Russian tycoon’s hyperlink to alleged corruption in leaked information raises questions for Tory ministers | Russia

A Russian-born oil tycoon whose agency has made enormous donations to the Conservative social gathering secretly co-owned an organization as soon as accused of collaborating in an enormous corruption scheme, in response to leaked information seen by the Guardian.

Viktor Fedotov, 74, a reclusive government with a mansion in Hampshire, made no less than $98m (£72m) from an offshore monetary construction that seems to have funnelled income from the accused Russian firm through a number of tax havens.

Paperwork within the Pandora papers counsel Fedotov and two different males made fortunes from the corporate within the mid-2000s, across the time it was alleged to have been siphoning funds from the Russian state pipeline monopoly Transneft. He seems to have used a number of the cash to purchase a $34m personal jet.

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What are the Pandora papers?

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The Pandora papers are the most important trove of leaked information exposing tax haven secrecy in historical past. They supply a uncommon window into the hidden world of offshore finance, casting gentle on the monetary secrets and techniques of a number of the world’s richest folks. The information have been leaked to the Worldwide Consortium of Investigative Journalists (ICIJ), which shared entry with the Guardian, BBC and different media shops world wide. In whole, the trove consists of 11.9m information leaked from a complete of 14 offshore service suppliers, totalling 2.94 terabytes of data. That makes it bigger in quantity than each the Panama papers (2016) and Paradise papers (2017), two earlier offshore leaks.

The place did the Pandora paperwork from come?

The ICIJ, a Washington DC-based journalism nonprofit, isn’t figuring out the supply of the leaked paperwork. As a way to facilitate a worldwide investigation, the ICIJ gave distant entry to the paperwork to journalists in 117 international locations, together with reporters on the Washington Publish, Le Monde, El País, Süddeutsche Zeitung, PBS Frontline and the Australian Broadcasting Company. Within the UK, the investigation has been led by the Guardian and BBC Panorama.

What’s an offshore service supplier?

The 14 offshore service suppliers within the leak present company providers to people or firms looking for to do enterprise offshore. Their purchasers are sometimes looking for to discreetly arrange firms or trusts in flippantly regulated tax havens such because the British Virgin Islands (BVI), Panama, the Cook dinner Islands and the US state of South Dakota. Firms registered offshore can be utilized to carry property resembling property, plane, yachts and investments in shares and shares. By holding these property in an offshore firm, it’s doable to cover from the remainder of the world the id of the individual they really belong to, or the “useful proprietor”.

Why do folks transfer cash offshore?

Often for causes of tax, secrecy or regulation. Offshore jurisdictions are inclined to don’t have any revenue or company taxes, which makes them doubtlessly engaging to rich people and firms who don’t wish to pay taxes of their dwelling international locations. Though morally questionable, this type of tax avoidance will be authorized. Offshore jurisdictions additionally are typically extremely secretive and publish little or no details about the businesses or trusts integrated there. This could make them helpful to criminals, resembling tax evaders or cash launderers, who want to cover cash from tax or legislation enforcement authorities. It is usually true that folks in corrupt or unstable international locations could use offshore suppliers to place their property past the attain of repressive governments or legal adversaries who could attempt to seize them, or to hunt to avoid exhausting foreign money restrictions. Others could go offshore for causes of inheritance or property planning.

Has everybody named within the Pandora papers finished one thing unsuitable?

No. Shifting cash offshore isn’t in or of itself unlawful, and there are legit the explanation why some folks do it. Not everybody named within the Pandora papers is suspected of wrongdoing. Those that are could stand accused of a variety of misbehaviour: from the morally questionable by way of to the possibly legal. The Guardian is simply publishing tales primarily based on leaked paperwork after contemplating the general public curiosity. That could be a broad idea that will embrace furthering transparency by revealing the key offshore house owners of UK property, even the place these house owners have finished nothing unsuitable. Different articles would possibly illuminate problems with necessary public debate, increase ethical questions, make clear how the offshore trade operates, or assist inform voters about politicians or donors within the pursuits of democratic accountability.

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The accusations of fraud – that are strongly denied – in opposition to the Russian contractor Fedotov co-owned have been contained in a confidential Transneft report. After the report was leaked, the ensuing allegations have been questioned by senior Russian officers together with the then prime minister, Vladimir Putin, who stated the issues had been investigated and no legal offences had been dedicated.

Legal professionals for Fedotov strongly denied all accusations of fraud. In an announcement, they stated he was too unwell to touch upon the “false allegations” however denies any allegation of wrongdoing.

Viktor Fedotov pictured in 2012. {Photograph}: Ekaterina Chesnokova/Sputnik

Nevertheless, a Guardian and BBC Panorama investigation revealing Fedotov’s secret possession of the Russian firm, and information that counsel he generated a fortune from the construction that owned it, may show explosive for Boris Johnson’s authorities.

Fedotov is now the bulk proprietor of Aquind, a wholly separate UK firm that’s looking for ministerial approval for an undersea energy interconnector between Portsmouth and Normandy in France. The £1.2bn proposal is regarded by officers as a “nationally vital infrastructure challenge”. A call on whether or not to permit it to proceed is due inside weeks.

Aquind’s challenge has already been mired in controversy, amid native opposition and complaints over the corporate’s donations to and hyperlinks with the Conservative social gathering. Alexander Temerko, who’s a good friend of the prime minister, Boris Johnson, and a co-owner of Aquind, has along with the corporate donated £1.1m to the Tories.

Three Conservative ministers have already needed to recuse themselves from the decision-making course of over the Aquind undersea cable due to their hyperlinks to the corporate. There is no such thing as a suggestion Temerko had any information of the doable origins of Fedatov’s wealth.

Aquind’s legal professionals stated the allegations in opposition to the Russian firm co-owned by Fedotov got here from an entirely unreliable report. In a prolonged assertion, Aquind stated the accusations have been utterly false.

Alexander Temerko with Boris Johnson.
Alexander Temerko with Boris Johnson. {Photograph}: Zoe Norfolk

Ministers will now have to contemplate whether or not there are inquiries to reply over the sourcing of Fedatov’s funding in Aquind, and whether or not any cash the Tory social gathering acquired from the agency could also be linked in any method to alleged fraud.

Allegations of embezzlement

The corporate co-owned by Fedotov that was accused of involvement in corruption is Vniist, which was a contractor on Transneft’s large Japanese Siberia-Pacific Ocean (Espo) pipeline challenge.

Allegations of fraud in connection to the pipeline challenge date again to 2008, when the state pipeline monopoly’s newly appointed president, Nikolay Tokarev, went public with issues about monetary irregularities involving the prior administration of Transneft.

Two years later, the Russian opposition activist Alexei Navalny, then a 34-year-old lawyer, went additional and revealed what he alleged was an enormous embezzlement scheme perpetrated by Transneft’s earlier administration and a number of contractors on the pipeline challenge. Navalny estimated the fraud value the Russian taxpayer $4bn.

Alexei Navalny pictured in Moscow in 2010.
Alexei Navalny pictured in Moscow in 2010. {Photograph}: Alexander Zemlianichenko/AP

“They stole,” Navalny wrote on his weblog on the time. “They overstated costs. They connived with contractors to cheat.”

To assist his claims, Navalny printed a confidential 2008 report that an inner working group at Transneft, which was by that point led by Tokarev, had compiled on the request of Russia’s audit chamber – a physique liable for monitoring federal budgets.

The leaked report alleged that “a scheme was artificially created” to profit contractors on the pipeline challenge who “didn’t carry out” any work but acquired “unreasonably excessive funds” from the state-owned firm. The findings appeared to echo Tokarev’s earlier public admission of issues.

Among the many a number of contractors recognized within the inner report was Vniist. The report didn’t determine who finally managed Vniist however alleged, on the idea of two case research, the corporate had siphoned as a lot as 3.8bn roubles – on the time round $140m (£80m) – from Transneft.

Particularly, the report alleged Transneft had “no goal have to conclude a contract with Vniist” and the involvement of the corporate within the Espo challenge was “unjustified and economically unprofitable”.

Oil storage tanks operated by Transneft, the oil pipeline monopoly, stand at the Yuzhny Balyk plant in Sentyabrsky, Russia, 2014.
Oil storage tanks operated by Transneft, the oil pipeline monopoly, stand on the Yuzhny Balyk plant in Sentyabrsky, Russia, 2014. {Photograph}: Bloomberg/Getty Photographs

On the time, Navalny’s leak of the report made headlines world wide and thrust him additional into the highlight as an outspoken anti-corruption campaigner. The report was referred to the Russian inside ministry and prosecutor normal and the rising controversy elicited responses from senior Russian figures.

