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2019-12-04 01:04:42

In late 2010, a Department of Defence tender was issued for cargo helicopters to support Australia’s war effort in Afghanistan. At the time, Operation Slipper was in full swing, an operation notable for the first deaths of Australian soldiers in battle since the Vietnam War: 41 soldiers died and 261 were wounded fighting jihadist groups during the operation which began in 2007 and ended in 2014. 

With very little disclosure, the contract was awarded to Vertical Australia, a company newly minted as the local agent for a Russian company, Air Company Vertical-T. The services would include the use of a Russian Mil Mi-26, the largest and most powerful helicopter ever produced.

The businessman behind Vertical Australia was a Russian aviation entrepreneur, Vladimir Skurikhin, who is connected to a slew of companies and partnerships around the world, from Cyprus to the Seychelles to the City of London. His deal with Australia’s Defence Department appears to involve leasing high-tech helicopters replete with pilots and crew.

 On the face of it, the defence contract proceeded unremarkably; with the exception of a minor dispute that found its way to the NSW Supreme Court. The dispute was not between the Australian Defence Force (ADF) and its supplier Vertical Australia, but within the supplier’s own payment chain, which included a mysterious entity in Cyprus, a banking haven for Russian oligarchs. 

Vladimir Skurikhin

Vladimir Skurikhin, the General Director of Vertical-T, would later attest that the complex chain was in place due to a mistaken belief that Australian companies were forbidden from making payments directly to Russia.

The upshot of the dispute was twofold. Firstly, Vertical Australia paid more than $2.3 million into the Supreme Court of NSW, leaving the court to decide to whom it should be remitted. Should it be paid directly to the Russian supplier Vertical-T, or to its erstwhile intermediary, Wellman Limited of Cyprus? On this score, the court would ultimately rule in favour of Vladimir Skurikhin’s military contracting company Vertical-T.

The second effect was that DynCorp Australia was appointed as Vertical-T’s new agent, and Vertical Australia folded. DynCorp, part of the controversial US defence contractor DynCorp International, had been trying to get a foothold in Australia for eight years. Its parent, DynCorp International, which is owned by a New York private equity firm Cerberus Capital, has been embroiled in a suite of scandals including corruption allegations over US military contracts in Iraq and sex-trafficking in Bosnia. It has been labelled a “mini-Blackwater”, a reference to its history of providing mercenary services.

All of this was water under the bridge until October this year, when Michael West Media and Crikey INQ were invited to participate in a cross-border investigation. The Sarajevo-based Organised Crime and Corruption Reporting Project (OCCRP) had received a massive leak of data from UK-based Formations House. It would require an international team of investigative journalists to extract maximum advantage from it.

Formations House

Formations House is a company formation agent, sometimes referred to as a shell company factory. They offer a range of services for creating and operating corporate entities in a number of countries including offshore secrecy jurisdictions, aka tax havens, such as the British Virgin Isles and the Seychelles. 

Although legitimate companies use the services of Formations House too, many others enlist  it to hide their murky deals, to avoid tax and inspection from financial regulators. Part of the lure for business people keen to hide things is the prestigious address, — number 29 Harley Street in London. Besides the offer of an upmarket address, Formations House provides a local phone number, a bank account, and preparation of annual accounts and company filings. For those seeking a business façade and a degree of anonymity, this is a one-stop-shop.

The hundreds and thousands of documents leaked from Formations House, 15 years of data, are now in the hands of a worldwide media collaboration dubbed #29Leaks. Teams of journalists, including the authors of this story, have spent months combing through the data using the very latest in leak-exploitation technology.  

The manager of Formations House, Charlotte Pawar, claims that the leaked data has been the subject of extortion attempts since March, however we have not found evidence of this.  She has even suggested that some journalists and media outlets are in some way linked to the alleged extortion attempts.

