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«Practical Issues in Investigating Corruption Crimes linked with Money Laundering Cases in Estonia (example of Virumaa county) Mr. Kalmer Kask ...»

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Even though no brokerage services were actually rendered, the Subsidiary still transferred the requested money in two installments both payable into the entrepreneur’s bank account in the period of August-September, 2006. Having received the money, the entrepreneur, acting per the previous agreement, forwarded € 1,248,000 into the bank account of the firm controlled by Businessman А. The remaining sum, filed as a loan, was deposited by the entrepreneur into his private bank account and later used to purchase the apartment of Businessman М. In so doing, the sum designated in the sale and purchase agreement was, in fact, different from the sum actually paid, which meant that some of the money paid under the sale and purchase agreement was actually a share of illegal profit that Businessman М. (as member of the municipal government) received in the result of this criminal scheme’s perpetration.

Similarly to the above, in order to disguise the fee received by the „seller of influence“, the Subsidiary concluded with two sham firms several fictitious brokerage contracts (under which these sham firms acting as would-be brokers in the sale and purchase agreements were to look throughout the entire territory of Estonia, and in the interests of the Subsidiary, for objects of real estate suitable for creation of shopping malls and retail stores). Besides, the Subsidiary concluded with one of the sham firms a fictitious contract for construction site supervision, even though such services were actually rendered by another enterprise.

Phase 3 Utilizing the services of an enterprise specializing in the sale of the so-called “shell companies” and acting through a chain of intermediaries, the perpetrators created several sham companies whose boards of directors were staffed with figureheads. In reality, the said BoD figureheads wielded no authority whatsoever concerning the administration and business activities of the said companies, whereas the bank accounts thereof were controlled by a totally different group of persons. Some of the money transfers between the accounts of the said sham companies were effected through Internet banking, using for this the personal home computer belonging to the accountant of the ”shell-co” selling enterprise.

Assisted by some of Businessman А.’s acquaintances involved in the criminal scheme and using their enterprises and “money laundromats”, operating with fictitious bank accounts, even more numerous sham accounts and contracts were created, into which and under which the money received from the Subsidiary were channeled into the bank accounts designated beforehand.

Following the initial transfer, the money were kicked about between several bank accounts opened by the dedicated sham companies, then the money was converted into cash by withdrawing it using ATMs not outfitted with CCTV surveillance. Afterwards, some of the involved sham companies were re-registered using new BoD figureheads, while other sham structures were reorganized.

Some of the illegally obtained money to the amount of 1,036,324 EEK was transferred into the clearing account belonging to a construction firm engaged in the renovation of the apartment complex owned by Businessman А. To conceal the fact of illegal financing of these activities, the said construction firm and Businessman А. concluded a fictitious contract under which this firm was allegedly building for Businessman А. a retail store in another city. In reality, the builders there were paid from a different source.

The remaining money was evidently transferred abroad and deposited into several shadow accounts at some foreign banks.

–  –  –

The police investigation in this case was started in 2008, this happened quite accidentally and partly even unintentionally in the course of investigation of another criminal case.

The above-mentioned Businessman А., acting as BoD member in the enterprise with shared municipal ownership, in 2005-2007 effected on behalf of the said enterprise (and in violation of the existing procedural restriction) several operations with his own enterprise (which was utilized in the above-described criminal scheme). To investigate the circumstances under which the breach of law was committed, the state initiated criminal proceedings in the course of which the suspect’s business activities were analyzed together with the relevant statements of account. Also, starting June 2007, Businessman М. became a suspect in the criminal case connected with the provision to the municipal authorities of falsified information by the enterprise acting in the interests of Businessman М.

In August 2008, the senior police commissioner in charge of both criminal proceedings was contacted by his friend who told him that Businessman М. was seeking for a possibility to resolve the problem which had arisen in connection with the police investigation of the enterprise belonging to Businessman А. as both these problems might also personally concern Businessman М. That is why “his budget” had allegedly allocated for this problem’s solution up to 360,000 EEK. The senior commissioner asked to tell Businessman М. that he agreed to meet in three days’ time. In the same evening the senior commissioner was again contacted by his friend who told him that Businessman М. was okay with the proposed date. After this the senior commissioner in charge of investigation contacted the [KaPo] division.

During the meeting (as the senior commissioner was wearing a concealed microphone with a radio transmitter, – the operation which—together with his other actions—was properly sanctioned by the court) Businessman М. (who came to the meeting in person!) asked that in the course of investigation of Businessman А.’s activities neither in-depth analysis nor tax audit should be performed as those might disclose his personal deals. Businessman М. typed the figure “300,000” on the screen of his cell phone and gave to understand that after a satisfactory resolution he would pay this sum in three installments through the agency of their common friend. The first installment was to be paid within a week’s time. Also, Businessman М. asked the senior commissioner to delay the other criminal investigation and send the bill of indictment to the public prosecutor's office only by the end of the year. The parties agreed to meet again in two days’ time.

