In the world’s biggest country, railways are still a route to riches. With nearly 1 billion passengers a year and $42 billion in annual sales, the state company Russian Railways is a giant commercial opportunity.
At its head is Vladimir Yakunin, an old friend and long-standing ally of President Vladimir Putin. He oversees a company that strikes international deals, issues bonds to major investors and plans hugely expensive new high-speed lines. By many measures, Russian Railways is a standard corporate colossus.
But a Reuters investigation has uncovered another side to the state-owned company: Under Yakunin, it has paid billions of dollars to private contractors that disguise their ultimate owners and have little or no presence at their registered headquarters.
A Reuters study of tenders held by Russian Railways also identified contracts worth hundreds of millions of dollars granted to companies that ostensibly bid as rivals but appear to be closely related.
In 43 tender competitions worth $340 million from 2010 to 2013, for instance, the same two companies were the only bidders each time. Those two firms, it turns out, were set up on the same day, by the same person acting on behalf of undisclosed owners. The firms opened accounts at the same bank on the same day, and declared an identical number of employees two years in a row. On one occasion, they filed bids for a Russian Railways tender within a minute of each other. And last October, after Reuters first inquired about the nature of the companies, both registered websites on the same day.
Russian investigator Sergei Lesnichiy said Reuters findings appeared to show an attempt to manipulate tenders for state contracts, potentially inflating costs to the detriment of Russian Railways. Lesnichiy, director of the Centre for Financial Investigations, an expert body set up by the Russian state, said such effects, if verified and if insiders at Russian Railways benefited, could amount to fraud under Russian law. But he also said that under Russian law it is not an offence for related companies to bid in state tenders.
A further Reuters analysis of banking transactions between 2007 and 2009 involving one large private contractor to Russian Railways showed patterns of activity that U.S. and Russian financial investigators said were typical warning signs of suspicious banking activity.
The analysis suggests that millions of dollars originating from Russian Railways ended up with companies that had nothing to do with railway work. Some of these companies have been judged by Russian authorities to be bogus companies with no genuine operations.
These transactions passed through a small bank part-owned from 2007 to 2009 by a businessman called Andrei Krapivin. Yakunin, the head of Russian Railways, once described Krapivin as an “old acquaintance” and an “unpaid adviser who understands banking well,” according to the Russian newspaper Vedomosti.
A spokesman for Russian Railways said Krapivin “is not an adviser” to Yakunin, but did not comment on whether he had been in the past.
This investigation is part of a Reuters series examining how Russia does business in the Putin era. Even as the Russian president has denounced corruption, some members of the elite have used secretive companies, straw owners and other means to gain business worth hundreds of millions of dollars from some of his signature undertakings. Earlier stories examined how two of Putin’s associates profited from an ambitious state healthcare project.
This article, which is based in part on a confidential database of Russian bank records, focuses on one of the country’s largest businesses in state hands: the railways. The money at stake is huge: In 2012 Russian Railways handed contracts worth $22.5 billion to private contractors – more than the $19.7 billion it paid its staff.
In March, after Russia annexed Crimea, Yakunin was one of the senior Russian officials and members of Putin’s inner circle sanctioned by the United States. The U.S. Treasury described him as a “close confidant of Putin” who “regularly consults with Putin on issues regarding the Russian Railways company.”
He has known Putin since they were both in St. Petersburg in the 1990s. Putin appointed him as head of Russian Railways in 2005, early in Putin’s second term as president.
Yakunin did not respond to Reuters inquiries regarding this story, but his spokesman at Russian Railways, which is also known by the abbreviation OAO RZhD, replied to written questions.
“The procurement activity of OAO RZhD is undertaken in strict accordance with the relevant laws,” Alexander Pirkov wrote. Tenders were organised in “the most transparent way” and procurement activity “has been repeatedly examined by the competent state organs, including the Audit Chamber of the Russian Federation,” he said.
Russian Railways said the companies identified by Reuters were all legitimate, and that its contracts were awarded fairly and fulfilled properly.
Krapivin did not respond to Reuters requests for comment. Instead, his son called. Alexei Krapivin said his father had no involvement in the railway contractors and transactions examined in this report. He said any suggestion to the contrary was “bullshit.” He declined to comment in detail.-Reuters