New TogliattiAzot Management Defeats Fraud

New TogliattiAzot Management Defeats Fraud

Photo: http://tltpravda.ru

An extraordinary general meeting of shareholders decided to terminate the powers of TogliattiAzot Corporation’s board of directors controlled by principal owner Sergei Makhlai and his accomplices, who had been convicted of large-scale fraud and fled abroad.

Even after the court’s decision, the swindlers continued to invent new schemes to withdraw profits. The far-reaching scams only stopped after the management reshuffle.

Perhaps one of the most important events in the entire post-Soviet history of TogliattiAzot occurred at the end of November.

Makhlai's main “invention” was a transfer pricing scheme that had been in operation for decades.” The plant sold all of its export products to Nitrochem Distribution AG, a Swiss offshore company owned by Makhlai's partner Andrew Zivi who resold them at market prices. This portion of the profits did not flow into the plant and was not taxed in Russia. As confirmed by all the courts, the amount of underpaid taxes was 2.5 billion rubles ($33 mln) in 2008-2011 alone. The Komsomolsky District Court of Togliatti sentenced Makhlai, Zivi and their three accomplices in absentia to 8.5-9 years in prison in July 2019. According to the judgment of the court, they must also pay compensation to the victims of the fraud: 77.3 billion rubles ($1.02 bln) to TogliattiAzot and another 10.3 billion rubles ($135.93 mln) to the minority shareholder Uralchem.

It is important to add that this criminal case was investigated in the period from 2008 to 2011. The investigation of similar crimes committed in 2012 to 2013 will be completed soon. A 53-billion-ruble ($699.49 mln) damages claim has been already filed. Thus, at least 141 billion rubles ($1.86 bln) were withdrawn from the plant due to the theft of export products from 2008 to 2013.

However, even though law enforcers found the supply pipeline, the thefts did not stop as Corporate fraud masters Dmitry Mezheyedov and his deputies Victor Kazachkov and Andrei Bobkov helped develop and launch backup schemes.

Mezheyedov started working for the plant as an expert in corporate governance but he remained in the history of the enterprise as chief architect of devious machinations. When scams finally became a priority for the management of TogliattiAzot, Mezheyedov took the chair of TogliattiAzot’s CEO with an official salary of 72 million rubles ($950.26 mln) per year. Moreover, the total annual payment reached 400 million rubles ($5.28 bln) with a bonus for “work” on the board of directors.

Even this sum of money was not enough for Mezheyedov. During his work at TogliattiAzot, he developed many schemes to steal the plant's funds. For example, TogliattiAzot started paying for freight services in 2016 which it had never done before. This forced TogliattiAzot to pay about $60 million a year to foreign companies for the maintenance of ships it did not own.

Fictitious contracts for construction and repairs were another important source of “income.” TogliattiAzot is a giant hazardous production facility with considerable construction and repair needs. It became a “window of opportunity” for Mezheyedov and his accomplices. They quickly realized that they could give advances of 70% to rogue firms like MCA-stroy, Rodnichok, and Interkon without any documents and, most often, without any work being done. Thus, the money was withdrawn to the offshore companies of Makhlai and Zivi. At least $50 million disappeared from the plant every year. Mezheyedov did not shortchange himself, demanding 10% kickbacks from fictitious contractors. Due to this his annual income reached 800 million rubles ($10.56 mln) or even much more.

A project to upgrade the water treatment and purification facilities at TogliattiAzot was another money laundering scheme relying on Tarsu, a Turkish company which allegedly had advanced American water purification technology from General Electric. The firm received 30-40 million euros for its services over five years. In actual fact, Tarsu is an ordinary development company engaged in the construction of residential buildings with no understanding of chemical companies or their water treatment systems. It certainly has no licenses from General Electric. The money paid for the project was simply laundered in Turkish banks and sent to Makhlai.

Mezheyedov was also on the board of directors where, together with other members, he approved deals that inflicted damage on TogliattiAzot (but never on Makhlai). A striking example is the approval of a series of deals to assign the right to claim more than 737 million rubles ($ 9.73) in debt from Technik-Park to Togliattikhimbank, owned by Makhlai. Mezheyedov, chief financial executive Nikolai Neplyuev, and сhairman of the Board of Directors Pyotr Ordzhonikidze were well aware of the debtor's insolvency and, accordingly, of the damage to the plant but this did not stop them. A lawsuit has been recently filed against the former board members demanding repayment to TogliattiAzot of 737 million rubles. The court seized the defendants’ property as an interim measure.

