7 April 2011, Ms Whitestone’s assistant arranged for two cash transfers to be

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

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

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

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

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

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

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

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

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

Second Commission Payments. The JBI Line Manager signed the paperwork

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

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

commission with Mr Feldman.

Opening of Yukos Hydrocarbons account in Guernsey and concerns raised

in July 2011

4.82.
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.

4.83.
On the same date, the JBI Line Manager emailed Mr Seiler stating he had been

‘consistently left out of the loop on all matters arising from this client relationship’

and he did not support the Yukos relationship being managed by Ms Whitestone.

In his email to Mr Seiler, the JBI Line Manager stated that he was not sure if issues

raised by BJB Compliance about the Yukos relationship had been resolved and

stated that ‘also purely based in the size of the retro paid to [Mr Merinson]; I think

it is unethical and that it sets a bad example for doing business in this market,

especially with such a high risk relationship.’ It does not appear that Mr Seiler took

any action as a result of this email. The account opening for Yukos Hydrocarbons

in Guernsey was subsequently approved by Mr Seiler the following day.

Third FX Transaction

4.84.
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

4.85.
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. Ms Whitestone asked Mr Seiler to call her ‘to discuss the

potential one-off deal and other matters’. The Authority has not seen any evidence

of any response to that request from Mr Seiler, however a BJB manager replied on

his behalf to say that Mr Seiler might be able to call Ms Whitestone later, adding

‘we are irritated that they’re just fishing for reasons to leave now that they have

what they wanted (i.e. the FX deals)…’.

4.86.
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.

4.87.
On 29 December 2011, a staff member at BJB Bahamas emailed Ms Whitestone in

relation to the ‘2011’s transactions’ and stated ‘I wanted confirmation that we are

only to pay out one one-off retrocession for the conversion of EUR7mil into USD

on 15th August. This is the only one that I have in my records also so I just

wanted to ensure that we were on the same page’. Ms Whitestone replied to

confirm that was correct.

4.88.
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

4.89.
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 Seiler was copied into this email exchange. The account opening did

not proceed.

Third Commission Payment to Mr Merinson and further account opening

4.90.
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.

4.91.
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.

The JBI Line Manager notifies JBI Compliance of potentially suspicious

activities

4.92.
On 28 November 2012, Ms Whitestone’s employment with JBI was terminated. On

30 November 2012, the JBI Line Manager sent an email to JBI Compliance detailing

potentially suspicious activities involving Ms Whitestone, Mr Merinson and Mr

Feldman. The email stated that Ms Whitestone ‘proposed a non-standard [Finder’s]

agreement for [Mr Merinson] in order to bring this business to [Julius Baer]

(approx. USD400 million)’. The email referred to the FX Transactions and 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.

4.93.
The email explained that:

(1)
the agreement with Mr Merinson involved Julius Baer paying approximately

80% of its revenues from profits on introduced accounts to Mr Merinson

when ‘our and industry standard is 25%’;

(2)
Mr Merinson had been paid around USD 2 million ‘on the back of a series of

large, one-off FX transactions for which [Julius Baer] took non-standard

commission’;

(3)
Mr Feldman (as opposed to anyone else within Yukos) had signed letters

requested by BJB Compliance confirming that Yukos had no objections to

Mr Merinson receiving Finder’s fees;

(4)
Mr Feldman had subsequently received a USD 500,000 loan payment from

Mr Merinson from his personal account at Julius Baer;

(5)
Mr Merinson had alleged to the JBI Line Manager ‘that inside his company

there are suspicions that he received a retro payment from [Julius Baer]

and that this is a serious problem’.

4.94.
The JBI Line Manager stated in his email that he suspected that:

(1)
the payments to Mr Merinson and his Finder’s agreement with BJB were ‘in

conflict with our, Yukos's rules and legal requirements in the UK and

[Switzerland]’;

(2)
Mr Feldman had a conflict of interest in the matter and his authorisation of

Julius Baer’s arrangements with Mr Merinson was ‘invalid’; and

(3)
the payment to Mr Merinson and his Finder’s agreement with BJB were not

known to Yukos and that Mr Merinson was taking steps to attempt to hide

the arrangements.

4.95.
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 […]’.

4.96.
The email was immediately forwarded to senior management at both JBI and BJB,

including Mr Seiler. Mr Seiler was asked by BJB Compliance to provide his

comments on the email. On 5 December 2012, Mr Seiler emailed BJB Compliance

and a BJB senior manager his comments, which included that Compliance and the

‘Region Head’ (i.e. Mr Raitzin) had approved the retrocession arrangements, that

Mr Seiler’s recollection was that Mr Merinson was at that time not an employee of

Yukos and that in any event, ‘an additional signature’ from Yukos had been

requested after the First FX Transaction. These statements were inaccurate and/or

misleading. There is no evidence that Compliance approved the retrocession

arrangements. Mr Seiler was aware that Mr Merinson had been an employee of

Yukos at the material times and that the confirmation obtained regarding Yukos’

knowledge of the Finder’s arrangements came from Mr Feldman and was obtained

after the Second FX Transaction.

4.97.
Despite the seriousness of the matters addressed in the JBI Line Manager’s email

and the fact that JBI was quickly able to substantiate some of these matters, JBI

did not report them to UK law enforcement until 22 May 2014. It subsequently did

not provide the details to the Authority until 7 July 2014, some 19 months after

receiving the JBI Line Manager’s email.

4.98.
On or around 27 February 2014, Yukos informed JBI that it wished to close its

accounts with BJB and that JBI should arrange the liquidation of the assets BJB

was holding in its accounts. Up until this point, the new relationship manager for

the Yukos accounts (who was unaware of the unusual transactions and commission

arrangements), and Mr Seiler, had continued to discuss additional business

opportunities with Mr Merinson and Mr Feldman. For example, shortly before

Yukos ended the business relationship on 27 February 2014, on 17 February 2014

Mr Seiler and a member of JBI’s Board were still having meetings with Mr Merinson

and were discussing opening accounts for clients introduced by him. Mr Seiler

stated in relation to one of these accounts, ‘Push…we have to open this account.

Otherwise we will loose [sic.] 100m’. No further accounts were opened during this

period and no new funds were received from the Yukos Group Companies.

4.99.
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.

Related litigation

4.100. 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.

4.101. Julius Baer brought its concerns regarding the payments to Mr Merinson to the

attention of the Yukos Group and on 31 May 2018 it provided restitution for losses

incurred by the Yukos Group, plus interest.

5.
FAILINGS

5.1.
The regulatory provisions relevant to this Notice are referred to in Annex A.

Lack of fitness and propriety

5.2.
The Authority will have regard to a number of factors when assessing the fitness

and propriety of a person, including the person’s honesty, integrity and reputation.

5.3.
As a result of the facts and matters described above, Mr Seiler’s conduct has fallen

short of the minimum regulatory standards and the Authority considers he is not

fit and proper because he lacks the requisite integrity. A person may lack integrity

where he acts recklessly.

5.4.
Mr Seiler was reckless in relation to the conduct of Julius Baer’s relationship with

Mr Merinson and Yukos. He must have been aware of the obvious risks arising from

this relationship, but failed to have regard to those risks and failed to take

appropriate action in light of them.

(1)
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 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)
Mr Seiler, who had previously been told by Ms Whitestone that Mr Merinson

was an employee of Yukos Capital and Yukos International, was aware of

and approved these arrangements in his capacity as BJB’s Sub-Regional

(Market) Head for Russia and Eastern Europe to whom Ms Whitestone had

a functional reporting line. In so doing, he recklessly failed to have regard

to the following obvious risks of which he must have been aware:

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

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

which related to the introduction of Yukos Capital to Julius Baer. Mr

Seiler 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’ retrocession 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. Mr Seiler

approved the First Commission Payment and thereby approved the

arrangements by which the commission was generated in the First FX

Transaction. In doing so, Mr Seiler recklessly failed to have regard to the

obvious risk, of which he 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).

(4)
In October 2010, Mr Seiler (and Mr Raitzin) approved amendments

proposed by Mr Feldman and Mr Merinson to the original Finder’s

arrangements, under which Mr Merinson’s Finder’s fee was increased from

25% to 35% of net income generated by Julius Baer, and under which he

was permitted to receive four additional ‘one-off’ payments, calculated as

70% of Julius Baer’s commission on four large transactions, relating to new

inflows of funds, to take place by October 2011. Only the increase in Mr

Merinson’s share of net income was documented. In return, among other

things, Yukos’ funds were to remain with Julius Baer for at least three years.

There was no proper commercial rationale for these arrangements and, in

approving them, Mr Seiler recklessly failed to have regard to the obvious

risk, of which he must have been aware, that these arrangements were in

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

Group Companies, were not in the interests of those companies, and were

designed to divert funds improperly from the Yukos Group Companies to Mr

Merinson (and potentially to Mr Feldman).

(5)
In November 2010, the Second FX Transaction took place, 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. 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. Mr Seiler (together with Mr

Raitzin) approved the Second Commission Payment and thereby approved

the arrangements by which the commission was generated in the Second

FX Transaction. In doing so, Mr Seiler recklessly failed to have regard to the

obvious risk, of which he must have been aware, that the transaction formed

part of an improper scheme to facilitate the improper diversion of funds from

Yukos Capital to Mr Merinson (and potentially to Mr Feldman) in breach of

their duties to the relevant Yukos Group Companies.

(6)
In the event, before the Second Commission Payment was made, Mr Seiler

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

Transaction by the BJB Bahamas Senior Manager. In response to those

concerns, Mr Seiler was tasked by Mr Raitzin with putting in place an

‘acceptable framework’ for Ms Whitestone and the bank to operate in and

was asked to ‘regularise pending issues’. In the circumstances, Mr Seiler

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

Merinson and Yukos were improper, but he recklessly did not take any steps

to prevent the Second Commission Payment, which was ultimately paid to

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

he was tasked with.

(7)
In January 2011, notwithstanding that he had been tasked with putting in

place an ‘acceptable framework’ and to ‘regularise pending issues’, Mr Seiler

agreed that Ms Whitestone should negotiate new Finder’s arrangements with

Mr Merinson, including that Mr Merinson would be entitled to receive 70%

of the commission earned on transactions in respect of new inflows of funds,

generated through a trading approach that was consistent with that adopted

for the First and Second FX Transactions. In doing so, Mr Seiler recklessly

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

that there was no proper commercial rationale for such an arrangement and

that the trading approach 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.

(8)
In August 2011, Mr Seiler was informed by Ms Whitestone that one of the

four 70% retrocession payments that he (and Mr Raitzin) had previously

approved would be used in respect of a FX transaction in which EUR 7 million

was converted into USD for Fair Oaks (the Third FX Transaction). Mr Seiler

was not specifically informed that 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 later paid (together with other commission due

to Mr Merinson) on 1 February 2012. However, having approved the

arrangements by which the commission was generated in the First and

Second FX Transactions, Mr Seiler must have been aware of the obvious risk

that the Third FX Transaction had no proper commercial rationale, that it

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

relevant Yukos Group Companies, that it was not in the interests of those

companies, and that it was undertaken to divert funds improperly to Mr

Merinson (and potentially to Mr Feldman). However, he recklessly failed to

have regard to that risk and did not take any steps to prevent the Third

Commission Payment.

