Situation 1
A Swedish bank granted credit to a Russian firm against a mortgage of real estate in the centre of Moscow. The Russian firm soon went bankrupt. In trying to obtain possession of the property to set against the debt, the bank management learned that the building was already mortgaged to another bank, a Russian one, under another credit agreement. In the course of further investigations, it was revealed that before any credit had been obtained on it, the building had been stolen from the Moscow local government.
This kind of swindle is well known to the Russian law enforcement authorities.
There are many and varied ways of applying it in practice, but they all amount to the same property being mortgaged under several credit agreements.
As a rule, such situations arise as a result of the actions of swindlers and bank staff affiliated to them.What should be done to avoid getting into such a situation? Firstly, check the financial and economic activities of the credit recipient, paying particular attention to the question of the acquisition of property to be mortgaged. Secondly, carefully monitor the activities of the bank personnel involved in such deals. It would not be excessive also to run a thorough check on the activities of the recipients of credits and their contractors in deals over the preceding period. Foreign consultancy companies without their own branches in Russia usually fail to notice the signs of a swindle in putting through such deals, since they do not have the necessary information or experience of operating in the market, and because they are a long way away. So when the damage is done, they have no way of influencing the situation. Therefore it is better to bring in Russian organisations to counteract such schemes. This guarantees that the assessment will be independent and objective. Russian specialists also have a lot of information about the criminal gangs operating on the Russian market. Their arsenal includes warning and counteraction mechanisms, the main tool of which is financial research, including bringing in the law enforcement authorities. Such work is of an individual nature, and estimates for it depend on the complexity of the project. As a rule, the cost of such services is estimated to be five per cent of the sum of the deal being put through, or 20% of the loss actually recovered.
Situation 2
A contract concluded between a producer of construction machinery from Germany and a Russian distributor firm specified not only delivery times and price, but also limits on the mark-up when the products were sold on the Russian market. However, the distributor, acting through intermediaries under his control, began to sell the goods for almost three times the agreed prices. Fictitious documents to justify the high prices for the goods were used in doing so. The end purchasers of the products were Russian state enterprises, so that after a certain time, the distributor came under the eye of the law enforcement authorities.
This is a typical situation, in that dishonest partners sometimes try to obtain additional benefit by corrupt schemes and acting against the interests of the foreign organisations which they represent in the RF, or whose products they sell. In such cases, the terms of sale are changed, bringing in fictitious intermediaries without informing the foreign producer.
In such cases, the terms of sale are changed, bringing in fictitious intermediaries without informing the foreign producer.
In this case, a criminal scheme resulted in the cost of the product being unjustifiably raised for sale where state companies were the purchasers. At the same time, direct damage was done to the foreign producer, both financially and in terms of reputation: attempts to sell his products to state enterprises at unjustifiably high prices scared off other potential purchasers, while the investigation by the law enforcement authorities, and the legal and other costs, also made the products less competitive. To eliminate such threats to a foreign organisation, the whole chain of the product’s sale on the Russian market must be scrutinised by selective monitoring of the financial and economic activities of the dealers and all the subsequent contractors. A company can do this from its own resources, or can bring in outside organisations to take the required special measures.
Situation 3
A European company operates in the mining industry. It sets up a subsidiary organisation in Russia, which works a number of sites. Then the management of the subsidiary structure decides to increase the volume of production by installing additional equipment. To do this, it is agreed that credit for two years will be obtained from a Russian bank. It is important to note that at the existing mining rate, the subsidiary organisation would not be able to repay the credit on time. A Russian organisation is brought in as general contractor to install the new capacity and put it into operation. After this, a subcontracting contract is concluded with another firm, which carries out the work for a considerably lower sum. When the new capacity is put into operation, it turns out that it does not meet the conditions of operation or ecological standards. Many breaches of the specification come to light. In effect, the credit funds brought in have been stolen. The management of the subsidiary organisation disclaims responsibility, on grounds of corruption in the actions of the subcontractor. The main organisation has suffered losses in the form of lost profit and the credit sum, and has also effectively lost its business in Russia because the Russian bank has filed a lawsuit for recovery of the credit from the entire property of the debtor, i.e. the subsidiary organisation.
Complicated swindles of this sort are carried out with the participation of previously-installed managers of subsidiary organisations of foreign companies operating on Russian territory, bank managers and other persons providing various kinds of criminal services. Such schemes aim to obtain cash by the abuse of trust.
In order to be protected against this, measures must be taken at each stage of the development of events to enable the signs of economic crimes to be revealed.
Measures must be taken at each stage of the development of events to enable the signs of economic crimes to be revealed.
In this case, the following measures could have been taken. To check on the actions of the subsidiary organisation management, an authorised person from the head firm or from a specialist Russian organisation should be brought in to ensure financial control, keep abreast of all developments and the activities of the subsidiary, and also to send reports on his work to head office. Particular attention should be paid to checking personnel for affiliation to regular groups of swindlers operating in the market, cash flow should be tracked right to the last contractor, particularly where cash credits are being provided to subcontractors, and when credits are obtained. It is impossible for the organisation itself from its own resources, or foreign consultants, to take this whole range of special measures. Here it is necessary to bring in a Russian specialist organisation with the state participating in its authorised capital. In our view, this is the best guarantee of quality of such services and the best protection against swindles.