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By John Helmer, Moscow

Never let it be said that in Russia deeds done out of the goodness of the heart go unnoticed by the state. Nup. Not even when philanthropies are paid for with cash accumulated in violation of the state’s policy of deoffshorization. Nup, nup. There is even a special award minted by the Kremlin and intended to recognize the good which offshorizers do in friendship for Russia. Called the Order of Friendship, the ribbons are blue and black, colours which appear on no flag of any country in the world, and symbolize thereby the freedom of the blue sky and the black hole in which we are all obliged to dwell beneath.

order_of_friendshipOn December 6, President Vladimir Putin signed a decree awarding this year’s Orders of Friendship to eight foreigners. Two of them are the mother and daughter, Elena Timchenko and Ksenia Frank, and they are recorded as Finnish nationals. The former is married to Gennady Timchenko, one of the most honest individuals in the international oil trade; the latter, one of Gennady’s two daughters, is married to Gleb, son of Sergei Frank, former Transport Minister and currently chief executive of Sovcomflot. Sergei Frank has the distinction of being the only Russian oil tanker operator ever judged by the UK High Court and Court of Appeal to be “dishonest”; for details, click. The sins of the father are not to be imputed to the sons, or the daughters-in-law.

In the case of Mr and Mrs Timchenko, when this chart of their joint business (below) was published in Moscow, Russian lawyers were called in to threaten reporter Roman Shleinov and publication Novaya Gazeta with severe penalties for divulging secrets protected, or so the lawyers claimed, by Russian laws. The statutes cited covered commercial secrets, the private life of citizens, and the honour, dignity and business reputation of a person without reliable grounds, as defined in the Law on Mass Media. Here’s the chart of how money flows into the Timchenkos’ business network at the top, with daughter Ksenia at one of the cash outlets at bottom. All but one of the boxes are registered offshore in the British Virgin Islands, Luxembourg, Finland, France, and Switzerland.

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Source: Roman Shleinov, Novaya Gazeta

elena_timchenkoIn the Kremlin citation for her Friendship Order, Mrs Timchenko (right) omits her businesses with income, and mentions only funds with outgoings, Klyuch (Key) and Ladoga. According to documents of the Timchenko family, Klyuch was set up in St. Petersburg in 2007 and “focuses on establishing the institution of professional foster parents in Russia”. Ladoga was created in Moscow in 2010 and “cover[s] a wide range of issues vital to Russia’s future development, including system-based support for the older generation, involving people in sport and culture, and restoring historical, religious monuments.” Neva was established in Geneva in 2008 with the purpose “to reinforce historical ties between Russia and Switzerland, highlighting the values and classical culture common to both countries.” France was added to the menu this year.

In August, four months before the Kremlin composed the text of its Order for Mrs T, the name Ladoga was dropped, and instead it is now called “the Elena and Gennady Timtchenko Charitable Foundation. By putting their name to all that stems from their Foundation, they are underlining the fact that its work is based upon the principles of openness and transparency, without which philanthropy cannot be effective.”

The Foundation’s office in Moscow was asked what the sources are of the monies flowing into the foundation, and how much it spends annually on its philanthropies. It has promised a reply, but isn’t delivering. According to its website, the Timchenko foundation “reserves the right not to consider or respond to requests, which meet neither the Foundation’s objectives, nor the conditions of programmes and projects approved by the Foundation.”

kseniya_frankKsenia Timchenko (right) is a little franker in her Friendship Order citation, mentioning that in addition to her participation in Klyuch, she is also a board director at Transoil. As the name suggests, that’s a company which specializes in transporting crude oil and petroleum cargoes by rail between oilfield, refinery and port. It is the second largest haulier of oil in the Russian market. In 2012 it reported revenues of $2.3 billion, growing at 23% per annum. The company is registered to pay tax in St. Petersburg.