The stories that have been uncovered from the leaked emails, phone calls and file notes include expose’s of African dictators, fake Gambian banks, Hell’s Angels corporate structures, and all manner of secretive international corporate transactions.

And now the Australian partners, Michael West Media and CrikeyINQ have found a disturbing story about the Australian Defence Force and a web of intrigue involving contracts that include Russian contractors and what appears to be money laundering using Australian taxpayers money.

STS Corporation and the MH17 disaster

Deep in the Formations House leak is a UK-based company, STS Corporation. Its bank statements show tranches of cash arriving from various countries including Afghanistan, Russia and Australia.  There are also frequent outbound transfers from STS to entities in tax havens where, in many cases, the real beneficiaries of the money are simply unknowable.

There are payments to Progate Solutions LP, a Scottish limited partnership which was part of a scheme which laundered at least $US20.8 billion out of Russia between 2010 and 2014. According to Transparency International, law enforcement agencies believe the figure could be as high as $US80 billion. Progate alone was reported to have moved $US194 million in 16 months over 2013 and 2014. It has also seen large flows of cash from interests associated with Vladimir Skurikhin.

One series of payments which deserves particular scrutiny relates to a Vladimir Starkov. In 2015, the year after Russian separatists shot down MH17 in Eastern Ukraine, killing 298 people – including 27 Australians and one New Zealander –  a Russian Major, Vladimir Starkov, was caught fighting against Ukrainian separatists in the same region of Ukraine. He was convicted of terrorism offences and sentenced to 14 years jail. Later, he would be transferred back to Russia in a prisoner swap deal, after being pardoned by Ukrainian President Petro Poroshenko.

In 2013, the year prior to the downing of MH17, the STS bank statements show semi-regular payments to a Vladimir Starkov. The amounts start in May. They vary in value but are generally increasing until November when they abruptly stop. They are not enormous sums, more in keeping with the income of a well paid Russian military operative than, say, a politician or significant customer receiving a kick back.

At this point, we do not know whether the Starkov on Skurikhin’s payroll is one-and-the- same as the Starkov pardoned by Poroshenko. We have put questions to Vladimir Skurikhin but without success. There are, undoubtedly, a number of Vladimir Starkovs in the world, any of which may have been paid by Skurikhin.

Defence Department refuses to respond

Questions were put to the Department of Defence about its knowledge of the beneficiaries of the Vertical Australia contract payments and the money trail through tax havens. No answer has been forthcoming, including answers to questions about money-laundering and the flow of Australian taxpayer dollars to Russian interests in tax havens. 

Given the money being spent is taxpayer money, and as Australians can reasonably expect transparency around how the government is spending their money, it would be good for Defence to rule out Major Vladimir Starkov as being the man paid by Skurikhin — rule out that their taxes are being deployed lining the pockets of rogue Russian military officers.

At the time of the MH17 tragedy, then Prime Minister Tony Abbott was demanding answers of Russia: “Australians were murdered. They were murdered by Russian-backed rebels using Russian-supplied equipment,” said Abbott, pledging to expose the culprits and bring them to justice.

Contacted for this story, Centre Alliance senator Rex Patrick said the intrigue surrounding the Skurikhin transactions reflected the urgent need for greater transparency in Defence and in the way the Federal Government went about its procurement.

“If ever there was a story that illustrated the need for greater transparency in Government procurement, this is it,” said Patrick today. “Government needs to have a much greater understanding of exactly who they are dealing with and where taxpayers money ends up”.

“I will be making further inquires in the Parliament in relation to this procurement. Part of the solution to this is my ‘Tax Transparency in Procurement and Grants” bill which requires companies to disclose their structure, particularly in respect of related entities domiciled in tax havens, as they tender for work.”

The Seychelles Connection

STS Corporation LLP is owned by two companies. These companies are based in the Seychelles, so little is known about them. Thanks to the UK’s register of beneficial ownership however, (a register of beneficial interests – that is, a register of actual owners – is noticeably absent from the Australian reporting system) we know that STS is ultimately controlled by Vladimir Skurikhin, the man who was also the main beneficiary of the Vertical Australia contracts.