(9)
In December 2012, when asked by BJB Compliance to provide his comments

on an email setting out extensive concerns about the arrangements with Mr

Merinson, Mr Feldman’s involvement in those arrangements, and the

payments made pursuant to them, Mr Seiler gave inaccurate and/or

misleading statements as described in paragraph 4.96. In doing so, he

recklessly failed to have regard to the truth of his statements.

5.5.
Mr Seiler’s reckless conduct occurred in the context of a number of further

occasions where matters were brought to his attention which ought to have caused

him, given the matters cumulatively known to him at the time and given his

experience as a senior financial services professional, to have questioned and

raised concerns about the arrangements with Mr Merinson and the Yukos Group

Companies, rather than approve them and continue to support them as the

relationship progressed:

(1) In 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”. Mr Seiler 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 him concern and to follow-up with

further investigation into the arrangements.

(2) In January 2011, Ms Whitestone sought approval for Mr Merinson’s request that

a term be included in a new Finder’s agreement that it should not be disclosed

to anyone other than Mr Feldman. When this request was drawn to Mr Seiler’s

attention, it should have caused him to be suspicious and to pursue a further

investigation into the arrangements, and he should have recognised the risk

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

(3) In February 2011, Mr Seiler was made aware that Mr Feldman had requested

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’. Mr Seiler should have recognised the risk that

Mr Feldman’s request was an attempt to hide the payments to Mr Merinson but

he did not raise any concerns, including when the letters were provided

containing such wording and signed only by Mr Feldman.

(4) In July 2011, the JBI Line Manager emailed Mr Seiler and questioned the ethics

of the payments to Mr Merinson, the size of the commission charged and the

high-risk nature of the Yukos relationship and raised doubts about whether

sufficient assurances had been obtained relating to the transparency of the

payments. Mr Seiler took no action in response and proceeded to approve the

opening of an account for Yukos Hydrocarbons with BJB Guernsey.

5.6.
Mr Seiler’s reckless conduct occurred both before and after he had been appointed

to the role of non-executive director at JBI holding the CF2 (Non-executive director)

controlled function, on 30 March 2011. In addition, following his appointment, Mr

Seiler permitted the Finder’s arrangements with Mr Merinson to continue without

taking any meaningful steps to address the obvious risks arising from Julius Baer’s

relationship with Mr Merinson. The Authority therefore considers that Mr Seiler

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.

5.7.
JBI introduced an anti-fraud policy in 2009 and all staff were provided with anti-

bribery and corruption training and a copy of JBI’s anti-bribery and corruption policy

in 2011. 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, which sought to highlight the risks of financial crime, Mr Seiler

failed to question the appropriateness of the Finder’s arrangements.

5.8.
There was no proper commercial rationale for the unusual and elaborate steps

requested by Mr Feldman and implemented by Julius Baer to generate funds for

the benefit of Mr Merinson. Mr Seiler was an experienced financial services

professional and held a senior position with BJB and, from 30 March 2011, with JBI.

Mr Seiler must have been aware, given his experience and in light of the matters

set out above, of the obvious risks arising from Julius Baer’s relationship with Mr

Merinson and Yukos. However, Mr Seiler, who had functional line management

responsibility for Ms Whitestone in respect of her conduct of Julius Baer’s

relationship with Mr Merinson and Yukos, approved of the terms of the Finder’s

arrangements with Mr Merinson and continued to support these arrangements as

the relationship progressed. He also approved and/or failed to prevent the payment

of the Commission Payments, and thereby approved the arrangements by which

the commission was generated in the FX Transactions. In doing so, he acted

recklessly and with a lack of integrity.

6.
SANCTION

6.1.
The Authority has the power to prohibit an individual under section 56 of the Act

if it appears to the Authority that the individual is not a fit and proper person. In

light of the serious nature of Mr Seiler’s misconduct, involving a lack of integrity,

the Authority considers that Mr Seiler is not a fit and proper person to perform any

function in relation to any regulated activity carried on by an authorised person,

exempt person or exempt professional firm. The Authority considers that it is

therefore appropriate and proportionate in all the circumstances to impose a

prohibition order on Mr Seiler under section 56 of the Act in those terms.

6.2.
In deciding to impose a prohibition order on Mr Seiler, the Authority has had regard

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

of the fact that Mr Seiler’s misconduct occurred several years ago. However, the

Authority considers that the seriousness of Mr Seiler’s misconduct, which involved

him recklessly failing to have regard to the obvious risks arising from Julius Baer’s

relationship with Mr Merinson and Yukos, and the payment of significant amounts

of commission pursuant to that relationship, and failing to take appropriate action

in light of those risks, over a period of more than two years, in breach of Statement

of Principle 1 for part of that period, is such that Mr Seiler poses a serious risk to

confidence in the UK financial system.
The Authority considers that it is

appropriate to impose a prohibition order on Mr Seiler in order to advance the

Authority’s operational objectives of securing an appropriate degree of protection

for consumers and of protecting and enhancing the integrity of the UK financial

system.

7.
REPRESENTATIONS

7.1.
Annex B contains a brief summary of the key representations made by Mr Seiler

and by Mr Merinson and Mr Feldman (as persons with third party rights in respect

of the Warning Notice) and how they have been dealt with. In making the decision

which gave rise to the obligation to give this Notice, the Authority has taken into

account all of the representations made by Mr Seiler, Mr Merinson and Mr Feldman,

whether or not set out in Annex B.

8.
PROCEDURAL MATTERS

8.1.
This Notice is given to Mr Seiler under section 57 and in accordance with section

388 of the Act.

8.2.
The following statutory rights are important.

Decision maker

8.3.
The decision which gave rise to the obligation to give this Notice was made by the

RDC. The RDC is a committee of the Authority which takes certain decisions on

behalf of the Authority. The members of the RDC are separate to the Authority

staff involved in conducting investigations and recommending action against firms

and individuals. Further information about the RDC can be found on the Authority’s

The Tribunal

8.4.
Mr Seiler has the right to refer the matter to which this Notice relates to the

Tribunal. Under paragraph 2(2) of Schedule 3 of the Tribunal Procedure (Upper

Tribunal) Rules 2008, Mr Seiler has 28 days from the date on which this Notice is

given to him to refer the matter to the Tribunal. A reference to the Tribunal is

made by way of a signed reference notice (Form FTC3) filed with a copy of this

Notice. The Tribunal’s contact details are: The Upper Tribunal, Tax and Chancery

9730; email: fs@hmcts.gsi.gov.uk). Further information on the Tribunal, including

guidance and the relevant forms to complete, can be found on the HM Courts and

Tribunal Service website:

8.5.
A copy of the reference notice (Form FTC3) must also be sent to the Authority at

the same time as filing a reference with the Tribunal. A copy of the reference

notice should be sent to Nicholas Hills at the Financial Conduct Authority, 12

Endeavour Square, London E20 1JN.

8.6.
Once any such referral is determined by the Tribunal and subject to that

determination, or if the matter has not been referred to the Tribunal, the Authority

will issue a final notice about the implementation of that decision.

Access to evidence

8.7.
Section 394 of the Act applies to this Notice.

8.8.
The person to whom this Notice is given has the right to access:

(1)
the material upon which the Authority has relied in deciding to give this

Notice; and

(2)
the secondary material which, in the opinion of the Authority, might

undermine that decision.

Third party rights

8.9.
A copy of this Notice is being given to the following persons, pursuant to section

393(4) of the Act, as third parties identified in the reasons above and to whom in

the opinion of the Authority the matter to which those reasons relate is prejudicial.

Each of those parties has similar rights to those mentioned in paragraphs 8.4 and

8.8 above in relation to the matters which identify him/her/it:

(1)
Dmitri Merinson

(2)
Daniel Feldman

(3)
Bank Julius Baer & Co. Ltd

(4)
Julius Baer International Ltd

Confidentiality and publicity

8.10.
This Notice may contain confidential information and should not be disclosed to a

third party (except for the purpose of obtaining advice on its contents). In

accordance with section 391 of the Act, a person to whom this Notice is given or

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 30 March 2011 and August 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

Mr Seiler’s Representations

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

Recklessness and lack of integrity

2. Mr Seiler did not act recklessly and does not lack 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 involves both
objective and subjective considerations.
A person acts recklessly when they are
subjectively aware of a risk and, in the circumstances subjectively known to them, it
is objectively unreasonable to take the risk. In order to reach a conclusion about
whether a person acted recklessly, it is necessary first to determine what they actually
knew.

3. At the time, and with the information known to Mr Seiler, it was neither clear nor
obvious that Mr Merinson and Mr Feldman were party to an improper scheme to divert
funds from Yukos for their personal benefit, and in any event it simply did not occur to
him.

4. There were a large number of individuals within Julius Baer who knew all the facts that
Mr Seiler knew, but none of them stopped the transactions in question or the
retrocession arrangements with Mr Merinson. Those who raised questions were
apparently satisfied with the answers they received and the steps taken to address
their concerns. If the risk of wrongdoing was obvious, one would expect most of those
people to have identified it.

5. Mr Seiler had nothing to gain from acting recklessly and much to lose. He derived no
personal benefit from the Yukos account. He had an excellent reputation, which would
be damaged if he was found to have acted recklessly. He had no reason to risk his job
for two individuals he had never met or a junior relationship manager.

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

7. Given its conclusion that Mr Seiler must have been aware of the risks, which supports
a finding of recklessness whichever test applies, the Authority does not consider it
necessary to respond to Mr Seiler’s submissions regarding the correct test for
recklessness.

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)

8. Whilst other individuals at Julius Baer knew of various elements of the arrangements,
Mr Seiler had more knowledge of the arrangements than most of them. The Authority
considers that a person acting with integrity in Mr Seiler’s position, having his
knowledge, would not have approved and supported the arrangements, and instead
would have raised questions about the situation and taken meaningful steps to address
the risks arising from Julius Baer’s relationship with Mr Merinson and Yukos.

9. Irrespective of the reason(s) why Mr Seiler acted recklessly, the Authority considers
that the evidence clearly shows that his conduct was reckless.

10. Whether Mr Seiler acted with integrity or not depends, amongst other things, on what
he knew and was told by others. There were numerous meetings and telephone
conversations in which information was imparted which have left no documentary
record, or no record has been found and produced to Mr Seiler. The events occurred
a decade ago and Mr Seiler does not have a detailed and precise recollection of them
or of exactly what he was told when.

11. The Authority acknowledges that the relevant events occurred some time ago and has
taken into account Mr Seiler’s concern regarding his ability to recall them in detail. The
Authority also acknowledges that detailed notes were not produced of all meetings and
telephone
conversations
which
took
place.
However,
there
are
extensive
contemporaneous documents, many of which are file notes written by Ms Whitestone
and correspondence involving Mr Seiler, and the Authority is satisfied that these, along
with the other evidence it has seen, support the conclusions it has reached.

Standard of proof

12. The applicable standard of proof is the balance of probabilities. It is necessary to
consider whether it is more likely than not that Mr Seiler was aware of the risk in
question, and what facts, on the balance of probabilities, he knew or believed, before
deciding whether, if Mr Seiler took a risk, it was an unreasonable one to take. An
important factor in considering this is the inherent likelihood of the allegation; it is far
more likely that the behaviour was not obviously suspicious at the time, if a large
number of people fail to identify behaviour which appears suspicious in retrospect.

