Disruption of Criminal Empire of Makhlais Is at Hand

Disruption of Criminal Empire of Makhlais Is at Hand

Photo: http://tltgorod.ru

It has been a year since a district court in Tolyatti, a city in the middle reach of the Volga, passed a sentence on one of the most high-profile criminal cases in modern Russia. On July 5, 2019, the owners of TogliattiAzot, one of Russia’s largest chemical fertilizers producer, were convicted in absentia of committing a fraud. At present, Vladimir and Sergey Makhlai are hiding abroad.

They were found guilty of committing a large-scale fraud through underpricing the plant's products and organizing the subsequent secondary sales at market prices through affiliated companies.

The plant co-owners Vladimir and Sergey Makhlai, as well as their partners Andrew Zivi, the owner of the Swiss Ameropa AG company, Beat Ruprecht, the head of Nitrochem Distribution AG, a Swiss offshore company, and Eugeny Korolyov, the former CEO of TogliattiAzot, were sentenced in absentia to long prison terms. Additionally, the court ordered them to pay a fine and return the misappropriated 77 bln rubles ($1.06 bln) to the enterprise. All those convicted were put on the federal and international wanted lists.

Robbery of Century

The investigation found that in 2007, Vladimir Makhlai, TogliattiAzot’s President, and his son Sergey, the Vice-President of the plant, established an organized criminal group for the systematic embezzlement of the plant's products such as ammonia and urea, misusing their official positions. For this purpose, ruble and foreign currency accounts were opened for TogliattiAzot in Togliattikhimbank, 100% owned by Sergey Makhlai. It received proceeds from the sale of goods from Nitrochem Distribution AG, a Swiss offshore company headed by Beat Ruprecht and owned by Ameropa AG belonging to Andreas Zivi. Thus, some part of the profits remained at the disposal of the criminals and did not get to the account of TogliattiAzot. Thus, the owners of the plant stole about 85 bln rubles ($1.17 bln) belonging to the plant and its shareholders. For the period of 2008 through 2013, the Russian government’s coffers suffered a loss of taxes in the amount of 3.5 bln rubles ($48.23 mln.)

In the course of the judicial proceedings, the affiliation between the owners of the TogliattiAzot plant and the owners and executives of Nitrochem Distribution AG and Ameropa AG was fully established.

Although a year ago the passing of the sentence on members of this gang looked like a smashing victory over criminal activities common to the plant since the 1990s, today, it is clear that this was only the first step in the fight against the insidious and powerful organized crime syndicate. So far, 77 bln rubles have not been returned to TogliattiAzot. Apparently, the international criminals don't take orders from the Russian court. Moreover, even after the verdict citing fraud was passed, the plant continued siphoning money to some offshore areas. After the sentence, it became much more difficult to withdraw monies from the plant by selling products at knock-down prices. So, it found other ways out of the situation.

The contracts for freight charges became one of these new channels for withdrawal of profits from TogliattiAzot. Until December 2016, the plant had no expenses associated with maritime operations. It only delivered ammonia to the port of Odessa through a pipeline, and then the freight was handled by counterparties. Dmitry Mezheyedov, then deputy CEO, made a “work-improvement suggestion” for “reforming commercial activities” on behalf of his overseas bosses. As a result, the plant was obliged to finance foreign freight companies. Most interestingly, the volume of this financing is constantly increasing. However, TogliattiAzot can neither confirm the purposes of spending the money, nor refuse to pay foreign companies. So, in the last five years, the plant transfers about $60 mln a year to offshore operations.

The channel for withdrawal by means of fictitious construction contracts was another “invention” by the Makhlai father and son. The project was also delegated to Dmitry Mezheyedov. In 2014-2015, together with Viktor Kazachkov, another top executive of the plant, he designed a scheme for the implementation of the Tarsus project together with the Turkish businessmen owning the MSA Stroy company. This company has engaged in construction contracts worth billions of rubles for several years. They proceeded from a sophisticated scheme, with the prepayment amounting to 75% till 80% of the budgeted value of works, regular delays, the absence of work completion reports and post-completion documentation. There was no inspecting of industrial safety, projects or finished works. Technical and architectural supervision was absent in most cases.

