Kostyukov's Empire Shows Signs of Strain

Kostyukov's Empire Shows Signs of Strain

Photo: https://og.ru/

Sergei Pronichev, a notorious ex-candidate for Novosibirsk mayor and enforcer for the criminal business of the RT-Domcom founder, made a plea deal with the investigators.

Sergei Pronichev, a notorious businessman and ex-candidate for Novosibirsk mayor arrested by FSB officers has made a deal with the investigators. He was detained in the middle of April. Pronichev will have to spend two months behind bars for now. He and his accomplice Nikolai Salnikov, a regional television journalist, are charged with actions qualified under clauses 159 and 163 of the Criminal Code (swindling and extortion).

They are accused of blackmail and extortion of money from participants in the ‘Success Story of the Success Gang: From Racketeers to Deputies’ TV show which was uploaded twice to Salnikov's YouTube channel. However, it is just a side business of Pronichev, the failed mayor nominated by the Party of Growth. It is probably Mr. Pronichev's first setback publicized by law enforcement agencies. The stories related to his work for the “caste of house eaters”, the criminal duo of RT-DomCom founder Alexander Kostyukov and his partner Yevgeny Kruglov might be much more interesting. After all, it was Pronichev who provided the leverage in the Novosibirsk region to cover up dozens of companies involved in the embezzlement of budget funds in the local housing and utilities sector. He also occasionally used the gangland methods practiced in the “wild” 1990s. According to available data, he was responsible for promoting Kostyukov's business in the Novosibirsk Region and Krasnoyarsk Territory and relations with the local governments.

We have already written about the “work” of the “caste of house eaters” in other Russian cities (Series 3, Series 2, Series 1). Now it is Novosibirsk’s turn.

Kostyukov's Shell Games

The scheme which the “caste of house eaters” uses in the Novosibirsk region and elsewhere is simple. Let's recall it and provide visual examples.

This pyramid scheme was launched in the Russian Federation more than five years ago. It was designed to steal the money of homeowners and resource supplying organizations while avoiding the payment of taxes and fees to the budgets of various levels. Its main link is RT-DomCom and the transformed federal holding MKS. The latter is part of the RU-COM group whose beneficiary is the former Open Government minister Mikhail Abyzov, currently under investigation. Cypriot Sibeco Asset Management Limited was the sole founder of the company. This name was mentioned in connection with the RU-COM holding’s transactions in 2009-2010 to sell Siberian power supply companies to the notorious Energostream.

The entire scheme is designed and controlled by one man, Alexander Kostyukov, 51, a native of Tver. His closest and most regular associate is Yevgeny Kruglov. None of the founders and CEOs of dozens of companies embedded into the Domkom pyramid scheme (there are 53 of them in the regions!) makes decisions independently. All financial flows and decisions are personally managed by the above mentioned duo.

Let's be honest, Kostyukov achieved a lot in four years. He began to actively build his next pyramid empire in 2017. To this end he used his old connections and the tested methods to withdraw funds from regions. However, at the end of 2017 – beginning of 2018, he made all efforts to protect himself from possible questions about his property. He pretended to be a poor man acting very convincingly. Apparently he got rid of all his houses, land plots and cars. According to the data available to the editorial office, Mr. Kostyukov transferred all his real estate on April 20, 2018. The question is why he got rid of everything so quickly. This is not the way honest businessmen behave. This is the behavior of those whose activities sooner or later might lead to serious claims from investors, partners or creditors. He cannot pay the damages and has no property that could be confiscated or taken as collateral. Of course, this appearance is for an outside observer. In fact, Kostyukov receives substantial funds into his personal pocket from the operating pyramid scheme but he does it inconspicuously and keeps the money hidden to leave the country at the right moment and use the “savings.”

“The Caste of House Eaters”

Alexander Kostyukov, a well-known swindler in the sector of public utilities, withdrew billions of rubles from the housing and utilities system of the Samara region.