It appears that STS was created around the time of the Australian court case between Vertical Australia and Vertical-T to replace the apparently fraying payment chain which had given rise to the court action. A noticeable feature of the Russian aviation tycoon’s layered money trail, with its upmarket Harley Street address, is that money can be redirected, and in many cases, not ever reach Russia.

In addition to the bank statements, the leaks include emails, attachments and contracts. In one tetchy email from a representative of a KBL Group LLP, another Formations House company which we suspect is linked to Skurikhin, the writer advises that the “Client does not approved [sic] the statements. The result was a large tax to pay — nearly 10,000 pounds”.

It goes on to ask Formations House to add some costs, “for example, legal consulting services or something else”. They indicate they are satisfied with a tax bill of no more than 3,000 pounds.

The rise of DynCorp 

On the Australian front, the Formations House leak includes an agreement, signed by a former director of DynCorp Australia, in which STS is to act as agent for DynCorp Australia, representing the company in business dealings in Europe and the Middle East. 

On its website, DynCorp says it “…sustains and improves the ADF’s operational capabilities through logistic support, facilities maintenance, and project management services”. So what products or services would this defence contractor, who is presumably entirely dependent on the public purse, have to export via its agent? We attempted to contact the Dyncorp director, and later put this question to an associate, but at the time of publication there had been no response. 

One intriguing aspect of DynCorp’s engagement with STS comes directly from bank statements found within the leak, and it raises questions about the broader context in which the transactions took place. That context includes the issuance of the Request for Tender by the ADF, the initial fulfilment by Vertical Australia, continued fulfilment by DynCorp Australia, the court case, the payment for the services, and beyond.

These questions into so-called rotary wing services – helicopters in layman’s language – are compounded by the fact that, at the exact time the contracts were rolling out, there was a parliamentary inquiry into irregularities relating to the tender process for so-called fixed-wing services in Afghanistan.

Probity risks in Australia’s military procurement

The inquiry found that – due to both past experiences and current circumstances – there were “significant probity risks, particularly in respect of conflicts of interest, breaches of confidentiality” and that contracts in the Middle East Area of Operations (MEAO) had a notorious history of controversy.

“Defence was notably inattentive when it came to identifying and managing probity risks, especially conflicts of interests. Thus a cloud of uncertainty lingers over the integrity of this tender.” 

Due to the reluctance of the Defence Department to comment on the transactions, we have limited information about the contracts, where the money went, or how it was spent but the payments by DynCorp raise two specific concerns. Firstly, their description does not seem to reflect their true purpose, a known red flag for money laundering. Secondly, two of the “mis-labelled” transactions are immediately followed by large transfers from STS to a highly suspicious and ultimately anonymous beneficiary.

Mis-labelled Transactions

Between October 2012 and February 2013, more than $US1.1 million was transferred from DynCorp to STS. The transaction descriptions that appear in the STS accounts claim that they are refunds for overpaid legal fees. From the timing and the size of the payments, it appears that these transactions are almost certainly part of the funds which the NSW Supreme Court ordered should be remitted to Vertical-T. 

In her orders on the case, Chief Judge Julie Ward specified that the $2.3 million should be paid to the new agent DynCorp, who would, in turn, pass the funds to Vertical-T.

Yet it appears that the funds were in no way related to legal fees. They were, in fact, for services provided by Vertical-T, services which were invoiced in September and October 2011, and would presumably be taxable in Russia. 

Spectre of money-laundering through Australian courts

So, what are two companies controlled by a Russian tycoon doing soaking up the resources of Australia’s court system in a dispute and why would the payments be described as refunds on legal fees?

Around the time in question, sham litigation had become a popular tool for money launderers. In one scenario, an overseas litigant prepays their legal fees. Shortly after, there is a surprise turnaround, the litigant advises that the case has been settled and requests the return of the fees. 

