The Bitkovs’ Case

Question one: what made the company’s founders drop their brainchild and flee to the end of the world? (The stories of the Russian businessmen Khodorkovsky, Chichvarkin and Durov, who had fake criminal proceedings opened against them and their businesses flagrantly taken away, are fresh in the memory.)

Of course, some other uncharacteristic details have attracted attention. For example, why the close attention of the International Commission against Impunity in Guatemala to such insignificant persons? And why does the Russian press report so frequently (and mostly negatively) on the Bitkovs?

For example, it has been reported that way back in 2011 the Russian law-enforcers (with active support from three banks) charged the Bitkovs “with deliberate bankruptcy of the Neman pulp-and-paper plant.” The allegation was that those people had built their business from scratch and then deliberately ruined it and fled to Guatemala, where, according to the Russian media, they obtained false papers and started several businesses.

New questions immediately arise: why bankrupt what you have built with your own hands? Why kill the goose that lays golden eggs (the Rust company estimated the Bitkovs’ business at $400 million)? Why seek false documents if obtaining authentic ones is no problem in Guatemala? (Eventually experts confirmed that the Bitkovs’ documents were authentic.)

So the situation with common Russian businessmen was beginning to seem (anyway to me) a fairly typical one (that is, a frame-up). At some point someone must have set sights on a juicy piece, that is, the Bitkovs’ business ($400 million is no petty change, after all), and a tried-and-true method went into play: bank claims, a fabricated criminal case, fake documents against the owners, selling off of assets and reports  the flight of the “suspects” from Russian justice…

It is little wonder, too, that the banks allegedly holding the Bitkovs in debt found them as far away as Guatemala if you know what banks they are: the VTB, Sberbank and Gazprombank. As the unforgettable Ostap Bender said, they have long arms, so long that they have even hired detectives and sent their lawyers to Guatemala.

It was at the prompting and, most probably, with the participation of those “lawyers” that the Bitkovs’ problems in Guatemala began.

The website http://www.supportthebitkovs.com/ says:

“….on January 15 .. Igor, Irina and Anastasia were arrested at their home outside Guatemala City on charges of possessing illegally issued passports and identity papers. The Bitkovs had received their new identity documents with the help of a local law firm in the offices of the relevant Guatemalan government departments. They had no reason to believe that their documents were anything other than genuine and correctly issued.

…The local court also ruled on placing the Bitkovs’ underage son, Vladimir (aged three) in an orphanage, although he had guardians appointed by the parents.”

…It is further reported that after the raid of the local police and the Bitkovs’ detention a Russian representative offered them ‘to settle the problems in exchange for a huge amount of money that they could not afford’.” (As the unforgettable Ostap used to say, “I recognize bro Kolya’s hand!’)

An excerpt from Igor Bitkov’s letter to his lawyer:

“Please note that while the Russian ambassador to Guatemala, Nikolai Babich, was trying to establish the identities of the detainees, Gazprombank was already giving comments to the press and saying it was going to seek the detainees’ extradition…  So who coordinated or initiated the steps taken by the local police? Furthermore, the prompt reaction of Russia’s Children’s Rights Commissioner, Pavel Astakhov, to developments in faraway Guatemala is truly surprising: the ambassador had not yet learned who had been detained when Astakhov recommended that he ‘intervene in the fate of the Russian boy’.”

Two clarifications are in order here. First, the Bitkovs’ extradition may be a problem because Russia and Guatemala have no extradition agreement and, second, the boy is not a Russian national: he was born in Guatemala and has a Guatemalan passport.

Igor Bitkov’s Version:

“We were successful businesspeople with factories that were developing well. Everything changed in May 2008, when the company was raided by three state-owned banks: Sberbank, VTB and Gazprombank, which suddenly demanded the early repayment of all the loans granted to the company to finance ongoing projects despite the fact that the company had never before defaulted on a loan payment. The demand seemed so groundless and absurd that we and the media immediately suspected an attempt at a takeover.”

Background

In 2004, SZLK decided on far-reaching modernization and reconstruction of its two production facilities and signed a general agreement with a partner bank on phased long-term loan of $450 million. In reality, however, only three five-year loans totaling some 3.5 billion rubles were extended, following which Sberbank’s Northwest Bank, citing internal reasons, offered the Bitkovs use of a short-term credit line.  SZLK, forced to proceed with investment projects with a payback period of over ten years and to service long-term loans, had to re-borrow annually from Sberbank and make agreements with other financial institutions, including VTB, Gazprombank and Svyaz-bank. The latter banks were forthcoming, and over seven years SZLK raised almost 13 billion rubles and duly repaid over 9 billion rubles. At the outset of the developments that proved so dramatic for SZLK the aggregate outstanding bank loans amounted to 3.6 billion rubles.

