On November 26, 2019, Samara Regional court rendered its decision after hearing the appeal filed by lawyers of the defendants in Togliattiazot case, who had been previously found guilty by Komsomolsky District Court of Togliatti. The sentences of Vladimir and Sergey Makhlai, Evgeny Korolev, Beat Ruprecht and Andreas Zivy were upheld and came into legal force.
Earlier, on July 5, Komsomolsky District Court of Togliatti in absentia found all of the defendants guilty of collusive large-scale fraud that damaged Togliattiazot and its shareholders by 85 billion rubles (p. 4 art. 159 of the Criminal Code of the Russian Federation).
The investigation established that in 2007, CJSC Togliattiazot Corporation president Vladimir Makhlai and his son Sergey Makhlai, then-vice-president of the company, created an organized crime group to systematically misappropriate JSC ToAZ output – ammonia and urea – using their official positions. For that end, current and foreign currency Togliattiazot accounts were set up in Togliattikhimbank, to which the revenue from the sale of product to Nitrochem Distribution AG offshore entity, led by director Beat Ruprecht, was transferred, while Togliattikhimbank is fully owned by Sergey Makhlai. To avoid taxes, the sale prices were significantly understated. Nitrochem Distribution AG, a subsidiary of Ameropa AG owned by Andreas Zivy, in turn, sold the product at market prices in the global market. As a result, Vladimir and Sergey Makhlai, as well as Andreas Zivy and Beat Ruprecht, misappropriated about 85 billion rubles belonging to ToAZ and its shareholders. In the course of judicial inquiry, the fact of affiliation between ToAZ, Nitrochem Distribution AG and Ameropa AG company was completely proven. Evgeny Korolev, while holding executive positions at CJSC Togliattiazot Corporation and JSC ToAZ, prepared and signed off reports with deliberate misrepresentations, designed and signed contracts and supplemental agreements for them with below market product prices, on behalf of JSC ToAZ.
In July 2019, court of original jurisdiction sentenced Vladimir and Sergey Makhlai, and Andreas Zivy to nine years in a general regime penal colony, Evgeny Korolev and Beat Ruprecht – to eight and a half years a general regime penal colony, and a fine. Since the defendants have long been in hiding abroad, the hearing was held in absentia. The convicts are currently put on both federal and international wanted lists. Due to this, the computation of their sentences will start the moment they are extradited or apprehended within the territory of the RF.
The court also sustained a civil suit filed by URALCHEM against a group of 20 individuals and entities seeking over 10 billion rubles in compensatory damages for the company as a ToAZ shareholder and 77 billion rubles in compensatory damages for Togliattiazot itself. Those entities are offshore companies based in various jurisdictions that own PJSC Togliattiazot shares and were used in illicit schemes to withdraw funds from ToAZ.
Dmitry Tatyanin, JSC URALCHEM Legal Affairs Director:
“We see the appellation ruling rendered by Samara Regional Court as rightful, well-founded and just. By delivering it, the court upheld the guilty verdict reached by Komsomolsky District Court, which effectively came into legal force. According to the judgment, PJSC Togliattiazot majority shareholders were ordered to pay URALCHEM 10.3 billion rubles in damages. Togliattiazot, which incurred losses of 77 billion rubles as a result of the fraudulent export operations, was named another victim in the case and awarded compensatory damages as well. We hope that compensation of damages will affect Togliattiazot operations in the most favorable way going forward. We also hope that the judgment will put an end to the embezzlement schemes at the plant, and illegally transferred assets will be recovered.
The most pressing challenge the plant now faces is taking measures towards ensuring industrial safety. Worn-down fixed assets and plant infrastructure require significant capital investment. According to the media, the recently conducted industrial safety inspection revealed numerous major violations that pose a threat for life and health of the people. Addressing this very problem requires immediate allocation of funds.
The next step is implementing a complex and consistent modernization and development program for the production facilities. Considerable financial resources are required to reconstruct and overhaul almost every ammonia and urea unit, repair gas distribution grid, complete the third urea unit and develop logistical capacities.
Compensation of damages and recovery of 77 billion rubles by the plant serves the interests of URALCHEM as a Togliattiazot shareholder. This may result in production and sales growth, meaning the financial performance will also improve.”