In another scenario, companies engage in a sham dispute over, for example, a fictitious loan. This leads to money being paid in to court, and later paid out with an authentic court order attached. In either scenario the money is now “clean”. Progate Solutions, who at one point received payments from STS, was known to use this technique and Vladimir Skurikhin had made transactions with Progate in the past.

So was the dispute which ended in the NSW Supreme Court genuine? It is not possible to say with certainty, but there are some important facts to consider.

The dispute arose when Vertical-T advised its agent, Vertical Australia, that it should no longer transmit the funds via its intermediary in Cyprus, Wellman Limited, but rather should transmit them directly to Vertical-T instead. Wellman objected to this course of action, insisting that Vertical Australia was contractually obliged to send the funds to it.

Faced with competing demands, and apparently keen to avoid being sued, Vertical Australia paid the funds into the court. In the court action, Vertical Australia’s sole director and shareholder, Yuri Tchernobryvko, said he was aware that Vladimir Skurikhin was a shareholder in Wellman. Vertical-T denied, however, that Wellman was associated with it. It said that it did not control Wellman, and that Wellman “was an entity established by Ms Baraney”.

We were unable to contact Yuri Tchernobryvko for a response for this story. He may have been a Bondi taxi driver. No impropriety is alleged on his part.

The Cyprus Connection

Documents from the companies registry in Cyprus show that a Liudmila Baraney and Vladimir Skurikhin established Wellman as equal partners in 2005. Shareholders and directors have come and gone, but Baraney and Skurikhin remain. At the current time, Baraney and Skurikhin are the only two directors and each owns half the company. If there was indeed a genuine falling out between Vertical-T and Wellman, it was obviously not lasting.

In relation to the next intermediary in the payment chain, the company that would receive payments from Wellman and transmit them to Vertical-T in Russia, Chief Judge Ward noted that there was a “deafening silence”. Our investigation shows that this now defunct UK company, KBL Group Limited, was another Formations House company. It was controlled by companies in the Seychelles, and those companies appear to have other close connections to Vertical-T’s Vladimir Skurikhin.

For clarity, the facts of this case do not call into question the actions of Vertical Australia. There is nothing to suggest that this company may have been in any way involved in wrongdoing.

Unknown Beneficiaries

The two suspicious payments outbound from the STS account occurred on the same days as two of the large, mis-labelled incoming transactions. They were reportedly sent to a Layne Desing LLP, and totalled US$730,000. We were unable to find a Layne Desing LLP in our research, but we did find a Layne Design LLP.

Layne Design LLP was a UK entity. It was incorporated on 20 June 2012, the exact same day the NSW Supreme Court was hearing the case that would ultimately direct disputed funds to Vertical-T. Layne Design is owned by companies in the Marshall Islands, another secrecy jurisdiction. Between them, the Marshall Island companies control hundreds of corporate entities — a hallmark of wide-scale money laundering. At least one of Layne Design’s sibling companies has been accused of money laundering, in a case that involved a Ukrainian High Court Judge.

Layne Design LLP appears to have been a single-use company. Following its incorporation, it lodged not a single return or document with the UK companies register, Companies House. After 18 months, the apparently abandoned company was struck off. In all likelihood, the only real order of business for Layne Design’s nominee directors would have been to open a bank account, and sign a power of attorney giving the true company owners control of that account.

Questions in the Margins

The Formations House leak throws a bright light on a complex business deal, but it is a narrow light and questions loom in the shadows, starting with the timing of the tender issued by the ADF.

The relevant tender (as far as we can establish) is dated 25 October 2010, however court documents show that the agency agreement between Vertical-T and Vertical Australia was first documented more than one month earlier — 10 September 2010. In other circumstances, such uncanny timing may not be noteworthy, but in this case the tender process was running in parallel to a parliamentary inquiry into fixed-wing services in Afghanistan. 

