However, when it comes to bribery, graft, corruption and kickbacks there are many dark corners where shady dealing can hide. When it comes to corruption, no legislation has yet been devised that leaves no loopholes, and there are lawyers and accountants able to drive a freight train through the eye of such a needle.
It was in this context that I read Bombardier's mysterious Russian middleman, by The Globe and Mail's Mark MacKinnon, a masterful investigation of a web of intrigue extending between Canada's flagship transportation company Bombardier, and the tight circles of kleptocracy wrapped around Vladimir Putin and his favoured oligarchs.
How does corruption work in Vladimir Putin's Russia and how do its consequences reverberate back to Canada? Read on.
Vladimir Yakunin: Oligarch extraordinaire
For the last dozen years Bombardier's rail division has had extensive business dealings with Russian Railways, one of Russia's most massive industrial enterprises which runs trains throughout the country and takes in annual revenues on the order of $42 billion USD. Until last year ago it was headed by Vladimir Yakunin, one of President Vladimir's Putin's closest personal and financial associates.
Yakunin is a member of the "Ozero (Lake) Cooperative" a gated community of luxury villas belonging to the ultra-rich, located on the shores of Lake Komsomolskoye on the Karelian Isthmus near St. Petersburg.
The members of "Ozero" include some of the wealthiest and most powerful oligarchs in Russia -- including Putin.
Yakunin is under sanctions (freezing of assets; a ban on business transactions) in the United States and Australia as a result of the Russian annexation of Crimea.
However, in Canada, despite the successive Harper and Trudeau governments having placed 107 individuals and 39 corporate entities on our sanctions list, Yakunin is mysteriously conspicuous by his absence [See The Globe and Mail article for more on this anomaly.]
In August 2015 Yakunin was dismissed as head of Russian Railways after reports of corruption were published by the investigative journal Novaya Gazeta. Despite being purged Yakunin made a very soft landing. He was offered a seat in Russia's upper house, the Federation Council, which he ultimately turned down in favour of starting an NGO called Dialogue of Civilizations. He was also awarded a first class Stolypin Medal for, "addressing the strategic objectives of socio-economic development of the country and many years of honest work."
Multiserv: Serving whom?
Bombardier has been selling rail equipment in Russia for twenty years, however since 2005 (the year Yakunin became head of the company), the core business has been the Ebi Lock 950 computer signaling system that Russia has been installing to modernize the control of its rail traffic.
The equipment is manufactured in Sweden by Bombardier Transportation Sweden, a subsidiary of the Canadian-based transportation giant, and is sold to one of two joint ventures that Bombardier has formed with Russian Railways, Elteza or Bombardier Transportation (Signal) Ltd.
So far so good. A Swedish subsidiary of Bombardier sells rail equipment to a Bombardier co-venture in Russia. Nothing untoward there. However, in every one of 100 such transactions examined by The Globe and Mail, every one was channeled through a mysterious middleman -- Multiserv Overseas.
Multiserv Overseas is as shadowy an entity as it is possible to imagine. It has successively been registered at three different addresses in London, UK -- all of which are law or commerce offices that that serve as front addresses for hundreds of offshore firms looking for London addresses to establish their credibility.
Multiserv has changed ownership five times in the last six years between various constellations of shell companies in Belize (Yu Mark Trading, Renson Trading), Panama (Sistema Amarelo), and the Seychelles (Sevenseals Management Inc.). None of these shell companies appear to conduct any business at all other than being sequential owners of Multiserv. Multiserv itself has no staff and no office and appears to do nothing other that roll over sales from Bombardier to Russian Railways.
Sidebar: Sevenseals Management is run out of the same office (Suite 310 in the Premier Building in Victoria, the capital city of the Seychelles] linked to money laundering for Mexico's Sinaloa drug cartel, and a December 2009 attempt to smuggle weapons from North Korea to Iran in violation of a United Nations arms embargo.
Multiserv Overseas was founded by Yuriy Obodovskiy, who is the vice-chairman of the Board of Directors of Elteza (see above), a member of the Board of Directors of Moscow-based, Interprogressbank, a railway technology company called Teknologia "21 Vjek" (21st Century Technology) in Kolomna, Lengiprotrans, a large St. Petersburg-based engineering and design firm specializing in transportation infrastructure -- and a key associate of Vladimir Yakunin.
Obodovskiy was the sole director of Multiserv Overseas from July 2010 to January 2012 when abruptly an "Anton Belyakov" became director.
