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Baku Railway Station in Azerbaijan. The findings of the Azerbaijan audit depict a premeditated and well-orchestrated scheme to win the rail-signalling contract.Alamy Stock Photo/The Globe and Mail

Bombardier Inc. allegedly used corruption and collusion to win a contract in Azerbaijan – then obstructed an investigation of the deal – according to a World Bank audit that could lead to the Montreal-based transportation giant being blacklisted from projects funded by the international financial institution.

The findings of the audit, which were obtained by The Globe and Mail, accuse the company of colluding with senior officials at Azerbaijan Railways to win a 2013 contract worth US$339-million to install rail-signalling equipment in the country, which is located between Russia and Iran. The deal was 85-per-cent financed by the World Bank.

The audit, conducted by the bank’s Integrity Vice Presidency, also found that Bombardier used an intermediary firm to “funnel bribes” worth millions of dollars to Azerbaijani officials and routed tens of millions more through a network of Russian-controlled shell companies.

Olivier Marcil, Bombardier’s vice-president of external relations, said the company disputes the World Bank’s findings, which have not been proven. “Initial assumptions in any investigatory proceeding can reflect badly on the party under scrutiny until the allegations have been fully tested and addressed by a complete and fair response,” he said in an e-mailed reply to questions from The Globe.

A show-cause letter dated Nov. 15, 2018, is addressed to Bombardier’s legal counsel and signed by Merly Khouw, the lead investigator at the Integrity Vice Presidency. The 28-page document includes the key findings of the audit and gives Bombardier 30 days to make a written argument as to “why the Bank should not seek sanctions against them.”

Mr. Marcil said the company has given the World Bank its response, but would not disclose any details. “As the World Bank’s audit process is governed by strict confidentiality requirements, we can only reiterate that we strongly disagree with the allegations and preliminary conclusions contained in the letter.”

If Bombardier does not convince the investigators, the show-cause letter says, the findings would be passed on to the World Bank’s Suspension and Debarment Officer to decide on possible punishment. “Sanctions proceedings in this case could mean that BTSE, BTRU, and Bombardier Inc., their affiliates, successors, assigns, and associated individuals, could be declared ineligible to receive Bank-financed contracts or to participate in Bank-financed activities,” it reads.

BTSE and BTRU are acronyms for Bombardier Transportation Sweden and Bombardier Transportation Russia, the two units that are directly involved in the alleged fraud. However, the audit’s findings point all the way to corporate headquarters in Montreal.

Mr. Marcil said the show-cause letter was “one step in a multistep process to allow for the resolution of disputes prior to the initiation of any potential sanctions proceeding.”

Bombardier has not disclosed the findings of the audit to its shareholders or the public.

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If Bombardier does not convince the investigators, the show-cause letter says, the findings would be passed on to the World Bank’s Suspension and Debarment Officer to decide on possible punishment.Ryan Remiorz/The Canadian Press

A spokeswoman for the World Bank said the institution could not comment on the letter. “The World Bank Group takes allegations of fraud and corruption in its projects very seriously. To protect the integrity and fairness of its processes, the World Bank does not disclose investigative information beyond what is posted publicly.”

A 2013 World Bank blacklisting of another pillar of Canadian industry, SNC-Lavalin Inc. – following revelations that the Montreal-based engineering giant paid massive bribes to win contracts in Bangladesh and Cambodia – has led to the company and more than 100 related corporate entities being barred for a decade from competing for contracts funded by the international lender. The World Bank provides financial support to most major infrastructure projects in the developing world.

Being added to the same blacklist would be a blow to Bombardier, and particularly its rail unit, which has a growth strategy focused on developing markets such as India, China and Brazil. The World Bank lent US$5.8-billion to transportation projects around the world in 2017 alone.

The findings of the Azerbaijan audit depict a premeditated and well-orchestrated scheme to win the rail-signalling contract.