“The Caste of House Eaters” conducts its business in big cities across 11 Russian regions, not counting individual projects in settlements such as Zhukovsky near Moscow. They are Penza, Nizhny Novgorod, Chelyabinsk, Volgograd, Kemerovo, Naberezhnye Chelny, Sergiev Posad, Samara, Tyumen, Krasnoyarsk and, of course, Novosibirsk. On the average, the interests of the criminal duo are represented by 1-6 companies. Novosibirsk has the largest number of Kostyukov-controlled “service providers.” Ten such companies control about 45 million sq.m. of housing with annual turnover at 16 billion rubles ($217.76 mln).

This is how Kostyukov’s scheme work. A new management company appears on the market of housing and public utilities (or an existing one is bought.) It begins to collect utility payments from tenants. Then the money is transferred to the accounts of controlled contractors. All contractors use the simplified system of taxation and do not pay VAT to the budget. These contractors are registered to nominal owners while people who do not make independent decisions are appointed as directors. All companies are controlled by Kostyukov and Kruglov and these activities are called artificial business splitting which is punished under Article 199 of the Criminal Code.

The annual damage to the budget caused by this business is estimated at 3 billion rubles ($40.8 mln). Kostyukov and Kruglov are too greedy to state profits on the balance sheet of contractors and pay them dividends, or taxes to the budget. The funds received from a management company are used to buy new management companies, pay Kruglov’s and Kostyukov’s bills or transfer loans to the companies where angry creditors demand repayment. Obviously, these loans will never be repaid. To be repaid, the loan must be given to the firms that get real profit, but as we have seen, Kostyukov and Kruglov’s pyramid scheme does not operate according to these rules.

In the meantime, puppet contractors are taking numerous loans, allegedly for operating activities. They never pay them back. In a year or two, they go through the procedure of fictitious bankruptcy. This money is taken not from the profits, but from the turnover. A part of money is used for the purchase of new companies in other regions and fraudulent projects aimed at increasing the working capital. Probably, large amounts of funds were withdrawn to the accounts of foreign companies controlled by Kostyukov as he might need a “safety cushion” at any time if the situation suddenly develops as it did with his former boss Abyzov. Seeing how thoroughly Kostyukov organizes his dirty business, actually stealing money from entire regions, we dare to assume that he is likely to work on escape routes to the West.

Speaking of damage to the regions, the annual loss to the budget from unpaid VAT is about 3 billion rubles ($40.83 mln), according to expert estimates. Residents do not get services for house repairs and maintenance. The suppliers of resources do not receive money for water, heat, etc. This very scheme will be fully applied in Krasnoyarsk, another Siberian city which we will write about in a separate article.

To support their “business” in the regions the Kostyukov-Kruglov tandem uses a wide range of raider methods, from setting up legal entities in the housing and public utilities sector, with names similar to bona fide companies, specialized public pseudo-unions, PR-campaigns, purchase of lobbyists, to direct threats, blackmailing, setting cars on fire etc. We will see all these links of Kostyukov’s pyramid scheme in Novosibirsk.

Novosibirsk under attack

The housing and utilities sector of Novosibirsk was literally snowed under complaints about a sharp decline in the quality of utility services and obvious redivision of the market by “Moscow-based” companies in the spring of 2017. As a result, 11 management companies of the city, together with the regional public control center appealed to the presidential envoy to the Siberian Federal District, the governor, as well as police and the Federal Security Service to prevent the hostile takeovers of their business.

This story began in early 2016, when the Novosibirsk housing and utilities market was shaken by aggressive attempts to redistribute the spheres of influence associated with the expansion of Moscow-based holding company My Utility Standard (MKS.) The Zhkh Control Novosibirsk public control centre began to receive alarming signals about unacceptable and almost criminal methods of competition between management companies. According to Sergey Averyaskin, head of Zhkh Control Novosibirsk, the complaints had increased exponentially by January 2017.

