How Money is Withdrawn from Togliattiazot

How Money is Withdrawn from Togliattiazot

Photo: https://zen.yandex.ru/

Making products that are always in demand all over the world – ammonia and urea, Togliattiazot is one of the largest enterprises in the Samara region. The situation in which the plant found itself looks even more puzzling – its name is more and more often mentioned either in connection with criminal chronicle or with emergency incidents.

Part 1. Charter: where hundreds of millions of US dollars float away

The enterprise that used to be one of the most advanced companies of the domestic chemical industry does not have enough money not only to maintain the equipment in an operable and safe condition, but even to buy raw materials. Why? We will try to answer this question with a series of journalistic investigations about how, where and through which channels funds from Togliattiazot are transferred to offshores. Today we publish the first part of it, in which we will tell how at least USD 60 million a year is withdrawn from Togliattiazot through contracts for the charter and operation of ships.

Former Togliattiazot "red director" Vladimir Makhlai managed to privatize a huge plant under a procedure designed for small firms in the early 90's. Since then, the main objective for Makhlai, and then his sons and partners, was to bring Togliattiazot profit offshore, since Makhlai did not want to share it with other shareholders, considering the plant its family estate. Twenty years ago, together with his Swiss partners, he developed a transfer pricing scheme according to which the plant’s products were sold at a very low price to the Swiss offshore company Nitrochem Distribution AG owned by Makhlai’s Swiss friends, who later re-sold them in the global market at a fair price. The accomplices shared the unaccounted profit among themselves; they never returned it to the plant and never paid taxes thereon. Thus, in 2008-2011 alone, 77 billion rubles were stolen from the plant. However, in 2012, the Investigative Committee opened a criminal case on fraud against participants in the criminal scheme. In 2019, it ended with conviction in absentia for them.

After the start of the criminal investigation, and especially when the sentence was pronounced, it became much more difficult to withdraw money in the usual way, but the Makhlais did not intend to give up and stop the theft. They created many alternative channels, through which the plant’s money continues flowing out to offshores bypassing Togliattiazot, its workers, and the Russian treasury.

One of these channels was ship chartering and commercial exploitation services. Until December 1, 2016, Togliattiazot did not have any expenses associated with the operation of ships. The company was only required to deliver ammonia to the port of Odessa, i.e., through the Tolyatti – Odessa ammonia pipeline. All issues of ships chartering, freight logistics, loading and unloading, pilotage services, laying routes, ship downtime, cargo insurance were the responsibility of the aforementioned Nitrochem Distribution AG, a member of Ameropa AG holding owned by a Swiss citizen Andreas Zivy.

During the implementation of the so-called “transformation program”, the then Deputy General Director of Togliattiazot Dmitry Mezheedov (later he would become the General Director) decided to develop a block for reforming commercial activities with the help of a well-known consulting company Ernst & Young. For this purpose, in 2014, I.V. Grishin was transferred from Ernst & Young to the position of Deputy General Director for Commercial Issues at Togliattiazot Corporation; Nikolay Mosaltsev and Maxim Obukhov joined him. Sofia Dyukova, who was well acquainted with Sergey Makhlai, was invited from one of the Togliatti enterprises and participated several times in negotiations with him and the Nitrochem management – Andreas Zivy and Beat Ruprecht, as well as Ameropa AG CFO Michael Spiritus, son of the CIA officer Alan Spiritus.

This team, together with Ernst & Young employees, Norton Rose law firm, and Michael Spiritus, developed a draft contract for the provision of management services for the commercial operation of ships, which was personally approved by Sergey Makhlai. As a result, on December 1, 2016, the contract was concluded. The then general director Vyacheslav Suslov signed it for Togliattiazot.

Under the contract, all rights to provide charter services were transferred to Prime Gas Management Inc., a company registered in the Marshall Islands with a branch in Athens. Under this contract, Prime Gas received the exclusive right to perform charter transportation – peculiarly – without any tenders. The party under the contract was proposed by Sergey Makhlai, all agreements were carried out by I.V. Grishin, and the choice of a counterparty was legalized by Dmitry Mezheedov as a controller.

Prime Gas Management Inc. Manager was to perform all operations (selection of a fuel supplier, fuel quality requirements, price per ton, provision ports, etc.). This company was also to calculate all costs of the vessels operation (information on voyages, on calls to ports and channels, inspection costs in the portal and terminals, maintenance and repairs), insurance services for ships and cargoes, judicial procedures, etc.

Togliattiazot used to transfer to the Manager’s account USD 400,000 for each vessel as the working capital to ensure its operation, i.e., according to the terms of the contract, for five vessels the starting advance amount amounted to at least USD 2 million.

Based on the estimates, the requirements for working capital were reviewed monthly and quarterly. That is, the amount of the starting working capital of USD 2 million was not fixed, but in fact it increased monthly.

The indicated amount was not really a compensation for the subsequent financial costs of the Vessel Commercial Operations Manager but represented an ordinary entry fee in order to ensure the minimum balance of working capital in separate accounts for each vessel for Prime Gas.

The size of working capital was periodically adjusted at the request of Prime Gas but Togliattiazot did not have the right to refuse to provide consent to increase working capital. Togliattiazot would receive the reports only 45 days after the end of the quarter. Additionally, the Manager would receive at least USD 15,000 per month in the form of a separate remuneration. In addition, the Manager would receive compensation for salaries, insurance premiums and clerical expenses.