13. The Authority agrees that the appropriate standard of proof in determining the facts
and what Mr Seiler knew is the balance of probabilities. The Authority also agrees that,
in assessing probability, it is necessary to have regard to the inherent likelihood of the
relevant allegation. The Authority considers that this should be considered primarily
by reference to the evidence that supports the allegation, rather than by whether or
not other persons considered the behaviour to be suspicious, in particular where those
other persons have different degrees of knowledge of the relevant facts and different
responsibilities, and this is the approach that the Authority has taken in this case. In
taking this approach, the Authority has concluded, on the balance of probabilities, that
Mr Seiler must have been aware of the obvious risks arising from Julius Baer’s
relationship with Mr Merinson and Yukos.

Mr Seiler’s role at BJB

14. As Sub-Region Head, Mr Seiler’s primary responsibility was to market and expand the
business in the Central and Eastern European/Russian market. He was not responsible
for hiring relationship managers in the UK; nor did he have any client relationship
management role. He grew the bank’s team for his market to around 150 employees,
and by the time he left Julius Baer in 2014 there were 10 team heads for his market
and around 50 relationship managers. Mr Seiler set the goals for each of the regional
teams under his remit for expanding the bank’s business and relayed those goals to
the team heads in each office, who were responsible for the business operations,
including obtaining new clients and attracting funds. How the teams obtained clients
and attracted funds from existing clients was largely a matter for the local business to
determine.

15. Mr Seiler’s role was always demanding and time intensive. During the period of the
events in question, Mr Seiler was not responsible for the relationship with any specific
clients, and generally did not see what transactions were undertaken for particular
clients. He did not have access to information about transactions at corporate entities
other than BJB, or to the client relationship records at JBI. He also did not have any
particular responsibility in relation to Finders.

16. Any engagement with the Yukos accounts was only a small fraction of Mr Seiler’s day-
to-day workload, given his other commitments. Further, to the extent documents
concerning Yukos crossed his desk or he had discussions regarding Yukos, this was not
part of his principal responsibilities.

17. Given Yukos’ political sensitivities, there was a discussion at the very highest levels
within Julius Baer on whether to accept Yukos as a client. Mr Seiler was not central to
these discussions and took very little part in them. Mr Seiler did not have any particular
interest in the Yukos account. Although it was relatively large, there were many other
accounts of a similar size and, as a proportion of the total assets and revenues in the
market overall, its contribution was very small, and the assets that Yukos brought to
Julius Baer was not a particular focus for him. Mr Seiler’s role was to market Julius
Baer as a private bank, providing wealth management services principally to
individuals and families, so Yukos was not the type of customer that Mr Seiler’s
marketing efforts were targeted at.

18. Notwithstanding the extent of his wider responsibilities, Mr Seiler had responsibility for
functional line management of Ms Whitestone and it is clear from the contemporaneous
evidence that in approving Mr Merinson’s Finder’s arrangements, and the FX
Transactions and Commission Payments pursuant to those arrangements, he took a
close interest in the details and had such knowledge that he must have been aware of
the risk that the arrangements were improper.

19. The level of funds that Yukos was to bring to BJB in 2010 amounted to about 10% of
the total of Mr Seiler’s Region’s assets under management in 2008, with the
expectation that further funds would follow. This level of funds, and the political
sensitivities relating to dealing with Yukos, made Yukos a significant client for Julius
Baer and for Mr Seiler.

Julius Baer’s matrix management structure

20. Julius Baer’s matrix management structure meant that JBI’s employees had a reporting
line to local line management at JBI, as well as a functional reporting line to a regional
head at BJB. The management structure dictated that Ms Whitestone report to the JBI
Line Manager in respect of day-to-day operational issues. This would include keeping
him abreast of the client relationships she was managing and seeking advance and
guidance. In turn, the JBI Line Manager reported directly to the CEO of JBI, including
regarding any operational issues in respect of those he managed.
The JBI Line
Manager reported to Mr Seiler, as appropriate, in respect of strategic and business
matters, which Mr Seiler could then escalate to Mr Raitzin (and from March 2011 his
replacement) as appropriate.

21. As Mr Seiler was not Ms Whitestone’s line manager, and as it was not his role to
supervise particular client relationships, Mr Seiler did not expect to have to micro-
manage Ms Whitestone.
He generally had no reason to be concerned that Ms
Whitestone, supported by the JBI Line Manager, would fail to attract and retain clients
such as Yukos without his detailed involvement. Mr Seiler spoke with the JBI Line
Manager weekly and there were also monthly team meetings. In this way, Mr Seiler
relied on the JBI Line Manager to tell him what he needed to know about the JBI Line
Manager’s desk.

22. Mr Seiler had a limited number of communications with Ms Whitestone, as is apparent
from contemporaneous documents. Mr Seiler was sporadically involved and often
when Ms Whitestone sent self-congratulatory emails or sought ex post facto approval
for what she had already done. Many of these emails copied in other senior individuals
and Mr Seiler responded to fewer than half of the emails that he received from Ms
Whitestone.

23. The key problem in management terms was that Ms Whitestone agreed retrocession
arrangements without prior approval. She should have discussed any non-standard
proposal with the JBI Line Manager, and then it should have been elevated within the
bank to all relevant departments and ultimately to Mr Raitzin, before she reached any
agreement on the bank’s behalf. The fact that no email has been produced which
specifically tells Ms Whitestone to follow proper procedures does not mean that she
was not told to do so. Mr Seiler met Ms Whitestone from time to time in London or
Zurich and made this clear to her.

24. It appears that the JBI Line Manager’s relationship with Ms Whitestone became strained
in around early 2011. Thereafter, the JBI Line Manager portrayed himself, incorrectly,
as having been opposed to the Yukos accounts for which Ms Whitestone was
responsible and the arrangements with Mr Merinson, which he had previously
supported. Mr Seiler attributed this to jealousy on the part of the JBI Line Manager,
over the fact that Ms Whitestone’s Yukos relationship generated significantly larger
bonuses for her than his own clients did for him.

25. The Authority notes Mr Seiler’s description of how the matrix management structure
was intended to operate. However, the contemporaneous evidence demonstrates that,
in practice, Mr Seiler took a close interest in the Yukos relationship and frequently
discussed matters with Ms Whitestone directly. This is supported by Ms Whitestone’s
evidence in interview that she extensively liaised with Mr Seiler in respect of the Yukos
relationship from 2009 onwards. Mr Seiler also appears not to have placed reliance on

the JBI Line Manager exercising any form of effective management of Ms Whitestone
or of the relationship with Mr Merinson and Yukos.

26. There is no evidence of Mr Seiler insisting that Ms Whitestone follow proper procedures;
had he done so, the Authority considers it is unlikely that she would have bypassed
the JBI Line Manager in seeking approvals. The Authority also notes that there are no
examples in the contemporaneous emails of Mr Seiler asking Ms Whitestone to run
matters past the JBI Line Manager and that Mr Seiler generally did not copy the JBI
Line Manager into emails that he sent to Ms Whitestone.

27. The Authority agrees that it appears that the JBI Line Manager’s relationship with Ms
Whitestone worsened in early 2011 and that the reliability of his evidence is
questionable. Accordingly, the Authority has only accepted statements made by the
JBI Line Manager where there is other corroborating evidence. The conclusions it has
reached regarding the conduct of Mr Seiler are not reliant on the JBI Line Manager’s
evidence.

BJB’s use of Finders

28. It was common for Julius Baer to obtain new business by using Finders. Mr Seiler was
therefore familiar with the role of Finders, although responsibility for Finders did not
fall within his remit as a Market Head. Most Finders had some relationship with the
clients they introduced which meant that they would have, to a greater or lesser extent,
some influence over whether the client invested with Julius Baer. There was therefore
nothing inherently surprising about an adviser to Yukos being a Finder. Mr Seiler would
have considered it a serious issue to have a client’s employee as a Finder for the client,
but he did not know or suspect that Mr Merinson was an employee.

29. Regardless of Mr Seiler’s usual role in respect of Finders, it is clear from the evidence
that he took an active role in Julius Baer’s relationship with Mr Merinson and Yukos.
In particular, his approval was sought and given for the Finder’s arrangements
negotiated by Ms Whitestone in July 2010 and subsequently amended in October 2010.
Mr Seiler gave his approval in the knowledge that Mr Merinson was a Yukos employee,
as a result of information provided to him by Ms Whitestone in October and November
2009.
In the circumstances, he must have been aware of the risk that the
arrangements with Mr Merinson were improper.

Compliance and Legal functions

30. BJB Compliance took a close interest in the Yukos relationship and the arrangements
with Mr Merinson in particular. BJB Compliance required steps to be taken to provide
the bank with assurance that Yukos knew about and consented to these arrangements.
Mr Seiler had no reason to think that BJB Compliance had not properly and diligently
considered all relevant compliance issues, or to question its judgement as to what was
required and appropriate.

31. BJB Compliance in fact had more information than Mr Seiler and had it drawn to its
attention at the relevant time, which Mr Seiler did not. In particular, BJB Compliance
was told that Mr Merinson was an employee of Yukos before he received any payment
but did nothing to stop the payment and did not regard his employment status as
information requiring any urgent attention at all. In contrast, Mr Seiler did not know
in July 2010 that Mr Merinson was an employee of Yukos. Absent red flags, Mr Seiler
was entitled to rely on the normal functioning of BJB Compliance and BJB Legal.

32. The Authority acknowledges that, as a result of emails sent to it on 19 August 2010,
BJB Compliance was aware of details of the Finder’s arrangements, including that Mr
Merinson was an employee of Yukos International, and subsequently asked Ms
Whitestone to get written confirmation from Mr Feldman expressly confirming that
Yukos Capital knew about the Finder’s agreement with Mr Merinson and the large ‘one-
off’ payment being made to him. However, unlike Mr Seiler, BJB Compliance was not
aware of these matters when Mr Seiler approved the Finder’s arrangements. Further,
whatever Mr Seiler’s understanding of the role of BJB Compliance in assessing the
Finder’s arrangements, Mr Seiler was in a senior management position and, given the
information he had, the arrangements were suspicious and the grounds for suspicion
grew as time went on. It was not appropriate for him to approve and continue to
support the arrangements in such circumstances.

Relevant events

33. The context for Mr Seiler’s email of 23 July 2010 to the JBI Line Manager was that the
JBI Line Manager was arguing that, as Ms Whitestone’s team head, his bonus should
take into account the monies brought in on the Yukos account for which she was the
relationship manager. Mr Seiler disagreed. In his email, Mr Seiler was not suggesting
that he himself should receive a bonus for anything he had done, but rather asking
rhetorically what the JBI Line Manager would say if Mr Seiler argued that he should
receive part of the bonus relating to the Yukos account. Mr Seiler’s point was that
senior people should not expect that everything they did to assist more junior
employees would be rewarded in their bonus.

34. Mr Seiler’s submission that he was making a rhetorical point in his email of 23 July
2010 is not a natural reading of that email. Instead, the email appears to be about
whether Mr Seiler should have a share of the JBI Line Manager’s anticipated bonus and
suggests that Mr Seiler was close to the detail of the Yukos relationship and had
intervened to allay concerns raised by BJB Legal and BJB Compliance when the Yukos
Capital account was opened in November 2009. In addition, the fact that Mr Seiler
referred to the account opening in his email of 23 July 2010 shows that he had not
forgotten the events leading to the Yukos Capital account opening being approved, and
supports the Authority’s view that he would have known that Mr Merinson was a Yukos
employee in July 2010.

