«Practical Issues in Investigating Corruption Crimes linked with Money Laundering Cases in Estonia (example of Virumaa county) Mr. Kalmer Kask ...»
The latest example: several entities operating in the region agreed among themselves and split the trade market (cartel collusive agreement) regarding certain supplies (road construction, municipal services, etc). The winning in tender was arranged with the help of the top manager of relevant organization or self – govenment. Alongside with real companies some shadow firms controlled by criminals took part in the bidding. Some potion of the money received per the fake contarct was transferred to the shadow firm’s bank accounts. Then the money was withdrawen from the bank account through cash points by straw pesons specially hired for this purpose (’tankmen’) and was passed over to the official who facilitated the deal. The financial analysis of income versus expenditures of the official and the members of his family revealed that his expenditures were much higher than earnings, and often cash was used for payments in the shops though there was no cash withdrawen from the bank account through cash machines before that.
As compared with the state sector the characteristic feature of the local self-governments is often inefficiency of control tools and actions for reducing corruption risks, and due to this fact an individual official has much more opportunities for misconducting. That is why bribery cases in the local self-governments under investigation are more frequent versus avarage level. If to consider the court practice or statistics then alongside with the officials of self-governments among typical takers of bribes there are such persons as a senior specialist on registration of Autoregister bureau, a labour inspector, a director of commercial partnership, an employee of IT unit in the department, a traffic policeman, an empowered officer to certify fuel oil, an official on criminal surveillance, a senior Customs inspector, a judge, etc.
In Estonia we have an expression ’semukapitalism’, which literally means ’ capitalizm of sidekicks / buddies’ – in governmental, municipal or private organization side by side work former classmates or school fellows. Political and common corruption fatally intermingled with each other. So in order to be seccessful in business or to be ’accepted in the circle of confidants’ it is of primary importance to select the right political party or to be a playfellow of a powerful official or at least to be a member of an exclusive tennis.
It is inevitable that sooner or later any legal proceedings will be ginen political coloration. Is is becoming a common practice that when reviewing corruption cases that were made public the most important point is not only the subject matter of the suspected official misconduct, but the question of the party whose member the official is. This situation has made the majority of the public to believe that KaPo and Ministry of Justice are engaged in arranging for much publicized anti-corruption accusations and mainly regarding the persons beloning to opposition parties or supporting them, and legal order is of least interest for the agencies. When appropriate officials under suspect prefer using the above attitude and attempt to influence the public opinion – speak out in mass media actively, give comments regarding the suspicions and ’suffering’ they had to experience, and picture themselves as victims of political persecution or pre – election fight (when reading such articles in newspapers one gets a deceptive impression that in Estonia there is a permenet process of parlaiment elections or elections to self - government and resulting ’snookering’).
The level of corruption in Ida-Virumaa is higher than in other regions of Estonia. The main cause for that is the semiclosed community of Ida-Virumaa and more spread existence of corporate club relationship in business and labour relations as compared with other regions.
Many of the local self-governments have become sort of ’a state within a state’ where the entire control over the municiple power and commercial interests are consentrated in hand of a narrow circle of those who administer significant monetory resources and deciding vote in the coalition of municiple power. Often such persond are influantial and honoured members of the community, generous benefactors for charity and church, supporting the rights of minority groups, etc. This ensures success for them during elections and local residents support.
In Virumaa there is relatively high level of unemployment that is why many people willingly offer to criminals their services as straw men (bank acounts selling and transfer; transit of the money received through ’phishing’ from Europe to Russia; presence and right of signature in the boards of false / shadow firms, withdrawing and handing over the money from the bank accounts through cash machines, etc.). Until recently it was possible for anyone who comes over to open a bank account with maximum limits and internet banking support without questioning, and at the bank doorway they assigned all their bank documents to the criminals for a small consideration. Due to hyperliberal business climate in Estonia the companies which specialize in selling out prepared companies *shelf firms+ (if necessary together with a ’professional’ board member or providing services of a reliable and uninquisitive attorney or accountant). And the latest trend is to import the board’s members from Russia, and they are simply assinged as a board’s member for a registered shelf company, whereafter as a rule the person is granted a residence permit from the Estonian authorities for employment. Should he have residence and labour permit for Estonia, the whole European Union is open for him.
