(This is the third story of a series, Comrade Capitalism. See here)
By Douglas Busvine, Stephen Grey, Roman Anin and Himanshu
MOSCOW May 23 In the world's biggest country,
railways are still a route to riches. With nearly 1 billion
passengers a year and $42 billion in annual sales, the state
company Russian Railways is a giant commercial opportunity.
At its head is Vladimir Yakunin, an old friend and
long-standing ally of President Vladimir Putin. He oversees a
company that strikes international deals, issues bonds to major
investors and plans hugely expensive new high-speed lines. By
many measures, Russian Railways is a standard corporate
But a Reuters investigation has uncovered another side to
the state-owned company: Under Yakunin, it has paid billions of
dollars to private contractors that disguise their ultimate
owners and have little or no presence at their registered
A Reuters study of tenders held by Russian Railways also
identified contracts worth hundreds of millions of dollars
granted to companies that ostensibly bid as rivals but appear to
be closely related.
In 43 tender competitions worth $340 million from 2010 to
2013, for instance, the same two companies were the only bidders
each time. Those two firms, it turns out, were set up on the
same day, by the same person acting on behalf of undisclosed
owners. The firms opened accounts at the same bank on the same
day, and declared an identical number of employees two years in
a row. On one occasion, they filed bids for a Russian Railways
tender within a minute of each other. And last October, after
Reuters first inquired about the nature of the companies, both
registered websites on the same day.
Russian investigator Sergei Lesnichiy said Reuters findings
appeared to show an attempt to manipulate tenders for state
contracts, potentially inflating costs to the detriment of
Russian Railways. Lesnichiy, director of the Centre for
Financial Investigations, an expert body set up by the Russian
state, said such effects, if verified and if insiders at Russian
Railways benefited, could amount to fraud under Russian law. But
he also said that under Russian law it is not an offence for
related companies to bid in state tenders.
A further Reuters analysis of banking transactions between
2007 and 2009 involving one large private contractor to Russian
Railways showed patterns of activity that U.S. and Russian
financial investigators said were typical warning signs of
suspicious banking activity.
The analysis suggests that millions of dollars originating
from Russian Railways ended up with companies that had nothing
to do with railway work. Some of these companies have been
judged by Russian authorities to be bogus companies with no
These transactions passed through a small bank part-owned
from 2007 to 2009 by a businessman called Andrei Krapivin.
Yakunin, the head of Russian Railways, once described Krapivin
as an "old acquaintance" and an "unpaid adviser who understands
banking well," according to the Russian newspaper Vedomosti.
Krapivin and several of his business associates are or have
been directors of large contractors working for Russian
A spokesman for Russian Railways said Krapivin "is not an
adviser" to Yakunin, but did not comment on whether he had been
in the past.
This investigation is part of a Reuters series examining how
Russia does business in the Putin era. Even as the Russian
president has denounced corruption, some members of the elite
have used secretive companies, straw owners and other means to
gain business worth hundreds of millions of dollars from some of
his signature undertakings. Earlier stories examined how two of
Putin's associates profited from an ambitious state healthcare
This article, which is based in part on a confidential
database of Russian bank records, focuses on one of the
country's largest businesses in state hands: the railways. The
money at stake is huge: In 2012 Russian Railways handed
contracts worth $22.5 billion to private contractors - more than
the $19.7 billion it paid its staff.
In March, after Russia annexed Crimea, Yakunin was one of
the senior Russian officials and members of Putin's inner circle
sanctioned by the United States. The U.S. Treasury described him
as a "close confidant of Putin" who "regularly consults with
Putin on issues regarding the Russian Railways company."
He has known Putin since they were both in St. Petersburg in
the 1990s. Putin appointed him as head of Russian Railways in
2005, early in Putin's second term as president.
Yakunin did not respond to Reuters inquiries regarding this
story, but his spokesman at Russian Railways, which is also
known by the abbreviation OAO RZhD, replied to written
"The procurement activity of OAO RZhD is undertaken in
strict accordance with the relevant laws," Alexander Pirkov
wrote. Tenders were organised in "the most transparent way" and
procurement activity "has been repeatedly examined by the
competent state organs, including the Audit Chamber of the
Russian Federation," he said.
Russian Railways said the companies identified by Reuters
were all legitimate, and that its contracts were awarded fairly
and fulfilled properly.
Krapivin did not respond to Reuters requests for comment.
Instead, his son called. Alexei Krapivin said his father had no
involvement in the railway contractors and transactions examined
in this report. He said any suggestion to the contrary was
"bullshit." He declined to comment in detail.
In a leafy suburb of east Moscow stands a red-roofed town
house with a children's playground in the yard. One day last
summer, a group of young men in T-shirts and jeans stood around
There was more to the town house than met the eye. It was
the registered headquarters of a company that has won 9 billion
roubles ($270 million) in contracts from Russian Railways and
its subsidiaries since 2010, and says in corporate filings that
it employs more than 100 staff.
