Is FIDE's Prize Money Tainted?
FIDE's Sponsorship Money from Freedom Holding Corp Under Scrutiny
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Is FIDE's Prize Money Tainted?
Before the World Chess Championship showdown between Ding Liren and Ian Nepomniachtchi, FIDE faced challenges in securing a host city and sponsors. Yet, as the year began, they found a savior in Freedom Holding Corp, which pledged a prize pool of 2 million euros for the event in Astana, Kazakhstan. However, a recent report from short-selling analysts Hindenburg Research casts doubt on FIDE's choice of partner.
In a press release leading up to the match, FIDE acknowledged:
“A decisive figure in bringing the World Championship match to Astana is Timur Turlov, a former trader who, in 2008, founded Freedom Finance, the foundation stone over which he would build a financial empire. Turlov is now the CEO of Freedom Holding Corp., a US-based group whose affiliated companies operate in all of Central Asia, Europe, and the US, trading on the NASDAQ (FRHC) since 2019. “ Thursday, 19 Jan 20231
Timur Turlov, the billionaire founder and CEO of Freedom Holding Corp, is not just a businessman but as it turns out also a chess enthusiast. His passion for the game recently led to his appointment as the president of the Kazakhstan Chess Federation. However, it appears he has never played a rated game. Regardless, he was appointed president of the Kazakhstan Chess Federation on January 18, 2023, in connection with the World Championship sponsorship:
"Timur Turlov is now at the helm of the Kazakhstan Chess Federation! Galim Khusainov has transitioned to the Board of Trustees of the Federation, where he'll champion the growth of chess. A big thank you to the Ministry of Culture and Sports, Askhat Oralov, for gracing the conference."
- GM Darmen Sadvakasov's Facebook (translated), 18. January 2023
Speaking before the World Chess Championship, Turlov expressed:
“Kazakhstan boasts a rich chess culture. Our women's team is formidable, and we have a plethora of budding talents. The game's popularity is skyrocketing here. Hosting this prestigious event will undoubtedly spotlight Kazakhstan on the global stage and inspire countless youngsters to embrace the game. We're committed to delivering an unparalleled experience for this event. Kazakhstan, with its immense potential and incredible people, is poised to be a premier destination for international sports events.”
All seemed well, but serious allegations and red flags have emerged concerning Freedom Holding Corp. Accusations ranging from bond price manipulation and money laundering to tax evasion and investor fraud. The Russian invasion of Ukraine further complicated matters. Following the invasion, Freedom Holding Corp divested its Russian businesses on October 17, 2022. Turlov, commenting on the move, stated:
“Following Russia’s invasion of Ukraine, we believed it was best for our company to divest our Russian businesses, as I renounced my Russian citizenship,” said Timur Turlov, CEO of Freedom Holding. “We look forward to growing our global presence from our headquarters in Almaty and from New York.”2
However, a recent Forbes article shed light on more allegations against Freedom Holding Corp. This part of the article paints the picture:
“They came in like cowboys, wild cowboys,” a former Freedom executive working in Dubai told Forbes a few weeks ago. “They were primarily looking for black funds, dark funds, unreported funds, to siphon them off into stock markets like they’d previously done very successfully in Russia” added the individual, who asked to remain anonymous in order to speak openly. “Once you go into unreported funds, that could be anything, especially in a market like Dubai. It could be terrorist money, it could be criminal syndicate money. It’s all kind of mixed up.”3
If this stands to be true FIDE has no chance of knowing where the sponsorship money from Freedom Corp is coming from.
Hindenburg Research's deep dive into Freedom Holding Corp suggests that the company's stock price doesn't align with its fundamentals, hinting at a potential collapse. Hindenburg Research has taken a short position in Freedom Holding Corp, which also tells us that they are putting their money where their mouth is.4
Hindenburg Research also points to entity FFIN Belize, where Freedom Corp has actually earned most of its money. It gets a bit technical now, but a significant portion of the report focuses on this entity, an entity established by Turlov in 2014. FFIN Belize, created shortly after the U.S. imposed sanctions on Russia, allegedly helped Russian investors bypass restrictions to access U.S. markets. The report shares various questionable practices of FFIN Belize, from evading sanctions and in short making it possible for Russians to funnel money out of Russia into the American stock market. To cite the report:
“In short, FFIN Belize offers Russians a path to funnel rubles via one of Russia´s most heavily sanctioned banks through a Belize-licensed brokerage right onto the U.S. stock market.
One of the former senior executives we spoke to explained that clients could deposit funds in rubles or other currencies in Russia and receive funds back from FFIN Belize in U.S. dollars and/or Emirati Dirham to accounts anywhere in the world.”5
The findings contain a lot more damaging material and the picture is not looking good. Today, S&P Global Ratings placed Freedom Corp on CreditWatch due to potential governance and risk management failings.6 All this combined should alert the chess world which is indirectly receiving the sponsorship money from Freedom Corp through FIDE.
