(Image: Wikimedia)

In late 2010, a Department of Defence tender was issued for cargo helicopters to support Australia’s war effort in Afghanistan.

With very little disclosure, the contract was awarded to Vertical Australia, a company newly minted as the local agent for a Russian military contracting company named Vertical-T. The services would include the use of a Russian Mil Mi-26, the largest and most powerful helicopter ever produced.

The businessman behind both Vertical-T and Vertical Australia was a Russian aviation entrepreneur, Vladimir Skurikhin, who is connected to a slew of companies and partnerships around the world, from Cyprus to the Seychelles to London. His deal with Australia appears to involve leasing high-tech helicopters replete with pilots and crew.

On the face of it, the defence contract proceeded unremarkably, with the exception of a minor dispute that found its way to the NSW Supreme Court in 2012. The dispute was not between the Australian Defence Force (ADF) and its supplier Vertical Australia, but within the supplier’s own payment chain, which included a mysterious entity in Cyprus, a banking haven for Russian oligarchs. 

Skurikhin, the General Director of Vertical-T, would later attest that the complex chain was in place due to a mistaken belief that Australian companies were forbidden from making payments directly to Russia.

The upshot of the dispute was twofold. Firstly, Vertical Australia paid more than $2.3 million into the Supreme Court of NSW, leaving the court to decide to whom it should be remitted. Should it be paid directly to Vertical-T, or to its erstwhile intermediary, Wellman Limited of Cyprus? On this score, the court would ultimately rule in favour of Vertical-T.

The second effect was that DynCorp Australia was appointed as Vertical-T’s new agent, and Vertical Australia folded. DynCorp, part of the controversial US defence contractor DynCorp International, had been trying to get a foothold in Australia for years. Its parent, DynCorp International, which is owned by a New York private equity firm Cerberus Capital, has been embroiled in a suite of scandals including corruption allegations over US military contracts in Iraq and sex trafficking in Bosnia.

The matter of Vertical Australia of this was water under the bridge until October this year, when Inq and Michael West Media were invited to participate in a cross-border investigation. The Sarajevo-based Organised Crime and Corruption Reporting Project (OCCRP) had received a massive leak of data from the UK-based Formations House.

It would require an international team of investigative journalists to extract maximum advantage from it.

Formations House

Formations House is a company formation agent, sometimes referred to as a shell company factory. They offer a range of services for creating and operating corporate entities in a number of countries, including offshore secrecy jurisdictions, aka tax havens, such as the British Virgin Isles and the Seychelles. 

Although legitimate companies use the services of Formations House, many others enlist it to hide their murky deals and to avoid tax and inspection from financial regulators. Part of the lure for business people keen to hide things is the prestigious address: 29 Harley Street, London. Besides the offer of an upmarket address, Formations House offers a local phone number, a bank account, and preparation of annual accounts and company filings. For those seeking a business façade and a degree of anonymity, this is a one-stop-shop.

In response to questions from Inq and Michael West Media, Formations House offered the following: “Formations House as a trading name has been trading for more than 15 years and like all other formation agents in our industry, we have no control over the actions of companies and their directors after we have provided our formation service”.

The hundreds of thousands of documents leaked from Formations House — 15 years of data — are now in the hands of a worldwide media collaboration dubbed #29Leaks. Teams of journalists, including the authors of this story, have spent months combing through the data using the latest software available.

The stories that have been uncovered from the emails, phone calls, and file notes include exposés of African dictators, fake Gambian banks, Hell’s Angels corporate structures, and all manner of secretive corporate transactions.

Here in Australia, Inq and Michael West Media have found a disturbing story about the ADF and a web of intrigue involving Russian contractors and what appears to be money laundering using Australian taxpayer money.

STS Corporation

Deep in the Formations House leak is a UK-based company, STS Corporation. