«Practical Issues in Investigating Corruption Crimes linked with Money Laundering Cases in Estonia (example of Virumaa county) Mr. Kalmer Kask ...»
There was a reason to believe that the corrupted public official could have used such a scheme more than once, that is why similar „payments“ could have appeared on the bank account of the share society belonging to the Head’s spouse. Therefore, first of all, inquiries were sent to the banks and bank account statements of the share society were verified.
Review of accounts and reconciliation of the records in the accounts and the data in the register of the orders and on the website of self-administration regarding winners in tenders and the companies which obtained the orders gave positive results with regard to three enterprises (one of them was Estonian subsidiary of the Latvenian company) which, after having won the tender, paid all the invoices issued by the company of the official’s spouse.
Next step was to retrieve account statements from the three above-mentioned companies, account statements of the self-administration as well as annual reports on business activities of the company which belonged to the Head’s spouse. It was found out that all three companies involved in the case took part in tenders on several occasions, and the city signed a number of agreements with them. At the same time upon receipt of money from the city, they transfered significant amounts to the accounts of the spouse’s company for rough plan required for construction project or advertising services. Suspision was aggrevated by the fact that the spouse’s company provided tourist services which was proved by actual visits to the company premises, but nothing was there to prove that they were doing rough plans or providing advertising services. What also aroused some interest was that after having received the transfered funds, the spouse’s company leased a company vehicle, and one of the users of the vehicle, based on the register records, was the Head of the department.
Next step was to search the Head’s office and the companies involved in the case. Later the companies providing accounting services, were also searched. The transaction-related documents were found and withdrawn. Besides, from the court’s register department business activity reports pertained to tender procedures were received from the spouses’s company and from City Management.
While reviewing the bidding documents and interrogating the city officials the suspision was confirned that the invitations to take part in the tender were sent out only to those companies which were appointed by the Head of the Department. Some facts of the violations of the bidding rules and manipulations with the contest results were also confirmed.
During the seach in the Head’s office a CD was found containing files with draft fictitious agreements concluded on behalf of the spouse’s company with other companies. It was established that the files were created in the office computer of the Head of Department.
Judging by the evidence of the Sales Director of the Estonian subsidiary of the Latvenian company, Sales Director’s Assistant and the former Sales Director as well as the construction team there was no need at all to order building project or rough plan from the third company since it was a standard procedure and they did not use any rough plans in their work. According to them, they never made orders for, saw, received or used any rough plans.
Accountants of the companies involved in the criminal scheme (who personally did not know about committing a crime) explained that despite the fact that invoices were paid and agreements were available, to the best of their knowledge, the share society of the Head’s spouse did not render any services to other companies. No documents including expendure ones were either available or submitted to the accountant office, there were no actual advertising materials or posters which could have proved the fulfilment of this kind of work. Apparently, no evidence of providing advertising services were identified. Employees/former employees of the tourist agency confirmed that the share society provided only intermediary services associated with tourist vouchers and they were not aware of any advertising or engineering services.
Expert examination of accounting and finance documentation was performed which confirmed the absence of any case-specific accountant data or violations of the accounting requirements which, in its turn, resulted in presenting accusation of a relevant contents.
Head of the Department (dismissed from the position even before the end of pretrial investigation) was accused of receiving a bribe by a public official at least two times and of demanding it.
Three companies and their leaders (both legal and physical persons) were accused of giving a bribe or several bribes.
The Head’s spouse and the company managed by her were charged with the accusation of aiding on many occasions to receive and to give a bribe if receiving a bribe was done on demand.
She was also accused of a willful violation of the accounting requirements and of providing falsified data in accounting documentation which significantly complicated the assessment of financial status by the person in charge of accounting.
5. Main challenges
In this particular case there were no specific problems or significant difficulties in the investigation.
All the companies-entrepreneurs and the corrupted pubic official took a position of covering each other’s back, and nobody wanted to give testimony or admit guilt. And it happened despite the fact that prosecution made a proposal to terminate the proceeding in exchange for collaboration of the first company/entrepreneur which would agree to help the prosecutor or to apply favourable simplified judicial procedure. A number of companies hired the lawyers from the same law office where the Head of the Department, his spouse and her company (as a legal entity) were clients.
Only after sending the case to court, contact with the spouse was established who declined the services of the available defendent and asked the court to appoint another defendent from the state (she and her husband, the Head of the Department, quarreled and got divorced due to some serious disagreements).
Suspicion in money laundering was still ambivalent. Transactions suspected in money laundering were identified and proved only after the case was sent to court and the spouse started giving evidence.
