How the construction of the Skolkovo residential complex led to the imprisonment of former top executives of Absolut Group. Perhaps, even the criminals themselves will fully understand the scheme of unlawful enrichment implemented by them and acknowledged by the court as a large-scale fraud (Part 4 Article 159 of the Criminal Code of the Russian Federation) only after being put in jail.
Perhaps, even the criminals themselves will fully understand their scheme of unlawful enrichment they implemented, recognized by the court as grand fraud (Part 4 Article 159 of the Criminal Code of the Russian Federation) only after being put in jail. Absolut Group, belonging to Alexander Svetakov, initiated criminal proceedings against the developers of the residential complex in Zarechye in Odintsovo district in the Moscow Region. The participants of the development project, who are already convicted, do not admit their guilt. Or maybe they do not realize it?
Wek.ru made an attempt to solve this “tangle of developers,” where shady schemes seemed to have been designed by different parties which led to a huge mess. They speculated for a rise, but got real jail terms.
Time to think
Chances are the Skolkovo complex will become a leader of the Russian housing market by the number of imprisoned development companies executives. Tverskoy District Court of Moscow sentenced Dmitry Karyanov, former CEO of Russian Development Company, to 3 years in prison, Mikhail Ogloblin, former CEO and founder of Rast, to 4.5 years in prison and Konstantin Remizov, former CEO of National Development Company, to 8 years in prison.
Absolut Group’s management decided that company money had been stolen in mutual settlements between Ogloblin, Karyanov and Remizov. Initially, the victims said they had lost over 500 mln rubles ($6.5 mln) but later reduced the claims to 292 mln rubles ($3.8 mln). According to Absolut Group lawyer Sergei Panchenko, “the charge is fully substantiated by the expert examinations and other evidence collected by the investigators, including the testimony of the defendants who admitted illegal acts against Absolut Group.” The embezzlement scheme was focused on overstated construction costs and transfers of the resulting difference abroad using the accounts of offshore companies, said Panchenko.
Convict Konstantin Remizov said in his testimony that “the investigator and the expert examinations found that Absolut Group had signed no contracts with the legal entities involved in the construction. It did not provide any financial assistance, was not a shareholder of the firms involved in the construction, and did not receive income from the sale of apartments.”
“The amount of 201 million rubles ($2.6) worth of dividends which the investigator believes has been stolen, is a sum of various figures. Experts entered these figures in the given formulas at the investigator’s request,” said Boris Fedosimov, a lawyer representing the interests of Remizov.
It is very unlikely that the investigator has recognized one of the parties of this conflict as the injured party without any grounds at all! What’s wrong?
What's the hitch?
This story started in 2011, when Absolut Group decided to put up two apartment buildings and a kindergarten in the Odintsovo district on the lands it owned through Zarechye n.a. S.Kushnarev. The Skolkovo Residence residential complex was a premium class project that combined the advantages of urban and suburban housing. Absolute Group chose the Rast company as the developer. It was owned by Mikhail Ogloblin, perhaps thanks to his mother Marina Ogloblina who was an advisor to the Moscow region governor.
On October 10, 2011, when the building permit for the first stage of the project was issued, Marina Ogloblina was still working for Moscow government civil engineering bodies. She was appointed Moscow Region Minister of Construction Sector and Housing and Utility Services in March 2013. This is important as Absolut Group controlled by its Chairman of the Board Alexander Svetakov was one of the largest landowners of the Moscow Region with 20,000 to 30,000 hectare land bank, according to various estimates. Its largest ongoing projects include Peredelkino Blizhne and Pervy Moskovsky in New Moscow.
As they say, the world is a small place, and the Moscow Region is even smaller. One way or another, Marina Ogloblina’s son Mikhail linked to Absolute Group, was chosen to implement the project of Zarechye n.a. S. Kushnarev. This is indirectly confirmed by a Forbes story about Absolut Group: “It was not safe to work on the land market near Moscow at that time. For example, the Skolkovo Residences business class neighborhood is being built on the land of Odintsovo-based Zarechye state farm named after Sergei Kushnarev. Kushnarev, its former head, was killed in the 1990s in the entranceway to the apartment house where he lived. The head of the Moskovsky state farm, on whose territory the Grad Moskovsky project is being built, had bodyguards for many years.”
However, it turned out that Ogloblin could not finance the construction and brought in Karianov and Remizov, former top managers of RDK and NDC that spun off Absolut Group.
One might assume that Karyanov and Remizov decided to try their hand at an independent business project. Probably, they decided to take advantage of some of Absolut Group’s secrets, such as knowing the real cost of a square meter of housing. The former boss might have decided to punish them for that.
According to the convicted developers, their arrangements were to provide a loan to Ogloblin until the construction was completed. A settlement in the amount of 400 million rubles ($ 5.2 mln) was made upon completion of construction. It seemed that the matter was settled, and that Absolut had nothing to do with it.
Contrary to the above-mentioned statement by Remizov, Absolut Group did take part in the construction process. Thus, the Commissioning Permit dated October 15, 2015 names National Development Company (taxpayer identification number 5032124664) as the developer in which Absolute Group had a 50% stake. The technical customer was Mikhail Ogloblin’s Kvatro and the general contractor was Stroyremstil with Mikhail Ogloblin as its CEO and later on bankruptcy manager during liquidation.
As the construction site indirectly belongs to Absolut Group, it means that Ogloblin built the housing estate on Absolut’s land plot, using the money of an Absolut Group company, which he shared with himself.
Below the market
Managers were convicted for fraudulent transactions with houses of the first stage of the Skolkovo Residence residential complex. The commissioning of these houses took place in 2016 when Ogloblin returned the attracted funds to Karyanov and Remizov. What was so criminal about it?
