Imagine the picture painted by some experts studying corruption: Russia has a shadow budget (also called a black or alternative Russian budget) whence money can be drawn for elections or “under the table” payments to members of the security and military establishments. Experts believe the budget is formed through kickbacks from state procurement and tenders, from which the money, defying all the laws of physics, flows not downward, but upward; cash from clandestine casinos, the slush funds of markets, such as the Cherkizovo Market, which depend heavily, of course, on contraband on a monstrous scale. Yet, most important are unlawful VAT refunds (1). This is what happens: first, a normal budget is formed, what should go for non-public needs is deduced (including payment for the services of the heads of law enforcement bodies and special services) and then -- what remains is signed into law.
There is tough market competition in the corruption sphere. Every shadow cash flow is tapped into by several opposing “companies”, consisting of representatives of various government agencies. For example, one FSB directorate keeps an eye on VAT, another on casinos, one deputy chief of an Interior Ministry department belongs to the group that controls markets and another deputy chief is “in charge of” smuggling. The players on these teams, like bank managers, may defect from one employer to another, depending on the working conditions.
None of the groups can gain a monopoly of replenishing or spending money from the slush fund because they would then cease to be managers and would become owners. They are, therefore, numerous, their forces are approximately equal and they engage in constant clashes that result in the less valuable members of the teams from amongst investigators or operatives possibly landing in jail and there are high-profile scandals in the media, though they hardly ever lead to convictions.
This approach throws light on the two latest scandals. The first is the war over underground casinos in the Moscow Area (FSB and the Investigative Committee of Russia, SKR versus the Prosecutor General’s Office and the Interior Ministry). The second and more important one involves searches at the Moscow Tax Inspectorate preceded by sacking of the heads of Tax Inspectorate 28 (IFNS) for the city of Moscow and the testimony of one tax official against his new superiors.
The tax authorities. Internecine feud
Mikhail Mishustin, who became the head of the Federal Tax Service (FNS) in April 2010, was given a free hand to reshuffle his staff, most notably in the Moscow Tax Service. He completed the cleanup of the major regional tax agency from members of the team of the current Defence Minister Anatoly Serdyukov in a record short time, by the beginning of the year.
The last high-profile casualty of the purge was Olga Stepanova, head of Tax Inspectorate No. 28, and two other members of this tax inspectorate, which plays a key role not only in Moscow but throughout the country, because the biggest tax payers are registered there. The inspectorate handles billions and has more than once been mentioned in connection with scandals involving staggering sums refunded for allegedly excess VAT payments.
In fact, after that resignation, an anonymous member of IFNS No. 28 (2) testified to the FSB Directorate K that the new deputy chief of the Moscow tax agency, Chernichuk, was allegedly forcing his subordinates to return nearly 2 billion roubles of VAT to a company called EK-Kontraktstroy, which does business with Vyborgskaya Tsellyuloza Limited.
This was followed by searches at the Moscow Tax Agency and at Chernichuk’s dacha, and also at Inspectorate No. 28. The FSB and SKR, which conducted these searches, said they had uncovered no fraud but had stopped an attempted crime. Running ahead a little, it should be noted that similar warnings officially handed over to SKR, the Interior Ministry and the Prosecutor General’s Office by the Hermitage Fund lawyer Sergey Magnitsky, about an attempted theft of 5.4 billion roubles in 2007, were ignored and the attempted embezzlement was successfully completed in 2007. At the time, Inspectorate No. 28 and its head, Stepanova, were also mentioned in statements by Magnitsky and other Hermitage lawyers. Such a selective approach may be due to the fact that, at the time, they were all one company but now unbidden users have poked their noses in.
Indeed, the tax sphere was, until last year, controlled by a St. Petersburg team of the current Defence Minister Anatoly Serdyukov, whose last key player, Stepanova, promptly joined the Ministry after her resignation.