Four of Russia’s “financial elite” tied to Alfa Group, including its founder, were sanctioned by the U.S. Treasury just days ago on August 11, 2023. Despite this, FFIN Belize still advertises the ability to send rubles via Alfa Bank, allowing customers to easily funnel rubles via a sanctioned Russian bank right into the U.S. stock market.
Former employees described the open flouting of sanctions, along with AML & KYC rules. “This is violating almost every country’s anti-money and anti-terrorist financing laws…I’ve personally seen suitcases with $2.5 million brought in cash by a client”, a former Freedom executive told us.
Hindenburg Research Report
The response from FIDE and the chess community
So far FIDE has not commented about Hindenburg Research findings. I have also gotten a reply from FIDE’s press office that they do not have any comment at this moment.
In a Twitter debate from back in March between GM Peter Heine Nielsen and the FIDE CEO, GM Emil Sutovsky, Sutovsky denied that any wrongdoing was happening due to the fact that Freedom Finance was being traded on Nasdaq.7
The Hindenburg Research report states the following:
“Over the last 1.5 years, over 59% of trading in Freedom’s stock has been driven by two tiny brokerage firms with ties to Freedom: (1) Lek Securities, accounting for over 59% of trading volume in 2022 despite accounting for just 0.06% of trading volume on NASDAQ and (2) Vision Financial Markets, accounting for ~17% of YTD 2023 reported trading volume in Freedom despite comprising only 0.03% of NASDAQ volume.
Both Lek and Vision have clearing arrangements with Freedom, indicating a close relationship. Lek was charged with manipulative trading by the SEC in 2017 alongside a Ukrainian brokerage firm. Its founder was barred from the securities industry in 2019.
Vision was barred by the National Futures Association in 2014 but relaunched. Subsequently, it has accumulated a rap sheet of 26 regulatory sanctions over issues including a lack of effective AML procedures and a “failure to prevent and detect potentially manipulative trading activity”, according to FINRA and Nasdaq enforcement actions.”8
While the chess community's reaction to the Hindenburg Research report has been muted—perhaps due to a loss of faith in FIDE or the lack of media coverage—FIDE encountered another PR challenge earlier this week.
Its president, Arkady Dvorkovich, was seen at a Moscow chess ceremony alongside Dmitry Peskov, Putin’s press spokesman.9 The event was held back in July, but it first surfaced on Twitter this week. Here FIDE is also silent.
This latest development might have been what made several chess publishers send out a statement making it clear that they will not participate in the FIDE Book Of The Year competition due to the close bonds between FIDE and the Russian authorities.10
Chess.com has significant ties to the ongoing situation. They own prominent chess publishers New in Chess and Everyman, both of which have signed a statement against FIDE. In contrast, Chessable, also owned by Chess.com, shares an official partnership with FIDE alongside Freedom Corp. Despite these conflicting affiliations, Chess.com has yet to report or comment on the Freedom Corp situation.
This absence of commentary becomes even more noticeable when considering Chess.com's recent actions. They severed ties with the Saint Louis Chess Club following allegations of sexual misconduct and reported about the new FIDE transgender policy. Given their history of addressing significant issues in the chess world, the silence on the Freedom Corp is noticeable.
While it's possible that Chess.com is awaiting more definitive information or the results of ongoing investigations before commenting, their current silence leaves room for questions.
It's challenging to piece together the full picture for the colossal chess company, but the Russian influence on FIDE certainly deserves closer scrutiny and reporting from Chess.com.
This scrutiny becomes even more important when considering the recent World Cup. FIDE went to great lengths to ensure Ukrainian GM Vasyl Ivanchuk could participate in the tournament, all the while using prize money from Freedom Corp to compensate him and the other players.
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/ Martin
https://ir.freedomholdingcorp.com/press-releases/detail/44/freedom-holding-corp-russian-divestiture-approved-and
https://www.forbes.com/sites/johnhyatt/2023/08/15/heres-the-story-of-the-billionaire-founder-behind-hindenburg-researchs-latest-short-selling-target/?sh=266a334462bb
https://www.nasdaq.com/articles/hindenburg-takes-short-position-in-retail-brokerage-freedom-holding
https://hindenburgresearch.com/freedom/
https://disclosure.spglobal.com/ratings/en/regulatory/article/-/view/type/HTML/id/3046402
https://hindenburgresearch.com/freedom/
https://ruchess.ru/news/all/v_tsdsh_sostoyalas_tseremoniya_nagrazhdeniya_zolotym_znakom_fshr_20072023/
Hey Martin, great article and very important topic. Like you said, players turn a blind eye and worse there are folks who still believe politics should not be mixed with sports including chess. Large businesses are after the spotlight (and the money). that’s why they focus, take a stand or even spin other topics while ignoring the rotting foundation. I’m glad that players like GMs Garry Kasparov, Peter Heineken Nielsen and Mikhail Golubev (to name a few) keep hammering the issue. Thank you for writing this. Keep them coming.
Wow... well written and a really poignant question.