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Russian Whistle-Blower Pulls Back Cover On Railways Corruption

  • Sergei Khazov-Cassia

The former president of Russian Railways, Vladimir Yakunin, attends a session of the St. Petersburg International Economic Forum 2016 in St. Petersburg in June.

The former president of Russian Railways, Vladimir Yakunin, attends a session of the St. Petersburg International Economic Forum 2016 in St. Petersburg in June.

When the head of Russia's state-owned railroad monopoly was abruptly dismissed last year, the announcement stopped many in and out of Russia in their tracks.

Vladimir Yakunin was considered to be one of President Vladimir Putin's closest associates, and his neighbor back in the 1990s in an exclusive real estate development known as Ozero. Though he had been hit with U.S. sanctions over Russia's seizure of Crimea from Ukraine, many within Russia assumed he was untouchable.

After his dismissal, Yakunin was offered a seat in Russia's upper house of parliament. He ended up refusing, instead establishing a nongovernmental organization called Dialogue of Civilizations, and was given a medal by Putin.

But some observers suspected a different motive for his departure, speculating that the Kremlin was concerned that at a time when cash was scarce, he had been enriching himself while corruption and mismanagement had made Russian Railways embarrassingly dependent on state subsidies.

Sprawling Corruption

Russian Railways, the world's third-largest railway company, suffered a net loss of $1.5 billion in 2014. The business newspaper Vedomosti reported last year that it will need $6.8 billion in government subsidies from 2016 until 2020 to stay profitable.

Now, an investigation by RFE/RL has peeled back some of the layers to reveal how corruption seems to function in a huge Russian company on a very basic level: No-bid contracts. Documents missing authorized signatures. Inflated bids and unauthorized private subcontractors using public resources.

Within Russian Railways' sprawling operation -- which employs around 900,000 people -- one of the largest divisions is the Central Infrastructure Directorate, which oversees the company's 85,000 kilometers of tracks, and related maintenance and infrastructure.

Internal documents, contracts, and other legal materials obtained by RFE/RL show how contractors hired by the Infrastructure Directorate hired out private companies to do work -- such as clearing vegetation from tracks or snow removal or even supply electricity -- and then brought in railroad employees to shift costs back onto the state-owned company. It is not clear who at Russian Railways, if anyone, benefited from such practices.

'Exceptional Circumstances' Common

As a state-owned company, Russian Railways was required to make purchasing deals in an open, competitive manner -- theoretically, as a way to hold costs down -- except under exceptional circumstances. But the documents show that the Infrastructure Directorate regularly flouted that rule, citing "exceptional circumstances" as a routine matter. Moreover, the company's top managers broadened the definition of when using a single supplier for a good or service was allowed.

Russian President Vladimir Putin (left) presents the Order of Honor to the head of Russian Railways, Vladimir Yakunin, in Moscow in October 2006.

Russian President Vladimir Putin (left) presents the Order of Honor to the head of Russian Railways, Vladimir Yakunin, in Moscow in October 2006.

In one example, RFE/RL found the Infrastructure Directorate relied on two outside law firms, NIIAS and Erta-Consult, to draft contracts and other legal documents that could have easily been completed by the railway company's in-house lawyers.

NIIAS, which was paid 11 million rubles (about $332,000 at the time) for its work in 2014, is majority owned by Russian Railways, with a 25 percent stake belonging to other shareholders. Erta-Consult, whose ownership is split between an unnamed Russian citizen and two Cypriot firms, was paid 11.8 million rubles in 2013 ($391,000) for "preparing documents for the Ministry of Energy."

In another case, a company called RemStroi won a 1.3 million-ruble ($43,000) contract in 2013 to repair fuel holding tanks, but then hired another company to do the work for around 300,000 rubles less. A police investigation later concluded the work could not have cost more than 215,000 rubles ($3,500) to complete.

In 2011, a company called Legion was one of several awarded contracts to clear trees and other vegetation along some of the railroad's rights-of-way, including in the Sverdlovsk region, in the Urals. But the same work cost one-third to one-fifth as much when it was done by Russian Railways' own employees or those of its regional affiliates. Moreover, Legion ended up cutting much less distance in the rights-of-way -- so much so that in 2011-12, railroad employees were sent back out to do the cutting themselves.

Whistle-Blowers Sidelined

Aleksandr Margiyev, who was hired in 2012 to run the legal-contracting department within the Infrastructure Directorate, told RFE/RL that the directorate's management was to blame for the cost overruns, no-bid contracts, and other practices that contributed to spiraling costs for the company.

Margiyev said he had blocked the signing of "illegal contracts made on the basis of countless directives without any competition," as well as the "illegal dismissals" of companies contracted by Russian Railways.

Margiyev alleged that the people who oversaw many of the no-bid contracts included now-retired head of the Infrastructure Directorate, Vladimir Suprun, and the vice president for infrastructure, Aleksandr Tselko. A longtime associate of Yakunin's, Tselko left the company not long after Yakunin was pushed out.

Margiyev also said that he was rebuffed when he complained about the alleged contracting irregularities to senior officials -- including Yakunin and board chairman Arkady Dvorkovich, a deputy prime minister -- and was fired on a minor technicality in December 2014. A Moscow court later reinstated him.

Margiyev's dismissal was corroborated by one of his deputies, Marina Kochetova, who told RFE/RL that Suprun's deputies tried to push her, and another colleague, to leave the company. "After his dismissal, [the deputies] almost every day demanded that [we] hand in our own letters of resignation, but we refused," she said.

Three months after Margiyev's dismissal, Kochetova and another legal department employee discovered that some of the incriminating documents and contracts had disappeared from their computer hard drives. When they complained they were reprimanded, she said, and later demoted and replaced with employees with minimal experience.

RFE/RL could not reach Suprun or Tselko for comment on the allegations raised by Margiyev. Russian Railways did not reply to a request for comment lodged on October 7.

With reporting by Mike Eckel
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