Swedish IKEA bogged down in Russian corruption 

Swedish IKEA bogged down in Russian corruption
Konstantin Ponomarev became a millionaire through litigation with IKEA Photo: The CrimeRussia

An ordinary lease of generators has resulted for IKEA in an everlasting litigation and losses of hundreds of millions of rubles. The main rival of the world largest furniture and home accessories retailer is Konstantin Ponomarev, a Russian entrepreneur with extensive connections in law enforcement, who was a prosecution witness in the criminal case of Sergei Magnitsky. The CrimeRussia has been figuring out how Konstantin Ponomarev managed to get into the ‘top hundred’ of Russian dollar millionaires through his lawsuit with IKEA – while the Swedish company had been bogged down in the Russian corruption.

In the beginning of December 2016, the Krasninsky District Court of the Smolensk Region has frozen 9.3 billion rubles on the accounts of IKEA MOS (a subsidiary company of IKEA in Russia). The reason for the seizure was another lawsuit filed by businessman Konstantin Ponomarev.

Only the intervention of Boris Titov, the Presidential Commissioner for Entrepreneurs' Rights, has saved the company funds from the arrest. Ultimately, the Krasninsky District Court has cancelled its decision to block the accounts of the largest world furniture retailer. 

Previous lawsuits initiated by businessman Konstantin Ponomarev had brought lots of troubles for IKEA. 

For example, in August 2016, the same Krasninsky District Court of the Smolensk Region had adjudged to recover a penalty from IKEA MOS in favor of the Russian businessman. The amount of the penalty was 507 million rubles. 

It is necessary to note that the court has made all these decisions despite the settlement agreement signed between Ponomarev and IKEA, according to which, 25 billion rubles had been paid to the company of Konstantin Ponomarev back in 2010. The terms of the settlement agreement included full abandonment of claims against each other by the parties.

However, this hasn’t prevented Konstantin Ponomarev from claiming extra 33 billion rubles from IKEA. Only three years later, the court has recognized the requirements of Rucon company belonging to Ponomarev illegitimate. 

His business, however, hasn’t been harmed in any way. Just the opposite – thanks to the litigation with the worldwide renowned Swedish furniture chain, Konstantin Ponomarev has become a millionaire from the Forbes list, while IKEA has stated in July 2016 that its entire business in Russia is in jeopardy. According to Fontanka.ru, in order to escape the claims of Ponomarev, IKEA has reorganized its Russian subsidiary company and emptied its accounts. 

The legal costs sustained by IKEA in relation to the multiyear litigation haven’t been compensated in full. Konstantin Ponomarev managed to negotiate beneficial terms for himself and reduce the original legal costs claimed by IKEA by 48 tunes. As a result, in 2015, the ninth arbitration court of appeal has ordered to collect 3 million rubles from Rucon instead of 143 million adjudged earlier.

The CrimeRussia has attempted to sort out the relations between IKEA, which had been dragged into a lengthy and costly litigation, and Konstantin Ponomarev, a lone businessman who managed to make good money on a major foreign company.

An idea: Get money from IKEA

The uneasy relations between IKEA and Russian businessman Konstantin Ponomarev had started in 2006, when the furniture retailer was about to open Mega Dybenko and Mega Parnas hypermarkets in St. Petersburg. The Swedish company had a problem – Lenenergo, the municipal hydro operator, advised that the trade complexes can not be connected to stationary power grids prior to their opening. Therefore, IKEA MOS had to lease power generators. ISM company belonging to Konstantin Ponomarev won the tender, and two contracts had been signed to supply power to the two facilities – Mega Dybenko and Mega Parnas. 

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Mega Dybenko trade center in St. Petersburg 

The origin of the multiyear litigation lays in these lease contracts that allowed Konstantin Ponomarev to become rich at the expense of a foreign company. 

The trick is that the documents provided only the total generator capacity that had to be supplied by ISM and SAE (Autonomous Power Supply Systems) companies belonging to Ponomarev: neither did the contract specify the maximal power, nor the exact number of generators. The cost of the lease was calculated based on 1 kVA of reserve capacity per day. In other words, IKEA MOS had to pay for all leased generators regardless of their actual usage.

During the 1.5 year of collaboration with Konstantin Ponomarev, IKEA MOS has paid 5 billion rubles for the generators. 

In July 2007, IKEA has asked to switch from the advance payment system to credit payments and started prepaying 20% and paying 80% on a 5-year credit with the annual interest rate of 36%. Ponomarev has also introduced a commercial surcharge of 0.1% per day. This had been further increasing the debt of IKEA – its budget could not cover the lease of 112 mobile power generators. 

Based on some specific features of the contract, a number of experts state that Konstantin Ponomarev had started a foul play from the very beginning – by providing power sources for the trade centers, the businessman had acquired a source of his own enrichment in the form of the international retail chain. 

For the first two years, the accrued debt to ISM has reached 25 billion rubles. IKEA MOS has examined the hydro costs for the two trade centers and figured out that they are renting power generation capacities comparable with the Central Thermal Power Plant of St. Petersburg. 