The pinnacle of Russia’s audit chamber, Sergei Stepashin, reportedly stated in November 2010 that whereas Transneft did misuse some funds, Navalny’s calculation in regards to the scale of the alleged fraud was incorrect. “There was no $4bn embezzlement,” he stated. Two months later, Tokarev accused Navalny of “propaganda” and likewise stated the blogger’s calculation in regards to the scale of the alleged fraud was primarily based on a flawed extrapolation.

When no prices materialised within the Transneft case, Navalny accused authorities of masking up an alleged fraud. That accusation was rejected by Putin, who in September 2011 stated: “If there had been something legal there, I guarantee you folks would have been behind bars way back.”

Aquind’s legal professionals stated the response from the Russian authorities and different proof they’d uncovered demonstrated the Transneft report was a “wholly unreliable” doc. They stated Transneft had a business motive for making allegations in opposition to Vniist, an organization it later introduced quite a lot of largely unsuccessful authorized actions in opposition to over a collection of contractual disputes.

Within the decade since he leaked the Transneft report, Navalny has been a thorn within the facet of the Putin regime, which he accuses of poisoning him. He was imprisoned this yr in Russia in relation to a case of alleged embezzlement that he stated was politically motivated.

Vladimir Ashurkov, the director of Navalny’s Anti-Corruption Basis, who labored in 2010 with the activist to analyze the Transneft case, stated they have been largely unable to find out who benefited from the alleged corruption – which didn’t lead to any legal prices. “It wasn’t simple,” he stated. “The vast majority of it we couldn’t attribute to anybody particularly.” No legal prosecutions ever resulted.

For 10 years, the id of the last word house owners who managed Vniist has remained a thriller. It’s a query now seemingly answered by the Pandora papers.

Secret offshore stakes

Leaked paperwork counsel Vniist was secretly owned by three Russian businessmen. One was Vladimir Fedotov. The opposite two have been executives of Transneft – together with the state firm’s then president, Semyon Vainshtok.

Vladimir Putin and the Transneft oil company president, Semyon Vainshtok, pictured in 2007.
Vladimir Putin and the Transneft oil firm president, Semyon Vainshtok, pictured in 2007. {Photograph}: Sputnik/Alamy

Legal professionals for Vainshtok acknowledged he had a “useful curiosity as an oblique shareholder in Vniist”. Nevertheless, they stated he was not a director of Vniist and denied any involvement in awarding the Espo pipeline contracts. They stated the allegations of fraud within the Transneft report have been “unfounded” and made for “political functions”.

“The allegations in opposition to Mr Vainshtok have been made greater than 10 years in the past and are completely with out basis,” his spokesperson stated in an announcement√. “When the allegations have been made, they have been totally investigated and confirmed as unfaithful by all of the related authorities … which discovered no wrongdoing and no grounds for additional investigation.”

Vainshtok’s legal professionals additionally didn’t expressly dispute his and Fedotov’s secret offshore stakes in Vniist, that are revealed within the Pandora papers.

Information present that in June 2003, two months earlier than Transneft signed its first contract with Vniist for the Espo challenge, Fedotov, Vainshtok and the opposite Transneft government every established New Zealand trusts, naming themselves and their relations as beneficiaries.

Inside two years, the three trusts – settled on the identical day with the assistance of the identical London accountancy agency – got here to regulate a labyrinthine offshore construction that stretched from the British Virgin Islands (BVI) to Russia through shell firms in Malta, Luxembourg and the Netherlands.

In line with a doc ready by an adviser to the trusts, the aim of the construction was clear. The lads “had widespread enterprise pursuits in a spread of Russian firms, together with particularly a beneficial curiosity in Vniist”.

Paperwork counsel that by way of layers of shell firms the trusts held a 75% stake in Vniist and majority stakes in 4 different Russian firms.

Two main QCs who reviewed the paperwork instructed the Guardian the complicated construction seems to have been designed to intentionally conceal any connection between the Russian firms and their final house owners.

The information counsel that inside three years of the creation of the offshore construction, Fedotov, Vainshtok and the opposite Transneft government turned terribly wealthy with a mixed whole of no less than $220m flowing into their New Zealand trusts.

Cash seems to have moved up by way of the construction to the trusts within the type of dividend funds. In a single August 2005 doc held by the trusts’ directors, a handwritten be aware suggests Vniist meant to pay dividends to every of the trusts. The worth of every dividend fee isn’t clear, neither is the exact route funds took earlier than arriving into belief financial institution accounts.