Belyakov is a shadowy figure who apparently resides in Moscow but is also a director of a company called Russian Time (UK) Ltd. based in London. This company also appears to be a shell that does not conduct any actual business.
His co-directors there included Larisa Strukova, an accountant and former director of Lemma Kosmos Ltd. (It's unclear precisely what sort of "consultancy" Lemma Kosmos provides although in 2014 it had assets of $30 million USD]. She is the wife of Alexsej Strukov, the owner of Alpha Commerce and the Omega Group where Multiserv was originally registered. [Note: Multiserv has now moved its registration to the office of a massive law firm, Charles Russel Speechlys, headquartered in London but with offices in, Geneva, Luxembourg, Paris, Doha, and Bahrain.]
Another former co-director is Ivitsa Bulba, the director of the Moscow and British Virgin Islands registered Sunrise Intervest Corporation, a shell company identified in the Panama Papers.
Belyakov remained the sole director of Multiserv Overseas until April 2015, when he was replaced by Svetlana Tutunaru, a Russia woman resident in Nicosia, Cyprus who The Globe and Mail determined works for a company called Delfi Corporate Services and is the director of a half dozen Cypriot companies.
After inquiries by The Globe and Mail (during which Tutunaru initially appeared not to even know that she was the director of Multiserv) she was suddenly replaced (on Sept. 23, 2016) as director by a 28 year-old Russian-Cypriot woman named 'Ekaterina Trofimova' who no one seems to know anything about. [Note: The name "Ekaterina Trofimova" is a very common one in Russia and there are large number of people who bear it, not only in Russia but elsewhere].
Where does the money go?
The Globe and Mail investigation zeroed in on the key point in all of this convoluted sleight-of-hand.
While transaction records show the price of the Ebi Lock 950 computer systems as they are imported into Russia, they don't show the price that the systems were actually sold for to Elteza and Bombardier Transportation (Signal). And both Bombardier and Russian Railways regard the final sale price as a corporate secret and refuse to disclose it.
So, Multiserv (directed by Obodovskiy) purchases Ebi Lock 950s from Bombardier Sweden and sells them to either Elteza (where Obodovskiy is vice-chairman) or Bombardier Transportation. Multiserv does precisely nothing (and Obodovskiy as Multiserv is selling to Obodovskiy as Elteza). However, does the selling price include some sort of markup? And if so, how much? No one can tell since Bombardier and Russian Railways won't disclose this, and none of this information is disclosed by Multiserv in the tax havens that it shuttles between. And where do the profits from such transactions go? Again, no one can tell.
Express Train to Corruption
The Organized Crime and Reporting Project (OCCRP) with the assistance of the German newspaper Süddeutsche Zeitung and the International Consortium of Investigative Journalists has investigated systemic corruption within Russian Railways with the assistance of the trove of documents released in the Panama Papers leak, a database of more than 11.5 million financial and legal records from Mossack Fonseca, a Panamanian firm that helps the super-rich hide their money.
Their investigations expose a system that enables crime, corruption and wrongdoing hidden within secretive offshore companies in various tax havens.
One of the people fingered in this investigation is Aleksey Krapivin, the son of Andrei Krapivin (unconfirmed reports say that the elder Krapivin died in 2015) a close associate of Vladimir Yakunin.
The junior Krapivin controls a business empire that includes the largest contractor of the massive ($17.2 billion USD) construction project to modernize the Baikal-Amur Mainline (BAM) and Trans-Siberian railways.
In 2012 & 2013, Krapivin firms in Russia received $3.7 billion USD in contracts from the Russian government. Krapivin also owns 28 per cent of the shares of Interprogressbank (that his friend Obodovskiy is a director of) and is a co-owner of the Ortiga Group management company that sells residential properties, and the Vilgud chain of service stations.
Mossack Fonseca documents also connect Aleksey Krapivin to 11 companies in tax havens in Panama, the British Virgin Islands, and Delaware. What these companies actually do is shrouded in mystery.
One of the shell companies owned by Krapivin (who is listed at a business address in Maldonaldo, Uruguay) is Rambo Management Inc. (registered in the British Virgin Islands). In a transaction examined by both The Globe and Mail and OCCRP, Rambo sold 13 Ebi Lock 950 systems to Multiserv Overseas, which, in turn, was supposed to deliver the equipment to 13 railway stations in Azerbaijan that connect Baku with the Georgian frontier.