The investigators determined that Bombardier colluded with senior officials at Azerbaijan Railways as far back as 2010 – three years before the contract was awarded – to ensure that it won the deal. Key to the collusion was Qurban Nazirov, the deputy head of Azerbaijan Railways, who directed other staff to “assist” Bombardier to the extent that the specifications of the bid were repeatedly modified to meet what the company was offering.

To win the bid, a local company called Trans-Signal-Rabita, or TSR, was set up. The company “did not have an office, employees, or accounting records” until it was awarded the contract in 2013, the audit found.

Bombardier was made aware in advance of the project’s US$339-million budget and priced its bid to fit that number exactly, winning the deal despite cheaper competing offers.

“Bombardier used TSR to channel US$100-million to [Azerbaijan Railways] officials … at least US$8.4-million of it may have been paid to Mr. Nazirov," the show-cause letter says.

There were allegedly other favours, too. The audit found that Bombardier paid a €10,404 (about $15,700) bill for two Azerbaijan Railways officials to stay four nights in September, 2014, at a hotel in Berlin, where Bombardier Transportation is headquartered. The officials signed the letter of acceptance for the rail-signalling project while they were there. The son of one of the officials was later named the deputy director of another newly established company, BTRU Azerbaijan.

The audit also found that Bombardier paid a total of US$120-million to two shell companies, controlled by prominent figures in Russia’s rail industry, who in turn used their influence to ensure Bombardier won the contract in Azerbaijan.

One of the shell companies, Multiserv Overseas Ltd., was the subject of a major Globe and Mail investigation in 2016 that found the company – which in addition to Azerbaijan is involved in Bombardier projects in Russia, Mongolia, Kazakhstan and Turkmenistan – was listed as a “shipper” on more than 120 transactions involving units of Bombardier Transportation, even though it performed no apparent business purpose.

The company was controlled by Alexey Krapivin and Yuriy Obodovskiy, two men described in Bombardier internal documents as associates of former Russian Railways boss Vladimir Yakunin, himself a long-time confidant of Russian President Vladimir Putin. Mr. Yakunin has told The Globe that he never did business with Mr. Krapivin or Mr. Obodovskiy.

In response to The Globe’s initial investigation into Multiserv Overseas, Mike Nadolski, Bombardier’s vice-president of communications and public affairs, wrote that the company had hired a “prestigious international law firm” to conduct due diligence, then conducted several additional reviews, before it entered into a relationship with Multiserv. “All of which came to the same conclusion: Multiserv remains in good standing as a corporation and there are no prohibitions – in any jurisdiction – for doing business with the company or its owners,” Mr. Nadolski wrote in 2016.

Investigation: Bombardier and the Putin connection

Bombardier deliberately inflated cost estimates, inquiry is told

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A 2013 World Bank blacklisting of another pillar of Canadian industry, SNC-Lavalin Inc. has led to the company and more than 100 related corporate entities being barred for a decade from competing for contracts funded by the international lender.ERIC BARADAT

The World Bank audit found that the involvement of Multiserv Overseas and another shell company, MetroPromSnab, in the Azerbaijan project was a “sham.” Investigators detailed their attempts to visit the registered office of Multiserv Overseas in London, which turned out to be a law office that only forwarded mail, and that of MetroPromSnab, which was registered at a Moscow apartment owned by a woman who had never heard of the firm.

Internal Bombardier documents reviewed by The Globe identify MetroPromSnab as another company under the control of Bombardier’s “Russian partners,” which include Mr. Krapivin and Mr. Obodovskiy, as well as Valery Markelov and Boris Usherovich. Mr. Markelov was detained in Russia last year on corruption charges, and Russian media have reported that the other three men are sought by Russian police as part of the same investigation.

The World Bank audit found that Bombardier Transportation Sweden signed a contract to sell the company’s EbiLock-950 signalling systems to Multiserv Overseas for US$20-million. Multiserv Overseas had already agreed, under a contract signed five months earlier, to sell the same equipment to Bombardier’s Azerbaijani affiliate for US$104.8-million.

