Legal analysis of interview of TOAZ beneficiary Sergey Makhlai
In the end of August, the former chairman of the board of directors of PJSC Togliattiazot Sergey Makhlai gave an extended commentary to the media regarding the details of the proceedings, in which he is a participant. In his statements, he accused Uralchem JSC of a number of offenses, and tried to present himself as a victim of a hostile takeover. RAPSI has studied the legal basis for the statements made by the convicted in absentia owner of TOAZ.
The interview with Sergei Makhlai was published in Gazeta.ru. In it, he added a number of new details to one of the longest-running in the history of Russia corporate disputes over the control of the TOAZ chemical concern, one of the world's top-10 producers of ammonia.
We’d like to remind you that Makhlai is now hiding abroad. That is why he was not present at the hearing, during which, among other members of an organized group, he was found guilty of embezzling 85 billion rubles (about $1.2 billion at the current exchange rate) from Togliattiazot. Under the Article 159.4 of the Criminal Code of the Russian Federation, Makhlai was sentenced in absentia to 9 years in prison.
At the same time, Makhlai claims that he was forced to emigrate under the pressure from the Uralchem Company, whose management allegedly made him leave Russia. This statement immediately forms a certain level of mistrust in the words of Makhlai, since all open sources clearly indicate that he moved to the United States for permanent residence in 1994, while Uralchem was created only 13 years later – in 2007.
Makhlai's statements about him being the owner of TOAZ look no less paradoxical. At the beginning of the interview, he denies this, “...They perceived me as the owner of the plant. I am not. But, as the Chairman of the Board of Directors of ToAZ, I represented the interests of the majority shareholders." However, in the end, justifying his actions, he actually asserts the opposite in the wording of the rhetorical question "how can a business owner steal from himself?"
However, even in the first formulation, Makhlai's attempt to evade responsibility is meaningless. After all, the results of the consideration of the Uralchem claim proved that the majority shareholders of TOAZ (whose interests, according to his own statement, Makhlai represented) acted as if they were the sole owners of the enterprise and its property, thereby violating the rights of minority stakes holders.
As the court established, in 2007, the majority shareholders took the proceeds and property of TOAZ offshore. For example, settlement and foreign currency accounts of Togliattiazot were opened with Togliattikhimbank owned by Sergey Makhlai, to which proceeds from the sale of ammonia and urea to Nitrochem Distribution AG were credited. Part of the profits regularly remained at the disposal of the defendants and did not return to the enterprise, that is, the money actually went not to TOAZ but to the criminal group of the defendants.
Thus, “representing the interests of majority shareholders,” Makhlai facilitated theft from other shareholders, and from the state, destroying a key enterprise for the economy by reducing the value of Togliattiazot's assets, illegally withdrawn from the balance of the plant to offshore companies controlled by a criminal group.
Taxes and investments in the Russian economy
As his main merit, Makhlai mentions that TOAZ is one of the largest taxpayers in the Samara region. This is true, but this fact is more of Makhlai's failure than a merit. After all, he repeatedly tried to prevent additional accrual and collection of taxes from the enterprise: in 2009-2013 alone, the amount of unpaid taxes collected from the enterprise through the courts amounted to 3 billion rubles.
Moreover, the investigation found that the ex-head of Togliattikhimbank Alexander Popov, presumably on behalf of Makhlai, tried to bribe the judges of the Supreme Court of the Russian Federation with $1.2 million in an attempt to have them cancel the decision to charge ToAZ with 161 million rubles in 2010 taxes.
At the same time, Makhlai expressed the opinion that Uralchem "practically does not pay taxes." In its press release, Uralchem proves that it is a bona fide taxpayer, “Based on the audited consolidated financial statements, the amount of income tax paid by Ualkhim, JSC for the period 2008-2011 amounted to 7.43 billion rubles. In 2019, the enterprises of the Uralchem group paid 3.7 billion rubles in income tax."
Makhlai, who has spent 26 years abroad, tries to present himself in an interview as a patriot of Russia, claiming that he is investing in its economic development. “TOAZ is implementing new projects – it has invested $300 million in the construction of a new port terminal in Taman, has approved the Investment Program until 2029 with a total investment of 39 billion rubles,” Makhlai says.
In fact, information has long been publicly available that all this is just a cover for the withdrawal of large amounts of money to offshore companies. In particular, illegal construction in Taman has been going on for almost 20 years and brings only new losses to the plant. By a court decision, most of the buildings are subject to demolition and transfer to the ownership of the Krasnodar Territory administration.
The investment situation looks even more deplorable. Makhlai claims that "everything is fine-tuned at the enterprise, the units are upgraded every year". However, it is known from open sources that billions of rubles are withdrawn from the plant through fictitious construction contracts, the purchase of outdated technologies for treating domestic wastewater, etc.
As a result, in winter, by a court decision, in order to avoid a man-made catastrophe threatening the life and health of the residents of the Samara Region, the operation of the warehouse of raw acid and alkali at TOAZ was suspended. The situation with the technical condition of the plant continues to worsen. This year it has already faced several group accidents with fatalities.
Probably, the main task of this interview for Makhlai was to demonstrate the intention to bring the trial into international jurisdiction and politicize the process, claiming that the actions of Uralchem negatively affect the image of Russia and the judicial system.
“If we talk about plans for further litigation with Uralchem, I repeat that now the TOAZ case has ceased to be exclusively Russian and has shifted to the level of courts of foreign jurisdictions,” Makhlai said bluntly. In particular, he announced an attempt to apply the American "RICO Act" (the law on combating corruption and racketeering) to this case.
To add weight to his words, Makhlai mentions some victories in foreign courts. In reality, his claims against Uralchem in the courts of Ireland and the United States did not come to trial. A court in Ireland cannot decide for four years whether a case is subject to review in its jurisdiction. The US courts even gave Uralchem information that Makhlai's offshore company Lawton Lane Chemical had been receiving multimillion-dollar remittances from the Swiss distributor of TOAZ products, Nitrochem Distrubutions AG, for several years.
In this regard, a claim under the RICO Act against Makhlai himself looks much more promising. Moreover, in the near future he may be accused of tax evasion in the United States, since he does not declare the income he receives from TOAZ, by registering his US companies in the Caribbean offshores.
In turn, Uralchem has already made an official statement that “it does not exclude filing claims in the US courts in order to compensate for damage from the activities of the majority shareholders of PJSC Togliattiazot, including by applying to them the US “RICO Act” aimed at combating organized crime groups, corruption and money laundering”. The company is not aware of any claims filed against Uralchem in the US courts.
The provision of information by the American courts to the representatives of Uralchem about the illegal activities of Makhlai and, probably, other majority shareholders of TOAZ, in the absence of any progress in the claims filed by the beneficiary of the plant, prove that the interview given to him is rather a gesture of despair.
None of the statements made by him are confirmed by the investigation in Russian or foreign jurisdictions. At the same time, according to lawyers, there is every reason to believe that in the near future Makhlai will nevertheless be brought to justice, if not by Russian courts, from which he is hiding, then by American.
We shouldn’t forget that on November 26, 2019, the verdict of the Komsomolsk District Court of the city of Togliatti came into force against Sergei Makhlai and other defendants in the case on charges of large-scale fraud committed by a group of persons by prior conspiracy. Uralchem JSC, as a minority shareholder of TOAZ, was recognized as an injured party, as was PJSC Togliattiazot itself. The court ordered the convicts to reimburse 77.3 billion rubles of damage in favor of TOAZ, and 10.3 billion rubles in favor of Uralchem. The court appointed Uralchem JSC as a claimant for damage in favor of Togliattiazot.