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Cutthroat Capitalism. Makhlai’s Criminal Empire: From Dusk till Dawn

By Roman Krotov

On October 17, the Samara Regional Court will continue to consider the appeal of members of the ToAZ group. In July, the Togliatti Komsomolsky District Court found them guilty of a large-scale fraud committed as part of an organized criminal group. Vladimir Makhlai is a strikingly underrated figure in the criminal history of post-Soviet Russia. Having seized control of the most modern Soviet chemical plant Togliattiazot, he built his multi-billion-dollar empire stopping short of nothing - fraud, misappropriation, various criminal schemes - everything was good for him. Many representatives of the criminal business did not survive the 1990s, some have been in prison for a long time, and others have served and redeemed themselves. Yet, Vladimir Makhlai and his son Sergey, who adopted all of his father's methods, managed to remain virtually unpunished for almost three decades. However, it seems that Lady Justice now reached out to them.

The 'Red'Director who Appropriated the Plant

[In Russia, 'Red Directors' are those who have headed enterprises since Soviet times - ed.]

Vladimir Makhlai became ToAZ Director in 1985. After the collapse of the USSR, many 'red' directors of enterprises were left out of work, but not Makhlai. According to some reports, in Togliatti he met the notorious Boris Berezovsky, from whom he learned the basics of doing business, known as "privatization of profits and nationalization of losses". As Makhlai's acquaintances recall, he was obsessed with the idea of ​​taking possession of ToAZ, and at the lowest cost too. At that time, there were several schemes for enterprises privatizing, and in some unthinkable way, contrary to the decrees of the country's president and governmental regulations, Makhlai managed to privatize the giant ammonia plant using the third option designed for small businesses with up to 200 employees and fixed assets of up to 10,000 rubles. At that time, 5,000 workers worked for ToAZ, and estimated fixed assets were worth of hundreds of millions of rubles. Makhlai immediately got hold of a part of the shares; the other part was distributed among the employees. However, the workers did not rejoice for long: as the media wrote, the leadership persistently persuaded them to give up their shares, and if the persuasion did not help, threats and blackmail were used.

With the money of ToAZ itself, illegally withdrawn from accounting and taxation using the scheme for selling products through intermediary called AMOTOAZ, Makhlai apparently bought the shares and registered them for shell companies managed by his relatives. He incorporated AMOTOAZ in the USA without observing the procedures established by law that prescribed him to obtain permission from the Ministry of Finance of the Russian Federation. He would hardly have managed to do this without the help of corrupt officials. The deputy head of the Samara Region Property Committee, Alexander Makarov, who apparently helped him in the implementation of the chemical giant privatization scheme, became Makhlai's economic assistant (and subsequently seemed to have fled abroad together with the latter from criminal prosecution). The chairperson of the Property Committee Vladimir Mamigonov for a long time had been a member of the board of directors of ToAZ. The future director of the plant, Yevgeny Korolev, who also kept the register of its shareholders, also used to work in the Committee - this is possible only under 'cutthroat capitalism'. Reporting to Makhlai, he was responsible for the register of the enterprise shareholders, and apparently, he maintained it in the way necessary for his boss - the shareholders disliked by the management at some point could simply 'evaporate'. Usually ordinary workers were thrown out of the register, but the same fate befell a foreign investor Eurotoaz Limited.

As Rossiiskaya Gazeta wrote back in 1998 in an article titled "Scam," the workers and shareholders fully felt all aspects of the enterprise's work under the leadership of Vladimir Makhlai: as soon as he took possession of ToAZ, the headcount reduced drastically, equipment was already extremely worn out, and dividends were not paid.