July 2010 Finder’s arrangements

35. Mr Seiler did not approve the Finder’s arrangements and he was not aware of the risks
in relation to which it is alleged he acted recklessly. Many other people were aware of
the features of the Finder’s arrangements agreed with Mr Merinson in July 2010, but
nobody documented any objection at the time and all were apparently satisfied with
what they were told.

36. Mr Seiler does not recall Ms Whitestone’s email of 7 July 2010 or whether he read it in
any detail, and there is no record of him responding to it. The fact the email was
copied to the JBI Line Manager would likely have been relevant to how closely he felt
he needed to engage with this email, as the JBI Line Manager was evidently aware of
the situation and was supervising Ms Whitestone. The fact that Mr Seiler did not reply
to the email also suggests that it was not particularly significant to him. Further, as
Ms Whitestone agreed an entirely different retrocession arrangement in the second
meeting of 7 July 2010, it is clear that she did not need a response to her email.

37. There is nothing in Ms Whitestone’s email of 7 July 2010 which suggests that Mr
Merinson was an employee of any Yukos company. Mr Seiler is sure that he was not
aware that Mr Merinson was an employee because he would have regarded it as a
serious issue for an employee to be paid a fee for introducing their employer. Mr
Merinson had not been mentioned to Mr Seiler in any document since he was copied
into an email from Ms Whitestone to BJB Compliance eight months earlier. That email
was directed principally to BJB Compliance and contained only a single incidental
reference to Mr Merinson’s position in a long email and said nothing about him being a
Finder. In the circumstances, it is entirely credible that Mr Seiler would by July 2010
have forgotten what position Ms Whitestone attributed to him, even assuming he had
ever focussed on it previously.

38. Ms Whitestone presented the proposal to pay Mr Merinson a percentage of assets
transferred to the Yukos Capital account as coming from Mr Feldman. It therefore
appeared that the sole director of Yukos Capital gave his informed consent to Mr
Merinson receiving this payment, and that he was agreeing that Yukos Capital would
fund the payment. If Julius Baer was going to make a payment to Mr Merinson in such
circumstances, Mr Feldman, as Yukos Capital’s sole director, was the appropriate
person to approve the payment.

39. Ms Whitestone’s email of 7 July 2010 did not ask Mr Seiler to approve the arrangements
with Mr Merinson and his approval was not required. Under the Co-operation with
Finders Policy, it was the responsibility of the Finance Department to handle new
Finders and only Mr Raitzin, as the Region Head, could overrule Finance or authorise
higher than standard commission rates. Mr Seiler was not responsible for authorising
or documenting the arrangement with Mr Merinson; he would not have had any reason
to see the Finder’s agreement and has no recollection of being involved in it. He was
surprised to learn later that the written agreement did not provide for the payment
that was made.

40. The suggestion that Mr Merinson be paid a one-off fee came from Mr Feldman. Mr
Seiler cannot recall, if indeed he ever knew, who suggested that Mr Merinson’s one-off
fee be a percentage earned by Julius Baer on a particular transaction for Yukos. The
idea was certainly not his own. In any event, Mr Seiler’s understanding was that what
was contemplated was that Mr Merinson would only receive a fee at the time that the
anticipated assets came to Julius Baer, rather than a percentage of all revenues they
generated in the future. In that context, the amount of the Finder’s fee was not
unusual.

41. Mr Seiler also did not propose an increase of Mr Merinson’s one-off fee to 80% whilst
Ms Whitestone was on wedding leave; he had no contact with Mr Merinson or Mr
Feldman at this time and would have had no reason to make such a proposal. Instead,
it appears that this was agreed at the second meeting of 7 July 2010, as is outlined in
Ms Whitestone’s report of that meeting. There is no evidence that Mr Seiler received
this report or was informed of what was discussed. Mr Seiler was not informed until 16
August 2010 of the arrangements ultimately agreed and was not asked to approve
them in advance. His reaction to being told what had been agreed was to inform the
JBI Line Manager by email that ‘Between our discussion and the situation we have now
I am missing an update’. This email is inconsistent with Mr Seiler having negotiated
the final arrangements or having any close involvement in them at all.

42. Although there is no documentary evidence of Mr Seiler saying that he approved the
arrangements set out in Ms Whitestone’s email of 7 July 2010, the Authority notes
that on 16 July 2010 a BJB senior manager, who worked closely with Mr Seiler, sent
an email to the JBI Line Manager requesting details of the proposed Finder’s
arrangements with Mr Merinson, which included the statement that Mr Seiler ‘already
supports the case’. Further, 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
considers it is highly likely that Mr Seiler did approve them.

43. The Authority considers it likely that Mr Seiler would have paid close attention to Ms
Whitestone’s email of 7 July 2010. The email was addressed to him and, in outlining
arrangements for the inflow of substantial funds from a politically sensitive client, and
the potential implications of not meeting Mr Feldman’s request, was a significant
communication. The reason the JBI Line Manager was copied into the email appears
to have been because Ms Whitestone was about to go on wedding leave, rather than
to keep him informed in a managerial capacity. In any event, Mr Seiler and the JBI
Line Manager discussed the matter subsequently, whilst Ms Whitestone was on
wedding leave, as is clear from the email of 23 July 2010.

44. In giving his approval, Mr Seiler would have been aware that Mr Merinson was a Yukos
employee as a result of Ms Whitestone having described him as the Chief Financial
Officer of both Yukos Capital and Yukos International in an email to Mr Seiler dated 9
October 2009, and as a result of being copied into an email from Ms Whitestone to BJB
Compliance dated 13 November 2009 which described Mr Merinson as the Chief
Financial Officer of Yukos Capital. Given his involvement in the account openings for
Yukos Capital and Mr Merinson, and given that this was a large and politically sensitive
relationship, the Authority does not consider it credible that Mr Seiler had by this time
forgotten Mr Merinson’s role at Yukos.
The arrangements were suspicious and,
regardless of the knowledge and actions of other Julius Baer staff, Mr Seiler should
have had regard to the obvious risks associated with the arrangements, of which he
must have been aware.

45. It was not reasonable for Mr Seiler to take comfort from Mr Feldman’s role in the
arrangements. Notwithstanding Mr Feldman’s position as a director, there was no
commercial rationale for him to propose that Mr Merinson should be paid a percentage
of assets, and that this should be achieved by means of a retrocession payment on a
non-standard FX transaction, so Mr Seiler must have been aware of the risk that the
arrangements were improper. However, Mr Seiler did not question why Yukos would
wish to pay such a large sum of money to an employee or why, even if it did want to
reward Mr Merinson, it would want to do so through a Finder’s relationship with Julius
Baer. He also did not have regard to the risk that the arrangements involved a breach
of Mr Feldman’s duties to the relevant Yukos Group companies, or the risk that Mr
Feldman also stood to benefit financially from the arrangements.

46. Mr Seiler had a good reason to be interested in the Finder’s agreement, as its purpose
was to contain the terms of a relationship for Julius Baer which was significant to his
area of responsibility. Mr Seiler was made aware that the retrocession payment was
not mentioned in the Finder’s agreement at the latest by 20 August 2010, when he
was copied into an email chain which made this clear, yet he did not raise any concerns
or take any action to prevent the First Commission Payment being paid to Mr Merinson.

47. Even if it was Mr Seiler’s understanding that the amount of the Finder’s fee was not
unusual, given that the arrangements themselves were so unusual, he must have been
aware of the obvious risk that there was no proper commercial rationale for making
such a large 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.

48. Although Mr Seiler’s email to the JBI Line Manager on 16 August 2010, in which he
stated that he was missing an update, suggests that he might not have been aware of
all of the details of the arrangements that Ms Whitestone agreed with Mr Feldman and
Mr Merinson, the Authority considers that the differences between the ultimate
arrangements agreed and those set out in Ms Whitestone’s email of 7 July 2010 do not
make any material difference to the obvious risks pertaining to the arrangements,
which Mr Seiler must have been aware of, given his knowledge and position.

First FX Transaction and First Commission Payment

49. Mr Seiler had no reason to consider that Ms Whitestone’s account of how the First FX
Transaction took place raised a red flag. It was in the client’s interests for Julius Baer
to get as good a rate as possible, given that the rate it would pay would be the rate
achieved after the application of the payment to Mr Merinson and Julius Baer’s own
commission. Since Julius Baer’s commission was a percentage of the dollar amount,
the best rate for the client would also maximise Julius Baer’s commission.

50. Based on the facts known to Mr Seiler, the First FX Transaction did not appear
suspicious. The commercial sense or otherwise of the First FX Transaction, which was
carried out on the basis that the funds would remain with the bank for the medium
term with a particular charging structure, was primarily a matter for the client, the
individuals involved in the transaction and perhaps their line managers. Mr Seiler was
not usually involved in specific transactions and did not scrutinise the terms of
transactions forensically with a view to identifying potential frauds. He expected to be
alerted if a transaction brought to him was suspicious, but here he was told that the
client was pleased with the transaction and a member of JBI’s Board was excited by it.
Mr Seiler had no detailed information about how the commission had been generated,
other than this had been by the JBI individuals working through the night to exploit
exchange rate movements, and he was not told that the client was being charged a
rate close to the worst rate of the day. Mr Seiler is not aware of anyone at the time
considering what the client’s reasons might be for the overall package of charges it
was accepting from the bank.

51. Mr Seiler was aware of the First Commission Payment, but he did not approve it. Mr
Seiler recalls that a discussion between Ms Whitestone, Mr Raitzin and Mr Seiler
regarding a payment to Mr Merinson took place at the time of the Second FX
Transaction, not the first. Mr Raitzin approved the First Commission Payment based
on a commercial assessment and there is no evidence that Mr Seiler was involved in
Mr Raitzin’s approval. It is apparent that Mr Raitzin was fully aware of how the First
Commission Payment had been funded and did not see any need to stop it. Once Mr
Raitzin had said he was not going to oppose the payment to Mr Merinson, there was
no point in Mr Seiler saying anything more.

52. Mr Seiler understood that Mr Merinson was an adviser for Yukos but was not aware of
any employee relationship at this time. There is nothing inherently suspicious about a
company being content for an adviser to be remunerated through a retrocession

payment, provided the company is aware of and consents to the remuneration, as Mr
Feldman did.

53. In contrast to Mr Seiler’s understanding, the fact that Mr Merinson was both a Yukos
employee and a Finder for the Yukos Capital account was drawn to BJB Compliance’s
attention prior to the First Commission Payment being approved by Mr Raitzin.
However, BJB Compliance did not consider that this required urgent consideration and
considered that the potential conflict of interest issue could be dealt with sufficiently
by a letter signed by Mr Feldman. Mr Seiler was entitled to leave it to BJB Compliance
to ensure that satisfactory evidence of Yukos’ approval was obtained. As he understood
that BJB Compliance was content with the retrocession arrangements, he did not think
that there was anything suspicious and was not aware of any risk of Mr Merinson being
in breach of his duties to Yukos or that Yukos might be being defrauded by Mr Feldman
and Mr Merinson.