Back then the MKS was buying up small participants in the local housing and utilities market. Representatives of the Moscow-based holding harassed leaders among management companies aiming to corner the market. Notably, it was Sergei Pronichev who negotiated on behalf of Kostyukov's group of companies. By a strange coincidence, Mr. Pronichev also became the owner of several management companies such as REU №2 Section 75, REU №2 Section 95 and REU №2 Section 94 in December 2016. According to the media, he also worked as an advisor to the CEO for the development of the Siberian region, as reported on the website of Kostyukov's company DomCom Invest which is affiliated with the MKS.

As Sergei Averyaskin told RBC reporters at the time, there were several schemes to take over companies in Novosibirsk. The first was the so-called financial merry-go-round, which made it possible to put liquid houses under the control of a duplicate of the former manager, controlled by Moscow beneficiaries. The second scheme was a step-by-step pressure on business. It included an algorithm enabling Moscow firms to speed up decisions on selling businesses. Force and propaganda are used at various stages of this scheme, allowing to initiate the replacement of the management company to allegedly meet the wish of the tenants. The Housing Inspectorate got hundreds of complaints, and tens and hundreds of inspections were conducted. Complaints also came from individuals representing the Association of Management Companies in the Sector of Housing and Utility Services, whose founders included companies controlled by Sergei Pronichev and former MKS employees Lisov and Elena Volkova (there will be more information about her; Volkova is her married name).

Sergey Pronichev forced the Novosibirsk managing companies owners to sell their business in the following manner. According to Alexander Sinitsa, head of the Domservice managment company, he initially offered to sell him the company for nothing. Sinitsa refused, and very soon found himself to be a suspect in several criminal cases. However, they were quickly closed for apparent lack of the body of the crime.

A few days later, the car of a stubborn Sinitsa, who did not want to submit to the “Moscow” leadership, was set on fire. His deputy’s car was torched a little later and then his office was set on fire. Pronichev's involvement in this act of intimidation was confirmed by Grigory Pak, former executive director of the Perspektiva management company subordinate to Kostyukov. In the Utilities Wars of Novosibirsk TV series produced by NTVN24 television company, he told about a meeting attended by Pronichev and a man he did not know.

“This is Volodya. He will deal with the Sinitsa issue. Your job is to share his (Sinitsa's) data, and after he completes his task, you will pay him,” Pak said citing Pronichev. “There is no need for violence. To my thinking, it will be enough to burn a car.” Then he (Pronitchev) thought about this and said that there was no need to burn Sinitsa’s car. He suggested burning Sinitsa’s deputy’s car instead, he said.

To support Kostyukov's raiding plans, two pseudo-public organizations, Zhkh Control Association and Zhkh Control were set up. The name of the latter was similar to the officially operating regional center Zhkh Control Novosibirsk headed by Sergey Averyaskin (here is the official site). The Association began its attacks a little later as it sent numerous complaints to the State Housing and Utilities Commission against several management companies. The Chairman of the Board of Directors of the Association was... Sergei Pronichev, while the CEO was the previously mentioned Elena Volkova.

It was they who again put pressure on local utility companies. Suddenly, hundreds of complaints were sent to the State Housing Inspectorate about the allegedly bad performance of management companies. Thousands of leaflets with relevant content were posted in the city districts. Overnight, management companies became the object of keen interest of the inspectors. According to Leonid Bakaleinik, assistant director of Leninsky District Housing and Utilities Service-1, various commissions inspected his management company 40(!) times in three months.

The inspections were initiated by Pronichev. He openly told it to Irina Belova, head of the Home Hearth management company, who had refused to knuckle under Kostyukov, too.

“Well, then we will crush you with inspections of the State Housing Inspectorate,” Pronichev told her. He kept his word. One of the houses managed by Belova was checked 21 times in the next six months.