The Vengeance of 'Fantomases'

The structure of ToAZ ownership was shrouded in a veil of secrecy, and Makhlai, apparently, was ready to even kill so that these secrets would not come out. The fate of a certain individual named Elena Povalyaeva, who became Makhlai's mistress, is representative. According to media reports, he rented an apartment for her, where he also kept important documents and information (about the real shareholders of ToAZ and the Transammiak Export Pipeline manager, the register of shareholders, and other information important for Makhlai). Subsequently, Elena Povalyaeva died. It was rumored that she was murdered. Since contract murders are extremely difficult to solve, Povalyaeva's death could remain a mystery. But in 2012, one of the former members of the notorious Togliatti 'Fantomases' gang, Evgeny Kutminov, who is serving a life sentence in the Black Dolphin correctional colony for other crimes, apparently decided to ease his conscience and said that the woman was allegedly killed by his accomplices. How many more people in Togliatti suffered Povalyaeva's fate, one can only guess. For example, the murders of journalists Valery Ivanov and Alexei Sidorov, who tried to investigate the Makhlais' cases, are still unsolved.

Feeling like a full owner of the plant, Makhlai started looking for new ways to channel ToAZ profits to offshore. In 2001, the plant entered into an agreement for a period of 20 years with the Swiss company Nitrochem Distribution AG, a subsidiary of Ameropa AG, first owned by Makhlai's friend Felix Zivi, and after his death by his son Andreas Zivi. This was a partner to match Makhlai, a man with a rather dubious reputation. In 2015, the media wrote that Andreas Zivi was summoned to the Oslo prosecutor's office to testify in a case involving  bribing Libyan officials in order to enjoy preferences when selling chemical products in that country. As it turned out during the investigation of the case, in March 2007, Nitrochem acting on behalf of the Norwegian chemical company Yara transferred $1.5 million to the Swiss account, which at that time belonged to the son of Libya's oil minister Shukri Ghanem, who later disappeared and was found dead in the Danube. In this episode, Nitrochem was sentenced to a fine of 750,000 Swiss francs.

Swiss Servitude

The agreement with Nitrochem Distribution AG was absolutely enslaving for ToAZ. The Swiss company became the exclusive trader for ToAZ and became able to set price for the plant's products. Nitrochem Director Beat Ruprecht would simply fax the price and the requested supply volumes to the plant. As a rule, the price was 30-40 % below the market price. The plant had no opportunity even to challenge it, not to mention rejecting it - the contract provided for multi-million penalties if ToAZ were to terminate the contractual relationships. Further, Nitrochem would sell the plant's products - ammonia and urea - at market prices, and the mark-on was distributed between the organizers and participants in the scheme.

Not only money was withdrawn from ToAZ but also the assets. Numerous accountants, appraisers, and dummy directors seemed to help the Makhlais and Zivi in this. According to the documents published in the press, from 2005 to 2010, with the help of a series of several hundred transactions, each of which separately did not raise any suspicions, ammonia unit No. 7 was withdrawn from ToAZ, which was relatively modern and in better technical condition compared to the other ones. In the end, 16 buildings and structures of the unit and over 500 pieces of production equipment were sold for less than 100 million rubles whereas their real market value was at least 10 billion rubles - a 100x difference. Above-mentioned Alexander Makarov executed the agreements for TOAZ. In the same way, methanol line was withdrawn from ToAZ in 2010 - an installation with a capacity of 450,000 ton per year along with the land plot was sold to the same OOO Tomet for 132 million rubles. This time, Yevgeny Korolev, ToAZ general director, executed the contract. As the expert examination found, almost all contracts and valuation acts of property sold for nothing were stamped with fake seals and signed with fake signatures. These assets were transferred to a certain OOO Tomet. The company is 100% owned by offshore companies controlled by Andreas Zivi according to public data. Then, following the same scheme, ToAZ lost all of its urea-formaldehyde concentrate line, workshop No. 13, and parts of pipelines..

In 2005, Makhlai was accused of large-scale fraud and tax crimes, and thereafter he fled to London together with Alexander Makarov, where he remains today. Nevertheless, he continued to control the plant remotely until 2011, when his son Sergei replaced him as the chairperson of ToAZ board of directors. His son was a US citizen with several passports where his name was spelled differently: Sergei Makhlai, Serge Makligh, George Mack (as the media wrote, the obvious reason for the change of passports by Sergei Makhlai was tax evasion in the new 'homeland'). For ToAZ, the change of the chairperson of the board of directors did not bring any positive changes - the withdrawal of profit to Swiss offshores through Zivi continued as before, the equipment of the plant kept deteriorating, and the environmental situation in Togliatti kept aggravating. Here it is just right to recall that chemical production is a dangerous process, and when a huge enterprise deals with thousands of tons of toxic substances and millions of cubic meters of explosive gas on a daily basis, tens of millions of dollars must be invested in industrial and occupational safety. However, Makhlai was ready to invest such money only in foreign real estate.