54. Ms Whitestone emailed Mr Seiler, among others, on 16 August 2010 with details of the
First FX Transaction. Mr Seiler was an experienced financial services professional and
must have appreciated that the amount of commission which Julius Baer generated
from the First FX Transaction was significantly in excess of the amount that would
normally be associated with a large FX trade. Even if Mr Seiler understood that the
high level of commission did not reflect the costs of executing the specific transaction,
but rather what Julius Baer required to cover the overall costs of servicing a private
banking relationship with Yukos, he must have realised that there was no proper
commercial rationale for making a payment to Mr Merinson in this way.

55. Mr Seiler must have been aware of the risks pertaining to the First FX Transaction,
given his understanding of how it took place. He was aware from Ms Whitestone’s
email of 16 August 2010 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
and charging the standard commission rate for a transaction of this size, but did not
question this. The fact that he was told that the client was pleased and that a member
of JBI’s Board was excited about the transaction does not excuse his failure to have
regard to the risk, which must have been obvious to him on the facts that he knew,
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).

56. The fact that Mr Seiler approved the First Commission Payment is apparent from an
email sent by Ms Whitestone to a senior manager of BJB, copied to Mr Seiler and Mr
Raitzin, on 19 August 2010, in which she stated that both Mr Seiler and Mr Raitzin had
given their verbal approval for the First Commission Payment. Mr Raitzin’s statement
on 20 August 2010, copying in Mr Seiler, that there was a “fait accompli”, reflected Mr
Raitzin’s decision not to object to payment because it had already been agreed with
Mr Merinson, and the alternative was to let the funds go to another financial institution.
Mr Seiler could and should have raised concerns as he was copied into the emails,
notwithstanding Mr Raitzin’s approval, and the fact he did not do so indicates that he
continued to approve the payment.

57. As explained above, the Authority considers that Mr Seiler would have been aware at
the time that Mr Merinson was a Yukos employee. Given Mr Feldman’s involvement in
the Finder’s arrangements and the First FX Transaction, and the fact that he was the

only other person at Yukos known to be aware of them, his consent to the payment of
remuneration to Mr Merinson did not make the payment any less suspicious.

58. Although BJB Compliance was aware of details of the Finder’s arrangements, including
that Mr Merinson was an employee of Yukos International, Mr Seiler was only aware
that BJB Compliance considered the transaction to be “plausible”, which the Authority
understands to mean that BJB Compliance considered there were no concerns with the
source of the funds, rather than that they had considered the propriety of the First FX
Transaction and the First Commission Payment. Further, whatever his understanding
of the role of BJB Compliance, Mr Seiler was in a senior management position and,
given the information he had, he must have been aware of the risks relating to the
First FX Transaction and the payment of a retrocession to Mr Merinson pursuant to it.
It was not appropriate for him to approve the First Commission Payment in such
circumstances.

59. Ms Whitestone’s email outlining Mr Merinson’s request that payment be made
‘preferably’ with the payment reference “Investment Capital Gain” suggested that the
description was not crucial to Mr Merinson. Mr Seiler’s reaction was to tell Ms
Whitestone that the payment could not be described as “Investment Capital Gain”.
She immediately confirmed that would not be a problem and that the important point
was to make clear that the payment was not employment income. Mr Seiler then
signed a letter stating that the payment was a retrocession; he thus knew that the
request had not been complied with and that this did not give rise to any problem.

60. There was nothing in the request to suggest an attempt to disguise the payment, or
its nature, from Yukos, or that the payment was not properly authorised by Yukos
Capital.

61. It must have been obvious to all those who saw Ms Whitestone’s email of 19 August
2010 that the payment to Mr Merinson was not an “Investment Capital Gain”, yet none
of the many people at Julius Baer who were aware of the request, and who had the
same information as Mr Seiler, regarded it as suspicious, including BJB Compliance and
BJB Legal. It is unrealistic to suggest that Mr Seiler should have challenged those
departments.

62. As it was obvious that describing the payment as an “Investment Capital Gain” would
be an untrue statement, given all that he knew at the time about the Finder’s
arrangements and the First FX Transaction, Mr Seiler should have recognised the risk
that this could have been an attempt by Mr Merinson to disguise the true nature of the
payment and so it ought to have caused him concern and to follow-up with further
investigation into the arrangements with Mr Merinson.

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

63. Mr Raitzin’s statement in his email to Mr Seiler and BJB Senior Manager A that ‘Your
recommendation should be prior’ was not an indication that Mr Raitzin would defer to
anyone else’s view or that Mr Raitzin was not otherwise apprised of the situation with
Yukos. Indeed, the contemporaneous documents suggest that Mr Raitzin formed his
own positive view of Ms Whitestone’s proposal on the basis of a direct discussion with
her before any discussion with Mr Seiler.

64. Mr Seiler had a subsequent discussion with Ms Whitestone because he was unclear
about how commission of 35% of revenues would work alongside one-off retrocessions.
His view was that Ms Whitestone should revert in advance of a specific transaction with
an explanation of how the retrocession arrangement she proposed would apply to that,
and that she should obtain Mr Raitzin’s approval before the transaction occurred. He
understood Mr Raitzin to be happy with that approach, and he would have read Mr
Raitzin’s email of 25 October 2010 as confirming that. When Mr Seiler sent his email
saying that he approved of the next steps of the relationship, he meant that Ms
Whitestone should proceed as they had discussed, not that he was approving the
proposals in her prior emails.

65. In any event, the emails show that, at a time when Mr Raitzin had discussed the matter
with Ms Whitestone in detail, but Mr Seiler had not discussed it with her at all, Mr
Raitzin had a conversation with Mr Seiler and then sent a ‘no objection’ email having
already indicated his support to Ms Whitestone orally. If Mr Raitzin intended to approve
Ms Whitestone’s proposals in full, that can only have been on the basis of what Ms
Whitestone had told him, not his discussion with Mr Seiler, who had no information or
insight to provide.

66. Mr Seiler acceded to Mr Raitzin’s decision to approve the arrangements in the belief
that Mr Merinson was not an employee of Yukos and that Mr Feldman, a director of the
client, approved the new arrangements. It did not occur to Mr Seiler that the new
Finder’s arrangements were not properly authorised by Yukos. It was not obvious, and
did not occur to Mr Seiler, that Mr Feldman might be in breach of his obligations to
Yukos in approving the new arrangements. It also did not occur to him that Mr Feldman
might benefit personally from the retrocession arrangements.

67. There was no indication of secrecy surrounding the new arrangements. Mr Seiler was
not involved in the preparation of the addendum to Mr Merinson’s Finder’s agreement
and neither saw it nor knew its contents. He had no reason to think that Julius Baer
would not document the arrangements with Mr Merinson properly and was astonished
when he later found out they were not fully documented.

68. The Authority acknowledges that Mr Raitzin had ultimate responsibility for approving
the amendments to the Finder’s arrangements, given that his approval was required
under the Co-operation with Finders Policy for the non-standard remuneration rate,
and that Mr Raitzin reached his own view that approval should be given, including in
light of a discussion that he had with Ms Whitestone. However, it is clear from Mr
Raitzin’s email of 25 October 2010 that he had taken into account Mr Seiler’s views
before giving his approval. Further, although Mr Seiler later expressed irritation at
being asked to approve the Second Commission Payment after the Second FX
Transaction had already taken place, his statement in his email of 28 October 2010
that he approved the next steps of the relationship was made in response to Ms
Whitestone’s email of 25 October 2010, in which she explained that Mr Raitzin was in
favour of the proposed revised arrangements and set out her expectations of the future
financial benefits this would bring to Julius Baer, which she indicated would be in
jeopardy if Mr Merinson’s Finder’s agreement rate was not raised. Mr Seiler does not
say in that email that he was approving a proposal that Ms Whitestone discuss any
proposed retrocession transaction and obtain Mr Raitzin’s approval before it took place,
and the Authority considers that he meant he was approving the proposed revised
Finder’s arrangements.

69. As mentioned above, the Authority considers that the evidence supports its conclusion
that Mr Seiler knew at the time that Mr Merinson was a Yukos employee. Further,
given that there was no proper commercial rationale for the Finder’s arrangements,
there was an obvious risk that the arrangements were in breach of Mr Merinson’s and
Mr Feldman’s duties to the relevant Yukos companies, were not in the interests of those
companies, and were designed to divert funds improperly from the Yukos companies
to Mr Merinson, and, because of his involvement in approving the arrangements,
potentially to Mr Feldman, the sole director of and signatory for Yukos Capital and the
only other person at Yukos known to be aware of the arrangements.

70. Mr Seiler should have been aware that the addendum to Mr Merinson’s Finder’s
agreement with BJB did not document the arrangements with Mr Merinson properly.
He was copied into an email from Ms Whitestone dated 28 October 2010 asking for the
revised Finder’s agreement to be prepared, on the basis that Mr Merinson should
receive 35% of BJB’s net revenues rather than 25%, and stating that this had been
approved by Mr Seiler and Mr Raitzin. The email made no reference to the four
additional 70% retrocessions which had been agreed by Mr Seiler and Mr Raitzin.
Further, Ms Whitestone’s email of 24 November 2010 to Mr Seiler and Mr Raitzin
seeking approval of the payment of the Second Commission Payment attached the new
addendum to Mr Merinson’s Finder’s agreement, which in accordance with Ms
Whitestone’s email of 28 October 2010, showed only an increase in his share of net
income to 35% and made no mention of any entitlement to retrocession payments.

Second FX Transaction and Second Commission Payment

71. In Mr Seiler’s response to Ms Whitestone’s email of 24 November 2010, he expressed
irritation at being asked to approve transactions only after they had been executed.
Ms Whitestone’s completion of the Second FX Transaction without seeking the required
approval was contrary to what had been agreed with her and was an example of her
seeking to go outside the formal structures and procedures within Julius Baer. It did
not however suggest that a fraud might be being perpetrated on Yukos.

72. After Mr Raitzin sent an email to Mr Seiler saying ‘Your jurisdiction and judgment, let
me know’, Mr Seiler discussed Ms Whitestone’s email with Mr Raitzin in his office. Mr
Seiler was initially opposed to the payment. Mr Raitzin called Ms Whitestone from his
office and the outcome was that Mr Raitzin approved the payment to Mr Merinson on
the basis of a commercial assessment of whether the payment commitment brought
about by Ms Whitestone should be honoured. Mr Seiler sent an email saying that he
approved the payment because Mr Raitzin had already said that he approved it.

73. Mr Seiler and Mr Raitzin felt that the fact that Ms Whitestone only sought approval
after executing the transaction and agreeing that the bank would make the payment
made it commercially difficult to refuse approval. The fact they thought about it in this
way indicates they did not suspect an improper diversion of funds from Yukos. If Mr
Seiler had been aware of any risk of impropriety, it would not have mattered to him
that Ms Whitestone had already promised the payment; he would not have been
content to allow the retrocession to occur without asking questions, even if Mr Raitzin
had approved it.

74. Mr Seiler was told that the director of Yukos Capital, Mr Feldman, wanted to use a
retrocession on the transaction and that he appeared to be fully aware of what had
happened. It was not obvious, and it did not occur to Mr Seiler, that Mr Feldman might
be in breach of his obligations to Yukos in approving the payment to Mr Merinson. In

particular, it did not occur to him that there might be a scheme to divert funds
improperly to Mr Feldman.

