Bombardier Inc. is facing a World Bank audit that is seeking to determine whether bribery or collusion played any role in helping a Bombardier-led consortium win a $340-million (U.S.) contract to supply railway equipment to Azerbaijan. The company also says it is freezing its relationship with a shell company whose links to a former Kremlin insider were exposed by a Globe and Mail investigation last year.
The 2013 Azerbaijan deal – which involved Bombardier Transportation's Swedish unit – was already under scrutiny by Sweden's National Anti-Corruption Bureau, which has jailed one Bombardier employee as prosecutors continue to build their case.
The World Bank audit could have even larger implications for the Montreal-based transportation giant. If the auditors conclude the company engaged in any corrupt practices, Bombardier would be forced out of the Azerbaijan project and barred, under World Bank rules, from participating in "any other project financed, in whole or in part, by the bank."
Both the World Bank audit and the Swedish prosecution are focused on the consortium's successful bid to win a contract to install computerized signalling systems along a main railway line in Azerbaijan.
The deal was 85 per cent funded by the World Bank, with the Azerbaijani government putting up the remainder of the $340-million.
The company itself is looking into how its railway division, Bombardier Transportation (BT), did business in the former Soviet Union. Mike Nadolski, Bombardier's vice-president of communications and public affairs, said two employees of Bombardier Transportation Sweden – Evgeny Pavlov, the Russian national now sitting in a Swedish prison, and Peter Cedervall, president of the company's Rail Control Solutions division – had been suspended pending an internal review.
Mr. Nadolski said Bombardier had also suspended its business relationship with Multiserv Overseas, a murky entity that was founded by an associate of former Russian Railways boss Vladimir Yakunin, himself a long-time member of Russian President Vladimir Putin's inner circle.
The London-registered Multiserv Overseas – which played an intermediary role on the Azerbaijan deal, as well as more than 120 other Bombardier transactions, most of them involving Russia – has also drawn the attention of both Swedish prosecutors and the World Bank auditors.
Those inquiries came in the wake of a Globe report that found Multiserv Overseas had no functioning office or staff, and used a constantly shifting management and ownership structure, involving multiple offshore havens, to disguise its true owners.
Court documents introduced by Swedish prosecutors earlier this year show Bombardier Transportation Sweden sold signalling systems destined for Azerbaijan to Multiserv Overseas for $20-million before the shell company sold the systems on to the Bombardier-led consortium for $104-million. Sweden's National Anti-Corruption Unit believes that at least some of the $84-million gap went to pay off Azerbaijani and Russian officials in order to win the contract.
If Bombardier were to be barred from participating in projects connected with the World Bank, it would be a huge blow for the company, and specifically its rail unit. The World Bank spent $1.5-billion in 2015 alone subsidizing railway-building projects around the globe, many of them in developing markets such as China, India and Brazil that are crucial to BT's growth strategy.
"Bombardier is co-operating with the World Bank on their audit of the Azerbaijan project," Mr. Nadolski said in response to e-mailed questions. "As the audit is ongoing it would be inappropriate to speculate on any potential outcome. It would also be inappropriate to comment on our own internal review until it is completed."
The audit of Bombardier is being conducted by the Integrity Vice Presidency, an independent unit within the World Bank that investigates allegations of corruption and fraud related to World Bank-financed projects.
A spokesperson for the Integrity Vice Presidency also said there would be no comment until the audit was completed.
Bombardier, in its 2016 annual report to shareholders, declared that one of its subsidiaries was facing both a police investigation "alleging unethical actions," as well as an outside audit "by a multilateral financial institution." However, the company did not specify that it was the World Bank conducting the audit, nor outline the potential ramifications.
A source familiar with the World Bank audit said a key focus is Trans-Signal-Rabita, a previously unheard-of company that became Bombardier's local partner in the consortium that successfully won the contract to install upgraded signalling systems along a 503-kilometre rail line running from the Azeri capital of Baku to the country's border with Georgia, another ex-Soviet state.
The consortium – which was known as Bombardier-TransSignal and also included Swedish and Russian branches of Bombardier Transportation – won the contract despite offering the fifth-best price among eight competitors. That fact drew the attention of Sweden's National Anti-Corruption Unit, which earlier this year detained three Bombardier Transportation Sweden employees on suspicion of "aggravated bribery."
The contract between the consortium and Azerbaijan's state railways company was signed by Mr. Pavlov, who at the time was director of sales and business development for Bombardier Transportation (Signal) Ltd., the Russian arm of Bombardier Transportation, as well as the head of the company's Azerbaijan office. Most recently, he worked as head of sales for the northern region at Bombardier Transportation Sweden.
The other two Bombardier Transportation Sweden employees, who have not yet been formally named, were released after questioning by the National Anti-Corruption Unit while the investigation proceeds. Both are Swedish citizens.
Internal Bombardier e-mails made public in Swedish court earlier this year suggest that Mr. Pavlov was working closely with someone at the state-owned Azerbaijan Railways to make sure Bombardier's consortium won the bid. Mr. Pavlov's e-mails also suggest that forming a joint venture, or JV, with Trans-Signal-Rabita was the idea of someone on the Azerbaijani government's side.
"It was suggested by AZ to have a JV with local Azerbaijanian company (TransSignal)," Mr. Pavlov wrote in December, 2012, to two colleagues whose names were redacted by Swedish prosecutors.
In the e-mails entered into the Stockholm court, Mr. Pavlov repeatedly used AZ as shorthand for Azerbaijan, AZD for Azerbaijan Railways, and BT for Bombardier Transportation.
"The partners such as AZD want to keep all this activities in secret. So, we need to keep it in the top-secret inside of BT," he wrote in the same 2012 e-mail.
Other internal Bombardier e-mails submitted to court by the Swedish prosecution show there was concern within the company about whether Trans-Signal-Rabita and the newly formed consortium met the World Bank's requirements for winning the contract, particularly since the Azeri company was slow in providing its financial statements to Bombardier.
"We need to understand whether Transsignal is the right partner to team up with, and if not, we need to have time to find another appropriate partner," says a February, 2013, e-mail sent by someone in the contracts and legal affairs team of Bombardier's Rail Control Solutions division.
Nonetheless, the bid proceeded three months later, and the consortium signed its contract with Azerbaijan Railways in September, 2013. In a news release at the time, Mr. Cedervall said the deal "reflects our commitment to provide our state-of-the art technology to Azerbaijan and to continue to deliver our signalling solutions to the region through our well-established engineering and manufacturing joint ventures in Moscow."
World Bank auditors have already visited Trans-Signal-Rabita's address in Baku, and are now in the process of auditing the Moscow and Stockholm offices of Bombardier Transportation, the source with knowledge of the investigation said.
The source also said that Multiserv Overseas – which is registered in London, but has a Cyprus-based director, and an ownership structure that has moved between Belize, Panama and the Seychelles since its founding in 2010 – refused to co-operate with the World Bank team.
One Bombardier internal e-mail submitted to the Swedish court described Multiserv Overseas as "a shell with no true trading," with one employee writing that Mr. Pavlov had described Multiserv Overseas to his colleagues as "a vehicle to siphon monies from the public sector into private pockets."