Criminal transit for Ust-Luga

Criminal transit for Ust-Luga
Austrian authorities believe that Valery Izraylit has been laundering criminal proceeds in the country Photo: The CrimeRussia

The Leningrad region’s main sea ‘window to the West’ may no longer be profitable after numerous scandalous arrests and smuggling investigations. The port war threatens one of the most important northwest projects of the Russian government.

Do not look at contraband through window

The Ust-Luga port is a governmental project that has endured a lot throughout the year. After the dissolution of the USSR and secession of the Baltics, Russia was left with no ports in the Baltics. The small Ust-Luga turned into a big seaport project in a heartbeat. The Russian government discussed turning Ust-Luga into a strategic naval base for the Russian Baltic Fleet numerous times.

Chernomyrdin’s government decides to build “high capacity port complexes” in Ust-Luga on April 28, 1993. The project would remain in limbo for years to come. A much needed way-coal-storage was created there only in 1998. The Bronka outport commissioning began around the same time. The Baltic ports dominated the stevedoring business in 2007. They beat weak Russian ports offering a wide variety of services and established infrastructure. Ust-Luga’s future was uncertain at the time. No one wanted to invest in it. Ust-Luga shone only after the world financial crisis hit in 2008. The age of oil abundance came to an end. The US dollar plummeted. That is when the Russian government realized the place could be turned into a potential source of income, allowing to make money on cargo export and import.

The Ust-Luga Port

The Ust-Luga Port

The Ust-Luga Port

The Ust-Luga Port

Our
notes

The founders of Ust-Luga were Kodeks owners Anna Rasmussen and Anatoly Kuznetsov. They ordered a thorough geological, hydrological, and business survey, seeing the great strategic potential of the forest area on the Luga River bank, and founded Kompaniya Ust-Luga in 1992; they ordered the development of the Ust-Luga port project providing for several ships to the St. Petersburg Vessel Institute. Rasmussen financed the Ust-Luga port project and obtained necessary approvals. 15 billion rubles ($265 million) has been invested into the development of Ust-Luga over the years; Ust-Luga has been growing since 2014. In 2016, it became the No. 1 Baltics port with a 40% share of the stevedoring services market. However, the year 2016, being as profitable in terms of business as it was, became infamous due to the exposed scheme of large-scale northwest smuggling operations. 


In July 2017, the FSB arrested main northwest broker Igor Khavronov. Some other high-ranking security officials were arrested later, as the CrimeRussia previously reported. Pavel Smolyarchuk and Vadim Uvarov were among them. General Voronin was dismissed. They all were in cahoots, as well as oligarch Dmitry Mikhalchenko, who is currently being prosecuted, and prominent businessman Boris Avakyan that has been put on the wanted list. It is worth mentioning that all these people earned money for high-ranking law enforcement officials. The money was made on smuggling, of course. The Cherkizovsky market lived off of the money made on the smuggling operations, some say. The Apraksin Dvor mall lived off of it as well. 12 different gangs racket Apraksin Dvor and profit off of its merchants. However, it is only the tip of the iceberg, according to sources. The smuggling operations have been linked to money laundering operations carried out abroad. Chairman of the Ust-Luga Holding Company board of directors Valery Izraylit is the main ‘hero’ of the story. 

Story in no unknown

Valery Izraylit is currently reading through 123 volumes of his case file. He has been charged with fraud, money laundering, and illicit exchange operations. The Russian FSB has a stake in the investigation against him. Spetsmornefteport Ust-Luga is the plaintiff in the 3.6-billion-ruble ($63.6 million) lawsuit. Austria is another trial participant; the country believes its banks were used to launder the illegal money.

Valery Izraylit in court

Valery Izraylit in court

On October 27, 2017, the Russian FSB pressed final version of charges against Valery Izraylit. The court satisfied the investigators’ motion and extended his arrest until May 2018; Vienna colleagues wanted to join the trial. The businessman pleaded not guilty. Meanwhile, all his European property was arrested, namely London and Italy houses and other luxuries an average Russian citizen cannot afford like a yacht, a plane, and business assets. However, Russian plaintiffs and banks that loaned him money will not get any money from it, as the media reported earlier. Europe deals with arresting and selling property of business people suspected of money laundering real quick.

