Heads of St. Petersburg municipal enterprises run business at the budget expense
Municipal officials are the most numerous category of civil servants. They often forget about the laws, especially about the prohibition on commercial activities. Directors of St. Petersburg municipal unitary enterprises are among the most forgetful public employees.
There is an exciting profession in Russia – making business on behalf of the state. Directors of numerous unitary and budgetary enterprises do this on the grassroots level. They keep the business in mind all the time and prefer to forget about the state interests. Each such director is a governmental official coming within the provisions of the Federal Law № 79 “On the Civil Service in the Russian Federation”. But apparently, municipal officials do not read it carefully and omit entire articles – for instance, Article 17 that prohibits civil servants from running business activities. Either way, municipal authorities of St. Petersburg and the Leningrad region seem to have no idea about this prohibition because most directors of state enterprises don’t bother to part with their commercial ventures even formally.
Count your money before walking away from the cash register
Furthermore, directors of municipal unitary enterprises are actively involved into commercial operations of their own firms – the huge number of governmental contracts awarded to these companies confirms this. The business model is obscenely blunt: the director of a municipal unitary enterprise specializing in a certain sphere of activity becomes the head of a company specializing in the same type of business. The commercial company wins all the tenders, while the state enterprise is staying on the sidelines.
An illustrative example is Vostok (East) State Unitary Enterprise of the Leningrad Region that is about to cease its existence soon due to a major reorganization of the entire water service system in the Leningrad region. Currently Samvel Engibaryan is the Acting Director of Vostok, but a month ago Sergei Kashin had held this position. Kashin is also the General Director of Vodokanal Limited Liability Company. Both structures specialize in hot water distribution and construction of water supply infrastructure. It would be logical to assume that a municipal enterprise would render services to the municipality. But in reality, not a single governmental contract was awarded to Vostok State Unitary Enterprise in all the time of its existence. But Vodokanal Limited Liability Company under the leadership of Kashin has won 69 tenders since 2014 for the total amount of 170.8 million rubles ($3 million). Furthermore, Vodokanal has won the largest and most profitable tenders on a sole source basis.
Porokhovye Municipal Unitary Repair and Maintenance Enterprise is guided by the same principle. The municipal structure specializes in the housing and utilities sector and services over 80 buildings. Aleksander Erokhin used to be its Director until recently. Concurrently he was the General Director of Porokhovye Plus Management Company belonging to Denis Aleksandrovich Erokhin. In addition, Denis Erokhin is the Director of Porokhovye Management Company. In the last year, Porokhovye Management Company has earned over 400 thousand rubles ($7.1 thousand) on governmental acquisitions. The small family business of Aleksander and Denis Erokhin has even attracted the attention of Transparency International that plainly calls Denis Erokhin a son of Aleksander Erokhin and notes that Erokhin senior personally chairs work meetings in the company managed officially by his son. Apparently, the unwanted attention forced Aleksander Erokhin to resign from his position in Porokhovye Municipal Unitary Repair and Maintenance Enterprise. No doubt that this decision hasn’t affected in any way the family well-being. Several other municipal officials have also established humble family businesses – for example, Vyacheslav Olenkovsky, Director of Bolshaya Okhta Municipal Unitary Repair and Maintenance Enterprise, owns a commercial structure of the same name. In the period of 2012–2014, this company has won three tenders for the total amount of some 463 thousand rubles ($8.2 thousand).
Aleksander Erokhin on a work meeting in Porokhovye Management Company
One fool makes many
Too bad, but even Mikhail Moskvin, Vice Governor of the Leningrad Region, capitalizes on the same primitive corruption scheme. Contrary to the law, Moskvin still remains a cofounder of Atlant (Atlantean) company specializing in construction and commercial rentals. Most municipal organizations of the region are its tenants. The company belonging to the Vice Governor has earned over 20 million rubles ($353.7 thousand) by leasing out premises to municipal structures - group of contracts № 1, group of contracts № 2.
Andrei Grishakov, Director of Lokhankov Printing House № 12, manages four companies specializing in printing services and co-owns two of those. In total, Grishakov owns and co-owns six legal entities. His enterprises are winning multimillion governmental contracts; Vice Governor Moskvin could envy his commercial success. For instance, Poligraf-Zashita SPb company (Grishakov owns 33% of shares in it) renders services to such clients as the Ministry of Defense, Russian Railways Open Joint Stock Company, etc. The total amount of contracts awarded to Poligraf-Zashita SPb exceeds 1 billion rubles ($17.7 million). Poligraf-Zashita Closed Joint Stock Company is affiliated with it; the total sum of its governmental contracts is over 88.7 million rubles ($1.6 million). Altair company where Grishakov is both the General Director and founder has won tenders for the total amount of 4.7 million rubles ($83.1 thousand).
It must be said though that some officials are trying to exercise ingenuity. Take, for example, Andrei Mushkarev, Chairman of the Tourism Committee of St. Petersburg. Similarly with the Vice Governor who ‘has forgotten’ to withdraw from the cofounders of his company, Mushkarev ‘disremembered’ that he is in charge of Inflot Travel Service. Still, Mushkarev has taken a step further in comparison with his colleagues and transformed the blunt one-step ‘appropriation’ scheme into a two-step combination. The list of Inflot Travel Service cofounders includes some Mikhail Evstratikov who is also a founder of a number of tourism companies, including Arctur Travel Limited Liability Company and Inflot Worldwide Rus Limited Liability Company. In the last two years, Arctur Travel has won five tenders for the total amount over 32 million rubles ($565.9 thousand). Inflot Worldwide Rus has earned over 25 million rubles ($442.1 thousand) on governmental acquisitions, including a contract with Admiral Makarov State University of Maritime and Inland Shipping for 23.4 million rubles ($413.8 thousand). A number of St. Petersburg officials follow in the footsteps of Mushkarev.
For instance, Konstantin Kachalin, Director of the Center for Socio-Economic Development of Kolomna Municipal District Municipal Budgetary Institution, combines the governmental service with the management of five companies and owns shares in two of these firms. None of these legal entities was ever spotted on governmental tenders – unlike business partners of Kachalin. Some Rushan Rashidovich Magdeev is a co-owner of the three other firms; he also owns a share in SP Findors – winner of three tenders for the total amount of 2.5 million rubles ($44.2 thousand).
Although the above-mentioned officials have ‘appropriated’ widely different amounts of budget funds, all of them have violated the Federal Law № 79 “On the Civil Service in the Russian Federation” and the Federal Law № 273 "On Preventing Corruption". All the above episodes fall within the definition of a conflict of interest and are supposed to result in termination of the offenders. But the reality speaks for itself.
The prosecutors want the former Russian Federation Council member to go to prison for 14 years instead of 9 and pay a 500-million-ruble ($8.8 million) fine instead of 70 million rubles ($1.2 million).