Makhlai considered Mezheyedov's activities so important that he appointed him CEO of the plant in 2019. However, after his home and office were searched in connection with a corruption investigation in 2021, Mezheyedov hastily resigned from his post. Makhlai had tasked him with withdrawing 21.7 billion rubles ($286.4) under the guise of an “investment program,” but he managed to withdraw 16 billion ($211.17) and then fled. At that time, financial documents had only been prepared for about 2 billion rubles ($26.4) worth of works.

Alexander Popov, ex-chairman of the Togliattikhimbank owned by Makhlai, was also a man of importance. Popov managed an extensive network of international offshore companies to transfer TogliattiAzot funds to offshore jurisdictions belonging to TogliattiAzot beneficiaries. He was also responsible for money laundering and cashing, and covered up corruption as the money for bribes was withdrawn from TogliattiAzot. This is where Popov was hoisted by own petard. On behalf of Mahlai, he tried to give judges of the Supreme Court of the Russian Federation $2 million to overturn the ruling on additional tax assessments. Last June, Popov was sentenced to 7.5 years in a maximum security penitentiary and a 500-million-ruble ($6.6) fine. Interestingly, while Popov was in pre-trial detention, other cronies of Makhlai's took another $10 million from the plant's funds to bail him out, but the operation failed and the money disappeared.

Vladimir Chabrov is another prominent top manager from the Makhlai gang. He was in charge of Tomet, established based on assets illegally withdrawn from ToAZ and owned by Triumph Development Limited, a Hong Kong offshore controlled by Zivi. When the convicted in the fraud case were ordered to pay 87 billion rubles ($1.15 bln,) in damages to the victims they decided not to do it and, at the same time, to hide Tomet’s assets, deliberately bringing it to bankruptcy. Tomet was among the joint and several defendants. This was Chabrov's “fifteen minutes of fame” who made the company pile up debts. One of his methods was generally similar to what the Board of Directors of the plant did. On behalf of Tomet he acted as a guarantor for loans issued by Togliattihimbank to insolvent companies. In addition, Chabrov purchased tank cars for the transportation of methanol at twice the inflated price and transferred the difference to the offshore companies for Makhlai and himself. These were the grounds for the initiation of three criminal cases against Chabrov. The damage Chabrov inflicted on Tomet is estimated at more than 1.9 billion rubles ($25.076). However, all his efforts were in vain. The court did not allow Tomet to go bankrupt according to Makhlai's scenario and instead introduced a monitoring procedure and then bankruptcy proceedings at the enterprise. Chabrov's powers were terminated by the court in March 2021, and his property was subsequently seized as an interim measure.

Andrei Bobkov, a former deputy CEO for security, was a “prominent” embezzler in Makhlai's entourage. He used his foster private security company Almaz to design a mega scheme to remove unaccounted-for products, spare parts, equipment, and other commodities from the TogliattiAzot premises. Law enforcement authorities are still assessing the scope of theft given the fact that Bobkov dispatched hundreds of truckloads of stolen goods. Bobkov's official position also allowed him to draw other TogliattiAzot executives into criminal activity through blackmail, deception or threats. For example, he got into the segment of procurement and tenders, where he made sure that the “right” sham companies won and the rivals lost. Before the fateful shareholders' meeting during which Makhlay's protégés were shown the door, Bobkov was arrested on suspicion of fraud and abuse of power.

To cover up all of this activity and TogliattiAzot’s owners, expensive lawyers were hired and PR campaigns were organized to pressure the authorities and law enforcement agencies through the media. Tens of millions of dollars from the plant’s profits were spent annually on this. None of this helped, Makhlai was declared bankrupt in August 2021 and all of his property was arrested. Financial manager Oleg Yegerev was appointed to replace Makhlai. Having lost control over TogliattiAzot’s management board, Makhlai immediately lost the ability to run his scams and take the plant's money out of the country.

The amount of stolen money is estimated at hundreds of millions of dollars per year.

This is undoubtedly a new chapter in the history of the once-famous chemical plant. Enormous credit for this goes to law enforcement and the courts. In investigating numerous cases against Makhlai and his accomplices, they showed professionalism and determination to fight irreconcilably against the international criminal group. This success will be of great importance both to TogliattiAzot itself and its workforce, as well as to the entire Samara region.

Original story: https://progorodsamara.ru/news/view/249941/

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