From illegal takeover charges to initiating changes to law: how Inskoy mine case is unfolding
In 2020, new essential details came to light in the case over extortion of shares in Inskoy mine, what made it even more difficult for the court to rule on.
Since early 2019, RAPSI has regularly reported on the Inskoy mine case progress and related developments. Two ex-deputies of Governor Aman Tuleyev and their colleague, a retired Investigative Committee general, as well as two investigators, a businessman and his authorized representative are charged with the extortion of shares. The defendants and the prosecution differ in estimating the value of these shares, as well as in defining the motives behind defendants’ actions. Nevertheless, the more details of the case are analyzed, the more the picture offered by the prosecution changes. Here, we present a review of the current status of the case.
Development of the situation
Inskoy mine has been since long viewed in the region as a problem-ridden object as it has accumulated wage and tax arears, debts to creditors and has failed to meet its social commitments. It has experienced a pit disaster and shortage of equipment.
However, the key event in Inskoy mine fate was an erroneous decision of the management to overcome a geological disturbance, what resulted in an 18-month coal production suspending. The regional administration had been monitoring the situation, but took no active measures until in July 2016 a team of miners refused to go to work because of wage arrears.
The administration reacted: a vice-governor Alexander Danilchenko and his deputy, officers of the Interior Ministry, Prosecutor’s Office and Investigative Committee visited the mine. At the same time, Alexander Shchukin was asked to transfer 100 million rubles (about $1.3 million at the current exchange rate) to a charity in order it could pay wages mine employees. The local Investigative Committee directorate initiated a criminal case over abuse of office resulting in damages and found the nominal owner of the controlling interest in the mine. Having no money to repay debts, the nominal owner agreed to transfer shares to another businessman, Alexander Shchukin. Over several few days, Shchukin’s experts visited the mine and could perform emergency works restoring safe operation of the facility. After Shchukin had contacted the real owner of the mine, billionaire Gavril Yushvaev, the two at a meeting agreed to jointly manage the mine; however, next day Shchukin refused to take any part in the operation of the mine. As a result, he was pressured by the Tuleyev administration, the operation of his mines was suspended by Russia’s environment and nuclear supervision agency Rostekhnadzor, an “anti-Shchukin” campaign was launched by mass media outlets, Shchukin refused to register shares in his name and they reminded in possession of Inskoy mine previous owner. In November 2016, a criminal case was opened.
Position in prosecution
The wronged person is Anton Tsygankov, the owner of 51% interest in Inskoy mine at the time these events took place. According to him, the mine could earn him 1.5 billion rubles (about $20 million) over a 5 to 7 years period. However, he claims, investigators forced him under threat of arrest to give away his interest in the mine as he voluntary visited the Investigative Committee. The defendants are charged with extortion of shares in the mine of nominal value of 250,000 rubles ($3,250) and property rights of book value of 2.7 billion rubles ($35 million).
Nevertheless, the position of the prosecution does not answer the following questions raised by the defense at the hearings:
• The “book value” has been determined on the basis of the data presented in a bookkeeping balance sheet with respect to the fixed assets value, whereas the prosecution has failed to take into account the mine’s liabilities amounting to 11 billion rubles (about $143 million) at all, although they critically complicate gaining of any profits, and therefore any dividends, even in midterm perspective.
• Inskoy mine has produced energy grade coal, a low-margin product, especially in the situation of falling demand.
• The equipment used in the mine was significantly worn, including the cleaning combine, emergency repairs were needed, the most experienced personnel had since long left the enterprise, in other words, additional expenditures were needed to put the mine at its rated capacity.
• As Maxim Sidorov, who was directly involved in the events, told the court the mine even experienced a shortage of shovels, while mine operators most of the time had to write several copies of reports by hand as they had no printers at their disposal; at the same time mine emergency escape routes were at risk of collapse.
Position in defense
As Alexander Danilchenko, Alexey Ivanov, Sergey Kalinkin and their colleagues believe, they acted on the basis of permission and decisions of Aman Tuleyev, as well as the respective guidelines governing the measures the Investigative Committee was to undertake when it went about massive wage arrears. It was necessary to liquidate the hotbed of social tensions by any means available. Readouts of telephone conversations among the witnesses and participants of the events confirm this interpretation, since the aim of the actions was ensuring of normal operation of the enterprise with about 1,000 jobs. Characteristically, it was a routine modus operandi under Tuleyev. Moreover, such an approach has been observed across some other regions as well.
Ex-head of the Kemerovo Investigative Committee directorate Sergey Kalinkin acted in compliance with the instructions given from the center, which required dealing directly with owners and force real beneficiaries to engage in the dialog as soon as possible in cases where the issue was wage arrears. This directive had worked as no wage arrears had been registered at Inskoy mine until December 2019, when the shares were purchased by yet another businessman, who repaid the arrears from his personal pocket.
The administration approached Alexander Shchukin to settle the situation in his capacity of a professional in the coal mining and the owner of a large holding. Readouts of telephone conversations show that all large businesses in the region were obliged to make significant contributions to the charity controlled by Tuleyev. The charity financed some social commitments of the regional authorities, although in certain cases regional “oligarchs” were made to act directly; in one instance, Shchukin paid for ambulances from his personal account. In total, in the first six months of 2016 the businessman transferred 200 million rubles (about $2.6 million) to meet administration’s needs.
In the case of Inskoy mine, Shchukin initially acted as a consultant, later he was in fact “appointed” as a person responsible to ensure the mine operation. After he had refused to participate in the Inskoy mine operations, Tuleyev, via his subordinates, initiated a campaign aimed at forcing Shchukin to “help”; moreover, Yurginskaya combined heat and power plant and Mashzavod enterprise being in pre-crisis state, were additionally included in “his area of responsibility.” As a result of this pressure, Shchukin “retired.”
As it follows from the readouts of the conversations, Aman Tuleyev has personally taken key decisions, from an option to settle the aftermath of the strike at Inskoy mine by force to pressuring Shchukin to engage in the operations of the enterprise. At the hearings the Kuzbass ex-Governor is only a witness; however, he has failed to personally attend the court citing his health condition, so his testimony given to investigators has been read out in his absence.
Context of proceedings: why Inskoy mine case raises serious questions
The Inskoy mine case has already drawn attention of legal experts because raising a number of actual issues. Firstly, it is the lack of state interference mechanisms as concerns periods of crises at private enterprises affecting public interests. Each time, local administrations and even federal authorities have to search for new methods aimed at supporting key industrial facilities, thus giving rise to extra risks for businesses and representatives of authorities themselves.
Secondly, law enforcement practices lack a uniform interpretation of the “title of ownership.” In particular, there is the question if a shareholder acquires the “title of property at its balance value” when purchasing shares in an enterprise. Does a shareholder accept an enterprise’s liabilities when purchasing the shares therein? There is no uniform opinion also if the amount of enterprise liabilities affects the cost of the shares as well.
Thirdly, the financial monitoring system and preventive measures to be undertaken in reaction to crisis situations leaving businesses more options to search for ways to overcome pre-crisis situations needs to be reformed.
The questions raised [in relation to the Inskoy mine case] have been being discussed at conferences on legal issues, for instance, at the International Research-to-Practice Conference dedicated to the memory of M.I. Kovalyov in Yekaterinburg and within the working group on drafting proposals for establishment of a Business Recovery Center at the Federation Council, which is developing a draft of a federal law on the establishment of a structure to support industrial enterprises in crisis situations to prevent their bankruptcy. Moreover, the Working Group on Anti-Crisis Regulation of Socially Important Businesses at the Moscow office of the Association of Russian Lawyers has been also involved in the study of this problem.