IKEA suspected Ponomarev of corruption and secret deal with Lenenergo – who failed to connect the hypermarkets to stationary power grids in a timely manner.

In July 2008, IKEA has decided to cease the collaboration with Ponomarev. The lease contract for the diesel generators was about to expire only on December 31, 2008. IKEA MOS could not terminate the contract unilaterally – while Ponomarev declined to cease the collaboration ahead of the schedule. Then the Swedish company has started resolute actions. According to the lawyers of IKEA MOS, by July 1, 2008, all generators of Ponomarev had been shut down and relocated to a separate site. IKEA suspected that it had been overpaying greatly for the rent of the diesel generators and declined to pay out the debt. 

In turn, Ponomarev had claimed that the trade centers continue using the generators without paying the rent. 

The equipment continued being stored in the trade centers even after January 1, 2009. IKEA explained that Ponomarev refused to remove the generators. The handover-acceptance of the equipment remained unsettled because this aspect was not specified in the contract. 

Ponomarev claimed that IKEA continued using his generators even after 2008 – while IKEA stated that the diesel generators had been shut down in summer 2008 in Mega Parnas and in February 2008 – in Mega Dybenko.

The dispute has been brought to court. IKEA had submitted several lawsuits to the Moscow Arbitration Court requesting to recognize the contracts null and void – but in September 2009, the court has ordered IKEA to pay rent arrears for the generators in the amount of 285 million rubles to the contractor 

The situation in the Russian branch of IKEA can be described by a phrase of Per Kaufmann, then-General Director IKEA Russia & CIS, cited by Forbes: “Payments under the two lease contracts started consuming the entire profit of IKEA not only in St. Petersburg, but in the whole Russia”.

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Per Kaufmann, ex-General Director IKEA Russia & CIS 

In 2010, Per Kaufmann and Stefan Gross, IKEA's Director for Real Estate in Russia, have been fired on suspicion of bribe-giving.

IKEA managers have calculated that the Russian branch is paying $11 million to companies belonging to Ponomarev every month (while the market cost of the power was $3 million). According to the contract, IKEA MOS had to pay for all the leased generators regardless of their actual usage. 

By 2010, the accrued debt of IKEA has reached enormous levels. Konstantin Ponomarev has submitted an invoice for 27 billion rubles to IKEA though the Arbitration Court. To avoid a scandal, the corporation has decided to settle the dispute out of court and addressed Vice Premier Igor Shuvalov, the Ombudsman for Business and Investments. Sergei Belyakov, Director of the Department for Investment Policy and Development of Public–Private Partnership of the Ministry of Economic Development of the Russian Federation, acted as a mediator between IKEA and the businessman. In November 2010, the parties have signed a settlement agreement; in accordance to this agreement, IKEA MOS has paid 25 billion rubles to Ponomarev. On the same day, Ponomarev has transferred the funds from SAE company to his personal account – allegedly, for fear of a raiding takeover. 

Shortly after this, in July 2011, some Rucon company has filed a lawsuit against IKEA MOS to recover a debt for the period of 2009–2010 in the amount of 33 billion rubles. To support its claim, the company provided to the court an agreement on the cession of rights signed with SAE (Autonomous Power Supply Systems) Limited Liability Company. It turned out that the ownership of the 112 mobile diesel power generators – leased by IKEA MOS from Ponomarev’s ISM company – had been transferred to SAE, also belonging to Ponomarev, in 2006. Approximately a month before the signing of the settlement agreement, which included full abandonment of claims against each other by the parties, Ponomarev had transferred the right to collect the IKEA debts to Rucon. Expectedly, the founder and General Director of that company was Konstantin Anatolyevich Ponomarev.

IKEA could not anticipate such a move. Following a report filed by the furniture retailer, the police have initiated a criminal case against Ponomarev due to attempted swindling – but it hasn’t resulted in any adverse consequences for the cunning businessman.    

The lone businessman: a financial genius or scammer with a good ‘cover’?

In total, five criminal cases had been initiated against Konstantin Ponomarev based on applications and reports by IKEA; all of those were later closed for lack of evidence of crime. 

In 2012, after the signing of the settlement agreement, a criminal case had been initiated against Ponomarev under part 4 of Article 159 of the Criminal Code of the Russian Federation (swindling) following efforts taken by IKEA. 

According to the company, when the businessman had been stating that he abandons all the claims once and for all, he was cheating not only IKEA, but also the Ministry of Economic Development of the Russian Federation. However, in October 2013, the case against Ponomarev was suddenly closed after an intervention from the Prosecutor General’s Office. After 15 months of investigation, right before the principal court session, Natalia Agafieva, Head of the Investigation Department of the General Administration for the Central Federal District of the Ministry of Internal Affairs (MIA) of the Russian Federation, has received an instruction to close the criminal case signed by Vladimir Malinovsky, Deputy Prosecutor General of the Russian Federation. The fax message stated that neither Rucon, nor Ponomarev had committed any swindling actions; there was just a “civil and legal dispute between economic entities”. On October 18, 2016, Agafieva has sent a letter to Malinovsky confirming the closure of the criminal case.

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Konstantin Ponomarev 

In April 2014, IKEA managed to initiate another case against Ponomarev, this time – in the Vsevolozhsky district of the Leningrad region, where the trade centers are located. The case was related to the details of the contract signed between ISM and IKEA in 2006, payments made under this contract, and the mysterious accrual of 25 billion rubles in debts – while the leasing price of the generators was 600 million rubles. 

During the investigation, the law enforcement authorities have found 24.9 billion rubles on accounts belonging to Ponomarev and froze these monies. According to the investigators, these were the funds received by Ponomarev after the settlement with IKEA. 

It turned out that Ponomarev, being the Director of SAE, had transferred the monies from corporate accounts to his own ones ‘for storage’. Then SAE company has been liquidated, leaving the funds in possession of Ponomarev. According to some sources, the businessman has transferred the monies to offshore companies. The case assumed a serious dimension for Ponomarev. 

And the cunning businessman has taken prompt steps. In May 2014, he submitted a complaint against the investigator handling his case to the Investigation Department of the MIA, asking to transfer the case examination to the Moscow region. 

According to Novaya Gazeta, shortly after this, the MIA Administration for the Vsevolozhsky District started receiving calls from Moscow – from some high-ranked officers in the Prosecutor General’s Office. As of a sudden, the Prosecutor’s Office of the Leningrad Region has unfrozen the accounts of the businessman. The swindling criminal case has been closed at that time as well. 

In March 2015, the tax authorities have found that in 2010–2012, Ponomarev hadn’t paid tax on the 25-billion-ruble settlement received from IKEA. According to their calculations, the businessman owed 8 billion rubles to the budget – 4.7 billion rubles as the General Director of the company and 3.3 billion rubles as a legal entity.

The Investigative Committee of the Russian Federation (ICR) has initiated two criminal cases against Ponomarev under part 2 of Article 198 and part 2 of Article 199 of the Criminal Code of the Russian Federation (evasion by a natural person of paying a tax and (or) a fee on an especially large scale; and evading payment of taxes and (or) fees collectible from organizations on an especially large scale). However, the Prosecutor General’s Office has intervened again to assist the businessman. On May 13, 2015, the order on institution of criminal proceedings has been cancelled by A. Kozlov, a Deputy Prosecutor of Moscow, and then confirmed by Yuri Chaika, the Prosecutor General of the Russian Federation. In a response to the investigator, he noted that the findings of the investigation to not allow to identify constituent elements of offence in the actions of Ponomarev. 

In fact, this means that the combined efforts of the ICR, MIA, and Federal Tax Service have failed to prove components of crime in the actions of Ponomarev. What is the secret of the lucky businessman who commits financial machinations and gets off the hook every time? 

The experts and business media believe that the Prosecutor General’s Office provides a ‘cover’ for machinations of the diesel billionaire. Kommersant wrote, citing a source close to IKEA: “The unfreezing [of Ponomarev’s accounts] has become possible due to the position of the Prosecutor General’s Office, which was contrary to the findings of the Federal Tax Service, MIA, and ICR. In fact, the Prosecutor General’s Office is ignoring arguments of the above-mentioned agencies. In turn, the position of the Federal Tax Service, MIA, and ICR is based on their months-long investigations”. 

In addition, according to Peterburgskaya Gazeta, Ponomarev has connections in the judicial system, particularly – in the Supreme Court. 

The above-mentioned Krasninsky District Court of the Smolensk Region openly supports Ponomarev as well. Local judge Irina Tsutskova has delivered several verdicts in favor of the businessman. She even allowed him to save 4.5 billion rubles by not paying taxes on the 25 billion rubles received from IKEA. 

It was Tsutskova who had ordered IKEA to pay 507 million rubles to Ponomarev in the end of August 2016. 

Not only has the litigation with IKEA made little-known businessman Ponomarev rich, but also famous. He has been nicknamed ‘diesel scammer’. Meanwhile, another foreign company has become involved into a legal battle with the entrepreneur – UK-based Toros (the operator of Pushkino Logistics Center). The scheme used by the ‘diesel scammer’ with Toros was pretty similar: in 2009, Konstantin Ponomarev had leased 13 mobile generators to Toros. Toros has stated that the equipment was faulty – and Ponomarev supplied 24 additional generators. Ultimately, when Rucon has addressed the court to recover 1 billion rubles from Toros, the defendant refused to pay stating that this was a scam involving double payment for the same service. 

However, the court has supported Ponomarev again: the tenth arbitration court of appeal has adjudged to recover 1.5 billion rubles from Toros company belonging to the Raven Russia Group (developing a logistics network in Russia) in favor or Rucon.

The litigation with IKEA is not over yet. The corporation has announced its intention to appeal the court decision. Konstantin Ponomarev is receiving the interest of 36% per annum on the sum of 33 billion rubles, and the debt of IKEA MOS is skyrocketing – while the trust of foreign companies to the Russian business drops catastrophically. The main concern is not even the scheme used by Ponomarev – but the fact that the Russian courts – affiliated with business structures and dependent of governmental authorities – legalize such scams by their decisions.

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