75. Mr Seiler was not sent the emails from the BJB Bahamas Senior Manager and has no
recollection of knowing about his specific concerns. He believes that he would have
been kept out of the discussions because they related to BJB Bahamas, which was a
separate legal entity. The only occasion when the concerns raised by the BJB Bahamas
Senior Manager could have been communicated to Mr Seiler was a meeting between
him, Mr Raitzin and BJB Senior Manager A on 13 December 2010, but BJB Senior
Manager A’s evidence was that the BJB Bahamas Senior Manager’s specific concerns
were not discussed at that meeting. Mr Raitzin had the ultimate say and strong views
on the Yukos relationship, and Mr Seiler took a back seat at the meeting. Mr Seiler
was not involved in the memorandum which was then prepared for Mr Raitzin’s
signature approving the Second Commission Payment, and its statement that he pre-
approved the payment is inaccurate.
As the particular issues raised by the BJB
Bahamas Senior Manager were not drawn to Mr Seiler’s attention, he cannot be
criticised for not acting on them. Further, as BJB Senior Manager A knew more about
the relevant facts than Mr Seiler, but is not alleged to lack integrity, it would be wrong
in these circumstances to find that Mr Seiler lacked integrity.

76. Mr Raitzin took ownership of the case and decided to authorise payment, at a time
when Mr Seiler was on holiday. Mr Seiler was not involved in approving the payment
in December 2010 as is clear from Mr Raitzin’s comment ‘Last time it comes to my
approval without Market Head approval’. He was also not asked to put a framework in
place before the payment to Mr Merinson was made. He does not recall that the
framework was to be put in place in response to the BJB Bahamas Senior Manager’s
concerns. The framework was to ensure that proper documentation was obtained for
future transactions; it was never intended to be a framework for approving the Second
Commission Payment.

77. As mentioned above, the Authority considers that the evidence does not support Mr
Seiler’s submission that it had been agreed that Ms Whitestone had to obtain approval
prior to carrying out any proposed FX transaction. However, the Authority agrees that
the Second FX Transaction did not accord with what had been agreed by Mr Raitzin
and Mr Seiler, as they had agreed arrangements based on 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. Mr Seiler,
however, did not raise this with Ms Whitestone and simply granted Ms Whitestone’s
request for approval of the payment to Mr Merinson. In doing so, Mr Seiler thereby
approved the arrangements by which the commission was generated in the Second FX
Transaction.

78. Mr Seiler accepts that, if he had been aware of any risk of impropriety, it would not
have been appropriate for him to approve the Second Commission Payment,
notwithstanding that Mr Raitzin was also approving it and that commercial difficulties
would have arisen if payment had been approved. Although Mr Seiler claims he was
not aware of any such risk, the risks associated with the Second FX Transaction were
obvious, as is apparent from the fact that they were immediately recognised by the
BJB Bahamas Senior Manager. Given Mr Seiler’s experience and the facts he was
aware of, the Authority considers that he must have been aware of the risks, and that
his failure to have regard to them was reckless.

79. The Authority considers that the evidence supports the conclusion that Mr Seiler was
made aware of the specific concerns of the BJB Bahamas Senior Manager. The BJB
Bahamas Senior Manager had asked for his concerns to be escalated to Mr Raitzin
‘and/or’ Mr Seiler, and BJB Senior Manager A subsequently had discussions with both
of them. Further, the framework that Mr Seiler was tasked by Mr Raitzin to put in
place, as explained by BJB Senior Manager A in his email of 17 December 2010,
included points that appeared to be designed specifically to address the concerns raised
by the BJB Bahamas Senior Manager. The Authority therefore infers that Mr Seiler
must have been aware of the concerns raised concerning the size of the retrocession
payment to Mr Merinson, the lack of appropriate client authorisation for the Second FX
Transaction and Mr Merinson’s links to Yukos.

80. As mentioned in paragraph 4.64 of this Notice, the Authority considers that all three
of Mr Raitzin, Mr Seiler and BJB Senior Manager A were involved in discussions relating
to the payment of the Second Commission Payment and that Mr Raitzin’s final approval
was required before the payment to Mr Merinson could be made. At the time, in light
of the concerns raised by the BJB Bahamas Senior Manager, Mr Seiler must have been
aware that there was a risk that the arrangements with Mr Merinson and Yukos were
improper, but he failed to take any steps to prevent the Second Commission Payment,
which was ultimately paid to Mr Merinson on 31 December 2010, before Mr Seiler had
taken the actions he was tasked with.

January 2011 preparation of new Finder’s agreement with Mr Merinson

81. The intention in the conference call of 5 January 2011 was that the full arrangements
with Mr Merinson should be documented.
These were the same arrangements
previously approved by Mr Raitzin in October 2010, subject to certain restrictions: the
one-off retrocessions were only to be applicable in respect of new funds coming to the
bank and the client had to receive a price which was at least as good as the worst price
in the market on the day of the transaction. Notwithstanding his prior questions about
the Second FX Transaction, it appears that the BJB Bahamas Senior Manager was not
then concerned about the arrangements which were to be documented. The BJB
Bahamas Senior Manager had since been told that written approval was to be obtained
from the client, Compliance were supervising the arrangements and a new procedure
was to be adopted, so that payments could be accounted for internally properly. Mr
Seiler was entitled to be satisfied on the same basis.

82. Mr Seiler was not responsible for documenting Finder’s agreements and was not
normally involved in their terms. He was not sent a copy of the agreement in draft or
when executed, and he reasonably assumed that those responsible for documenting
the arrangements had done so properly. He was also not sent a copy of the email from
BJB Senior Manager A dated 6 January 2011, so he was not aware that the
retrocessions were not to be included in the written agreement, if indeed that was what
the email meant. Accordingly, Mr Seiler was not aware that, if the agreement was
shown to Yukos, it would not disclose the full benefit to Mr Merinson of transactions
with Julius Baer. Mr Seiler thought that the agreement would show that.

83. The alleged risks did not occur to Mr Seiler and were not obvious, as is apparent from
the involvement of the BJB Bahamas Senior Manager. The facts which are alleged to
have disclosed a risk of wrongdoing also applied to the First Commission Payment and
so were also known to others, including BJB Compliance, BJB Senior Manager A and
BJB Legal.
The fact that none of them said that a stop should be put to the

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arrangements with Mr Merinson shows that it is credible that Mr Seiler was not aware
of the risks and that these risks were not clear at the time.

84. The email sent by BJB Senior Manager A on 6 January 2011 makes it clear that the
intention was not to document all of the arrangements with Mr Merinson, as it referred
to the fact that it had been agreed verbally to accept three further retrocession
transactions in addition to the written terms which were to be recorded in the Finder’s
agreement with BJB Bahamas. That email also makes it clear that this was agreed at
the conference call the day before, which Mr Seiler had attended, so Mr Seiler would
have been aware that the retrocessions were not to be included in the written
agreement and that, if the written agreement was disclosed to Yukos, the full benefit
to Mr Merinson of the transactions with Julius Baer would not be apparent.

85. There was a significant difference between these arrangements and those previously
approved, as this Finder’s agreement was to record Mr Merinson’s entitlement to be
remunerated for the introduction of Yukos Capital and Fair Oaks to BJB Bahamas,
whereas under the existing agreement it would not have been apparent that he had
any entitlement to be remunerated for funds held by Fair Oaks. However, these
arrangements involved similar risks to those relating to the revised arrangements
agreed by Mr Seiler in October 2010, and so it must have been obvious to him that
there was no proper commercial rationale for such arrangements.

86. The Authority acknowledges that the BJB Bahamas Senior Manager prepared this
Finder’s agreement as requested, but does not consider that this means that the risks
posed were not obvious, given the similarity of these arrangements with the previous
ones which the BJB Bahamas Senior Manager had raised concerns about. The Authority
has not seen any evidence that BJB Legal was aware of the arrangements and notes
that BJB Compliance was not involved in the arrangements agreed in October 2010
and raised concerns regarding these arrangements on 24 January 2011. The lack of
objection from BJB Senior Manager A, who was proceeding on the basis of approvals
and direction from Mr Raitzin and Mr Seiler, does not excuse Mr Seiler’s reckless
conduct in agreeing that Ms Whitestone should negotiate these new Finder’s
arrangements.

January 2011 Mr Merinson’s request for confidentiality

87. Mr Seiler reasonably did not consider Mr Merinson’s request to restrict disclosure of his
Finder’s agreement to be suspicious. At the time that he learned of the request, he
was also told that BJB Compliance would be content to amend the agreement, provided
it was clear that its terms could be disclosed to the bank’s clients, and he saw no
reason to object to that.
There is nothing in the evidence to suggest that BJB
Compliance regarded Mr Merinson’s request for confidentiality as suspicious, as long
as the Finder’s arrangements were not being kept from the client. Mr Seiler did not act
with a lack of integrity, if he did not identify a risk of impropriety from the very email
in which BJB Compliance set out the relevant factors and identified what they
considered to be the solution. Further, Mr Seiler followed up BJB Compliance’s email
with the JBI Line Manager, who sent a clear email indicating that he had investigated
the matter thoroughly and that there was no question of impropriety.

88. On the information provided to Mr Seiler, Mr Merinson immediately accepted wording
proposed by BJB Compliance which did not limit disclosure to Mr Feldman. It appeared
to Mr Seiler that Mr Merinson was in fact concerned to ensure that his arrangements
were not disclosed to third parties, not that he was concerned about disclosure to

Yukos. The information Ms Whitestone included in her emails to Mr Seiler indicated
that Mr Merinson was happy for Julius Baer to explain the retrocession arrangements
to any directors of Yukos.

89. Mr Merinson’s request that the Finder’s agreement with BJB Bahamas should include
restrictions limiting Julius Baer’s ability to disclose his role as Finder on the Yukos
accounts to anyone other than Mr Feldman should have caused Mr Seiler, given the
matters cumulatively known to him at the time, to be suspicious that it might have
been an attempt to hide the fees that had been paid to Mr Merinson. This risk is also
evident from BJB Compliance’s email to Mr Seiler and the JBI Line Manager on 24
January 2011, which drew their attention to the request and made it clear that it was
concerned that the Finder’s arrangements were not being properly disclosed to Yukos.

90. The fact that Mr Merinson accepted BJB Compliance’s revised wording should have only
provided limited comfort to Mr Seiler, as in practice, given that Mr Feldman was the
sole director of Yukos Capital and the only Fair Oaks director with whom Julius Baer
had dealings regarding the Finder’s arrangements, this wording would mean that it
was unlikely that BJB would disclose the Finder’s agreement to anyone other than Mr
Feldman.
In addition, given all the suspicious signs relating to the Finder’s
arrangements and payments of commission pursuant to them, it was not sufficient for
Mr Seiler to rely on the JBI Line Manager’s conclusion that there was no reason to
believe that there was anything improper involved in Mr Merinson’s request.

February 2011 Mr Feldman’s request for confidentiality

91. The risk relating to Mr Feldman’s request for a confirmation of Julius Baer’s
commitment to confidentiality was not clear at the time. Mr Merinson had just agreed
that his Finder’s agreement could be disclosed to any client he introduced. At the time,
there was no reason for Mr Seiler to think that Mr Feldman meant that the letters he
was going to sign could not be disclosed, or that Mr Merinson would be happy if the
documents showing Yukos’ consent to him being paid could not be shown to anyone
else at Yukos; Mr Merinson would presumably wish to rely on those documents if the
payments were ever questioned.