Unfortunately, the courts did not publish their resolutions on official websites. Apparently, Absolut Group’s representatives believe that construction costs were inflated; consequently, less money was raised than reported. This might mean that no money was transferred under the loan, so Ogloblin, Karyanov, and Remizov covered their fictitious loan with real money by returning 400 million rubles, i.e., they used the “interest” due to Absolut? Perhaps, the top managers abused their knowledge and understanding of the difference between a financial statement and a fact.
Does the construction really cost Absolute 18,000 rubles ($234.7) per square meter? According to the Unified Information System for Housing Construction, the price of one square meter of housing in the Moscow region is 45,900 rubles ($598.49.) However, builders, when selling housing to the government under various social programs, complain about the low purchase prices (supported by official statistics) that do not cover their expenses.
Let’s get back to the elements of crime. How come that at almost the same time, in October 2016, Svetakov personally lent Karyanov 85 million rubles ($1.1 mln), and later had to file a debt recovery action to get the money back? How come such a sum of money was given to a person who is allegedly involved in the withdrawal of funds from the project? Eighty five million rubles is not pocket money. According to Karyanov, the funds were never transferred. Was it perfect vengeance?
The owner of the land plot usually gets no more than 15% of the cost of implementing the project. As a rule, the calculation is made in square meters. As the project was successfully implemented, it is unlikely that Ogloblin and his associates would not have paid these 15%.
The accusation that the cost of one square meter of housing increased from 18,000 rubles to 36,000 is perplexing. “According to experts’ conclusions, a square meter of housing in Skolkovo was to cost the developer 18,000 rubles at most but in actual fact it cost 36,000 rubles ($469.4.) The investigator considered that the cost of construction was overstated by half, while ignoring the recommendations of the Ministry of Construction for this area, which said that the price per square meter was 42,000 rubles ($547.64).
On the one hand, builders complain about a low profit margin. On the other hand, experts talk about the cost of a square meter of housing at 18,000 rubles. Now, apartments in the Skokovo Residence residential complex cost approximately from 220,000 rubles ($2,868.58) per 1 sq.m. The order of the Ministry of Construction and Housing and Communal Services of the Russian Federation of December 22, 2016. N 1003/pr Moscow ‘On the standard cost of one square meter of common area of residential premises in the Russian Federation for the first half of 2017’ determined the cost of 1 square meter of housing in the Moscow Region at 54,479 rubles ($710.35), and not 42,000 ... Wonders never cease.
Is it a tried-out scheme?
We noticed that, according to Vedomosti, Absolute Group, providing land for the construction of the Lyubertsy-15 residential complex with a total area of about 210,000 square meters to the Samolet Development group of companies, bought all 8 buildings through affiliated Everest Asset Management in 2014. Obviously, it was done to make money on sales.
“Other projects of Samolet Development will be implemented according to the same scheme,” writes Vedomosti. It is 300,000 sq. m in the Lyubertsy-16 residential complex and 106,000 sq. m in the Vnukovo-16 residential complex. According to the plan, the latter will be built near Likovo Village in New Moscow. The terms are simple. The developer gets a plot for construction, with the condition of obtaining a fixed profit percentage at the stage of construction completion, and Absolut is responsible for the project promotion and has an opportunity to increase the final project price against the standard expectations.
Let's say, Absolut understands that in most cases, it is possible to pay the suppliers of building materials and contractors in square meters already at market price, thus saving up to 50% of the budget, while the purchase reports may include full amounts. Official reports show the same prices which is logical. Who cares how one pay: it's the figures that matter. Maybe that explains why the price doubled to 36,000 rubles? Could these nuances be the essence of the conflict between the holding, represented by Alexander Svetakov and Andrei Kosolapov, and contractos Ogloblin, Karyanov, and Remizov? The latter tried to calculate expensed based on market prices per square meter, while Absolut may have recalculated, wherever possible, using cost price.
Version No. 2
One might assume that Absolut had a similar plan for the first stage of the Skolkovo residence complex. Such things are usually discussed from the get go. At the same time, let us assume that Remizov and Karianov advised Ogloblin to refuse to transfer nearly finished housing to Absolut in circumvention of possible accords which were not backed up by contracts. Then pieces of the jigsaw began to fit into place. The profit lost by Absolut could have reached hundreds of millions of rubles, for which someone should have been punished.
The above-mentioned version somewhat contradicts Absolut Group. However, there is another, more straightforward one, which is also worth looking at. We should emphasize that, as of today, the court rulings where the businessmen were punished have not been published. So, we had to use information from public sources and ask people from the construction sector to make an educated guess.
The second version which is even more likely is the following. Having received a loan from Remizov and Karyanov, allegedly for construction, Ogloblin transferred most of this money to a tax haven by paying contractors who only existed on paper. Later, he needed the assistance of National Development Company, which sold some apartments to repay the loan. In such a case, to legitimize it all would be convenient by inflating the price of construction. So, it turns out that an experienced manager designed a scheme but the developer decided to get back what he rightfully owned at any cost.
As a result, there are no positive characters in this story. Complicated schemes that cover up beneficiaries, settlements through tax haven companies, possible negotiations at the level of tough intermediaries, sometimes ignoring agreements for the sake of profit, allow sticky-fingered people to hold key positions in the industry. The actions of Absolut Group look like an attempt to teach a lesson to the former favorites who suddenly decided to start living independently and, moreover, to use their accumulated experience and the knowledge invested in them. Perhaps the company's founder, being well-aware of his temper, chose the name Absolut on purpose, meaning that the company would not stop at half measures.