I think that the seeds of the conflict were sown by the management of Sberbank’s Northwest Bank, who unilaterally terminated the agreement between the bank and  SZLK. The Bitkovs were advised that a long-term credit facility was no longer possible and offered a leaseback arrangement with companies controlled by the bank’s top management.

In other words, the bank offered the Bitkovs loans not from the bank, but from entities controlled by it (or by someone from the bank managers, such as Leonid Shats), but at a different interest rate and on tougher terms.

The financing was both costly and insufficient, so the Bitkovs declined. Then they were promised one-year loans with annual renewals.

The Bitkovs had to agree because they had already invested large amounts of their own money in the project.

Igor Bitkov:

“At that time we didn’t yet suspect anything and interpreted the bank’s actions as primarily the top managers’ desire to earn money from the leasing arrangement. As a fallback we decided to raise part of the money we needed from other lenders, among them VTB, Gazprombank, Svyaz-bank, SEB, EDC and others. We also issued bonds.

“One year into the modernization program the company’s sales rose by 150%. The finished projects were paying back nicely and we understood that our lenders had nothing to worry about: we had already repaid 9.2 billion out of our total debt of 12.9 billion rubles plus one billion rubles in interest. We were especially happy with the performance of the BDM-9 paper-making machine we had launched one year earlier: it generated profit even after timber prices doubled in 2007.”

At that point, Northwest Bank made an offer to the Bitkovs to substitute its “long” loans for “short” money from other banks and provide full funding for the installation of the BDM-10 machine, so the Bitkovs calmly waited for the decision of  Sberbank’s credit committee while trying to repay all their current debts, refraining from taking “short” loans and financing the BDM-10 project out of their own funds. When some of the loans to other banks had been repaid, Northwest Bank again refused to provide the promised money. Instead it proposed that the Bitkovs surrender control over the company to other persons (as far as I understand, those close to Shats –  G.P.).

The Bitkovs refused the offer and filed for the introduction of a bankruptcy monitoring procedure.

Igor Bitkov:

“And then it all began: they debited our accounts, including money intended for wages, demanded that the leased equipment be dismantled and shipped away, in order to disrupt production, and threatened criminal prosecution and seizure of the SZLK shareholders’ personal property, all under the pretext of saving public funds.

“But every market player understands that only a working business can repay debts. So we were doing all we could to keep production going. And only one lender (and not the biggest one), Sberbank, went out of its way to depreciate our property to the minimum and make us stop the production lines so that they could be bought for a song.

“At the same time the Sberbank tried for four months to hush-up the situation. It was only on September 1, 2007, that its press service issued an official statement explicitly saying: ‘Northwest Bank has no interest whatsoever in the bankruptcy of SZLK.’ On the very next day Northwest Bank and the Alliance-leasing company became the only two lenders to the Neman pulp-and-paper works who at the lenders’ meeting voted for the company’s bankruptcy and winding-up procedures, that is, for the sale of its assets.”

Banks’ Raiding Practices

In 2009 in Kaliningrad Yuri Murashko published a documentary book called “Credit-aided Raiding: The Way They Do It”, which told the story of the life, rise and bankruptcy of the North-West Timber Company (SZLK), and more generally the problem of “credit-aided raiding.” The author, a journalist by education, was appointed the SZLK’s deputy general director in 2007 and before that had worked as the company’s director for environment and public relations. He draws the following conclusion: “This whole story is a graphic illustration of what ‘help’ businesses in the timber sector (and perhaps, others as well) can count on at a time of crisis. The top officials of the federal authorities associated with the development of the timber sector have so far failed to provide any coherent comments… It seems that factories are purposefully – artificially – driven into situations when they cannot repay loans.”

By way of example the author points to the bankruptcies of companies such as Amurmetall, Serpukhov Textiles, Kamyshin KhBK and Kristall, among others.

An excerpt from Igor Bitkov’s article posted on the website of the Ekho Moskvy radio station:

“…From 2000 to 2007, SZLK boosted its sales seven-fold to five billion rubles. Based on the Q1 2008 results it planned to earn seven billion dollars that year. Following the launch of the new paper factory in Neman in 2010 the sales were to reach 11 billion assuming a constant exchange rate.