The persons who commit crimes connected with corruption and money laundering similar to tax evaders willingly and actively use the services of unlawful the so called ’tax carousels’ / ’laundry’s for legalization’ which if necessary put together all paperwork used in the criminal arrangement. At the same time it is extremely difficult to detect such service providing persons because in case of minor suspect all traces of misconduct are immediatly destroyed. Not rare are the cases when right before investigators visit the company computers come out of order and hard discs are destroyed or when going to the investigator’s inquiry the car with all required accounting documents all of a sudden catches fire on the way to the prosecutor’s office and burns out together with the documentation. Nevertheless when there is will an investigator can avoid such situations and with the help of various sources to recover the accouning documentation or at least its part to be used as evidence.
Since the majority of small businesses buy the service for book-keeping and drawing up of the accounts for a fiscal year from the specialist companies or individuals very often the first step in the investigation for the investigative agencies is surveillance and visit of such companies. The dominating practice of using the services of the same accounting and auditing firms by criminal groups for illegal arrangements can be helpful in revealing numerous interesting findings during search visits and sending requests to such companies.
Operational search actions (wiretaps, simulation, concealed surveillance, etc.) are efficient when detecting cases of corruption and money laundering in real time, but due to the problem of ensuring basic human rights which is an urgent issue in Estonia right now, the media gives coverage of methods of detection. That is why everybody know and believes that KaPo and the Government watch them (the so called syndrome of „Big Brother watches you“), and this results in conspiracy and mistrust. Everything is done through a chain of numerous intermediates, a phone card is changed three times a day or is not used at all. An operative officer should keep up the pace with all that. Often for decrypting the content of phone conversations one should use interpreters with special knowledge or a culpable participant ’from the closest circle’ who is able to explain the text with prowords and slang. Investigatory bodies keep lacking good specialists – investigators. Rather often the government is not able to compete with private sector which lures a police employee or an expert to work for them for higher payments. Often there are vacancies in the investigatory agencies.
1. Circumstances of the criminal offence:
In 2007-2008 the Head of the City Property Management and Municipal Services Department, taking advantage of his official position, unlawfully accepted, received or demanded a bribe from various legal entities in exchange for promise to give privileges to bribers in obtaining orders for municipal services. Upon fulfillment of the orders and in accordance with the requirements, businessmen had to pay a bribe from the money they received from the city for their services.
Based on the preliminary agreement and promises and when committing illegal action, Head’s spouse provided assistance both to the Head of the Department and the bribers making the latter transfer money and conceal the crime on the grounds of prepared by the Head and handed over by the spouse fictitious contracts and invoices to be paid in favor of the enterprise (Limited Liability Partnership/share society) in which the Head’s spouse was the single shareholder and member of the Board.
As a result, the enterprise got possession of the money resulted from a guilty act (receipt of bribe).
After that, under the pretense of routine company’s business activities, a part of the money was wired to the account of a counterfeit company from which Head’s vacation trips were eventually paid for. Another part of the money received from the criminal scheme was used for a vehicle leasing for the share society which belonged to the spouse of the Head of the Department.
Actually the company neither needed this vehicle nor used it. Power of attorney for the vehicle was given to the Head of the Department who had the car at his disposal.
In the framework of this criminal scheme the Head of the Department met with a participating or willing to participate in an auction entrepreneur. In the course of the meeting the public official would make a proposal to the entrepreneur or to the company in which he guaranteed to award a contract in the current or future tender (if wanted, the same scheme can be repeated in the future), and then agreements for supplies or works were signed. As a remuneration, these companies should have placed an advertising order (in one case it also included putting up together a rough plan for construction project) with the company which belonged to the spouse.
In reality this kind of service was never rendered (the spouse ran a tourist agency), and the only purpose of the signed agreements and the submitted invoices was to conceal the actual amount of money in the form of a bribe. After signing the fictitious agreements the Head of the Department asserted influence on the contest procedure and/or announcement of a tender for placement of order in such a way that the company which agreed to pay the bribe would become the winner. Upon supply of commodities or fulfillment of work under the terms of the signed agreement, the city paid the company the amounts stipulated in the agreement, and then the briber-company wired the agreed upon persentage to the account of the share society owned by the spouse of the Head of the Department.
2. How was it discovered?
As a matter of rule, similar cases start with some hints given to the police. This particular case was not an exception. One enterprise (see #4 on the picture) got a demand from the Head of the Department to pay money for winning the tender on manufacturing billboards, maps and tourist signs for the city. He also received from the public official’s spouse a fictitious agreement for signing and instructions where and to whom he had to pay money. But the businessman did not sign it and simply threw it away. About half a year later this businessman turned to police and told them what had happened. Despite the fact that he failed to provide direct evidence, decision was made to examine his information.
3. Investigation actions
Since the facts were ascertained after they had had place, in other words, post factum, special investigation activities were not conducted.