When a reporter inquired at the property, a man in his 40s -
head shaven, arms tattooed - came out. Asked whether the
contractor, MPCenterZhat (MPC), was based there, he sent for a
younger man, whose hair was cropped at the sides and hung in a
ponytail at back.
"They sit here - they have an office on the second floor -
but they only come here once a week," the ponytailed man said.
MPC is one of a sample of 10 rail contractors studied by
Reuters; together they have received more than $2.5 billion from
Russian Railways since 2007, according to tenders and other
documents reviewed for this article.
Reuters chose the firms because they bid for the same type
of work, mainly the upgrading of track signalling and train
control systems. They were selected from a longer list of
railway contractors provided by a Russian banker now living in
Britain, German Gorbuntsov, who survived an attempt to
assassinate him in London's Canary Wharf district in 2012.
Before he left Russia, Gorbuntsov used to be co-owner with
Krapivin of a bank called Capital Commercial Bank (known by its
Russian initials STB). All the 10 rail contractors examined by
Reuters had accounts at STB.
On the face of it, Russian Railways offers contracts to
private companies in open tenders where market forces apply. But
several people familiar with the process alleged some
contractors work together to win tender competitions. This is
done, they said, by companies either managing to be the only
bidders, or working with other bidders to decide who should win
or to inflate prices. Reuters was unable to verify those claims.
A Reuters analysis of tender competitions involving the 10
companies showed little attempt by bidders to compete for
contracts on price. Out of 185 cases where the winning bid was
listed, 79 were only 0.5 percent - down to the kopek - below the
maximum price set by Russian Railways. A further 35 of the
winning bids were 1 percent below the maximum allowed price.
The nature and activities of the 10 rail contractors were
hard to pin down. The two biggest beneficiaries, by value of
contracts won from Russian Railways, were MPC and a company
called TransServisAvtomatika (TSA). From 2010 until the middle
of 2013, these two firms were the only bidders in 43 tender
competitions worth $340 million. MPC and TSA bid as rivals and
at first sight appear to be separate entities.
To find out more about them, Reuters went in search of their
head offices. The headquarters for MPC listed in Russia's
corporate registry was the town house with the children's
playground where no one from MPC was present when a reporter
visited. TSA's legal headquarters was a 15-storey building just
outside Moscow's ring-road. The structure contained a business
centre, a car dealership, a fitness club, a beauty parlour, two
bank branches, a florist and a grocery - but no sign of TSA. A
security guard there found a mention of the firm on his
computer, but said the company did not have an office there.
As well as their elusiveness, MPC and TSA have other
striking similarities, including the fact they were set up on
the same day in 2005 by the same individual and that they opened
bank accounts on the same day at STB.
These overlaps were no mere coincidence, said a former
manager who worked for both companies at different times in the
mid 2000s. The two companies were in effect part of the same
group and bid together on Russian Railways contracts to ensure
the group owner had a "guarantee of winning."
MPC and TSA list two different people as managers in
corporate filings; neither of them responded to repeated
requests for comment.
Referring to the two companies, Yakunin's spokesman Pirkov
wrote: "They are suppliers acting in good faith and are fully
functioning enterprises ... Deliveries under these contracts are
made on time, (and) production was of reliable quality. No
evidence has been found that they acted in bad faith."
Of the 10 companies studied, only one, called
Zheltransavtomatika, had a registered headquarters where Reuters
found employees working. The company's manager did not respond
to written questions.
Four of the 10 companies listed their offices at locations
where nobody had heard of the businesses at all. These
headquarters included a freight depot by a motorway, a car
repair shop and an upmarket children's department store in
Who owns these companies? MPC is a type of entity that isn't
obliged to declare its shareholders. The registered owners of
the other nine contractors to Russian Railways are a motley
bunch. An examination of official filings showed each firm was
owned by one or two individuals - a total of 10 women and three
Those owners whom reporters were able to trace all lived in
modest Moscow apartment complexes. In one run-down building, a
person listed in official documents as sole owner of one of the
contractors confirmed having been the formal owner until
recently. In reality, though, this person said, they had never
truly controlled the company, but had acted as a straw owner,
hiding the real owners of the firm.
The straw owner knew the company's business involved
contracts with Russian Railways but had no other knowledge of
its operations. The straw owner alleged that the controlling
influence behind that contractor was Andrei Krapivin, the man
Yakunin, head of Russian Railways, once described as an unpaid
"I know Alexei Krapivin," said the straw owner, referring to
Andrei Krapivin's son. The son, he said, organised business
between Russian Railways and the company. The straw owner said
Krapivin senior was the "main man" behind this arrangement,
while his son handled the practicalities.
In his phone call, Krapivin's son, Alexei, said STB belonged
to Gorbuntsov and not to his father, and said his father was not
a hidden controlling influence behind rail contractors. He did
not answer further questions. However, a written statement
signed by Andrei Krapivin records that he was a shareholder in
STB from 2007 to 2009. Public corporate records also show that
he was a shareholder in 2008.