Since 2016, construction works have been done by Interkon in the cooperation with MSA Stroy. The administrative and executive teams were the same. That is, TogliattiAzot, in fact, pays twice for the same works, which are done very carelessly or are not done at all. However, money regularly was transferred to the accounts of fake contractors, and then, expectedly, mostly to the Makhlais’ accounts in Switzerland. Therefore, it was decided to expand “cooperation” with the Turkish partners. Thus, the Tarsus project came into being. Its objective is to assist the upgrading of water conditioning and purification systems at the plant’s urea production facility on the basis of advanced technology from General Electric. In reality, the Turkish contractors did not provide this American technology. They owned only outdated Turkish one for household wastewater treatment rather than the chemical one that could not be applied at TogliattiAzot.

In addition, enormous sums of money are regularly withdrawn from the plant under the pretext of reconstruction of railway infrastructure. Several key projects of TogliattiAzot were carried out in this segment by PSK Remput, which belongs to a Cyprus offshore. In 2019 and 2020, it did 800 mln rubles (11.02 bln) worth of works at the plant. As it was in the case of construction contracts, the works performed by Remput were of low quality and marked by regular delays. Currently, the company is bankrupt and liquidated. However, it continues winning contests for large contracts with TogliattiAzot. And this is very predictable, as Dmitry Mezheyedov is on an intimate footing with the top executives of Remput since his work for Rosatom, the Russian state corporation that specializes in nuclear energy. That is why Mezheyedov is actually forcing TogliattiAzot to finance the company that is in the process of bankruptcy and liquidation and also is engaged a court case against the plant. Expectedly, he makes the plant turn down other companies that offer cheaper, better and faster services.

Corrupted Lifeline of Makhlai Family

The huge amount of illicit cash on the offshore accounts of Makhlais’ family has allowed them to scrupulously build a powerful corrupt network of trustees holding high positions in investigative, supervisory agencies, courts, and even the federal parliament.

Since the illegal seizure of TogliattiAzot, all Makhlais’ business activities have been associated with corruption. Then, the huge enterprise was privatized under the regulations for small businesses with assistance from regional officials, who then joined TogliattiAzot’s board of directors. Later on, the Makhlai father and son were suddenly defended by the State Duma deputies, senators, political scientists and economists who had no connection with the Samara region or the chemical industry.

During the legal proceedings, the Makhlais also managed to successfully cease criminal proceedings and avoid paying additional taxes on the profits that they had drained to the tax haven. The tax authorities have been trying to solve the issues with tax evasion and fraud at the plant since the beginning of the 2000s. In 2007, the court in Togliatti decided that all the evasion charges prior to 2005 had been brought on illegally. In 2008, the Samara Regional Arbitration Court declared that the claims, which tax officials made from 2002 through 2004, were null and void.

When the Federal Tax Service decided that the plant would have to pay taxes amounting to 320 mln rubles ($4.41 mln) for 2009, V.A. Cherpukhina, the arbiter of the Federal Arbitration Court of the Moscow District, annulled this decision. Very likely, TogliattiAzot forced her to do this. Subsequently, taxes were still collected from the enterprise, and arbiter Cherpukhina was dismissed from the post amid a resounding scandal.

When investigators tried to secure a petition for arresting Yevgeny Korolyov, then CEO of TogliattiAzot, the Nizhny Novgorod Regional Court, represented by Judge M.V. Yurin, refused to do it without reasonable grounds. This odd decision puzzled Yurin's colleagues. It was revoked later, but by that time Korolyov managed to flee abroad, where he lives to this day. Yurin was demoted. At present, he is in charge of minor administrative cases in some district court.

Extensive corruption-related acquaintances helped Vladimir and Sergey Makhlai not only to come off clear, but also to organize ordered criminal proceedings against their opponents. Three years ago, the Krasnoglinsky District Court in Samara passed a sentenced on the 73 year-old Yevgeny Sedykin, a minority shareholder, who had stayed under house arrest as of November 2016. Sedykin tried to change the management of the plant – an inexcusable transgression for the Mahlais. Sergei Makhlai personally authorized the operation to convict and put Sedykin in prison for a real term. This important task was entrusted to lawyer Denis Simachev. At the first stage, he managed to bribe a notary public who had previously authenticated documents for Sedykin. The notary revoked her signature from the papers that immediately made them “fake.” Then he reached an agreement with the local heads of the Investigative Committee on initiating a criminal case and with Judge Laisyan Giniyatullina on the guilty verdict and the real term for Sedykin. Only the sluggishness of Simachev, who did not have time to hand over the entire amount of money to Judge Giniyatullina, spared Sedykin from imprisonment. He was found guilty, but got away with a suspended sentence.

