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Bombardier’s stake in Russian rail venture shrouded in mystery

Vladimir Yakunin, the former CEO of Russian Railways, was among the first people to be targeted by U.S. sanctions following the Russian annexation of Crimea in 2014.

Corporate documents seen by The Globe shed new light on how one of Canada’s most visible multinational companies does business in an important but complicated market

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In December, 2010, Pierre Beaudoin flew to Moscow to seal a deal that promised to open up new opportunities for Bombardier Inc.’s rail division.

Sitting at a table with Russian Railways head Vladimir Yakunin, Bombardier’s top executive signed an agreement on a joint venture that was hailed as a “landmark” example of co-operation between giants of the Canadian and Russian transportation industries.

Elteza, as the entity is known, owned seven factories and employed more than 3,000 people in Russia at the time.

The plants would be licensed to produce sophisticated Bombardier signalling systems that help control the movement of trains.

Bombardier would acquire a stake of just less than 50 per cent in Elteza; Russian Railways, controlled by the Kremlin, would have the rest.

But an internal company memo suggests that Bombardier’s real stake in the business is far smaller than that.

Corporate documents seen by The Globe shed new light on how one of Canada’s most visible multinational companies does business in an important but complicated market.

And it once more raises questions about why Bombardier worked in 2014 to keep Mr. Yakunin’s name off the list of Kremlin-connected individuals sanctioned by Ottawa over the conflict in Ukraine.

Read more: Bombardier and Vladimir Yakunin: the mystery man Canada refuses to sanction

The memo emerged as part of a separate investigation in Sweden into whether bribery was involved when Bombardier won a lucrative contract to sell rail equipment to Azerbaijan.

Written on Bombardier letterhead, the memo suggests the company’s ownership interest in Elteza is no more than 13 per cent, because of the presence of other de facto partners.

Those partners are two men who are frequently referred to in Russian media as business associates of Mr. Yakunin, and who appear to have used a series of shell companies to help obscure their stake in the Russian joint venture.

It isn’t clear why Bombardier would agree to such arrangements or what involvement, if any, Mr. Yakunin’s allies have in Elteza beyond their equity stake.

The Globe and Mail asked Bombardier a series of questions about Elteza, including details about its ownership structure, but the company did not answer them.

Elteza: Behind the ownership

Today, Bombardier’s Russian website states that Elteza “focuses on delivering signalling solutions within Russia,” with 94 per cent of its output going to Russian Railways, a massive government-controlled company that links the country with the largest land mass with 86,000 kilometres of track.

The website says that in co-operation with Elteza, Bombardier has equipped more than 200 train stations across Russia with the Ebi-Lock 950 systems.

Exactly how much that business is worth to Bombardier is impossible to know for certain. Bombardier’s most recent financial statements indicate it earned $255-million (U.S.) in revenue in Russia last year – but the figure includes its entire business, comprising its aerospace, rail and transit divisions. That is more than the company generates in other developing markets such as Mexico and India, but less than in China. Over all, Russia accounted for 1.6 per cent of Bombardier’s $16.3-billion in revenue last year.

For a relatively small component of its overall sales, Bombardier’s rail-controls business in Russia and other parts of the former Soviet Union is causing the company an outsized amount of trouble.

Earlier this month, three Bombardier executives were detained in Sweden in an investigation into what Swedish officials described as “aggravated bribery.” The probe is focused on the circumstances under which Bombardier won a $340-million railway contract in Azerbaijan in 2013. No charges have been laid in the case, which is still being investigated by Sweden’s National Anti-Corruption Unit.

In a statement released by Bombardier late Friday, the company said it was assisting Swedish authorities and conducting its own internal review. “Thus far, we have no information of any unlawful behaviour and we stand behind the work we are doing to help modernize Azerbaijan’s rail infrastructure. Should we discover any improper activity, we will of course take the necessary and appropriate actions to set things right.”

The company also said it won the Azerbaijan contract fairly. “Our bid, which was accepted by Azerbaijan Railways ADY in co-ordination with the World Bank, was deemed the most technically sound and priced lower than our global competitors. Since being awarded the contract in 2013, we have supported our customer’s efforts to upgrade their rail system and we continue to do so.”

As part of their evidence in the case, Swedish prosecutors have produced an internal company memo that outlined how Elteza’s ownership structure worked.

