Criminal charges are piling up against Togliattiazot owner in Russia’s top corporate dispute
Sergei Makhlai, one of the beneficiary owners of
Togliattiazot (ToAZ) has become a defendant in a new case where he is accused
of ordering the payment of a $1.2mn bribe to judges of Russia’s Supreme Court
to overturn a decision to that would have seen the recovery by the state of substantial
unpaid taxes.
He has been named as one of the defendants in a case where
bribery charges have been brought against Alexander Popov, the former CEO of
Togliattiimbank, which is solely owned by Sergei Makhlai. The case is widely
seen as one of the biggest ongoing corruption investigations in Russia.
As bne IntelliNews reported, previously Sergei Makhlai was
at the centre of a separate criminal investigation culminating in July 2019
with the verdict by Komsomolsky District Court of Tolyatti, which found Sergei
Makhlai, his father Vladimir Makhlai who was previously Chairman of the Board
at ToAZ, and three other individuals guilty of fraud.
The Court found that the group siphoned out a total of
RUB84bn ($1.4bn) from ToAZ through related-party transactions defrauding the
company and its minority shareholders. ToAZ’s products - ammonia and urea –
were sold at knock-down prices to a Swiss trader Nitrochem Distribution AG,
controlled by the Makhlais’ Swiss partner Andreas Zivy, which then sold on the
products at market prices and the difference of 15-20% was diverted to their
offshore bank accounts – a classic “transfer pricing” scam that was the
hallmark of Russian commodities trading in the 1990s.
Because all the defendants at the time of the sentence had
fled the country, the sentences of eight and a half to nine years of jail were
imposed in absentia.
In addition, Sergei and Vladimir Makhlai were stripping ToAZ
out of its production assets. Using Togliattikhimbank, an ammonia production
unit worth RUB10bn ($322m at the 2010 exchange rate) was sold for just RUB100mn
($3.2m). ToAZ also sold a methanol production facility with an annual capacity
of 450 thousand tonnes a year was sold for a paltry RUB132mn ($4.3m) inflicting
financial damage on ToAZ exceeding RUB200mn. Both facilities were sold to Tomet
LLC, a firm controlled by Andreas Zivy.
Bank manager charged with fraud
The new episode goes back to 2012 when the regional tax
authority calculated that ToAZ had understated its revenue for 2010 by over
RUB1bn and charged it RUB161mn in additional corporate tax. ToAZ challenged
that decision in commercial courts but lost in all the subsequent rulings. A
Supreme Court review was the Makhlais’ last chance to overturn the charges. So
the decision was made to buy the judges off.
According to the investigation, Makhlai-owned
Togliattikhimbank was the vehicle for the alleged bribery payment. Last month,
the Basmanny District Court in Moscow ordered the arrest and extended the
detention of the former chairman of the board of Togliattikhimbank Alexander
Popov until August 12 on the orders of Russia’s Investigative Committee, RAPSI
reported on June 4.
Popov was charged with bribery (Article 291.5 of the Criminal
Code) on May 20 by the Investigative Committee, Russia’s top criminal
investigation agency that deals with big crime, which found he attempted to pay
a bribe of $1.2mn to judges of the Supreme Court.
Also included in the indictment was ToAZ’s main shareholder
Sergei Makhlai and the former head of the Togliattiazot security service Oleg
Antoshin whose role was to secure an intermediary, as well as one more person
that was not named. All four men were indicted for the same bribery charge.
“According to investigators, Makhlai instructed Popov to
bribe the judges. In October 2015, the head of Togliattiimbank cashed out
$1.2mn and put them in a bank’s safe deposit box opened in the name of
intermediaries. After that, Popov persuaded them to transfer the money to the
judges,” Anatoly Kruglov, the news editor of Secret Firmi, a business magazine,
reports. “In return, they had to make a decision positive for ToAZ regarding
the tax lawsuit.”
In addition to these bribery accusations, Popov and other
members of the ToAZ group have been charged with the oligarchs’ bane:
“participating in a criminal group” (Article 210.3 of the Criminal Code),
“evading taxes” (Article 199.2 of the Criminal Code) and “committing especially
large-scale fraud” (Article 159.4 of the Criminal Code), which are the classic
charges for big business crimes in Russia.
A former employee of ToAZ Ksenia Balashova has already been
arrested for actually carrying out many of the transactions and has pleaded
guilty to all counts. In her defence she claims that she only followed the
direct instructions of her boss, Vladimir Makhlai, who was then in charge of
ToAZ.
Balashova, who was the general director of the Kontaz
subsidiary and dealt mainly with ToAZ foreign customers, reportedly put through
a series of deals, selling the group’s most valuable assets for pennies on the
dollar as the group was stripped of its assets in anticipation of more legal
woes.