Multiserv, of course, was founded by Yuriy Obodovskiy, a key partner of the Krapivin family. Curiously, The Globe and Mail reports that Bombardier claims that it has never done business with Rambo Management so how Rambo might have acquired these units, and what it was doing selling them back to Multiserv (who supposedly acquired them in the first place) is also obscured in shadows.
OCCRP, however, notes, "The routing of the trade makes no business sense and allows for unnecessary costs to be added or prices to be marked up for no added value. Selling products to yourself or close business partners is a technique often used in many countries to evade taxes, embezzle funds or launder money."
Furthermore, Daniel Reeves the former lead investigator for the IRS’s Offshore Private Banking Initiative said, "[Criminals] often establish multiple layers of offshore entities and accounts using multiple offshore financial centers as part of an overall money laundering scheme to hide the true beneficial ownership of illicit funds while also making it much more difficult for law enforcement to trace the funds. Each time a layer of secrecy is successfully peeled back, investigators are confronted with yet another layer of secret offshore entities, accounts and sovereign laws that must be addressed and overcome."
In another investigation Russian Railways paid billions to secretive private companies, the news agency Reuters found that Russian Railways had paid over 2.5 billion (USD) to companies such as MPCenterZhat (MPC), which has an office in a townhouse in a leafy Moscow suburb where neighbours say someone only turns up for work once a week; or TransServisAvtomatika (TSA) supposedly located at an address just outside Moscow's ring road in a building that houses a car dealership, a fitness club, a beauty parlour, two bank branches, a florist and a grocer -- but no office of TSA.
Of the 10 companies having received $2.5 billion, Reuters could only find one (Zheltransavtomatika) at which there were any employees working at all, and at four of the ten listed offices no one at the location had ever even heard of them. Reuters' investigation revealed that some of the money received was funneled offshore or hidden in banks, and only a small proportion went to actual companies performing work for Russian Railways.
A recent investigation, Russian whistle-blower pulls back cover on railways corruption by Radio Free Europe and Radio Liberty (RFE/RL) has detailed how corruption in Russian Railways works by issuing no-bid contracts, inflating bid prices, using unauthorized private subcontractors and lack of proper authorization.
Should we be concerned that Bombardier, a Canadian company, has over the past six years paid $2.46 billion to a company now directed by a 28 year-old Russian-Cypriot who no one knows? Is this a cause for concern?
Such a cast of characters, and the exceedingly shadowy and changeable ownership structure of Multiserv Overseas is certainly of concern. It's little wonder that The Globe and Mail cites Robert Barrington, executive director of the British chapter of Transparency International as saying "This has got red flags all over it."
However, is there any reason why we in Canada should care about such a tangled web of potential corruption? Who pays the bill for this are ordinary Russian citizens. Russian Railways suffered a net loss of $1.5 billion in 2014 and the Russian newspaper Vedmosti reported that it would require a public infusion of at least $6.8 billion over the next four years from the Russian government to stay solvent. It is ordinary Russian people who pay this cost through higher railway fares, greater costs for food and other goods transported by rail and through their taxes to the Russian government.
So, why not simply shrug our shoulders? Corruption in countries such as Russia simply isn't our problem. Canadian corporations are making money here in Canada, and isn't making money what it's all about? Who cares if ordinary Russians have to pick up the tab? That's their problem.
Well, that's one perspective. Indeed, it is the core perspective of deregulated corporate capitalism, which values corporate profits above all else, personal and social fallout be damned.
Over the past half century, under the sway of neoliberal ideology, we have given increasing power to corporations, entities (indeed "persons" under the law) that have no moral values other than maximizing shareholder profit and generating vast salaries and bonuses for their upper echelon of executives. Nothing else matters. Every kind of activity, even that which 'ever-so-closely' skirts the peripheries of the law, is not only condoned in the pursuit of profit, it is encouraged. All other human, social, and environmental values are not simply secondary to this objective -- they are inconsequential. Profit rules. And whatever sleight of hand can be employed through questionable practices, tax shelters, loopholes, accounting tricks and every other financial legerdemain is not only permitted, it is actively fostered. And the human, social and environmental chips can fall as they may.
Any rational consideration will reveal that this is an utterly degraded ethical system. It reduces the complex affairs of society to a rudimentary primitivism. Such thinking can never address the nuanced complexities necessary to form a stable, social, political and economic system that actually serves human needs.
A better way
We, of course, need to work for better regulation of corporations, both nationally and internationally. We need better enforcement of what anti-corruption and transparency regulations states and international regulatory bodies have in place, as well as more information about activities of corporations through non-governmental organizations such as Transparency International, the Organized Crime and Reporting Project and similar initiatives. We also need more reportage by credible news agencies that help uncover fraudulent and corrupt practices.