“Bombardier added a company controlled by its Russian partners to the supply chain, paying it US$85-million for no work,” the audit synopsis reads. It may have been an even bigger amount: The Integrity Vice Presidency says it asked for, but was never provided with, proof that Multiserv Overseas had made the US$20-million payment to Bombardier Transportation Sweden.

Under a separate contract, Bombardier’s Azerbaijani affiliate paid US$17.7-million to MetroPromSnab. “Bombardier intended to pay two companies, affiliated with Bombardier’s Russian partners, more than US$120-million collectively (and paid them more than $50-million by July, 2016) even though neither Multiserv nor MPS were part of the Consortium’s bid, and neither of them was physically involved in the Contract supply chain. [The Integrity Vice Presidency] believes that Bombardier agreed to channel funds to Multiserv and MPS through their sham involvement in the Contract supply chain in exchange for the Russian partners’ influence in winning the Contract,” the synopsis reads.

Mr. Marcil said the World Bank had been “intimately involved” in the bidding process for the Azerbaijani project and had written a no-objection letter at the time. “As part of the ongoing audit process, we have repeatedly asked the World Bank to provide us with the information and documents they believe support their allegations, including emails from or interviews with non-company witnesses. To date, nothing has been provided,” he said.

The Integrity Vice Presidency also accused Bombardier of obstructing its investigation and withholding evidence from its audit team.

The audit synopsis says Bombardier was asked for, but did not provide, an array of documents, including invoices and other evidence of the payment from Multiserv Overseas, instructions from Bombardier’s accountants as to how to record transactions involving Multiserv Overseas, as well as access to the bank statements of Bombardier Transportation Sweden and Bombardier Transportation Russia for the period covering the bidding process.

The auditors were also made to wait 15 months before they were given access to internal e-mails relevant to the bid, with Bombardier’s legal team giving a shifting series of answers – including the right to avoid self-incrimination – as to why the e-mails could not be shared.

The e-mails were finally provided to the audit team in January of last year – and only after they had been “sorted and redacted by Deloitte, which Bombardier retained to conduct an internal investigation, as well as Bombardier’s counsel.” The auditors were told that 24 documents could not be shared for reasons of legal privilege.

One of the withheld e-mails, the auditors say, is a March, 2015, one from a whistle-blower inside the company who tried to warn of “disturbing irregularities” regarding the Azerbaijani project.

In the view of the auditors, the missing e-mail – and the replies to it from others in the company – was the proof that knowledge of the problems with the project extended all the way to Montreal.

The Integrity Vice Presidency "is of the view that Bombardier withheld important and relevant information, including a whistleblower complaint, on specious assertion of attorney-client privilege,” the audit synopsis concludes. “The withheld email indicates that Bombardier management, including its headquarters in Canada, was aware of ‘irregularities’ as early as March 2015.”

Mr. Marcil said the company disputed the allegation that it had delayed and obstructed the World Bank’s investigation. “This is simply not true. The company and those engaged to assist it always fully cooperated with the audit to the extent possible and in the respect of everyone’s rights to a fair and legal treatment along the process.”

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Evgeny Pavlov was tried and acquitted of bribery charges in 2017.Anna Tärnhuvud

The Azerbaijani project is also the focus of court proceedings in Sweden, where Evgeny Pavlov, a regional manager who founded an Azerbaijani office for Bombardier Transportation Russia, was tried and acquitted of bribery charges in 2017 on the grounds, as the court ruled, that: “prosecutors have not proved that the charged person has promised or offered an inappropriate benefit.”

Sweden’s National Anti-Corruption Unit is appealing the verdict while continuing its investigation. More indictments are expected.

Editor’s note: (May 16, 2019) An earlier version of this article incorrectly said Evgeny Pavlov was acquitted of bribery charges on the grounds that he hadn’t personally profited from the alleged scheme. This version has been corrected.

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