Through two Luxembourg registrations, Carring and Maples, Mr and Mrs Timchenko control Transoil, and daughter Ksenia is one of several people who represent their interest on the board. She is also a Transoil executive with the title of deputy director of the Moscow office. The chart (above), compiled in 2009, calculated the Timchenkos’ stake in Transoil at 72.78%. They then increased this to 93% until December 2012, when 13% was sold to Iskander Makhmudov and his protégé, Andrei Bokarev; they own Russia’s monopoly producer of locomotives, which pull Transoil’s oil wagons. The Makhmudov interest is now represented on the Transoil board by Indrek Gusev, who runs one of the Makhmudov offshore companies, Breakers Investments of The Netherlands.

Part of the value of Transoil to Mr and Mrs Timchenko is in the dividends it pays them. The more cash they take out of Transoil, the more good deeds they can do, and the more friendship with Russia they can pay for. But according to a Moody’s rating issued in December 2010, this turns out to be a black hole. Moody’s reports delicately that the rating for Transoil is constrained by “limited visibility of the company’s long-term dividend policy and the risk of continued significant dividend payments that may reduce the company’s financial flexibility.”

Transoil doesn’t publish financial reports, and it isn’t responding to a request for the net income line or dividend payment for 2012. Also, Moody’s doesn’t reveal how much in dividends the Timchenkos have been taking out of the company over the year beyond acknowledging that more cash was paid to them than there was cash in the company till. “Large dividend payments of the past have left the company with FCF [Free Cash Flow] negative… Moody’s notes the risk of limited visibility of the dividend policy going forward.”

Transoil’s board also includes a senior executive of state-owned Gazprombank, suggesting that state bank funds are currently on loan to Transoil. Gazprombank was asked to confirm what loan or other interest it has in Transoil. It refuses to say. The significance of this will become clearer in a moment.

On December 12, in his annual state-of-the-republic address, President Vladimir Putin mentioned the problem of foreigners who come into Russia with purposes they try to hide. For them, the president said, “we need to establish tighter scrutiny of the purpose foreign nationals declare when entering Russia. All civilised countries do this. Russia must be able to know why people are coming, and how long they plan to stay. We also need to settle the issue of foreigners who enter Russia under visa-free travel arrangements and without any specific purpose. At least they supposedly have no specific purpose, though in actual fact they probably do have a purpose, but the authorities know nothing about it.”

Putin expressed a similar concern about foreign money, and the reluctance of Russians to allow it to be taxed according to Russian rates and Russian laws. Putin again: “In last year’s Address, I spoke about the challenges in relieving the economy of offshore activity. This is another topic to which I want to draw your attention and which we must return to today. Why is that? I will tell you frankly that so far, the results are barely perceptible… Last year, according to expert assessments, $11 billion worth of Russian goods passed through offshores and partial offshores – that’s 20% of our exports. Half of the $50 billion of Russian investments abroad also went to offshores. These figures represent the withdrawal of capital that should be working in Russia and direct losses to the nation’s budget. Since nothing significant has been achieved in this area this year, I want to make the following suggestions. The incomes of companies that are registered in offshore jurisdictions and belong to Russian owners or whose ultimate beneficiaries are Russian nationals must follow Russian tax laws, and tax payments must be made to the Russian budget. We must think through a system for how to collect that money….Moreover, companies that are registered in a foreign jurisdiction will not be allowed to make use of government support measures, including Vnesheconombank credits and state guarantees. These companies should also lose the right to fulfil government contracts and contracts for agencies with government participation. In other words, if you want to take advantage of the benefits and support provided by the state and make a profit working in Russia, you must register in the Russian Federation’s jurisdiction.”

These deoffshorization measures cannot apply to the Timchenkos because they are not Russian nationals; they are Finns. The measures cannot restrict Transoil’s relationship with either Gazprombank, or with Rosneft, the state-controlled oil producer whose cargoes Transoil transports; that is because Transoil is onshore and pays Russian taxes.

But if the Timchenkos are foreigners, what is their “specific purpose” in Russia, to ask Putin’s question? If the answer to that is they do good deeds in friendship for Russia, then it’s plain they deserve the Friendship Orders which they have just been awarded. What other interpretation could there be?

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