“Our performance enabled us to stand our ground vis-à-vis the authorities at all levels. We had no part in corruption arrangements, did not pay any kickbacks or receive any privileges. Our logic was simple: do not ask for favors or owe any to anyone.

“They came after us in earnest after the appointment of Governor Georgy Boos by President Putin. The new governor’s lieutenants attempted to extort money from us, but failed. They tried a different tack: there were meetings with the president of Russia’s Chamber of Industry and Commerce, Yevgeny Primakov, and the Kremlin spin doctor Vladislav Surkov, and we were offered the chair of the United Russia branch in the Kaliningrad Region and membership of the board of the Union of Industrialists and Entrepreneurs. But our choice was continued non-party status and freedom from any obligations to government.”

…As I pondered the Bitkovs’ saga, I recalled a similar predicament of the St. Petersburg businessman Vitaly Arkhangelsky: the St. Petersburg Bank had taken over all of his capital assets and sold them to its subsidiaries, and Arkhangelsky had to leave the country.

…The Bitkovs had to leave Russia for the sake of safety: what else can you do if unknown persons kidnap your daughter and demand a huge ransom?

Gazprombank’s response

My official requests for information to all SZLK’s lenders yielded only one response, from Gazprombank. (Sberbank and VTB declined to comment, but why? Apparently, no one has yet repealed the Law on the Mass Media or the obligation to respond to media requests.)

Here is what the Gazprombank had to say: “…The bankruptcy of the SZLK Group enterprises initiated by the Group’s beneficiaries, Mr and Mrs Bitkov, was premeditated. Their purpose was:

–           to renege on their financial obligations to lenders (under the loan agreements concluded earlier);

–           to retain control over the pledged fixed assets (through full control over bankruptcy proceedings).”

In the bank’s opinion, “to achieve their end, shortly before initiating bankruptcy proceedings the SZLK shareholders engineered a fake liability of 3.7 billion rubles to the offshore company Vilda Consult Ltd.”

Even a non-financier will see through the flawed logic of some of the bank’s arguments. For example, one cannot simultaneously “renege on financial obligations” and “retain control over… assets.”

Furthermore, the episode with Vilda Consult Ltd. figures especially frequently and persistently in numerous articles about the “Bitkov crooks.” In fact, the purchase of the Svetoch notebooks producer from Vilda by the Neman pulp-and-paper plant is the key point of the accusations.

The accusers claim that shortly before announcing bankruptcy the Neman plant bought Svetoch from the Vilda offshore company at an inflated price (3.7 billion rubles). As a consequence, they allege, the plant failed to pay up and announced bankruptcy while Vilda became its biggest lender. The Bitkovs are thus accused of deliberately bankrupting their own business.

First, no company in Russia can merely announce bankruptcy: it can only ask the court to do so. It is the court that decides whether a company has sufficiently grave financial problems to go into bankruptcy.

In our case two (sic!) arbitration courts – one in Kaliningrad and the other in St. Petersburg – ruled on introducing external monitoring procedures. Incidentally, at that point Vilda did not figure in the bankruptcy case.

In 2008 the Kaliningrad Region arbitration court ruled to include Vilda in the list of the Neman plant’s creditors; in the same year the St. Petersburg and Leningrad Region court passed a similar ruling on the Kamennogorsk factory. The banks challenged these rulings, of course, but without success.

Of course, the external monitoring process could have resulted in an amicable agreement rather than lead to bankruptcy procedures. The banks accuse the Bitkovs of refusing to sit down to the negotiating table.

But facts show that the Bitkovs were willing to negotiate, but not in Russia, where their daughter had been kidnapped and where they faced real danger. No one prevented the banks from negotiating with the Bitkovs by phone or Skype, through authorized agents or in some other manner.

For some reason the banks did not want to use such options. Why? What did they need the Bitkovs for on Russian territory?

One more point: if  today the banks reproach the Bitkovs for their alleged unwillingness to sit down to negotiations, why did they insist on the immediate sale of the SZLK’s assets through receivership?

The circumstances of the conflict between the banks and the SZLK still are murky (at least for the broad public with an interest in this case).

What actually happened?

On April 24, 2008, Northwest Bank of Sberbank of Russia demanded from  SZLK early full repayment within 48 hours of all the renewable credit lines opened earlier. On the next day, two more Russian major banks, VTB and Gazprombank, put forward similar demands. The total requirement amounted to 2.6 billion rubles.