However, this by itself, is not going to do the trick.
Such illicit activities are byproducts of the nature of deregulated corporate capitalism. If we entrust the commercial and market forces which power economics in our society to increasingly massive, wealthy and powerful agencies such as corporations -- which, as noted above, exist solely for the values of maximizing shareholder profit and generating wealth for the wealthiest 0.1 per cent of the humanity -- the economic engine of our societies will be in the hands of the robber barons.
Better regulation and better policing will help curb the excesses of graft and greed, but curb is all they will succeed in doing so long as corporate values are the principal structuring mechanisms of human society.
There are alternatives
The Leap Manifesto is one such approach. In Misunderstanding the Leap, critics fall flat, I wrote, "Corporate capitalism is devouring the ecosystem and the social and economic fabric upon which we all depend. Oxfam reports that 62 multi-billionaires own as much wealth as half of the world's population. The richest 1 per cent own more wealth than the other 99 per cent combined. Their proliferating network of tax havens allows the wealthy to hide $7.6 trillion, avoiding paying taxes and thereby impoverishing governments of revenue. The poorest 50 per cent of the world's population own 0.7 per cent of the planet's wealth.
"Who could contemplate such facts and not understand that something is drastically askew? This is the crucible in which the Leap Manifesto was forged. The reasons for its existence are as clear as the facts delineated above -- and these are the barest tip of a towering iceberg of environmental degradation, systemic discrimination, aboriginal genocide, political disenfranchisement, corruption, nepotism and greed."
The Leap Manifesto's fifteen demands address aboriginal justice, renewable energy, fossil-fuel infrastructure, energy democracy, energy poverty, sustainable and affordable mass transit, retraining for workers to participate in a clean energy economy, investments in public infrastructure, the development of localized and ecologically-based agriculture, an end to trade deals that undermine Canadian sovereignty, substantive protections for workers, substantive investments in low-carbon sectors such as caregiving, teaching, social work, the arts and public-interest media, a discussion on the introduction of a universal basic annual income, an end to "austerity" economics and political and electoral reform.
Its focus is specifically on the Canadian context, but such principles, or variations thereupon, can be adapted to contexts in many other countries.
We urgently need to reconceive both the values upon which our society is based and the ways in which we conduct ourselves in order to achieve those objectives.
Deregulated corporate capitalism is not the only paradigm of economic activity. For example, cooperative structures to manage different kinds of commercial activities and credit unions through which we can conduct financial transactions, allow us to direct market forces in ways that much more widely benefit society. Such organizations can embrace a more diverse set of values than simple greed and profit.
There are other viewpoints and approaches that are also illuminating in this regard. Henry Mintzberg's excellent short book Rebalancing Society: Radical renewal beyond left, right, and center draws attention to what he calls the "plural" sector of society -- meaning all those mechanisms and organizations, from community groups and associations, volunteer networks, unions, cooperatives, charities, religious groups, all manner of non-governmental organizations and entities such as universities and hospitals, that are neither public organizations (meaning belonging to or controlled by governments) nor private ones.
Mintzberg's thesis is that each of these sectors -- public, private, and plural -- does certain things effectively, and that a healthy society requires a healthy balance between them. An over-emphasis on one (and consequent under-emphasis on others) is problematic and frequently dysfunctional.
Similar areas are explored by George Monbiot in his recent article for The Guardian, The case for despair is made. Now let’s start to get out of the mess we’re in.
Monbiot wrote, "One element has been conspicuously absent from the dominant ideologies, something that is neither market nor state: the commons. A commons is an asset over which a community has shared and equal rights. This could, in principle, include land, water, minerals, knowledge, scientific research and software. But at the moment most of these assets have been enclosed: seized by either the state or private interests, and treated like any other form of capital. Through this enclosure we have been deprived of our common wealth."
The radical simplification of human affairs to the degraded lowest common denominators -- which is the objective of neoliberalism -- is destroying our planet through climate change (which is increasingly tilting towards uncontrollable, runaway change) and hollowing out our societies as economic inequality sucks wealth from the pockets of 99.9 per cent of humanity and into the coffers and gated communities of the 0.1 per cent.
The austerity of neoliberalism is a fundamentally unsustainable social and economic paradigm and its corrupt manifestation, as documented above, is a symptom of this terminal illness.
To survive we must change. We must begin now.
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