The Association, established for Kostyukov's needs, pressured the local utilities quite openly, trying to get concessions from them without any legal grounds.

“The orders are issued by the Association. When I asked director about whether these orders were legal, I got nothing but hysterics over the phone,” said Marat Grokhotov, a representative of the Sovetskaya management company.

“We received the first order from the Association of Management Companies in the housing and utilities sector and wondered how a legal entity can give an order to another legal entity,” said head of the Pravy Bereg management company Vasily Alyoshin as he was telling about tricks of Kostyukov’s companies. “According to the law on public control, there is no such right. This organization is likely to be pseudo-public. As a result of these inspections, they found a number of violations. I got no answers to my questions about the qualifications of the inspectors. Here is a vivid example. One of the alleged violations was destruction of the plinth to the brick foundation. I asked which panel house had a brick plinth. There was no answer.”

Akademgorodok suffered too

Kostyukov-Kruglov's wants grew by leaps and bounds. They decided to “work” in the Novosibirsk research centre “Akademgorodok.” The arrangements were made in the best traditions of M&A in the beginning of the 2000s.

The Akademgorodok houses are serviced by the Federal State Budgetary Institution Novosibirsk Scientific Centre of Housing and Utilities. At the end of August 2020, Kostyukov and Pronichev appointed Igor Gorbovsky as its CEO without prior notice. Novosibirsk City Council deputy Natalia Pinus told how it happened: “Gorbovsky came to the [Vitaly Mikheev’s] office at the end of August and showed the order relieving the CEO of his duties. Everyone was surprised, because Mikheev had been recertified, and a new contract had been signed with him. Things came into the open when the public council was headed by Pronichev [who represented the interests of the MKS].

Indeed, Vitaly Mikheev became head of the Novosibirsk Scientific Centre of Housing and Utilities (NSC) three years ago after passing a two-stage competitive selection. A top professional, he had a contract until 2023. It is an interesting fact that during the raider seizure of the NSC, which manages the entire complex of the Siberian Branch of the Russian Academy of Sciences, Gorbovsky showed an order of the Minister of Science and Higher Education of the Russian Federation appointing a new CEO as of September 1. From all appearances, the lobbying potential of Kostyukov's raiding team is formidable, if they managed to easily get the paper they needed signed by Valery Falkov.

However, Novosibirsk scientists did not yield to the pressure of the “caste of house eaters.” In early September, local deputies of various levels and academicians wrote an appeal to presidential envoy Sergei Menyailo, governor Andrei Travnikov and mayor Anatoly Lokot, in which they reported an “NSC hostile takeover attempt.” NSC deputy director Pavel Kabanin said that the unexpected appointment of Gorbovsky should be “evaluated by competent authorities who serve our Motherland.”

After the public outcry, the company saw “job cuts, interrogations, and pressure on employees.” Kabanin was fired. Predictably, scientists were increasingly indignant at the insolent Kostyukov team. Academicians were supported by the Novosibirsk city council and the regional legislature. The new management of the NSC planned to leave only unprofitable housing stock of science campus under the jurisdiction of the institution.

“It was planned to let commercial companies manage the profitable ones,” said Natalia Pinus. Sergey Pronichev, who promptly became chairman of the NSC's coordinating council, carried out Kostyukov's plan. According to Interfax, it was he who “tasked the heads of housing and utilities departments with setting up a firm on short notice and arranging a vote on management company replacement. That is, he aimed to take away the housing stock from a state-owned institution and give it to commercial organizations.

To the scientists’ credit, they did defend their township from Kostyukov's raiders. Yevgeny Usolov, head of the Department of Administration of the Ministry of the Russian Federation came to Novosibirsk in November 2020. Within a few hours after the meeting with him, the staff of the enterprise received an order to dismiss Kostyukov's protégé Gorbovsky and appoint chief engineer Valery Kiss as acting director.

“Now we have to fix everything, because the enterprise has suffered real financial damage,” said Pavel Kabanin, who was reinstated as deputy director.