Sberbank’s formal pretext for the demand was an alleged one-day delay of interest payments totaling nine million rubles. The other two banks needed no pretext because Sberbank’s initiative allowed them to request early repayment. However, that 9 million rubles was a false pretext because previously Sberbank officials and SZLK had agreed on changing the interest payment schedule base from monthly to quarterly (similar arrangements were reached with VTB and Gazprombank).

SZLK’s daily revenue averaged 14 million rubles, so repaying the overdue 9 million rubles in one day would have been no problem. However, the banks demanded 2.6 billion rubles over 48 hours; simultaneously they seized all of the company’s accounts and assets; they even impounded the Bitkovs’ personal assets.

One important point: it was not the Bitkovs who filed for bankruptcy but the factory directors, as they were legally bound to do. The factories could not operate when all their accounts were blocked, so filing for bankruptcy was the only way to keep them running. The decision was taken by the court based on the objective situation. At the first stage, under the law, a monitoring procedure was introduced. Nothing prevented the state-owned banks from recalling their demands for early repayment and resume cooperation. For the first few months, the factories kept operating normally with sound profit. SZLK could service its debt and go ahead with its project, and one wonders why from the very first creditors’ meeting the three banks had demanded an immediate sell-off of the factories and the halt of production at the pledged facilities instead of letting them complete the project.

It was not the Bitkovs but bank executives who kept refusing meetings and negotiations. Rank-and-file bank staffers did not understand what was going on. For several days, SZLK’s representatives tried to reach the bankers in order to resolve the situation.

Meanwhile the banks were cleaning out the company’s accounts. Its operations were totally stalled. SZLK managers could not pay wages or settle with suppliers, and the only way out was asking the court to introduce external monitoring. That alone could give the company temporary protection from the creditors’ aggression.

Igor Bitkov on the Clearance Sale

“In early 2011 my wife and I were told by an informed compatriot that all the equipment of the Fourth Paper Mill, then under construction, had been sold for peanuts to scrap dealers. New valuable equipment, mostly of non-corrosive metals, was sold off for a few thousand rubles. Even as scrap it should have fetched tens of millions.

“Eventually we learned that the first and second paper mills, many buildings and diverse equipment, had also been sold for next to nothing. Shell companies bought property with a balance sheet value of over four billion rubles for just 600,000. I was flabbergasted by this madness of the external administrators reporting to the creditors’ committee, which consisted of government bank managers. I was even more amazed to learn that the ultimate buyers of the assets were companies affiliated with Northwest Bank executives. They bought that property in the name of privately-owned companies rather than Sberbank, thus stealing property worth more than four billion rubles from their own bank. The remainder of the property to the value of about five billion rubles was pledged to other state-owned banks, VTB and Gazprombank.

Gazprombank’s Version

In response to my request Gazprombank pointed to “the Neman plant’s inability to discharge its obligations to contractual partners and creditor banks” as the main cause that had provoked the default of the SZLK Group.

Clearly, this wording is too general, vague and unconvincing. Nor is it exhaustive. The Gazprombank has omitted to mention that in 2005 it concluded a long-term loan agreement with the Neman plant to supply equipment from the Canadian GL&V company. The agreement was made for seven years, with repayment due in 2012.  Gazprombank was credited by the Canadians at a very good rate (about 7%) and lent to SZLK at a far higher rate (of some 11%) to be repaid quarterly, including interest and principal. The total amount of financing was $22,385,000.

But Gazprombank itself had to renege even on that arrangement due to corporate solidarity with the other banks. (Their response confirms that all the three banks acted in concert.)

It also transpires from Gazprombank’s remarkable response that it recovered 15% of the loan amount from the sale of the pledged property. As a matter of fact, the bank held a pledge on a newly built production facility that bleached cellulose under the totally chlorine-free (TCF) process, a very advanced project that still is the only one of its kind in Russia. No one knows who the bank sold this property to or how. However, the balance sheet value of the complex was over two billion rubles while the company’s debt to the bank stood at some 350 million rubles, or roughly one-six of that amount. So the bank sold the property worth two billion rubles for 50 million, or forty times cheaper? Such things happen only when you sell to someone very close – or to yourself.

I repeat: the banks had no objective reasons for cutting financing to SZLK. The new project was long-term and costly, but then the company and banks had been cooperating for a long time. Moreover, Russia had already seen such projects, and all decisions were taken by the appropriate credit committees based on the Russian Central Bank’s regulations and asset and risk assessments. From the start, all the banks had a comprehensive program of SZLK’s development, including the amounts and deadlines. Even a force majeure situation could not and should not have brought about the destruction of the company and, as a result, losses to the banks themselves.