For a long time, corruption in the local regulatory authorities enabled the TogliattiAzot’s bosses to cover up the most serious issues with industrial safety at the enterprise. The employees of the plant themselves prepared lists of minor violations for the federal inspectors of the Middle Volga Department of the Federal Service for Ecological, Technological and Nuclear Supervision (Rostechnadzor.) The plant paid a minuscule fine, after which the inspection was considered to be successfully completed.

In the autumn of 2019, in response to the appeals by concerned Tolyatti residents, the headquarters of RostЕлhnadzor took an interest in the situation. The watchdog agency revealed several hundred major violations related to industrial safety. The results of the inspection were submitted to the court. At the end of last year, it delivered a judgment to suspend hazardous production at TogliattiAzot due to the dangerous state of the plant infrastructure. However, TogliattiAzot’s owners made every effort to shirk compliance with the court's ruling, up to the deception of bailiffs. As a result, the dangerous production process was not stopped.

This led to tragic consequences. In March and April 2020, three accidents occurred at the plant, resulting in the death of four workers.

A new inspection by Rostekhnadzor was held in May 2020. The agency revealed more than a hundred new violations. Currently, the court is considering the dismissal of CEO Dmitry Mezheyedov.

Last Stronghold of Wild 1990s

Law enforcement agencies have clearly understood that the Makhlais’ gang can be defeated only by depriving it of its key members who ensure operations of the corrupted network.

The first step was made on 31 May 2019 when Alexander Popov, the head of Togliattikhimbank, was detained at the Vnukovo airport while trying to leave Russia. The point is that Popov is not just a banker and Togliattikhimbank is not just a bank. As directed by the Makhlais, Popov set up a real control centre for an international network of offshore companies. It ensured withdrawing, laundering and cashing in of money from TogliattiAzot, which was subsequently used for corruption-related purposes, among other things.

Since then, a number of charges have been brought on against Alexander Popov. There were related to committing heinous and aggravated crimes such as large-scale fraud (Part 4 of Article 159 of the Criminal Code), gross non-payment of taxes (Part 2 of Article 199 of the Criminal Code), and the setting up of an organized crime network and participation in it (Part 3 of Article 210 of the Criminal Code).

During investigating of the case of crime network, investigative officers established that five years ago, Popov was involved in an attempt to bribe the judges of the Supreme Court of the Russian Federation in the amount of $1.2 mln. On January 24, 2020, a new criminal case was initiated against Sergei Makhlai and Alexander Popov under a corruption-related clause. The investigation believes that in the interests of Sergei Makhlai and by his direct order, Popov tried to solve the issue with the additional accrual of more than 161 mln rubles ($2.21 mln) in unpaid taxes to TogliattiAzot for 2010. However, it was impossible to bribe the judges of the Supreme Court for reasons beyond the control of corrupted officials.

Before that, Popov “helped” Makhlais’ companies in underpaying taxes by a total of 2.5 bln rubles ($34,450) over five years. Additionally, in 2009-2010, Popov together with his accomplices fraudulently took possession of a land plot owned by TogliattiAzot and registered it as an asset of Tomet, which is under control of offshore companies. The land plot and methanol production facilities located on it are estimated at 228 mln rubles ($3.14 mln) as a minimum. From 2005 through 2009, in much the same way, they took out the ammonia unit owned by TogliattiAzot worth at least 2 bln rubles ($27.56 mln.) In 2008, they evaded tax payments to the budget in the total amount of at least 320 mln rubles ($4.4 mln) payable by Rodnichok and Kontaz. Notably, Kontaz was founded by Raisa Golovanova, Vladimir Makhlai’s sister of while K.V.Balashova is its CEO. Rodnichok was established by Valentina Semyonova, a close acquaintance of Makhlais. Mizgirev A.V. is its CEO. In the same year, both companies sold their shares of the plant at a nominal price of 1 ruble per share to Borgat Investments Limited, the Cyprus offshore.

Rodnichok received 1.7 mln ($23,426) for the stock of shares, the market value of which is estimated at 1.15 bln rubles ($15,847.) Kontaz got 861,408 rubles ($11,870.20) instead of 576.8 mln rubles ($7.94 mln), respectively. All these moments became the subject of criminal proceedings.

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