Other management companies and city residents were as unyielding. About a thousand Novosibirsk residents took to the streets against corruption in the State Housing Inspectorate in May 2018. They demanded an investigation into the ties between inspectors and management companies, dismissal of the top executives of the State Housing Inspectorate and removal of Pronichev and his Moscow masters from Novosibirsk. As a result, head of the State Housing Inspectorate Yevgeny Ponomarev resigned. Later on, he was hired by the Samara branch of the MKS company belonging to Kostyukov. Sometimes, the “caste of house eaters” lends a helping hand to its people.

After the protest action, Pronichev carelessly tried to sue the Moskovsky Komsomolets newspaper, which had covered this event and the issue of corruption in the management of the local housing and utilities sector. However, the new circumstances went public at the trial. They confirmed close ties between Pronichev and the Kostyukov companies, as well as Pronichev's personal involvement in murky schemes. Vladimir Alabugin, a teacher at the College of Architecture and Civil Engineering, said at a court hearing how he had met Sergei Pronichev. According to Alabugin, the latter had offered him to participate in the campaign to organize “re-voting” of residents of apartment buildings for transferring them under control of a new management company. Pronichev offered to pay 50 rubles ($ 0.68) for each square meter of withdrawn housing and 80 rubles ($ 1.09) per square meter resold to a Moscow holding.

In the summer of 2019, the Moskovsky Komsomolets published an open letter from local utility workers titled ‘Mayor Pronichev to be dismissed’. It said that “he was personally involved in setting cars and offices on fire, raiding seizures, and threats.” Pronichev sued the newspaper and lost again.

Kostyukov's Novosibirsk Gang

Now let us list all known Kostyukov/Kruglov companies and people from their inner circle in the Novosibirsk housing and public utilities market. It is these firms and people who withdrew money from the region.

There are 10 companies operating in Novosibirsk that manage 9.5 million sq.m. of housing: Standard, Perspective, DOST-N, Oktyabrskaya, MC ZhKh-Partner, MC Des-2, UK ZhKh-Garant, MKS-Novosibirsk, and Dzerzhinets.

On the one hand, all of them are connected with Kostyukov’s MKS which serves as their management company. On the other hand, many have the same founder. This can be easily verified on the For Honest Business website. For example, DOST-N has 9 employees. Its management company is the MKS. The founder is Liftremont (let's remember this name). Oktyabrskiy District UKZHK has the same structure and 24 employees. “Standard” is also managed by the MKS, but the founders are Kostyukov himself and his closest colleague in Novosibirsk, the above mentioned Elena Volkova (74 and 1%). “Dzerzhinets” has the same management company, but the founder is another organization from the same list, “MKS-Novosibirsk,” which is also managed by the MKS. The situation with the founders in MC Dez-2 is slightly different: Nina Egorova and ...Liftremont have 50% of the authorized capital each. “Oktyabrskaya” has the same management company and 100% of shares are again owned by Liftremont. All in all, this firm participates in the capital of six companies out of 10.

Everything is clear with “customers” in the person of the Kostyukov’s managing companies, and the “contractors” who are registered to nominal persons. Their business was artificially fragmented into several legal entities in order to save on taxes. The prices and the amount of work stated in the contracts secured the transfer of all revenue to their accounts.

Kostyukov has 17 “contractors” of this kind in Novosibirsk (some of them were hastily liquidated last year). These are Liftremont, Inskaya, ZHEU-33, Cleaning-Master, Emergency Repair Service, Housing and Utility Department-15, Comfort Plus, Zhil Fond, Partner, Uchastok № 2, ZhEU №1, Uchastok № 7, Uchastok № 4, ZhEU № 4, Teks, CNR, and Tekhnologii.