The Threat of Technological Disaster

Inspection of the enterprise by the Samara Department of Rostekhnadzor (the Russian Federal Service for Ecological, Technological and Nuclear Supervision) in 2011 gave shocking results: over 500 gross violations in the field of industrial and occupational safety were revealed. Up to 80 % of controls, alarms, and emergency protection devices were worn out. Rostekhnadzor's repeated inspection in August 2012 showed that the plant management learned no lessons and was not going to take any actions, even those desperately required. Four out of seven ammonia units would discharge flammable gas directly into the atmosphere without any purification, and sometimes even directly to the workshops. The main gas pipelines' period of safe operation expired long ago; their revision and repair never carried out and were not even planned. What happened next? Nothing. According to local media, a proven tool could have been used again - corruption. Since then nothing has been heard about the state of industrial safety and any inspections at the plant.

At the end of 2011, Rosprirodnadzor (the Russian Federal Supervisory Natural Resources Management Service) carried out an inspection at ToAZ, drew up a corresponding act, and the plant itself received a number of instructions. The inspection commission revealed violations of the requirements of the environmental legislation of the Russian Federation. For instance, in January 2011 alone, the enterprise released 32 ton of pollutants into the atmosphere over the established limit. In addition, the plant violated a number of articles of the Federal Law "On production and consumption waste". During the inspection, state inspectors of the Department revealed the fact of unauthorized disposal of 20 tons of limestone and dolomite waste. According to the audit, Rosprirodnadzor announced that ToAZ also does not comply with the conditions for the water body using. The analysis revealed that the discharge of wastewater from the treatment facilities of the plant to the pumping station, with their subsequent discharge into the Volga, is carried out with a significant excess of permissible concentrations: nitrate ions - 1.6x, iron - 1.9x, copper - 6x, sulfates - 1.5x. In 2012, dozens of Togliatti residents signed an appeal to the country's government claiming that the ecological situation in the city was "critical". According to the residents of the city, an increase in chronic respiratory diseases, oncological diseases, and newborns' various deviations were registered in Tolyatti. At the same time, as people wrote, "Chemical Oligarchs" demonstrate complete indifference to the problems of the city generated by their unrestricted greed.

After 2012, surprisingly, the local administration of Rosprirodnadzor lost all interest in Togliattiazot; at least no one knows anything about any new inspections. As the media suggest, this agency too was subjected to the corrupt influence of the Togliattiazot management.

Not only residents of the Samara Region were able to feel the Makhlais' attitude to environmental and industrial safety issues: on June 21, 2015, in the Voronezh Region, a pipe broke in the section of the Togliatti - Odessa ammonia pipeline belonging to ToAZ. Tons of toxic ammonia instantly burst out from the ammonia line. Ammonia is dangerous if inhaled. In case of acute poisoning, ammonia affects the eyes and respiratory tract, and at high concentrations, it may cause death. Only thanks to the prompt actions of local authorities and rescuers, who evacuated 800 local residents, no one died - and only one person suffered from inhalation poisoning.

Under Personal Control

Things simply could not go on further like that - the dominance of criminals at ToAZ has already lasted longer than even at AvtoVAZ. At the end of 2012, the Investigative Committee of the Russian Federation opened a criminal case on the fact of a large-scale fraud at ToAZ. Vladimir Makhlai and Sergey Makhlai, Korolev, Ruprecht, and Zivi became suspects in fraud, which caused damage to the plant for 77 billion rubles. Due to the extreme public importance, Alexander Bastrykin, the Chairman of the Investigative Committee of the Russian Federation, took the investigation of the case under his personal control. Criminal gangs can be extremely difficult to bring to justice - in the end, even Al Capone was officially accused only of tax evasion. Surprisingly, taxes also played an important role in the ToAZ case. After tax audits, ToAZ was additionally charged about 3.5 billion rubles of unpaid taxes for 2008-2013. The Makhlais fiercely resisted and disputed every additional charge, up to the highest court. However, in all cases, the courts of all instances confirmed the correctness of the tax authorities. Thus, the court has established and confirmed the fact of the ToAZ profits withdrawal from taxation in Russia. For the criminal case, this was extremely important, since this fact became prejudicial, that is, it was no longer necessary to prove it.