The contract was made for five years and was governed by English law. To service the contract, Togliattiazot provided the details of the Volga Branch of Promsvyazbank in Nizhny Novgorod.

Under an additional agreement No. 1 dated December 30, 2018 between Togliattiazot and Prime Gas, the company was also required to pay an additional forecasted advance of USD 250,000 for each vessel. That is, for five vessels, this amounted to USD 1.25 million.

Under an additional agreement to the time charter with the company and Northwind Transenergy AS (Norway), Togliattiazot as a charterer paid a monthly charter fee of USD 797,900 for the first period (from February 2, 2017 to January 31, 2018), i.e., for the first year the cost of charter was 9,574,800 per vessel. Accordingly, for five vessels, the annual amount was USD 47,874,000.

Starting February 1, 2018, Togliattiazot, as a charterer, was paying the monthly charter fee of no less than USD 909,000, i.e. 10,908,000 per ship per year and USD 54,540,000 for five ships. In addition, Togliattiazot agreed with subsequent adjustment of the cost of freight without any questions.

After the dismissal of I.V. Grishin, the contract was supervised by Togliattiazot Deputy General Director for Finance N.V. Neplyuev.

Currently, the contract is supervised by the Director General Dmitry Mezheedov together with his deputy V.S. Pustynnikov. Since 2018, its fulfillment has been directly controlled by an employee of Togliattiazot Corporation Artem Kuzin, who used to work as a logistician in Turkey.

According to estimates of G.E. Sudnikova, the former commercial director of Togliattiazot, the costs of the enterprise to pay charter fees increased tenfold due to the lack of information on the ships movement monitoring. Previously, buyers of Togliattiazot Nitrochem products paid only for a specific voyage, that is, the delivery of a certain amount of ammonia. However, from December 1, 2016 (the date of the contract), Togliattiazot undertook to pay for all costs of the vessels maintenance, regardless of the period of operation, regardless of the amount of load, time of operation, rotation and composition of crews. In other words, Togliattiazot pays 100% of the costs of foreign enterprises maintaining, even without access to reports on their activities. Togliattiazot can control neither the loading, nor the operation, no anything else.

In the new markets of the Mediterranean and the Black Seas (Turkey, Tunisia, Morocco, Bulgaria, Egypt) large ships are not allowed to enter the ports. Togliattiazot sends at least 20 thousand tons of ammonia to ports, whereas a port can only accept 5 or 10 thousand tons. Thus, the ship is only partially unloaded, which is not logistically efficient. At the same time, Togliattiazot incurs all expenses for the additional delivery of these batches of 5-10 thousand tons. When NitroChem was engaged in chartering, it never delivered batches of less than 20 or 40 thousand tons of ammonia.

Togliattiazot also has to pay regularly all invoices issued by Prime Gas Management Inc. and Northwind Transenergy AS. The plant has no real control over the utilization of funds or their volumes. Only the Director General Mezheedov manages all related issues. He makes sole decisions on payments. No other department of the plant – neither the economic security service, nor the export department, nor the price analysis department – have the right to monitor the execution of charter contracts.

Former commercial director of Togliattiazot G.E. Sudnikova, who previously contacted Nitrochem and Ameropa, believes that there was no reason for the plant to change the conditions for pricing, tariffs, and terms. I.V. Grishin provided no justification for this. He simply removed the employees of the export department who were in charge of Nitrochem contracts fulfillment from work.

As a result, Togliattiazot does not have information about the ships operation during the calendar month, voyages, or ports of call. Perhaps the ships are used to transport goods of some other companies. Information about operations of Prime Gas Management Inc. and Northwind Transenergy AS of Norway is confidential and not subject to audit, analysis or discussion. The activities of both of these companies are personally supervised by Michael Spiritus, the son of CIA officer Alan Spiritus, who we have already mentioned.

After creation of a new withdrawal scheme in 2017, I.V. Grishin quit Togliattiazot receiving a large cash allowance. He returned to Ernst & Young and currently works there. Mosaltsev, Obukhov, Dyukova and other members of the new team were also dismissed. Thus, as the authors of the scheme believed, they would exclude the possibility of any information leakage about it.

Yet, they miscalculated. As part of our investigation, this information has nevertheless been published. Accounting for all payments for the so-called charter services, about 60 million dollars are illegally withdrawn from Togliattiazot every year. Given the period of the contract – from December 2016 to December 2021, the amount of funds withdrawn may be USD 300 million.

According to available information, the Investigative Committee of Russia, the Federal Security Service, and the Federal Tax Service have already noticed the illegal schemes of cash withdrawal from Togliattiazot through charter agreements. It is possible that in the near future, new criminal cases will be opened in connection with the information that has been discovered. In this case, not only the beneficiaries of illegal schemes (Sergey and Vladimir Makhlais) but also performers (such as Dmitry Mezheedov), as well as their accomplices (Grishin, Mosaltsev, Obukhov, etc.) will be prosecuted. We can only hope that based on the results of these schemes investigation, money illegally withdrawn from the plant will be returned, and the perpetrators will receive the deserved punishment.

In the following articles of this series, we will continue to describe schemes and channels for profit withdrawing from Togliattiazot.

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