As for the founders, the key figure is Kostyukov who established Inskaya, ARS, KLining-Master, etc. Elena Volkova has stakes in five of them. In addition, she is CEO of Emergency Repair Service, ZhEU-15 and Zhil Fond. Most of the contractors have connections to registrars Ivan and Dmitry Grakov, who happen to be the brothers of Elena Volkova. Her husband Ivan Volkov, a longtime friend of Kostyukov from his native city of Tver, serves as a public figure of the Kostyukov-Kruglov criminal tandem in the Novosibirsk region.

It is Ivan and Dmitry Grakov and Elena Volkova who control the flow of funds under contracts and redirect them to the accounts of the MKS, whose head is... Elena Volkova. They also control the flow of funds from non-repayable loans to other legal entities controlled by Alexander Kostyukov. As we have seen, Sergei Pronichev provided administrative leverage for this scheme in the region.

Only specialists in the housing and public utilities sector can assess the full damage to the budget caused by the scheme. According to our estimates, Novosibirsk loses more than 700 million rubles ($9.53 mln) annually in taxes alone from the actions of the Kostyukov-Kruglov team. Not to mention the damage in the form of stolen money of residents, paid by them for repair and maintenance of houses, and the debts to bona fide suppliers. For example, Kostyukov’s management companies already owe more than 1 billion rubles ($13.61 mln) to SGK.

Is Rostec a victim of Kostyukov or...?

The wek.ru editorial office has another piece of information which shows that the “caste of house eaters” not only moves beyond what has been achieved, but also prepares to expand. While it already earns good money in the “garbage” business (in Novosibirsk), Kostyukov, using his next RT-Domcom (registered April 21, 2020), is eager to join a profitable project called the Digital Economy National Program.

First he decided to try this scheme in the Krasnoyarsk Territory, where Kostyukov's team came after Novosibirsk (we will tell you about it in a new story). On December 8, 2020, Krasnoyarsk territory governor Alexander Uss received a letter signed by Rostec CEO Sergey Chemezov. We have a copy of the letter, and it says that Rostec launched a project to manage the lifecycle of an apartment building. The project has a budget of 2 trillion rubles ($27.22 bln) and will last 10 years.

Rostec assumes that RT-Domcom, which is included in its profile (according to the letter), will work on digitizing the urban environment and play the role of technical customer of renovation with alleged introduction of the Smart House system on the housing stock, where residents voted to accumulate funds on a special account rather than the capital repair fund account. In this case, Kostyukov will gain control over huge sums of money collected by tenants for capital repair. He will act both as a customer and as a contractor through his rogue firms. The money collected will be used to plug the holes in his pyramid scheme and provide “market entry” in the housing and utilities sector of the next regions that will be victims of Kostyukov’s scheme.

The Krasnoyarsk territory is to become a testing ground for the joint project in which Rostec will be represented by Kostyukov. Taking into account his ability to tell tall tales in the corridors of power, there is almost no reason to doubt the success of his new “project.” In this case Rostec might get into huge trouble. It is obvious that neither RT-Domcom nor Kostyukov have competences in up-to-date digital technologies. Kostyukov is a master designer of fraudulent schemes that do not produce anything, do not organize, and do not provide services, but only use the funds received for new personal projects and personal gains. At the same time, there are multibillion-dollar debts to bona fide contractors, resource providers, and tax authorities as we have already seen.

It is clear that the tenants of the houses that come under the control of RT-DomCom will never see a Smart House. Today Kostukov’s firms do not even fix the canopies over the entrances and screw on the handles that fall off. All the money will most likely be withdrawn under the same scheme. It will be transferred to the accounts of the companies owned by the criminal tandem. Kostyukov will set up Chemezov, and no one is likely to defend him.

By the way, there is still no information about Alexander Uss's reaction to the December letter. It is obvious that despite all the authority of Rostec he is in no hurry to participate in Kostyukov’s scheme. He probably knows how Kostyukov's “public utilities workers” performed their duties in the regional capital.

Our next article will shed light on it.

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