However accounting data counsel a flurry of huge financial institution transfers to every of the trusts have been made on the time Vniist was engaged by Transneft as a contractor for work on the Espo pipeline.

For Fedotov, who served as Vniist’s chairman till 2006, the belief generated a profitable windfall for him and his household. Monetary data counsel that his London-based accountants calculated the belief acquired $97m between 2003 and 2005.

The funds seem to have been rapidly put to make use of. In early 2005, the belief’s BVI firm agreed a $40m line of credit score with an unique Swiss financial institution. Weeks earlier, it bought a $34m Bombardier personal jet, a top-of-the-range plane designed for long-distance flights.

Aquind possession revealed

In Could 2007, the key belief construction was restructured, boosting Fedotov’s stake within the underlying firms. Shortly after, Fedotov agreed to switch his new 65% stake within the Russian firms to a collection of newly integrated firms in Cyprus. Vainshtok left Transneft in September 2007.

However by Could 2008, Fedotov and Vainshtok have been working collectively once more, this time within the UK, the place the pair of Russian vitality executives briefly turned administrators of a struggling oil and gasoline engineering agency primarily based in a seaside city on the Suffolk coast.

That firm, SLP Engineering, was a part of a gaggle of firms that later turned generally known as Offshore Group Newcastle (OGN). Vainshtok’s legal professionals stated he was solely “briefly” a director of SLP Engineering, and had no involvement in OGN.

Two years later, in 2010, OGN created Aquind, the corporate now vying for ministerial approval for its undersea electrical energy cable.

For a decade, the possession of OGN and Aquind, which had been transferred offshore, was shrouded in secrecy. Fedotov lawfully stored his id as proprietor of Aquind hidden after Firms Home granted him an exemption to guidelines requiring an organization’s final house owners to be recognized. Fedotov’s legal professionals stated the exemption was made to guard his “private safety”.

Earlier this yr, Aquind disclosed in company paperwork that Fedotov was the bulk proprietor of the corporate. Legal professionals for Aquind confused that Fedotov didn’t personally donate to the Conservative social gathering, was not concerned within the administration of the corporate and had “no affect” over its donations.

Fedotov’s legal professionals stated he “has by no means had any curiosity in British politics and has operated in an open and clear method all through the course of his profession”.

Nevertheless, the Pandora papers revelations are doubtless to present rise to questions for the Conservative authorities.

MPs have raised issues that Aquind’s electrical energy connector is a essential piece of UK infrastructure with potential nationwide safety implications, not least as the corporate has additionally been looking for to run a telecommunications line alongside its energy cable.

Now they’re more likely to ask different urgent questions. Was the fortune earned by Fedotov from Vniist in any manner related to funds supporting Aquind’s bid for a government-approved undersea cable? And did any of that cash make its manner into Tory social gathering coffers?

Hyperlinks with Conservative social gathering

The quasi-judicial choice over whether or not to approve Fedotov’s contentious undersea electrical energy interconnector is being taken by the enterprise secretary, Kwasi Kwarteng. Aquind agues its challenge will assist scale back the influence of unstable gasoline and coal costs, that are the explanations behind rising electrical energy payments this autumn and winter. A call is due inside 17 days.

Do you could have details about this story? E-mail investigations@theguardian.com, or use Sign or WhatsApp to message (UK) +44 7584 640566 or (US) +1 646 886 8761.

Letters launched beneath freedom of data legal guidelines counsel the enterprise secretary favoured the challenge when he was a junior minister in the identical division, and agreed to foyer French officers to assist it on their facet of the Channel.

In a single piece of correspondence from October 2019, Kwarteng wrote to Aquind saying the federal government had written to the European Fee to “reiterate our assist for quite a lot of tasks together with, in fact, the Aquind challenge”.

Following the discharge of the letters, Stephen Morgan, the Labour MP for Portsmouth South, raised issues within the Home of Commons in regards to the Tory social gathering’s hyperlinks to Aquind. Along with Aquind’s political donations and hyperlinks to ministers, the corporate has ties to 2 Conservative friends: James Wharton and Martin Callanan. There is no such thing as a suggestion of wrongdoing by both Tory peer.

Wharton was employed by Aquind as an adviser concurrently he was working Johnson’s bid to take over as Conservative prime minister in 2019. Callanan, a former Aquind director, is now a enterprise minister.

A spokesperson for the Division for Enterprise, Power and Industrial Technique stated the choice over the Aquind’s cable can be made “solely” by Kwarteng. They added: “No choice has but been taken.”

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