On its website, Bombardier notes that it “acquired a 50 per cent minus 1 share” stake in Elteza during 2011. The entity that holds Bombardier’s share of the Russian venture is called BT Signaling.

But the memo filed in the case in Sweden suggests that BT Signaling, in turn, isn’t controlled by Bombardier. Seventy-four per cent of the company is owned by two men frequently described in Russian media as associates of Mr. YakuninYuriy Obodovskiy and Alexey Krapivin.

The memo refers to the pair as the “Partners.”





“Partners are partly owners of BT affiliated entities,” the author of the memo writes. (“BT” is shorthand for Bombardier Transportation, the name of the company’s rail and transit business.) “BT Signaling BV – 74 per cent owned by Mr. Yury Obodovskiy and Mr. Alexey Krapivin as indirect ultimate shareholders.”

The Nov. 17, 2014, memo, which is written on Bombardier letterhead, goes on to state that the “Partners have access to Yakunin,” which allows them to “influence [decisions] taken from both technical and commercial sides.”

The memo appears to have been prepared for somebody about to meet with Mr. Obodovskiy, who is deputy head of Elteza’s board of directors. The names of the author and the recipient of the memo have been redacted by Swedish prosecutors.

The Globe searched through company filings to try to verify the contents of the memo.

Corporate documents obtained from Cyprus and the Netherlands appear to confirm the author’s assessment of BT Signaling. While its owner, on paper, is another Bombardier subsidiary – the Britain-based Bombardier Transportation Global Holding – the reality is that most of the shares are held indirectly by third parties.

In 2014 and 2015, BT Signaling made identical loan repayments of just more than half a million dollars each year to a pair of Cyprus-based investment firms, Foreylon Investments and Zedecol Investments. One of the firms is wholly-owned by Mr. Krapivin and the other owned by yet another series of shell companies.

Filings in Cyprus show that both Foreylon and Zedecol conducted no business other than their investment in an unspecified joint venture and reported no income other than the loan repayments. They showed a combined investment value of $36,908,348 in that unnamed joint venture.

That number works out to be 73.8 per cent – very near the 74 per cent mentioned in the Bombardier internal memo – of $50-million, or half of Elteza’s value at the time of the 2010 deal. (While Bombardier has never disclosed the price it paid for its share of Elteza, Russian media have reported that the entire company was valued at $100-million at the time of its sale.)

It’s not clear why Bombardier would need to seek funding from two previously unknown lenders.

Nor is it clear why – if Elteza was meant to be a joint venture of two nearly-equal partners, Bombardier and Russian Railways – Mr. Obodovskiy and Mr. Krapivin have such outsized involvement.

“Bombardier is committed to the highest level of integrity and full compliance with all legal requirements in every country where we operate,” Bombardier said in its statement. “Should we discover any improper activity, we will of course take the necessary and appropriate actions to set things right.”

The inner circle

At the centre of the story is Mr. Yakunin, a long-time confidante of Mr. Putin’s. Mr. Yakunin was head of the state-owned Russian Railways for 10 years until 2015, when he retired following media reports accusing him of funnelling contractors billions of dollars in contracts that disguised their true owners.

While Mr. Yakunin was one of the first people sanctioned by the United States after Russia’s 2014 invasion of Ukraine, he remained off Canada’s own longer list of Kremlin-connected individuals sanctioned over the conflict. Bombardier has admitted to lobbying to keep Mr. Yakunin off the list, arguing that sanctioning him would have “unilaterally harmed a Canadian business.”

Mr. Yakunin, bottom, is a long-time confidante of Russian President Vladimir Putin. Dmitry Lovetsky/AP

A spokesman for Mr. Yakunin said his boss had done nothing wrong, and referred to the Swedish court case and media reports about Mr. Yakunin as part of a “general trend of demonizing Russia and anyone who is perceived to be close to Putin.” The spokesman, Grigory Levchenko, also said Mr. Yakunin “has never had any assets in Canada” that would be affected by sanctions.

Mr. Levchenko also disputed that Bombardier’s “partners” – Mr. Obodovskiy and Mr. Krapivin – had access to or influence over his client.

Mr. Obodovskiy’s name is the most prominent in the evidence presented so far at the pretrial hearings in Stockholm.

