Shell company tied to Russian tax fraud paid Bombardier tens of millions, documents show

Open this photo in gallery:

Leaked banking records show Canada’s Bombardier Inc. was paid tens of millions of dollars by a shell company that received money from the massive Russian tax fraud that cost accountant Sergei Magnitsky his life.

The records from Lithuania’s now-defunct Ukios Bankas − obtained by the Organized Crime and Corruption Reporting Project (OCCRP) and shared with The Globe and Mail − reveal that Bombardier was paid US$42.5-million over three transactions in 2008 by a company called Flashback Services Limited. All three transactions are marked “Aircraft Sales Invoice” or “Aircraft Invoice.”

But the US$42.5-million wasn’t money that was earned by Flashback Services, a British Virgin Islands-registered company that doesn’t have a website. The Lithuanian records show that Flashback’s money was loaned to it by other shell companies, including some involved in the 2007 tax fraud that led to Mr. Magnitsky’s death in a Russian prison.

The money flows exposed by the Ukios Bankas records highlight the opaque world of offshore companies. While the banking records show the names and addresses of the parties involved in each transaction, there’s no information about who really controls the shell companies themselves.

Mr. Magnitsky was jailed in 2008, shortly after he exposed how US$230-million in tax refunds owed to Hermitage Capital Management, an investment bank controlled by U.S.-born Bill Browder, was instead paid out to a network of shell companies affiliated with organized crime. Mr. Magnitsky died in his cell a year later, allegedly after a severe beating at the hands of Russian police.

Mr. Browder, who hired Mr. Magnitsky to trace the missing funds, says Bombardier was obliged to look into the origins of the money used to buy its planes.

“When somebody is selling an airplane worth tens of millions of dollars, they have the duty to do as much due diligence as a bank. If they didn’t, and it turns out that customer was using the proceeds of crime, that raises very serious issues,” Mr. Browder said in a telephone interview.

“Let’s say it’s Coca-Cola that’s buying a Bombardier jet, that’s legitimate. But if it’s Flashback Services − and they can’t find it on the Internet − it’s absurd not to question that.”

Mark Masluch, a spokesman for Bombardier Business Aircraft, said the company had performed its due diligence ahead of the transaction and didn’t discover anything that prevented the sale.

Mr. Masluch said Bombardier had initially entered into the aircraft sales agreement in 2006 with a German company that later sold its shares to Flashback Services.

“A due diligence performed on Flashback in January, 2008 did not reveal any anomalies,” Mr. Masluch wrote in an e-mailed reply to questions from The Globe. “Bombardier’s rigorous process also takes into account any holding companies as well as their ultimate beneficiaries. We would like to emphasize that holding companies are commonly used throughout the business world to manage transactions. Simply doing business through such entities, notwithstanding their country of registration, is not an indication of any wrongdoing or illegal activity.”

When asked Mr. Masluch did not say who Bombardier believed the beneficial owner of Flashback Services was. He also did not respond to Mr. Browder’s allegation that the money used to pay for the jet was derived from the scheme that cost Mr. Magnitsky his life.

Mr. Magnitsky’s case − pushed along by Mr. Browder’s lobbying − has become a cause célèbre among Western governments. Canada, the United States and Britain have each passed versions of “Magnitsky Acts,” which have been used to punish those who profited from the fraud Mr. Magnitsky investigated, as well as to sanction other human-rights abusers around the world.

The transactions between Flashback Services and Bombardier were found among a collection of 1.5 million banking transactions and other documents obtained by the OCCRP. The data is a compilation from multiple sources and represents one of the largest leaks of banking records in history.

One of the central findings is the existence of a web of shell companies − which the OCCRP dubbed the “Troika Laundromat” − that used the Vilnius-based Ukio Bankas to move billions of dollars into Western institutions and then back again in what experts consulted by The Globe say appears to be a massive money-laundering operation. The network is named after Troika Dialog, a Moscow-based investment bank controlled by an individual with connections to Russian President Vladimir Putin.

The first US$2-million payment to Bombardier came the same day in 2008 that Flashback Services was loaned an identical amount by Quantus Division Ltd., one of the central companies in the Troika network, and one of the biggest users of the so-called laundromat.

Three days earlier, Quantus Division had received a US$5.9-million injection from Roberta Transit LLP, which Mr. Browder’s investigators identified as one of the main recipients of the missing money Mr. Magnitsky had been trying to trace. Mr. Browder’s team says the British-registered Roberta Transit LLP received US$65-million of “Magnitsky money” in February 2008. Roberta Transit was dissolved in 2009.

Two subsequent payments from Flashback Services to Bombardier in October 2008 − for US32.5-million and US$8-million − both came after transfers from Quantus Division to Flashback Services. Quantus Division, in turn, received cash injections from other shell companies associated with the Troika Laundromat, including Industrial Trade Corp., another company that Mr. Browder alleges profited from the fraud Mr. Magnitsky died investigating.

Mr. Browder described Quantus Division Ltd., Roberta Transit LLP, and Industrial Trade Corp. as “known money-laundering companies.” He said Bombardier would have discovered as much, had it done proper due diligence.

All of the money paid to Bombardier flowed via accounts at Ukios Bankas, which collapsed in 2013 and is now under criminal investigation for large-scale money laundering. Vladimir Romanov, the founder and director of Ukios, was granted asylum in Russia in 2014.

The transactions with Flashback Services are not the only time Bombardier agreed to sell private jets to shell companies with ownership structures that appeared to be intended to obscure who the end buyer is.

Russian-American businessman Eduard Slinin is currently suing Russian-Canadian oligarch Alex Shnaider in a New York court over the collapse of a business the two men entered into in 2007. Evidence in the case shows that Mr. Shnaider’s company, Midland Resources Holding Ltd., set up a pair of British Virgin Islands-registered companies that bought six Bombardier private jets from the company.

The planes were then to be sold onward to six other BVI-registered companies, with Mr. Shnaider and Mr. Slinin set to make a profit of between US$1-million and US$9.5-million per plane. The transactions, according to Mr. Slinin’s lawyer, Laurence Lebowitz, fell apart when the 2008 financial crisis hit.

Two of the shell companies interested in buying the Bombardier planes were controlled by Oleg Sheykhametov, a Moscow restaurateur who Russian media say has connections to organized crime. The other four companies were controlled by Grigory Pirumov, who was Russia’s deputy minister of culture before he was jailed for embezzlement of public funds.

Mr. Lebowitz told The Globe that while his client found the buyers, it was Mr. Shnaider’s relationship with Bombardier that enabled the partnership to get “favourable terms” on the aircraft it bought from the company.

Derry Millar, a lawyer for Mr. Shnaider said Midland was able to negotiate regarding the price it paid Bombardier for the planes “as a long-term repeat customer,” but said his client had no dealings with the prospective buyers.

“Neither Mr. Shnaider nor Midland has or ever had any relationship with Oleg Sheikhametov or Georgy Pirumov other than as set out above. Neither Mr. Shnaider nor any one at Midland knows, ever met, nor had any business dealings with either of them,” Mr. Millar wrote in response to e-mailed questions from The Globe.

Mr. Masluch said Bombardier would not comment on the dispute between Mr. Slinin and Mr. Shnaider since the company was not a party to the lawsuit.