A similar trick was previously pulled off by all the tax bosses and had anything to do with supervision of major Russian tax payers. Mikhail Mokretsov, Serdyukov’s man at the head of the Federal Tax Service, became chief of staff of the Defence Ministry; deputy head of the Federal Tax Service, Tatyana Shevtsova, who was responsible for major tax payers and consequently for the Moscow tax service and tax service inspectorate No. 28, also surfaced at the Defence Ministry. Nadezhda Sinnikova, once head of the Moscow Financial and Tax Service and later head of the Major Tax Payers Directorate and Mokretsov’s deputy, is now head of the Federal Agency for Procurement of Arms, Military and Special Technology and Materiel (Rosoboronpostavka). And Olga Stepanova is reportedly going to work within that structure. Lyudmila Vorobyova, who replaced Sinnikova at the Moscow Tax Service, is also in the military now.
Even so, the change of teams did not pass off seamlessly. The current searches constitute only one piece of evidence to this effect. First, there were some charges against Olga Stepanova, the head of Inspectorate No. 28, including as part of the “Magnitsky case”. After a series of articles in Novaya Gazeta concerning 5.4 billion roubles stolen from Hermitage being illegally refunded to three limited liability companies, two replies came to the editorial office from the new-look FNS of Russia.
The first letter suggested that all the VAT refund operations were in keeping with Article 78 of the Tax Code and were carried out on the basis of a written application from the tax payer at the place or registration and that “there are no internal instructions whereby a decision to refund a large sum of overpaid tax is adopted not by local tax agencies but by the Federal Tax Service.” Translation: the decision to refund the 5.4 billion roubles was made personally by Stepanova and her subordinates, and they have to answer for it. To confirm this, in June 2010, Novaya Gazeta received another letter saying that official enquiries are being contemplated into the case of the 5.4 billion rouble swindle.
The surprising thing is that the investigations did actually take place. Now that the clouds have thickened over the new Moscow Tax Service leadership, the members of the FNS have leaked to the media a report that accompanied the complaint to the Prosecutor General’s Office against searches and removal of documents carried out by the SKR and FSB on April 6. The leak expresses the agency’s surprise over the actions taken by the law enforcement bodies, which are reluctant to unveil the materials of the internal investigation submitted in the autumn of last year, which attest that the former head of Moscow Tax Inspectorate No. 28 Olga Stepanova had wrongfully decided to refund VAT to eight companies??? to the tune of 4.45 billion roubles. The results of that internal enquiry suggest that Stepanova had been warned of not being fit for her job.
The leak, coyly, does not name the eight companies. But it is known for a fact that Stepanova’s signature is at the bottom of the order to refund the VAT to the accounts of fraudsters who had stolen the Hermitage companies (Parfenion and Makhaon) in several tranches on a single day – 24 December 2007??? namely, 887.3 million roubles, 101.4 million roubles, 1.2 billion roubles and 1.2 billion roubles.
In search of billions
The very same members of the Interior Ministry, many of whom were instrumental in this embezzlement, are now falling all over themselves to track down these billions. Novaya Gazeta has written about this many times and no recap is necessary. What is interesting, though, is that none of those who are looking for the stolen billions have any questions for the tax authorities.
The fact of embezzlement was only established after an international row broke out and, even then, there were no coherent interrogations of the members of Inspectorate No. 28. They were, of course, questioned and, as a result, the tax agencies were declared to be … the aggrieved parties in this case.
The bare bones of the case, looked at from the building of inspectorate No. 28, are as follows. Two limited liability companies, Makhaon and Parfenion, were registered with the Inspectorate in late autumn. It was later proved that these companies had been stolen from the Hermitage Fund, that their articles of incorporation had been faked and that the accounts opened with the Universal Savings Bank and Interkommerz bank duplicated accounts still open with HSBC bank and belonging to the real owners. The tax agencies were unperturbed: why not… But, in mid-December 2007, the two companies filed an updated declaration claiming nearly 4 billion roubles as part of allegedly overpaid VAT.
Usually, such a situation is a prelude to a nightmare: those who file a declaration updated by as little as a hundred roubles are subject to audits down to the last partner, information is requested about the firms and their masters from the Interior Ministry, etc., etc. – that takes several months and the outcome is anyone’s guess. But in our case, the decision to refund billions was taken on Monday morning 24 December, even before the rulings of the Arbitration Courts providing grounds for claims for refund had come into force.