Yakunin's spokesman did not comment on whether Krapivin had
any connection to any of the 10 contractors, but ruled out the
possibility of any wrongdoing.
From the steam locomotives of "Doctor Zhivago" and the
Russian Revolution to the double-decker express trains hurtling
to the Winter Olympics, railways have helped make Russia,
permeating the nation's geography and culture.
When Vladimir Lenin returned from exile to lead his
revolution in April 1917, he travelled from Finland to Russia's
old Tsarist capital of St. Petersburg by steam train. By the
21st century, Russian Railways was looking to upgrade the
historic line to take electric trains running at 220 km per hour
(140 miles per hour).
One of the biggest beneficiaries of that project was a
private contractor called Setstroienergo. In total, Russian
Railways awarded Setstroienergo nearly $1 billion between 2007
and 2013, according to public tender records and a database of
bank transactions supplied by Gorbuntsov.
When Gorbuntsov left Russia after falling out with former
business partners, including Krapivin, he brought with him a
laptop. It contained, among other banking data, millions of
transactions that took place through STB between the beginning
of 2007 and late 2009. Money frequently moved through a whirl
of accounts, making it hard for anyone such as outside auditors
or tax officials to track, Gorbuntsov said.
To examine what happened to Russian Railways' funds, Reuters
studied the flow of money into and out of Setstroienergo, as
recorded by Gorbuntsov's database. Reuters established the
authenticity of the database by verifying sample transactions
with independent sources.
Between 2007 and 2009, Russian Railways paid $772 million
into Setstroienergo's account at STB, according to the database.
Those payments, and subsequent transactions, appear to follow
the pattern described by Gorbuntsov.
For example, Russian Railways made 98 payments to
Setstroienergo, worth $211 million, where the money was moved on
to other bank accounts almost immediately. In each of these
transactions, Setstroienergo received a sum from Russian
Railways and either that day or the next working day paid out
exactly the same amount to a company called StroiMontazh.
The money went into StroiMontazh's account at a bank called
Industrial Credit Bank (Incred). That bank was also run by
Gorbuntsov; Krapivin was not a shareholder.
It is not clear who controlled StroiMontazh and its account
at Incred, or why the company received payments from
Setstroienergo. StroiMontazh was liquidated in 2010, and its
previous shareholders and management could not be traced.
Setstroienergo declined to comment.
Gorbuntsov's database contains transactions by both Incred
and STB. The database indicates that StroiMontazh rapidly
transferred most of the money it received to other entities.
Some went to accounts outside STB and Incred, but most moved
around numerous accounts within those two banks.
In one 30-month period, starting in 2007, StroiMontazh paid
a little more than a third of the funds it received to accounts
outside STB and Incred. This money appeared to go to railway
contractors for work such as installing new track and signalling
equipment, judged by an examination of public records and
interviews with local railway officials and company executives.
But nearly two-thirds of the money StroiMontazh received
moved on quickly to other companies with accounts at STB or
Incred. A search of corporate filings, tender records, court
judgments, business directories and media reports found no
reference to these companies carrying out railway work. No
officials from these firms could be traced for comment.
One recipient was a company named Legatta, which banked at
STB. According to its published accounts, Legatta's revenue
totalled only $3,800 in the year to the end of December 2007.
Yet in the same period, the bank database records the company
was paid $115 million by StroiMontazh. Reuters was unable to
A company called Univolt was another recipient of funds from
StroiMontazh. It received $67 million between May 2007 and
October 2007, according to the database. Reuters could find no
accounts for Univolt and was unable to trace it. In a 2010
Moscow court case unrelated to Russian Railways, tax authorities
said they had ordered the suspension of Univolt's bank account
at Incred because they suspected the company carried out no
At some companies that received money from StroiMontazh, the
people registered as owners said they knew nothing about the
firms they purportedly owned.
One recipient was a company called Trastkom, which banked at
STB. Its listed owner, Nadezhda Korostelyova, was registered at
an address in a southern suburb of Moscow. Korostelyova's
daughter Vasilisa answered the door and said her mother no
longer lived there. She said that many people had come to ask
about her mother's companies.
"Several years ago a friend of a friend asked her to set up
a company," the daughter said. That person had taken a copy of
her mother's passport and asked Korostelyova to sign some forms.
"Firms are still being set up in her name."
In addition to the $772 million that Setstroienergo received
from Russian Railways between 2007 and 2009, the contractor also
won Russian Railways' tenders worth $223 million between 2010
and 2013, according to public documents.
Setstroienergo declined to comment for this story. Public
information about the company is limited. It is a "closed joint
stock company," which means it does not have to disclose its
Its official headquarters is a single room in a run-down
business centre in a block of flats in Moscow's northwestern
suburb of Tushino. When a reporter visited the address during
working hours, no one was there.
(Currency conversion at 1 rouble to $0.0304, the rate at the end
(Additional reporting by Gleb Stolyarov; Editing By Richard
Woods and Simon Robinson)