It was exactly the demand of all the three banks for immediate repayment that forced the company managers to file for bankruptcy.

Therefore, the deliberate bankruptcy of the SZLK Group was the doing of the three state-owned banks, including Gazprombank, because precisely their actions had the character of premeditation and conspiracy.

One fact is noteworthy: Gazprombank says that it has hired detectives to track down the Bitkovs. What generosity! But why hasn’t it brought in investigators to examine the fraudulent doings of the insolvency administrators and companies that were involved in the property sale and bought the SZLK’s assets on the cheap? Why hasn’t it hired detectives to find and recover the stolen assets of the company?

Finally, the principal question: why did the banks allow developments to take the worst possible course for the Neman and Kamennogorsk residents, namely, the closure of the two cities’ core industries?

Here is an excerpt from the response of the current head of the Neman Cellulose company, Alexander Osipov, to my letter:

“Currently the Neman pulp-and-paper plant is under bankruptcy procedures. Production has been stopped since February 2014. Most of the personnel have been laid off in the course of bankruptcy. Today the production site is in operating order, waiting for a strategic investor. There is nothing more to add.”

I wrote another letter, asking Osipov for more details of the current status of the plant. Alas, he was again curt, although adding: “Today the infrastructure and paper-making equipment at the site are being maintained in working order and appropriate permits for the use of water resources and power are being processed to keep the facility ready for starting production. However, regrettably, there are problems with that, too, as Yantarenergo Ltd. is unwilling to fulfill our applications for connections and user maintenance, so we have to go to the anti-monopoly service and the prosecutor’s office. Of course, all of this makes it difficult to go ahead with any projects at the site.”

The former head of the Neman District administration, Alexander Melnikov, was more forthcoming. He knows from locals about the plight of the factory. “They are cutting up everything they can for scrap… The city of Neman is actually dying out.” Melnikov added that he did not believe in the Bitkovs’ criminal intentions.

Ceremonial Bystanders

The new factories and workshops built by the SZLK were inaugurated in the presence of high-ranking Russian officials and the top managers of the banks concerned. Ceremonial persons ceremonially sang ceremonial praise to the SZLK. In particular, the company and the Bitkovs personally received congratulations from Kirill, the Patriarch of All Russia; the economic development and trade minister German Gref; the regional development minister Vladimir Yakovlev; the industry and energy minister Viktor Khristenko; the Federation Council members Oleg Tkach and Nikolai Tulayev; a deputy plenipotentiary representative of the president to the Northwestern Federal District, Alexander Datsishin; a deputy regional development minister, Vitaly Shipov; the successive governors of the Kaliningrad Region, Vladimir Yegorov and Georgy Boos; and the Leningrad Region governor Valery Serdyukov, among others. The media gave broad coverage to these figures and their speeches.

It would be good to ask those people if they feel any personal complicity in the Bitkovs’ “crimes.” Indeed, it was before their very eyes and with their approval and consent that the factories grew and prospered while, if we believe the accusers, criminal plans were being hatched to steal loaned funds.

Going through the list of potential interlocutors, I have deliberately picked up those who frequently visited the Neman plant, attended dozens of production meetings to discuss its operations and plans, and rose toasts to the prosperity of the business and the region…

I wanted to understand why over so many years (criminal proceedings against the Bitkovs were opened in 2009) they did not raise a finger to… no, not to help the Bitkovs, but at least to try to sort out the situation and understand who really was to blame for the bankruptcy of a successful business.

A half-hour conversation with a vice-governor of the Kaliningrad Region, Mikhail Plyukhin, gave me the impression that the man had been a bureaucrat all his life. He gave ready answers to all my questions without any deliberation, doubt or hesitation. And his position on the Bitkovs’ situation was also to be expected: “If there is a criminal case, then there are reasons.”

Of course, Plyukhin voiced his regrets that “everything ended up like this” and that “the Neman residents became hostages to the situation.” But he had no blame for the banks which had caused it.

The Kaliningrad Region human rights commissioner and former chair of the regional Duma, Vladimir Nikitin, was more communicative and a little more forthcoming. However, he also defined his stand from the outset: “The Bitkovs did not officially apply to me as commissioner. Even if they had done, I have no authority to help them.”