On New Year’s Eve in 2007, the Federal Treasury began disbursing the money, which, after being credited to the accounts of the Universal Savings Bank and the Intercommerz bank, were transferred within a couple of months to the accounts of other firms (Serviskom to Meshchanskoye OSB, Yauza-Region to UBS, Unit to Mosstroyeconombank, Storno to Sberbank of Russia, etc.) and then flowed to third-and fourth-tier banks in accordance with the classical money-laundering scheme. Of course, the financial institutions that found themselves in this chain as second and third links were most probably unaware that the money was dirty. But the Russian finance monitoring agency, Rosfinmonitoring, which has to track any movement of cash in excess of 600 roubles, noticed nothing; in any case, the financial scouts failed to respond to queries.
As a result, the search for the money followed a very tortuous path that led to two convictions but yielded no tangible results. At a press conference timed for the anniversary of Magnitsky’s death, a spokeswoman for the Interior Ministry Investigative Committee, Colonel Dudukina, said that Magnitsky was himself guilty of stealing the money and that he had reported the crime in advance. It also transpired that, of the three nominal directors of the stolen companies, only two are alive. The owner of Rilend died from cirrhosis of the liver caused by alcohol and drug abuse. The owner of Parfenion, who has two convictions, including one for murder, the foreman responsible for accepting sawn timber, Viktor Markelov, confessed to fraud and was sentenced to 5 years, yet he knew nothing about what happened to the money. The third man, the owner of Makhaon, who also has two previous convictions (for extortion and fraud), Vyacheslav Khlebnikov, has been caught and is confessing to his crimes. These confessions led to Khlebnikov being sentenced, in March 2011, to five years imprisonment.
The trials of Markelov and Khlebnikov have much in common. Both took place at Tverskoy Court in Moscow (Khlebnikov was charged by the court’s presiding judge himself) under a special procedure that does not envisage any court investigation; journalists were banned from the hearings and no financial claims were presented to the accused. Both were sentenced to a mere 5 years for stealing the virtual equivalent of the annual budget of a regional centre (compare this with the Khodorkovsky sentence). The sentence was not appealed.
If the court investigation had been completed and journalists had been allowed into the court room, it would have been known that both Khlebnikov and Markelov were put in the dock after a fourth try; beginning from the spring of 2008, three Interior Ministry investigators refused to open criminal proceedings against them, the last one having been signed by deputy prosecutor General Grin. It was only the public outcry over the case that caused a change in the rules of the game: Markelov, the charges against whom were dropped and who was in hiding in Ukraine, suddenly showed up at the Investigative Committee of his own accord, turned down the services of a lawyer and effectively insisted on being charged, citing pricks of conscience.
But enough about nominal directors… The directors of the banks to whose accounts the money was transferred could have shed light on the path followed by that money but, as Colonel Dudukina, press spokeswoman for the Interior Ministry Investigative Committee, told Novaya Gazeta, a combination of events prevented this. First, the owner of UBS bank, Klyuyev, shortly before all these events, suddenly sold his business to somebody called Semyon Korobeinikov, previously unknown in the banking or in any other sphere. In the summer of 2008, Korobeinikov, who lost his head after getting this windfall sum, bought a penthouse in an unfinished building and, while visiting his future apartment, fell to his death from of a window. By that time, UBS had decided to go into liquidation. And then another hitch: all the documentation was loaded into a KamAZ truck which, in the best traditions of Russian thrillers, was involved in a road accident and burned up. As for the banker Klyuyev, whose name has been mentioned previously in scandals and VAT refunds and unlawful seizure of businesses (and who also had convictions), he was, according to Dudukina, interrogated as a witness but said he did not know Markelov or any other persons involved, and walked away free.
Interkommerz Bank also carried out some personnel reshuffles. The new management failed to reply to our query and Colonel Dudukina does not mention the fate of the money that passed through that financial institution.
And what of the tax documentation that must have been preserved at Tax Inspectorate No. 28, known as “an inspectorate for billionaires”? There too, another adventure happened. The companies stolen from Hermitage were promptly relocated from Moscow to Novocherkassk but, instead of documents from the Moscow tax people, what reached Novocherkassk was a stack of clean sheets of paper…
Questions that could be asked of the “aggrieved” taxmen.