He was the founder of a mysterious shell company called Multiserv Overseas through which Bombardier Transportation’s division in Sweden routed more than 100 transactions between 2011 and 2016. Swedish prosecutors believe that, at least in the Azerbaijan deal, money that passed through Multiserv was redirected to pay off government officials.

Mr. Levchenko said there was “no reason to believe the trustworthiness” of the documents entered into Swedish court.

“Dr. Yakunin never met with Obodovskiy, so the information about him having access to Yakunin is wrong. Dr. Yakunin did know Krapivin, but they were never close and they never had any business dealings together. Any suggestion that the relationship was in any way improper, we would deny in the strongest possible terms,” Mr. Levchenko wrote in an e-mail.

Asked about the ownership structure of Elteza, Mr. Levchenko said the question could only be answered by the current management of Russian Railways.

But filings in the Netherlands, where BT Signaling was registered when it was founded in 2010, point again to Mr. Yakunin’s inner circle.

One of the four members of the board of directors of BT Signaling is Roman Mironchik, a frequent business partner of Mr. Krapivin’s. And many of Mr. Krapivin’s business interests appear to share an address in Cyprus with the sole named director of Multiserv Overseas.

(The Globe and Mail has previously reported how ownership and management of Multiserv Overseas have repeatedly shifted through a series of offshore havens since the company was founded by Mr. Obodovskiy in 2010.)

The Globe and Mail has repeatedly tried, without success, to contact both Mr. Obodovskiy and Mr. Krapivin.

The Multiserv connection

The Bombardier e-mails and memos obtained by Sweden’s anti-corruption unit suggest there were some within the Montreal company who have long been concerned about how the company does business in Russia and the region.

Multiserv Overseas is described in one 2015 internal Bombardier e-mail as “a shell with no true trading,” and in another as “a vehicle to siphon monies from the public sector into private pockets.” Yet the company continued to route sales of railway equipment into the Russian market via Multiserv.

Thomas Forsberg, the senior public prosecutor for Sweden’s National Anti-Corruption Unit, told The Globe earlier this month that he believes Multiserv Overseas exists only “to produce invoices.” He said his unit’s investigation would look beyond the three employees of Bombardier Transportation Sweden currently under suspicion.

One of those three men, regional head of sales Evgeny Pavlov, is in custody after a judge granted the prosecution’s request to keep him behind bars, pending charges. Mr. Pavlov is a Russian citizen and considered a flight risk. The other two suspects are Swedish citizens who were detained, then released as the investigation continues.

The Bombardier EBI Lock 950 Computer-Based Interlocking (CBI) system.

The Swedish investigation is focused so far on a 2013 deal in Azerbaijan, which prosecutors allege involved the bribery of foreign officials through a joint venture called Trans-Signal-Rabita. Bombardier’s Ebi-Lock 950 systems were then sold by Bombardier Transportation Sweden to the new joint venture through Multiserv Overseas.

Multiserv Overseas paid Bombardier $20-million for the technology, then sold it onwards to Trans-Signal-Rabita for $104-million. Swedish prosecutors believe that part of the $84-million went into the pockets of officials in Russia and Azerbaijan.

(Another transaction revealed in last year’s Panama Papers leaks showed a company called Rambo Management, owned by Mr. Krapivin, selling 13 Ebi Lock 950 systems that were bound for Azerbaijan to Multiserv Overseas for $23-million. While Bombardier acknowledges a business relationship with Multiserv, a spokesman told The Globe last year that Bombardier had no dealings with Rambo Management. He provided no explanation for how Rambo Management came to be selling rail equipment that is produced only by Bombardier.)

The Azerbaijan deal is among at least 114 transactions conducted between Bombardier and Multiserv Overseas since 2011. Russian import records show those deals were worth a combined $174.5-million.

While the first 100-plus transactions involved only Bombardier Transportation Sweden and the shell company, new import records show the Polish and British arms of Bombardier Transportation have also been involved in transactions that went through Multiserv Overseas.

Four transactions last summer and fall, worth a total of $1.2-million, involved Bombardier Transportation ( Zwuz) Polska and Multiserv Overseas.

Three transactions, collectively valued at $7.8-million, involved Bombardier Transportation UK Ltd. and Multiserv Overseas.

The end buyer, in all seven new transactions involving the Polish and British arms of Bombardier Transportation, was Elteza.

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