A commissioner without authority…

Meanwhile, at the time Nikitin worked as the head of the regional chamber of industry and commerce, he used to visit the plant, attended meetings, looked into problems and talked with the Bitkovs. I think if he wished, Nikitin could have at least asked about the reasons behind the conflict between the Bitkovs and the banks: understanding such reasons now could help avoid similar incidents in the future.

Plyukhin and Nikitin also struck me by their virtually total indifference not only to the Bitkovs’ fate, but also to the fates of the Neman residents, their compatriots, people living in the same region. Meanwhile, Neman is teetering on the brink of survival.

A former governor of Kaliningrad Region and ex-chair of the SZLK board of directors, Vladimir Yegorov, showed great interest in our conversation and in the subject generally. A former naval officer, he formulated his opinion explicitly and clearly: “I do not believe for a second that the Bitkovs are crooks and criminals. Their business was one of the best in the region and did it a lot of good. I am confident that the fault for this situation lies with bank officials.”

A former president of the regional chamber of industry and commerce, Igor Tsarkov, does not believe in the Bitkovs’ criminal intentions either. “For many years they were literally under the scrutiny of all the regional structures and authorities, including law-enforcers. The finances of their business were fully open to the lenders and, moreover, under their immediate control because SZLK had accounts in the banks which lent to them. I think that the situation could and should have been settled differently, in favor of the Neman plant and the city.”

A former print shop manager of the Neman plant, Mikhail Shumai, is more adamant: “…The Bitkovs raised the plant from ruins and set it on a development track. It is silly to accuse them of deliberately bankrupting their brainchild. Under them, everything worked as it should, whereas now everything is idling or has been cut up for scrap. My heart aches… I see the banks’ ill will in this. Contrary to what some people say, the Bitkovs were no crooks or bandits.”

I also called an outsider: Boris Yuspa’s company used to supply oil products to the Neman plant. Here is what he said:

“I personally did not know the Bitkovs, but my people frequently communicated with them. Of course, I knew the situation with their business and had an idea of them personally. I think they did a great job, raising the dead plant from ruins. In those times, many people simply surrendered their remaining assets for scrap, but they rebuilt the plant, moreover, with their own money. It was later that they began receiving loans. I know that governor Yegorov was helping them. Why shouldn’t he have if the Bitkovs saved Neman from dying out? I do not believe that they are fraudsters. The accusations are absurd! I think it was a preplanned raiding attack. The pattern is all too familiar: cut off the cash flows and force the company into bankruptcy. One more thing: most likely, the Bitkovs refused to buckle under to someone.”

The banks had a different reaction to my attempts to meet with their officials to discuss the SZLK situation. Here is one example.

Tatiana, secretary of Ms. Yelena Shenderyuk, manager of the VTB branch in Kaliningrad asked me:

–           When are you going back to Moscow?

–           On Thursday the 10th.

–           I will call you back.

She did an hour later.

–           Yelena Vladimirovna suggests a meeting on Monday the 14th.

There is certain logic to the offer. I can delay my departure on Thursday, change my ticket and wait till Friday, but I certainly cannot stay over the weekend. Therefore, make an appointment on Monday in the firm belief that the meeting will not take place. Bankers will go to all ends to avoid meeting with journalists and answering their questions. (Over the next two weeks I called almost every day from Moscow to Kaliningrad in the hope of having Shenderyuk answer my questions, but all in vain.)

False “Teeth”

One more reason for the banks’ unwillingness to talk to this journalist is that sooner or later we would have come round to the surety agreements between Igor Bitkov and VTB and between Irina Bitkov and Sberbank. The point is that by the decision of the Pushkinsky Court of St. Petersburg dated February 17, 2010, and the decision of the Gagarinsky District Court of Moscow dated December 8, 2012, both contracts were ruled invalid (read fabricated).

Does the much-respected CICIG know these facts, I wonder? Indeed, CICIG took up the case because of the charges made in Russia, and because of CICIG’s involvement the Bitkovs’ case is qualified in Guatemala as “high-risk.”

One more thing: I have failed to find any evidence that the Bitkovs indeed stole the money received from the banks, put them into offshore accounts or bought yachts or villas… Nothing of the kind. Are the detectives doing a poor job?

What we do have is credit applications from the Neman plant, proof that the money was received by the plant, and the two fabricated surety agreements…

Where Is the Money?

So what is the proof of the money-laundering charges?