In December 2008, she sold more than 860,000 Togliattiazot
shares for just one million rubles ($40,000) to the Cyprus offshore company
Borgat Investments Ltd. which was reportedly controlled by Vladimir Makhlai.
According to the investigation, the market value of this package at the time of
sale was about RUB577mn ($23mn). In addition, the investigators found that this
company together with affiliate Rodnichok, evaded taxes to the tune of more
than RUB320mn ($12.8mn).
International paper chase
In the meantime, ToAZ’s minority shareholder Uralchem has
not giving up a decade’s worth of struggling to recover some of its investment
made in 2008 and has secured its first favourable court decisions in the United
States.
Most of the problems ToAZ is facing now started with
Uralchem’s complaints about the incongruous halt in dividend payments after it
became a shareholder in 2008, and ToAZ’s management’s refusal to share key
corporate financial information back in 2011, which triggered the criminal
investigation against the majority shareholders and managers of the company.
In February, Uralchem applied to a US court to obtain
information about the movement of money through the Swiss trading company
Nitrochem, which, according to the Russian court, played a central role in the
transfer pricing schemes, although the company has since been dissolved.
The US court ruled that Uralchem was entitled to receive
information from UBS that handled the cash flowing through Nitrochem, which was
shared with Uralchem in February this year.
Based on the UBS information, in April 2020 Uralchem filed
requests with the US courts for more information about money movements via
other US banks in the States of New York and New Jersey to get a clearer
picture of how the money stolen from ToAZ was distributed from the accounts of
Nitrochem.
According to the statement of Uralchem’s legal
representatives to the US courts, the UBS information revealed that,
"Nitrochem was engaged in highly suspicious transfers of significant
amounts of money," including tens of millions of dollars to,
"accounts of companies registered in off-shore jurisdictions, without any
public profile, and which were wound-up soon thereafter". The Court for
the Southern District of New York has already granted the discovery request.
Nasty fight
Sergei Makhlai formally took over running the company from
his father Vladimir in 2011. As relations between the two soured, Vladimir accused his sons Sergei and Andrey of
stealing ToAZ from him saying in a press interview that "in just a day
they discharged me from all positions, seized offshore companies and booted me
off the trusts". Yet just like his father, Sergei had also fled Russia in
the face of looming criminal charges. According to reports he now lives in the
US but has changed his name and kept a much lower profile than his gregarious
father who is a prominent member of the “Londongrad” community of émigrés, many
of whom are now threatened by the Unexplained Wealth Orders Act adopted in the
UK.
In July 2019, in addition to handing prison sentences in
absentia to both Makhlais and three associates, the Russian criminal court also
ordered the company to pay $1.85bn in damages. As an interim measure, TOAZ’s
assets have been frozen by the Russian courts.
But the Makhlais won’t let go and continue the fight with
Uralchem from outside of Russia to prevent an arrest of their capital held
overseas. Amongst other cases, an Irish court is currently considering their
civil claim against ToAZ minority shareholders.
At the same time, they have been running a “black PR”
campaign by placing articles in the Russian press attacking Uralchem and its
owner Dmitry Mazepin.
The international press has also apparently been targeted by
a PR campaign which appears to be sponsored by the Makhlais. bne IntelliNews
was approached by the PR firm APCO Worldwide and offered “an opinion piece by
former German Justice Minister Sabine Leutheusser-Schnarrenberger about the
risks faced by Swiss and German businesses returning to Russia.”
Leutheusser-Schnarrenberger is a well-known opponent of Russian corruption and
personally attended the funeral of murdered opposition lead Boris Nemtsov.
To whet editor’s appetites the article mentions murdered
Russian lawyer Sergei Magnitsky, murdered Russian opposition leader Nemtsov and
arrested US fund manager Michael Calvey – all hot button news items.
“Every few weeks, we are given a new reminder of how
dangerous business in Russia can be,” Leutheusser-Schnarrenberger writes.
But the article itself makes no mention of any foreign
companies that have been victim of thuggery and choses as its sole example of
why foreign investors should be wary the ToAZ dispute with UralChem – an
entirely domestic dispute between two Russian companies that has nothing to do
with foreign investors whatsoever.
Leutheusser-Schnarrenberger goes on to say that, “In July
2019, a regional court in Samara ruled against the former leadership of ToAZ,
despite widespread evidence that the defendants were denied the right to a fair
trial as part of an effort to conduct a corporate raid by well-connected
business rivals,” before making a string of accusation against the courts, the
Investigative Committee amongst other things. None of these claims are substantiated,
nor is the “widespread evidence” alluded to identified or even obvious. The
claims are at best controversial and the ToAZ dispute and the corruption
convictions against the management are hardly a poster boy for the Kremlin
abuse of foreign investors interests in Russia.
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