92. As Mr Seiler was aware, BJB Compliance and BJB Legal considered Mr Feldman’s
request and decided to provide the confirmation requested. BJB Compliance had asked
for letters approving the arrangements with Mr Merinson and were content for them to
be signed by Mr Feldman alone. BJB Senior Manager A and the BJB Bahamas Senior
Manager also knew that Mr Feldman alone was to sign the letters and did not challenge
this. The letters were seen as necessary to ensure that Mr Feldman did indeed approve
the arrangements, not to establish his bona fides, which no-one had called into
question. If there had been a concern about Mr Feldman, his signature would obviously
not have been enough. Given the political sensitivities relating to Yukos, a concern for
confidentiality was hardly surprising, especially in the context of Wikileaks information
appearing in the press. It is therefore entirely credible that it did not occur to Mr Seiler
that Mr Feldman might in fact be a fraudster conspiring with Mr Merinson.

93. Mr Seiler was entitled to rely on the information provided by Ms Whitestone that Mr
Merinson was not employed by Yukos. She was the person most closely involved and
who should have known what Mr Merinson’s role was. If Mr Seiler had ever focussed
on the description of Mr Merinson in 2009, he had forgotten it by February 2011 and
did not know that Mr Merinson was employed by Yukos. BJB Compliance also accepted
the description of Mr Merinson now provided by Ms Whitestone.

94. The Authority considers that the risk that Mr Feldman’s request was an attempt to hide
the payments to Mr Merinson should have been recognised by Mr Seiler, given the
matters cumulatively known to him at the time and given his experience as a financial
services professional. Mr Feldman’s requested wording was capable of meaning that
the letters could not be disclosed to anyone at all. Further, even if it was interpreted
as permitting disclosure to Yukos Capital and Fair Oaks, Mr Feldman was the sole
director of Yukos Capital and the only director of Fair Oaks with whom Julius Baer had
any dealings regarding the Finder’s arrangements.

95. The Authority acknowledges that ultimately, despite the concerns raised by BJB
Compliance, Mr Feldman’s letters still included the additional wording regarding a
commitment to confidentiality and were signed by him alone.
However, given the
compliance issues raised by BJB Compliance in its memo of 7 February 2011, and all
the obvious risks relating to the arrangements which Mr Seiler must have been aware
of, Mr Seiler should not have been satisfied that the various concerns raised had been
properly addressed.

96. The email sent by the BJB manager to BJB Compliance following his call with Mr Seiler
and Ms Whitestone on 14 February 2011 only stated the BJB manager’s and Mr Seiler’s
understanding with regard to Mr Merinson’s position at Yukos Capital. It did not
mention Yukos International and, given Mr Seiler’s involvement in the conduct of Julius
Baer’s relationship with Yukos and Mr Merinson, the Authority does not consider it
credible that he would have forgotten that Mr Merinson held the position of Chief
Financial Officer at Yukos International.

Mr Seiler becomes an approved person

97. The fact that Mr Seiler was appointed to a non-executive position with JBI does not
mean that he came under any relevant obligations which he did not already owe to his
employer. In addition, given that he was already required to act in accordance with
similar regulatory requirements in Switzerland, his regulatory duties upon becoming
an approved person were not materially enhanced.

98. Mr Seiler was appointed to the role of non-executive director at JBI, holding the CF2
(Non-executive director) controlled function, on 30 March 2011. As an approved non-
executive director, Mr Seiler owed fiduciary duties to JBI and duties under the
regulatory system, in particular the Authority’s Statements of Principle for Approved
Persons. Following his appointment, Mr Seiler permitted the Finder’s arrangements
with Mr Merinson to continue without taking any meaningful steps to address the
obvious risks arising from Julius Baer’s relationship with Mr Merinson. In doing so, the
Authority considers that Mr Merinson acted with a lack of integrity in breach of
Statement of Principle 1.

Opening of Yukos Hydrocarbons account in Guernsey and concerns raised in July 2011

99. There was no apparent risk in the opening of a new account for Yukos Hydrocarbons,
and Mr Seiler did not perceive there to be any risk. Mr Seiler reasonably relied on
Compliance to conduct checks and to flag any concerns to him, but no concerns were
flagged to him.

100.
The JBI Line Manager’s email of 18 July 2011 did not raise material concerns for
Mr Seiler.
Mr Seiler did not believe that the email was warning that the Yukos
relationship was high-risk in any sense other than politically high-risk. He reasonably

would have interpreted the email as an outburst by a person concerned to protect his
own personal interests, whose principal concern was that Ms Whitestone was the
relationship manager for the new Yukos Hydrocarbons account, rather than himself.
The email was inconsistent with the JBI Line Manager’s past informed support for the
payments to Mr Merinson and proceeded on a basis which Mr Seiler with good reason
understood to be incorrect, that the issues raised by BJB Compliance had not been
resolved to BJB Compliance’s satisfaction. It is therefore unfair to criticise Mr Seiler
for not acting on the JBI Line Manager’s email.

101.
Although the JBI Line Manager’s motive for sending his email of 18 July 2011 can
be questioned, the Authority considers that he raised important concerns about the
Yukos relationship which ought to have led to a person in Mr Seiler’s position to take
steps to investigate whether they had any merit. In these circumstances, it was not
appropriate for Mr Seiler to take no action in response to the JBI Line Manager’s email
and to proceed to approve the opening of the new account for Yukos Hydrocarbons.

Third FX Transaction and Third Commission Payment

102.
Evidence obtained by the Authority after the Warning Notice was issued resulted in
the Authority withdrawing its original allegations against Mr Seiler in respect of the
Third FX Transaction and proposing new allegations. The fact that the original
allegations were made at all is consistent with other indications that the Authority has
viewed the entire case through the prism of an assumption that Mr Seiler lacks
integrity, which has distorted the way it sees the evidence.

103.
The Act precludes the Authority from issuing a Decision Notice in relation to a
prohibition order on the basis of reasons which were not included in the Warning
Notice. In particular given the delays in this case, there is no excuse for the Authority
not having investigated properly the transactions which occurred in 2011, obtained
obviously relevant documents, and reached a final conclusion on the allegations to
make against Mr Seiler, well before the Warning Notice was issued.

104.
It is acknowledged by the Authority that there is no evidence that Mr Seiler was
informed about the Third FX Transaction. In fact, the evidence is that Ms Whitestone
kept the transaction away from Mr Seiler. She told him that she intended to use one
of the one-off retrocessions on a conversion of an inflow of dollars, whereas the Third
FX Transaction did not involve an inflow.

105.
Ms Whitestone also did not tell Mr Seiler anything about the terms of the Third FX
Transaction; in particular, she did not tell him that the margin was at the same level
as the margin on the First or Second FX Transactions. In fact, the transaction she did
tell him about was entirely unlike the First and Second FX Transactions, as it generated
a much smaller commission.

106.
Mr Seiler was not responsible for approving retrocession payments and there is no
evidence that he approved, or was asked to approve, the Third Commission Payment.

107.
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 Mr Seiler’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 Mr Seiler acted recklessly in respect of the Third FX

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Transaction (as it is now understood by the Authority). Mr Seiler was given the
opportunity to make, and did make, submissions regarding the Authority’s revised view
of the Third FX Transaction and of Mr Seiler’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 Mr Seiler acted
recklessly in respect of it.

108.
Mr Seiler was informed by Ms Whitestone on 19 August 2011 that one of the four
70% retrocession payments that he and Mr Raitzin had previously approved would be
used in respect of a FX transaction converting EUR 7 million into USD (the Third FX
Transaction). Although Mr Seiler was not specifically informed of the terms of the Third
FX Transaction or that it used the same trading approach as for the First and Second
FX Transactions, having approved the arrangements by which the commission was
generated in the First and Second FX Transactions, Mr Seiler must have been aware of
the same risks which arose in relation to those transactions.

109.
The Authority notes that Ms Whitestone also told Mr Seiler that she intended to use
one of the 70% retrocession payments in respect of the conversion of an inflow of USD
7 million into the Yukos Hydrocarbons Guernsey account. It appears that Ms
Whitestone raised this with Mr Seiler, because it was outside the arrangements that
she already had approval for, unlike the Third FX Transaction.

110.
Although there is no documentary evidence that Mr Seiler approved the Third
Commission Payment, the Authority considers that he should have taken steps to
prevent the Third Commission Payment being made, given the information he had
regarding the Third FX Transaction and given the risks relating to it that he must have
been aware of, including as a result of the email from the JBI Line Manager sent to him
the previous month which raised concerns about the relationship with Mr Merinson.

Concerns raised by the JBI Line Manager in November 2012

111.
Mr Seiler believed at the time, and continues to believe, that the JBI Line Manager
sent his email of 30 November 2012 because he understood that Ms Whitestone’s
responsibility for Yukos was not going to be transferred to him. The email contains a
number of demonstrably incorrect or misleading statements and Mr Seiler knew at the
time that it was disingenuous. Mr Seiler was asked to comment and did so from
memory knowing that much of what the JBI Line Manager said was nonsense.

112.
In his email of 5 December 2012, Mr Seiler was correct to state that Mr Merinson’s
retrocession arrangements were approved by JBI Compliance. His understanding was,
and remains, that JBI Compliance considered and approved the retrocession
arrangements, as this is what should have occurred. In addition, BJB Compliance was
aware of the arrangements with Mr Merinson and permitted payments to be made to
Mr Merinson pursuant to them. It approved the arrangements with Mr Merinson for
the First FX Transaction and (as amended) to include four one-off payments, provided
Mr Feldman signed to confirm that Yukos Capital and Fair Oaks knew of and consented
to them.

113.
Mr Seiler’s statement in his email that Mr Merinson was not a Yukos employee
reflected his honest belief at the time. Mr Merinson’s employment status was not of
significance in 2009, when Mr Seiler received documents in which it was stated that Mr
Merinson was the CFO of Yukos International. If he had registered this information in
the first place, Mr Seiler had forgotten it by July 2010 when the Finder’s arrangements

were being discussed, particularly because he would have regarded it as unacceptable
for an employee to act as a Finder in relation to his employer. In any event, Ms
Whitestone told Mr Seiler that Mr Merinson was a consultant, when his status was
raised in February 2011.

114.
Mr Seiler was also correct to state in his email that an additional signature from
Yukos had been requested after the First FX Transaction. The additional signature that
Mr Seiler was referring to was Mr Feldman’s signature on the letters requested by BJB
Compliance on 1 September 2010, relating to the retrocession payments. He meant
that the signature requested was in addition to whatever signature had been obtained
in relation to the execution of the transaction itself. He had no reason to focus on
whether the signature was by the same or another person. The fact that Mr Feldman’s
signature was not obtained until after the Second FX Transaction does not render what
Mr Seiler said misleading.

115.
The allegation that Mr Seiler showed a reckless disregard of the truth in his email
is an inherently unlikely one. He knew that BJB Compliance would see and consider
what he said, and that if he misrepresented BJB Compliance’s role he would
immediately be found out.
However, there is no evidence that BJB Compliance
disagreed with what he said. There would have been no benefit to Mr Seiler in making
statements he suspected might be incorrect or misleading, because what he said could
be checked by looking at the documents.