One more question: why did not VTB, which somehow brought CICIG to its side, go to a civil court to collect the Bitkovs’ debt through commercial dispute resolution procedures?

Perhaps, because they did not have anything to show the court (indeed, you can hardly take fabricated agreements there).

Incidentally, in one of his interviews Igor Bitkov actually answered the question if the banks were foolish enough to overlook the risks of lending to a high-risk business:

“The Sberbank has very tough requirements for borrowers, far tougher than the world standard. They give us money against very solid security. We must pledge property that is more valuable than the loan amount and back the loan with cash flows. Our main problem is an insufficient sales volume, but it grows by 25% a year, so till 2012, while the credit line is open, we will go ahead with our program. I don’t want to go into the loan terms in more detail because they are a commercial secret. I can say that the bulk of our security is equipment and property.”

http://www.segment.ru/review/interview/igor_bitkov_generalnyiy_direktor_severo_zapadnoy_lesopromyishlennoy_kompanii/

The bankers are no fools, as we see.

Indeed, no bank, especially a large state-owned one, can extend huge loans to a business without sufficient substantiation. A business plan or project is not enough. The bank’s specialists thoroughly analyze the borrower, scrutinize the financial reports for preceding years and do a financial and technical audit. An evaluator firm chosen by the bank itself assesses the company’s value. Then the bank gives the business small short-term credits and closely monitors their targeted use. Large loans can be discussed only after several years of flawless cooperation between the company and the bank. These are the basics of banking, and that was how the relations between the SZLK and the banks were run.

Irina Bitkov’s opinion

“The agreements were concluded on the terms of a renewable credit line, the money was lent in tranches and paid back by installments as well. The erosion of capital in the first quarter of 2008 was caused by all the three state-owned banks: we were repaying loans to all the three, but, contrary to our agreements, did not receive any new ones. We were not negotiating any new agreements, but were working under the open credit lines, which means that contractually the banks had to replace the credits that we had repaid. All the more so since we did not break any terms in any way.

In the first quarter of 2008 Gazprombank advised us of the decision of the credit committee to extend loans under the open credit lines. They promised to stand by the decision, but did not.

Sberbank indeed gave us a loan before filing their demand, again under our renewable credit line agreement after we had repaid an earlier loan.

But shortly they demanded an early repayment of all the loans while they knew that the money had already been invested in the project.

Moreover, under the loan agreement with the VTB we repaid the outstanding debt and they were to extend a new loan to replace the repaid one.”

That was how the problem of project financing was addressed in Russia – it was in fact non-existent. Only renewable credit lines were used.

So if anyone is to be accused of deliberate bankruptcy, it is the banks.

Figures Speak

In 2008 the book value of SZLK’s assets was 8.9 billion rubles. In 2007 the SZLK Group earned a total of 4.89 billion rubles; it had the highest profit rate in the country’s timber industry. Upon reaching the rated capacity of its new paper-making and cellulose factories in Neman the company planned to earn 6.5 billion rubles in 2008. As of April 24, 2008, the SZLK’s aggregate debt to the banks was 3.6 billion rubles, or far less than either its book value or annual earnings.

According to the Rust company (2007), the SZLK Group’s assets were worth 12 billion rubles. Sberbank, VTB and Gazprombank regularly assessed those assets and monitored progress in project implementation, disbursements, deadlines and costs on a daily basis.

It is important to note that the loans were drawn by businesses rather than by the Bitkovs as individuals. The money was paid out to and expended from the current accounts of those businesses in the same banks (my emphasis – G.P.). The bank would have never allowed using the loaned money for any other purposes than those specified in the loan agreement. The loans were provided in tranches and repaid in installments. In 2000-2008 the SZLK Group businesses borrowed a total of 12.958 billion rubles and fully repaid 9.263 billion rubles with interest. The banks could have stopped the loans for any breach of contract at any moment. Therefore, the loans were drawn and repaid on a regular basis and under the banks’ full control.

I have asked an ex-director of the Neman plant, Sergei Udelov, whether he would have noticed any facts (proof, signs or hints) of fraud on the Bitkovs’ part over the years they worked together. “But of course,” Udelov said, seemingly hurt by my question. “I was the director, after all, not a bystander.”

Indeed, if the Bitkovs had planned to steal, they would hardly been able to proceed without the director as an accomplice (or active witness). Meanwhile, over five years Udelov was a couple of times questioned by the investigator, who did not press any charges or mention any proof of the Bitkovs’ fraud…

So was there any fraud?

