January 26th, 2011

Capital leakage from Volgotanker fraud case

Police general Alexander Bokov was arrested in a $46 million fraud case involving Volgotanker, the former shipping giant linked to Yukos. Bokov along with accomplices Mikhail Kreimer and Sergei Stepanov, tried to get businessman Alexei Chegodayev to give them $46 million in exchange for a controlling stake in Volgotanker.

How did a police general get control of the world’s largest river tanker company?

Former Volgotanker executive Ilya Katsnelson testified in front of the US Helsinki Commission in 2009 to describe how the company was illegaly taken over by corrupt Russian law enforcement from its managers and shareholders in the shadow of Kremlin’s orchestrated attack on Yukos. Volgotanker, like Yukos before it, was crushed by a bankruptcy process based on invented tax claims.

However,  the money-making business of the Ministry of the Interior, same organization which denied attorney Sergei Magnitsky medical attention that led to his death, never stops. So once Bokov had Volgotanker under control, he tried to sell it to Chegodayev. Something went awry in the transaction as Chegodayev never got the business he paid for and now the FSB (successor to the KGB) is persecuting the generals. Most probably, the FSB have their own perspective purchaser for the same asset. 

At Davos, President Dmitry Medvedev announced the creation of a special sovereign fund to attract foreign capital. This fund would allow foreigner to invest in state property; it is unclear if that means Rosneft or other strategic assets. Russia has the third largest reserves in the world but it is quickly shrinking due to capital leaking out of the system through corruption and expropriation.  The Reserve Fund, which is used to cushion budget gaps decreased by 58% to $25.4 billion last year.

As Russian officials continue to divide up the economic pie among themselves, they are seeking newer sources of capital from foreign investors. But investors should remember the fates of Yukos and Volgotanker and the corrupion tax on any potential returns.

Helsinki Commission Katsnelson Remarks 2009

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