116.
Although elements of the JBI Line Manager’s email of 30 November 2012 were
misleading, and irrespective of the JBI Line Manager’s motivation, it was incumbent
upon Mr Seiler to provide BJB Compliance with accurate and not misleading comments
on the JBI Line Manager’s email.

117.
There is no evidence that either JBI or BJB Compliance approved the retrocession
arrangement. As Mr Seiler was aware, the retrocession arrangement was not part of
the information given to JBI Compliance when Mr Merinson was set up as a Finder, and
it was not recorded in his Finder’s agreement. Although BJB Compliance was later
informed of details of the retrocession arrangements, it was not asked to consider them
before they were agreed and did not approve them. Its later involvement was to
attempt to gain comfort that the arrangements that had already been made were not
improper.

118.
At the time Mr Merinson entered into his Finder’s arrangements, Mr Seiler
understood him to be a Yukos employee as a result of information provided by Ms
Whitestone in October and November 2009. Given the close interest he showed in the
opening of the Yukos Capital account before giving his approval, and that he had also
been involved in the approval of Mr Merinson’s account opening, the Authority does
not consider it credible that Mr Seiler had by this time forgotten Mr Merinson’s role at
Yukos. This was a very large and politically sensitive relationship, with substantial
prospects for growth, and he was closely monitoring it.

119.
Mr Seiler’s statement regarding the request for an additional signature was
misleading, as it suggested that the request was from someone not involved in the
Finder’s arrangements and that confirmation was received at that time, when in reality
the letters were received several months later, signed only by Mr Feldman.
The
Authority does not accept Mr Seiler’s submission that the additional signature he was
referring to was that of Mr Feldman. That is not credible, as the additional signature

had to be one from the client, rather than one of the people who had proposed the
arrangements. Further, the JBI Line Manager had stated that he suspected that Mr
Feldman’s authorisation of the arrangements was invalid, so Mr Seiler would have
known that BJB Compliance would not consider Mr Feldman’s signature to be capable
of providing any comfort that the arrangements were genuinely approved by Yukos.

120.
The Authority has noted Mr Seiler’s submission that it is inherently unlikely that Mr
Seiler acted recklessly, but considers that the evidence demonstrates that he made
inaccurate and/or misleading statements and supports that conclusion.

Prohibition order

121.
Mr Seiler denies that he was reckless and that his actions evidence a lack of
integrity. However, even if the Authority considers that he ought to have appreciated
a risk of wrongdoing, a prohibition order is not appropriate. Mr Seiler has reflected
seriously on what happened and, although he does not accept that any risk of
wrongdoing against Yukos was obvious at the time, he would now be more alert to
consider whether a non-standard transaction, particularly one that generated large
payments to a third party, had any commercial rationale from the client’s perspective.

122.
Imposing a prohibition order would not advance the Authority’s operational
objective of protecting and enhancing the integrity of the UK financial system, because
Mr Seiler poses no risk to the integrity of the UK financial system. Mr Seiler fully
appreciates the importance of the financial services sector not being used to facilitate
fraud; if there was a fraud on Yukos in this case, he was unaware of it and did not
benefit in any way. Mr Seiler has also never been based in the UK and has never had
an operational role in the UK financial services sector. Mr Seiler’s time as a non-
executive director of JBI, which ended over six years ago, is the only time in his career
when he has been approved by a UK regulator. He has no intention of performing any
regulated function in the UK in the future, and so does not pose any risk to the public.

123.
It would also undermine the integrity of the UK regulatory regime, and therefore
of the financial system, to impose a prohibition order on Mr Seiler, when no action is
being taken against Ms Whitestone’s superiors at JBI. In particular, it would be unfair,
and would undermine confidence in the UK financial system, to prohibit Mr Seiler, while
allowing the JBI Line Manager, who supported the relationships with Mr Merinson and
Mr Feldman, was solely responsible for approving the transfers from Mr Merinson for
Mr Feldman’s benefit in April 2011 and provided misleading information in his email of
30 November 2012, to pursue a career in the financial sector without any criticism of
his conduct. It is also inconsistent and unfair for the Authority to take action against
Mr Seiler but not against several others at BJB who were involved in the relevant events
with similar levels of knowledge of the relevant facts.

124.
Although Mr Seiler was, from 30 March 2011, a non-executive director of JBI, the
allegations against him do not concern his actions in that role, but rather his actions
as an employee of BJB. He was not the manager of Ms Whitestone or responsible for
directly supervising her, and did not have responsibility for approving the Finder’s
arrangements with, or payments to, Mr Merinson, as that was Mr Raitzin’s role. His
was a non-operational, business development function, and the problems which arose
in this case are not associated with that function.

125.
To justify a prohibition order against a person such as Mr Seiler, who is not currently
performing any regulated activity or controlled function and is not applying for

permission to do so, requires something more than the conclusion that, if the person
were to apply for approval, that application would be rejected. It would be
disproportionate to make an order, the breach of which attracts criminal sanctions in
the UK, in these circumstances. Further, the utility of such an order is unclear when
it is not suggested that Mr Seiler is likely to do anything relevant in the UK in any
event, and he does not intend to in the limited period that remains of his professional
career.

126.
Over six years have passed since JBI notified the Authority of the retrocession
payments and associated facts. The lack of urgency in bringing these proceedings
cannot be reconciled with the suggestion that Mr Seiler poses a serious risk to the UK
financial services sector. Mr Seiler has not posed any risk to confidence in the UK
financial system since these events and to impose a prohibition order, with the
attendant irreparable reputational damage, would be a disproportionate and
unwarranted step.

127.
Mr Seiler’s general compliance history should be taken into account. He has had a
long and successful career in financial services since 1988 and has an unblemished
record. Furthermore, the events in question occurred about a decade ago.

128.
Mr Seiler was an employee of BJB, was based in Switzerland and had no formal
responsibility in respect of any of the matters in respect of which he is alleged to have
been reckless. Other individuals at a similar or higher level within Julius Baer outside
the UK were involved in the relevant events and there is no good reason for singling
out Mr Seiler. The appropriate regulator to consider Mr Seiler’s conduct, since he is
not proposing to work in the UK, is the financial regulator in Switzerland, but it has not
threatened nor taken any action against him despite being aware of the circumstances
and having similar objectives to those of the Authority. It would be an inappropriate
assertion of a long-arm jurisdiction for the Authority to make a prohibition order
against Mr Seiler in circumstances where the Swiss financial regulator has taken no
action.

129.
In addition, the main allegations against Mr Seiler arise out of the First and Second
FX Transactions, when Mr Seiler was not carrying out regulated activities within the
scope of the Act. If the prohibition order is not intended to prevent Mr Seiler from
performing a similar role, it is difficult to see what legitimate point there could be for
a prohibition order. On the other hand, if the prohibition order is intended to prevent
Mr Seiler from performing a similar role to that which he did in 2010, that would be
unjustified, as it would prevent him from carrying out activities overseas which are not
regulated activities within the scope of the Act.

130.
For the reasons set out in this Notice, the Authority considers that Mr Seiler acted
recklessly and with a lack of integrity. The Authority has had regard to Mr Seiler’s
submissions regarding why he should not be prohibited, and to the relevant factors in
EG, and has concluded that the seriousness of his misconduct is such that he is not a
fit and proper person and poses a serious risk to confidence in the UK financial system.
The Authority therefore considers that it is appropriate to prohibit him, 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.

131.
The Authority has also had regard to Mr Seiler’s submission that he would now be
more alert to considering whether a non-standard transaction had any commercial
rationale from the client’s perspective. However, the Authority considers that, given
Mr Seiler’s experience as a financial services professional, the risks arising from the
Finder’s relationship with Mr Merinson, including that there was no proper commercial
rationale for any payment to him, were so obvious that Mr Seiler must have been
aware of them. Mr Seiler acted recklessly in failing to have regard to these risks, and
to take appropriate action in light of them, and his statement that he has learnt from
these events does not give the Authority sufficient reason to believe that, having
demonstrated a lack of integrity, he is now a person of integrity who is fit and proper.

132.
The Authority considers that Mr Seiler does pose a risk to the integrity of the UK
financial system. His reckless conduct occurred over a period of more than two years
and he held a controlled function at a UK financial services firm for a part of that period,
and before then he was in a position in which he exercised management functions over
persons employed by such a firm. Whether he is based in the UK or not, and whatever
his current intentions, the Authority considers it is clear that he poses a risk to the
integrity of the UK financial system.

133.
The Authority has reached its conclusion that Mr Seiler acted recklessly and that it
is appropriate to prohibit him, having had regard to the relevant evidence in this case,
including the submissions that it has received from Mr Seiler. 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 Mr Seiler’s own conduct.

134.
Mr Seiler’s misconduct occurred when he had functional management responsibility
for Ms Whitestone in respect of her conduct of Julius Baer’s relationship with Mr
Merinson and Yukos. He was in a position of considerable responsibility and was asked
to approve arrangements that were suspicious. He gave that approval despite the
obvious risks, of which he must have been aware and to which he failed to have regard.
In the circumstances, the Authority considers that there is no function in respect of
any regulated activity for which Mr Seiler would be a fit and proper person.

135.
The Authority does not agree that it is disproportionate to impose a prohibition
order on Mr Seiler in circumstances where he is not currently performing any regulated
activity or controlled function and does not intend to do any relevant work in the UK in
the future, given the seriousness of his misconduct.

136.
The Authority recognises that the relevant events occurred some time ago, but in
the circumstances, given the seriousness of his misconduct, the Authority does not
consider that the passage of time means that Mr Seiler is now a person of integrity.

137.
The Authority acknowledges that it is not aware of any evidence that Mr Seiler has
been subject to disciplinary proceedings in the past and has taken this into account,
but overall considers the seriousness of his misconduct outweighs this and other
mitigating factors.

138.
The Authority does not agree that the imposition of a prohibition order would
amount to an improper extra-territorial exercise of the Authority’s powers. The
Authority is not prevented from taking action to advance its operational objectives,
because an overseas regulator could have taken similar action but has not done so.

Further, the fact that Mr Seiler had functional management responsibility for Ms
Whitestone when based in Switzerland was a consequence of JBI’s matrix management
system. In circumstances where Mr Seiler chose to perform a role that involved
management responsibility over employees based in England at a UK authorised firm,
it is appropriate for the UK regulator to take action against him. This applies all the
more in respect of the period when he was a UK approved person.

139.
The prohibition order that the Authority has decided to impose would have the
effect that Mr Seiler would not be permitted to perform any function in relation to any
regulated activities carried on by an authorised person, exempt person or exempt
professional firm.
The Authority considers that this would advance its consumer
protection and integrity operational objectives and is therefore appropriate.

Mr Merinson’s Representations

140.
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.

141.
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.

142.
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.

143.
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.

144.
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.

145.
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.

146.
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.

147.
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.

148.
The Authority acknowledges that senior individuals in the Julius Baer group were
familiar with the proposed arrangements from an early stage and supported them.

149.
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

150.
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.

151.
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.

152.
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.

153.
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.

154.
Mr Feldman’s request to Julius Baer to keep details of the transactions confidential
was aimed at keeping the information confidential from its adversaries in the litigation.
This was Yukos’ policy and a common request made to service providers that Yukos
dealt with.

155.
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.

156.
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.

157.
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.

158.
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.

159.
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.