One might ask Ms Stepanova, former head of IFNS No. 28, and Ms Khimina, head of IFNS No. 25 (where the same scheme was used, at the same time, to cash the third of the stolen companies, Riland) how they had let themselves be hoodwinked, considering their experience? How were they auditing firms that were anxious to regain VAT? Who was doing it? Where were the queries sent and who replied to them? With names if possible. In short: many questions could be asked… We thought we would ask them of hypothetical investigators.
1. Is it true that the wealth of Olga and Vladlen Stepanov (who share a flat and regularly go on holidays abroad together, for example to Dubai) increased by more than 38,900,000 dollars from the beginning of 2008?
2. If so, how does that square with the tax returns handed in by Olga Stepanova and Vladlen Stepanov, putting their joint annual income in the period from 2006 to 2009 at an average of 38,000 dollars?
3. Is it true that Vladlen Stepanov, a modest employee at the Volsstroy building company, has bought two offshore companies? One is Arivast Holding Ltd on Cyprus, purchased on 26 January 2008, to which more than 7 million euros were transferred in five tranches within several weeks from CreditSwiss Bank (a month after the 5.4 billion rouble affair)? And the second, Akeit Properties, on British Virgil Islands, to which 750,000 euros in three tranches and 650,000 dollars in two tranches were transferred from an account at the same bank?
4. Is it true that Olga and Vladlen Stepanov boast an estate near Arkhangelskoye (in the direction of Rublyovo-Uspenskoye from Moscow) on the Dachnoye compound run by the President’s Business Affairs Directorate? Is it true that this modern-style villa (costing 8 million dollars), with a total area of 1000 square metres, a wine cellar, a billiards room, a guest house and a home cinema, was designed by prominent architect Alexei Kozyrev and that the design even won an award at the festival of the best country homes of Russia, although officially it has not even got all the necessary paperwork done? Is it true that the owner of the plot of land (0.61 hectares, costing about 12 million dollars) accommodating these buildings belongs to Vladlen Stepanov’s 85-year-old mother, Anastasia Stepanova?
5. Is it true that the Stepanovs bought a beach villa in Montenegro, near the town of Bar, for which purpose CreditSuisse Bank deposited 10 tranches to the tune of 470,000 dollars in the builder’s account?
6. Is it true that Vladlen Stepanov bought a villa on the man-made peninsula in Dubai, which has real estate registration number F-28, costs about 3 million dollars, has a floor space of 452 square metres, 6 bedrooms, 7 bathrooms, a tropical garden, a swimming pool and a private beach?
7. Is it true that the Stepanovs bought two luxury suites (No. 428 and No. 530) for 4 million dollars, according to the pricelist, on the elite Kempinsky compound on that same island and that this luxury was paid for by initial deposits of 795,000 dollars and 1,907,000 dollars by CreditSuisse?
8. Is it true that the family of Stepanova’s former deputy at IFNS No. 28, Yelena Anisimova, who also resigned in January this year, bought a flat on the same compound?
Novaya Gazeta suspects that we will never get answers to these questions. Why? Because should one imagine (for the sake of argument) that all this is true, the question arises: how much do the beneficiaries and masterminds, as opposed to the mere executors of these schemes, receive? The owners of that gigantic shadow slush fund are unlikely to be planning to look into the issue of a fund that is equivalent to the Russian budget and that enables the clans of security and military men to own the country.
All this suggests that the scandal surrounding the searches of the Moscow Tax Inspectorate is likely to be soon forgotten, as will the names of Stepanova, Chernichuk or Udodov (who, according to the media, is a friend of the head of the Federal Tax Service, Mishustin, and one of the people of interest to the law enforcement bodies in connection with the enquiry into the VAT refund schemes). After a minor family spat, the clans, like puzzles, will assume a new configuration within the corrupt vertical structure and will continue their fruitful work. We will keep tabs on them…
The video story of federal Tax Service Inspectorate (IFNS) No. 28 is available on the Internet http://www.youtube.com/watch?v=MYDJYTcgnLo