For determining component elements of the crime, the State Court of Estonia took the position that when introducing liability to criminal proceedings for money laundering, lawmakers did not proceed on the basis of classifying any possessions obtained by illegal means as criminal, when actual origin of the possessions remains hidden but on the basis of protecting financial and economic system of the country from manipulations with the property. Thus, in the court practice actions aimed at circulation of property of criminal origin for personal needs, or hidden or unhidden obtaining of property for ultimate use and which is not intended for infliction of harm to financial or economic system are not considered as money laundering.
Phase 1 The Estonian subsidiary of a foreign enterprise (hereinafter referred to as the Subsidiary), having its outlets and representation offices throughout Estonia, in 2006 undertook to found a largescale entertainment and commercial centre in one of the Virumaa regional towns. The investments were planned in the amount of 700-800 million EEK.16 The Subsidiary’s representatives found a convenient plot of land bordering on the main street of the town, but the plot in question was currently occupied by several buildings owned by a municipal enterprise. The existing legal relations involved only the ownership of movable effects while the land property rights were not secured. The Subsidiary’s legal consulting bureau found that registering this plot of land as real estate and obtaining all required approvals in order to start construction should normally take 1.5 – 2 years. But the Subsidiary, desiring to attain its business goals, aimed to start construction as soon as possible.
The managing director of the Subsidiary made the acquaintance of an influential and locally proactive entrepreneur (hereinafter referred to as Businessman A.) who offered his assistance in the solution of the existing problems. Businessman А. explained that some of his business partners were very influential persons as they were also members of the municipal government, 1 € = 15.6466 EEK and that he was closely acquainted with many municipal functionaries. Businessman А. promised that, if necessary, he could expedite certain processes so that the desired plot of land would be sold to none other but the Subsidiary and at the price acceptable for the latter. In addition, Businessman А. promised to make sure that the Subsidiary, with no delay, received from the municipal authorities all the documents and approvals necessary to secure the right of private ownership for the plot of land, as well as all the permits and authorizations required to realize the design, engineering and construction of the entertainment and commercial centre in question. To recompense Businessman А. for his services, the Subsidiary was to pay him a certain sum of money. The Subsidiary agreed with this proposal.
In his own right, Businessman А. did not have any authority or right to make executive decisions concerning this town or the said municipal enterprise. But still he wielded certain influence and had connections with some of the municipal administrators and functionaries (e.g. one of the members of the board of the said municipal enterprise was also working as CFO subordinate to Businessman А.; one of Businessman А.’s business partners (hereinafter referred to as Businessman М.) was member of the municipal government, etc.). Offering such influence for sale, as well as agreeing to receive any benefits/property obtained through the exercise thereof, is legally treated in Estonia as official malfeasance, irrespective of whether it was taking place in reality or only being discussed.
There exists no direct evidence as to whether Businessman А. was exercising the real influence he had on the said public functionaries or not. But only a month later the Subsidiary was able to purchase all the movable effects, previously owned by the municipal enterprise and located on the said plot of land, for a sum of 22,000,000 EEK. Also, the Subsidiary received from the municipality (without any procrastination from their side) a permit to start construction, as well as a permit for detailed planning. To help solve any issues, the Subsidiary’s representative constantly worked by phone through the mayor’s deputy or the chairman of the municipal government who then directed their subordinates to expedite the processes affecting the realization of the plans of the Subsidiary.
~17 000 000.-крон Phase 2 Within the next couple of months, the Subsidiary, under several fictitious brokerage contracts, transferred a sum of approximately 8 million EEK into the bank accounts of two enterprises controlled by Businessman А. Some of the money thus acquired was utilized by Businessman А.
for the business activity of his enterprises (e.g. repaying a 2 million EEK bank loan; bulk purchasing of gold jewelry (one of his enterprises ran a chain of jewelry stores) etc.).
In 2006, Businessman А. contacted an entrepreneur proactive in the same town, to whom he introduced the Subsidiary’s representative, proposing them a lucrative deal. The entrepreneur was to render the Subsidiary certain brokerage services, the final aim of which was to find in the town an appropriate soil for founding a small retail store. Then, in his turn, this entrepreneur was to conclude a brokerage service contract with the firm belonging to Businessman А., who would offer to the former a proper piece of real estate. Doing this, the entrepreneur was to request from the Subsidiary the sum of money designated by Businessman А. Since the entrepreneur desired to purchase for himself the apartment of Businessman М., Businessman А.
suggested using some of the money earned to finance the proposed purchase deal.