Irregularities in the tender process were central to the inquiry, including questions about probity and conflicts of interest.

Following the tender, Vertical Australia was awarded the contract and should have made its first appearance in Commonwealth contract data in February or March 2011. But a search of the publicly available data shows no trace of any contract awarded to Vertical Australia, and the Government’s AusTender website operator was unable to locate contract information for the relevant Request for Tender. Was this simply a matter of shoddy business processes or data handling capabilities? Or was the information not subject to disclosure laws?

If the data is not subject to disclosure laws, why is it so? Why is the public able to see who is awarded the contracts for say, security staff in Afghanistan, but not cargo helicopters?

Taking its cut – the Dubai Connection

Then there is the question of PME International, a company which is, indeed, difficult to pin down. Court documents suggest that in the days of Vertical Australia, PME was taking a cut of around 20 per cent from the ADF payments, and in some circles, the provider of Australia’s heavy-lift rotary wing services was described as “PME International Vertical-T”. 

But who is PME International, and what is their role? In this murky transaction, stemming from a particularly sensitive time in Australia’s history, do Australians have a right to know?

As best we can make out, PME International is a Dubai-based business with an eclectic set of interests including aviation services, general trading, advertising, art and design, and healthy salt products. There are suggestions that PME is also in the business of leasing, but its website shows no sign of it. More importantly, there is no way to identify the legal entity from the website. A search of the site opencorporates.com shows a number of possible matches, but which is it?

It would seem reasonable that when the ADF places its trust in a supplier – any supplier – we should expect the supplier to model at least the essential values of that important government institution. However, as the DynCorp episode shows, that is simply not the case.

When DynCorp Australia inherited the Vertical-T contract, Skurikhin’s team must have asked DynCorp to remit funds to STS Corporation, and not directly to Vertical-T. We can only guess at the justification provided, but by this time, it is on the court record that Skurikhin knows there is no prohibition on an Australian company paying a Russian company directly.

If DynCorp had conducted even the most cursory check, they would have discovered that STS Corporation had been established only seven months earlier and, therefore, had a limited track record. Further due diligence would show that it was owned by two companies that are domiciled in the Seychelles. The director at the time, Evaline Sophie Joubert, holds similar roles in numerous companies, so is almost certainly a proxy.

Further, given that the underlying contract was with a Russian company, and the agreement with DynCorp Australia had only come about when the previous payment arrangements collapsed, it seems implausible that alarm bells were not ringing at DynCorp. But not only did DynCorp go ahead, it appears that they added to the murkiness by describing $US1.1 million of funds as something which they were not.

There are a lot of small truths here we may never know — the details of the rotary wing contracts, the real reason behind the short life of Vertical Australia, the role of PME, whether the court case was genuine, why the transactions were labelled incorrectly, and whether Vertical-T was the only beneficiary of the contracts or whether other parties were involved.

There does appear to be one clear winner though, and that is DynCorp. DynCorp Australia was established in 2004 and, if the public contract data is a fair representation of their history, they languished for almost ten years. An internal dispute in the payment chain of a Russian aviation tycoon was a turning point in their history, and since 2014 they have won at least $380 million of Australian government contracts. And yes, much of the profit appears to be taken offshore.

———————

Suzanne Smith

Suzanne Smith

Suzanne is a 6 time Walkley Award-winning senior investigative journalist, Editor, Executive Producer and documentary maker. She is currently Consulting Editor and contributor to Crikey INQ.

You can follow Suzanne on Twitter @suzipeep.

Kim Prince

Kim Prince

Kim is a freelance software and technology professional with a strong anti-fraud, anti-corruption bias. He has worked in a wide range of industries throughout the Asia-Pacific region including publishing and distribution, telecommunications, insurance, events and hospitality. He is an advocate for responsible transparency in business and government, and sees data journalism as an important part of the way forward.

You can follow Kim on Twitter @Kim_Prince.


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