Ust-Luga is the true victim; Spetsmornefteport Ust-Luga that suffered from fraudulent activities offloads 30 million tons of oil a year in Ust-Luga (compare to 93.5 million tons of cargo unloaded there in 2016). Events that led to the arrest of Dmitry Mikhalchenko, Igor Khavronov, and Valery Izraylit meant Ust-Luga was no longer able to do certain types of business. It affected a lot of business interests. Some media outlets even suggested the investigation against Mikhalchenko led to another feud between law enforcement agencies. 

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Once successful businessmen Valery Izraylit and Dmitry Mikhalchenko. Both are currently under arrest

Our
notes

The Ust-Luga Holding Company chaired by Valery Izraylit was founded for construction of the Baltics trade port in 1992. The Holding Company suggested and developed the project for comprehensive development of the Ust-Luga trade seaport and its premises. The project became one of the most important investment projects of the Russian Northwest Federal District. Investport Holding Establishment registered in Liechtenstein owns 23% of the Holding Company. The Leningrad Region Committee for Federal Property Management owns another 21%.


Where is the way out?

It is no secret Putin personally supervised the Ust-Luga project for a while. Today, Russia has enough ports in the Baltics. Freight traffic of Russia’s neighbors – Baltic States and Finland – has been migrating to Ust-Luga for 3 years. Ust-Luga has a favorable geographic location; there are big highways and railways and established logistics and engineering infrastructure nearby that make it very popular with the stevedoring business. It is also no secret Russia will stop shipping its oil products through the Baltic ports – Estonia, Latvia, and Lithuania - in 2018. Transneft is going to take its freight traffic from Baltic ports (Ventspils and Riga) to Russian ones (Ust-Luga and Primorsk), Transneft CEO Nikolay Tokarev said. Even Republic of Belarus’s Belkaly showed interest in it, according to sources. However, it could all go down the rabbit hole due to the ongoing criminal investigations. 

The chargers pressed against the defenders were not directly related to business activities of the ports. For example, Mikhalchenko is suspected of smuggling alcohol; Izraylit – of federal funds embezzlement. However, Ust-Luga could suffer serious damage and that the bulk of its problems are up ahead, according to sources. The two prominent businessmen were arrested due to former Russian Federal Protective Service Head Evgeny Murov, their mutual acquaintance, some sources claim. The two businessmen became causes for investigation due to a desire to attack Murov, according to some sources. He helped both become prominent businessmen and the two being arrested is a sign of yet another feud between law enforcement agencies, according to some sources.

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Former Head of Federal Protective Service Evgeny Murov

The most noteworthy feud is the one between the FSB’s economic departments and the FSB Internal Investigations Department. It is no secret how such a feuds can lead to criminal investigations and scandals.

International traders, smugglers, and customs (that has plenty of its own issues, especially when it comes to corruption) are all amidst these feuds and scandalous criminal investigations and are of great interest for law enforcement agencies. This means customs has a tough task at hand, namely not to get hit by the swinging FSB and to eliminate corruption without running its own illegal business into the ground.

The Leningrad region government will get hit the most since it is interested in Ust-Luga paying off its debts which is getting more and more unlikely by the day. It was mere 2 days after Izraylit said he would pay off the 2017 debt to the federal budget that the Russian FSB arrested him. Now, the Leningrad region government has to pay off his debts for him; it was his guarantor under the loan agreements. However, the mess that Ust-Luga has gotten itself into will not affect stevedoring companies and stevedoring business as a whole, according to some analysts. Meanwhile, Bronka benefits from the Ust-Luga’s problems. Bronka is able to not only steal Ust-Luga’s partners but cater to growing Chinese companies.

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The Bronka Port

In other words, scandals surrounding the ports and northwest smuggling practices should be sorted out this year.

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