Two days later, Businessman М. met with the senior commissioner at the appointed location, the latter explained that soon should arrive a vehicle on the back seat of which would be lying a small parcel. The senior commissioner was to get onboard and tell the driver to take him wherever he needed to go. Two minutes later a white van stopped by, the senior commissioner sat on the back seat and found there a parcel wrapped in a newspaper. Unfolding it, he saw a wad containing 100,000 EEK.

Businessman М. for his criminal activities was convicted to serve 10 months in prison. The enterprise acting in his interests and one of its BoD members were later punished (per the case of provision of falsified information) by paying a fine. As for the violation of the procedural restriction, the criminal proceedings were later closed, and Businessman А. was adjudged to administrative penalty (fine).

*** However, the police became at once interested what was so important to conceal in the books of the said enterprise, if such a “respected” individual as Businessman М. came to bribe the top police official in person.

3. Main Steps of Investigation

 In the framework of this criminal case investigation, an extensive analysis was made concerning all the bank transfers effected in 2005-2007 between the bank account of the firms either owned by Businessman А. (or those known as being under his control). The investigation showed the said accounts to receive several large payments of 8-10 million EEK each) from the Subsidiary. The purpose of payment often referenced brokerage contracts. Also, it was noted that part of this money was then forwarded into the accounts of some shell companies.

 The audit of the bank account belonging to the Subsidiary additionally disclosed that in the same time frame several large sums of money were transferred, using the similar method and purpose of payment, into the account of two other enterprises.

 In parallel with the criminal investigation, a full-scale audit of the Subsidiary’s business activities was also performed by the State Taxation and Customs departments. Invoicing and contracting analyses were also underway. During the search at the Tallinn HQ of the Subsidiary were seized brokerage contracts with acceptance certificates for various objects of real estate throughout the entire territory of Estonia. Also found were the sale and purchase agreements for these objects of real estate. The agreement with the municipal enterprise was found, too.

 Then the investigators found the former owners of the objects of real estate, referenced in the seized brokerage contracts, these owners were questioned regarding the circumstances under which they sold their property. None of them knew anything of the said brokerage contracts and enterprises involved in rendering brokerage services. According to the former owners, they concluded the sale and purchase agreements directly with the representatives of the Subsidiary without the involvement of any brokers.

 The investigation found that the Subsidiary had quite a number of brokerage contracts with various Estonian enterprises, according to which the latter were seeking for the Subsidiary objects of real estate without using intermediary sale and purchase agreements. Despite the statements of the signatories to the brokerage agreements to the effect that they found the land and were paid for their services a fee in the amount of 5-10 per cent of the purchase price, the former real estate specialist of the Subsidiary testified as a witness that he in fact knew nothing of any brokerage contracts, and that he had been purchasing objects of real estate directly from their owners and obtained all the information on his own. He used no intermediaries and also personally came to inspect the site to be purchased. The purchasing of real estate was handled by a division inside the Subsidiary, and it is therefore improbable that the Subsidiary paid any brokers for their services connected therewith. The brokerage fees were also counterproductive, since when signatories of the brokerage contracts were questioned, the broker referred only to the possible plot of land and, in fact, made no further practical steps.

 The Subsidiary’s Executive Director (at present, the former director) could say nothing concerning the brokerage contracts. He confirmed that the Subsidiary had no problems with money – they paid whatever price they were asked for. It was found that the enterprises allegedly involved in the brokerage contracts, were usually not chartered for this type of activity.

In one of the enterprises whose brokerage services were bought, one member of the BoD was a citizen of the Russian Federation, who according to the border guard logs visited Estonia only twice. In the days when the brokerage contracts were concluded he was not in Estonia (according to the Subsidiary’s Executive Director statement the contract was signed at their Estonian HQ). However, this member of the BoD was in Estonia on the day when he was registered as the owner of the enterprise and its bank account were opened. Another BoD member of the same enterprise was drug addict with a 100 percent work disability whose passport data, according to the commercial register, was connected with approximately 40 different enterprises. Earlier he had been already questioned as a witness in connection with other criminal case proceedings where he explained that he was a commercially hired figurehead.

 Since the inquest harbored a suspicion that the said money transfers included the bank operation between the Subsidiary and the municipal enterprise, the inquest requested the relevant documents from the Mayor’s Office; while the office of the municipal enterprise was searched, and the documents related to the sale of their buildings were seized.

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