Nevertheless, ToAZ owners did not hurry to give up and return the stolen property to the plant. The investigation, during which law enforcement officers had to figure out the most complicated chain of offshore companies registered in various jurisdictions, had taken five years. A support group of economists, political scientists, and even lawmakers hired by Makhlai tried, as they say, to ruin the case or prevent the investigation. When the case was finally sent to court, lawyers tried to slow down the consideration arranging ridiculous setups at the hearings, making absurd petitions, or failing to appear at all. As the fateful moment of the verdict was approaching, the Makhlais' legal advisors became more and more panicky. Some believe that they even tried to resort to social blackmail and raise the employees to protests under the threat of dismissal. Nevertheless, hiding behind the workers' backs did not work out - almost no one came out in the Makhlais defense.

On July 5 this year, the Togliatti Komsomolsky District Court convicted five members of the ToAZ elite, finding them guilty of fraud committed as part of an organized criminal group, and sentenced them in absentia to 8.5-9 years in prison. They will also have to return 77 billion rubles to TOAZ. This is a major milestone in the history of the once most modern chemical plant in the USSR, which, due to rampant crime, has become the most lagging in Russia. However, this story is not over yet.

Empire at Sunset

On May 16, 2019, the Investigative Committee of the Russian Federation opened a new criminal case under article 210 of the Criminal Code of the Russian Federation (Creation of a Criminal Community (Criminal Organization) and Participation Therein). Five people convicted of fraud as part of an organized crime group, as well as Makhlai's former assistant Alexander Makarov and many smaller persons involved, appraisers, accountants, directors of shell companies and others are involved in this case. These are Alexander Korenchenko, Olga Kamasheva, Alexey Vinogradov, Ksenia Balashova, Andrey Mizgirev, Lyudmila Miloserdova and others.

On May 31, in Moscow, law enforcement agencies arrested the first person in the case - when trying to fly outside the country, the chairperson of the Togliattikhimbank Management Board Alexander Popov was detained. According to investigators, it was Popov, who played the role of the "financial brain" of organized crime group. In the Togliattikhimbank entrusted to him, he deployed a real control center managing the offshores belonging to the Makhlais and Zivi. The profit withdrawn from ToAZ because of a fraudulent scheme ended up on the accounts of these offshore companies opened with Togliattikhimbank, having no visible connection with their real owners. Later, the money went through the 'laundering' procedure - for example, it was issued as a loan to third parties and returned to the bank as legal profit. Some of it was cashed out for corruption purposes and used to bribe various officials. In addition, Popov managed the withdrawal of the most valuable assets from ToAZ - ammonia unit No. 7, methanol production line, and other assets. He oversaw a complex chain of several hundred transactions, as a result of which expensive equipment and land owned by the plant fell into the hands of Tomet shell company controlled by Zivi's offshores, at a price that was a hundred times lower than the real price. The same offshore companies were used in the scam with the withdrawal of profits. As a result, the company lost more than 10 billion rubles. Popov, who began confessing, had already reported that Sergei Makhlai himself involved him in criminal activity.

For a long time, the ToAZ criminal group managed to get off with a whole skin due to their ties, almost unlimited financial resources received from a giant strategically important Russian enterprise, and also because the government was too busy cleaning up the criminal gangs of the neighboring AvtoVAZ plant. Nevertheless, the principled stance and competence of law enforcement and judicial authorities, demonstrated in the case of multi-billion-dollar fraud at the plant, clearly signal that the government no longer intends to put up with the legacy of the 1990s in one of the largest industrial centers in Russia.

Roman Korotov

Article based on the materials published in the Versia newspaper