Scammed…

Incidentally, with regard to VTB and raiding by banks, in Kaliningrad I was approached by two businessmen, Vasily Yuvchenko and Boris Pavlov, who were scammed by that bank, to use the jargon. In March 2014 the Kaliningrad Region Duma held a “round table” on raiding and hostile takeovers. The local website

http://klops.ru/news/ekonomika/87244-kaliningradskiy-biznes-obvinil-vlast-silovikov-i-bankirov-v-reyderstve

reported: “Several big businessmen simultaneously claimed that they had lost their businesses because of large banks and the law-enforcers’ failure to act.”

In 2007 the Alvadi clinic was raided and seized (from Boris Pavlov) based on fake signatures and falsified documents. As a result, today a building on Lermontov Street and costly equipment are the property of the lending bank (VTB – G.P.). The go-between who negotiated Pavlov’s deal with the bank is on the federal wanted list.

The owners of TransEurope Inform Ltd. say that they also were raided. The company’s general director, Vasily Yuvchenko, tried to stand up for his company, but was refused a review of his case 121 (sic!) times.

“As a result, the 11 companies making up the group stopped operations and 80 people lost their jobs. We failed to pay more than 200 million rubles in taxes. Are 24 acres of land in Kaliningrad worth this money?” Yuvchenko asks.

Today the office of the regional business ombudsman, Georgy Dykhanov, has half a hundred applications from Kaliningrad businessmen who suspect being targets of raiding.

Businessmen name bankers, notaries, bureaucrats, deputies and law enforcers who, according to their information, are implicated in raiding. (For example, Yuvchenko and Pavlov pointed to the then head of the VTB branch in Kaliningrad, Ms. A. Korneyeva – G.P.).

At present, according to statistics, 57% of Russia’s businessmen are ready to sell their companies, mostly because of unjust criminal persecution. Small and medium-sized businesses are least of all protected from raiding, says the head of the regional Transparency International-Russia anti-corruption center, Ilya Shumanov.

I have met with Ilya Shumanov and he has promised that Transparency International-Russia will closely look at the Bitkovs case.

Afterword

What has happened to the Bitkovs is not an isolated case: in today’s Russia (one can say “Putin’s Russia”) this is a phenomenon.

In its September 2015 issue the Profil magazine (published jointly with Der Spiegel) succinctly describes this phenomenon: “…It is a quite standard ploy, which over the past ten years state-owned banks have used repeatedly to seize not only private banks, but also large chunks of the real economy. If a private company runs up debts, state-owned banks buy them up or refinance them. Then negotiations on promised restructuring get bogged down and the private company is stranded: it needs to keep paying, but has no money it has counted on. The state-owned banks then lay down their terms and take over the company as a ‘debtor,’ virtually for free. The state, meanwhile, generously finances the state banks to resolve the problems of the seized asset. Occasionally we look at hundreds of billions of rubles (as was the case with the Bank of Moscow)…”

Of course, the Bitkovs’ case is not over. The wait for the trial on charges of acquiring false papers can take very long: there are up to one thousand people charged, and everyone has the right to review all the documents in the case. It has not yet been decided either what judges will hear it.

The criminal case opened against the Bitkovs in Russia can also remain dormant for a long time.

It is hard to predict the course of developments in the Bitkovs’ situation. Perhaps, the Guatemalan authorities will find them guilty of at least something (they are fighting corruption, after all, and you cannot chop wood without making the chips fly). I doubt, however, that the Bitkovs will be extradited: if Guatemala’s justice claims to be law-abiding and civilized, it cannot overlook the law-enforcement practice regarding extraditions to Russia. This practice is such that most of the world’s countries refuse to extradite to Russia, believing, and with good reason, that the country has neither fair justice nor humane treatment in places of confinement.

Perhaps, the justices will see the ruling of the Milan Court of Appeals dated May 21, 2012, regarding the extradition of the Russian national Ivan Kostin. It says: “…There are no conditions under which the request for I. Kostin’s extradition could be met… As regards procedural extradition, given the convention stipulating the evaluation by the state of serious indicia of guilt, the Italian justice must not limit itself to the purely formal documentation attached to the extradition request but must clarify the reasons used by the state requesting extradition to support their accusation… Verification of the documentation submitted as grounds for the request for Kostin’s extradition does not make clear the grounds for the charges made against him or the procedural system of the requesting state used for charging him with committing a crime…”

This is precisely my point: the charges against the Bitkovs “do not make clear” the grounds they are based on.

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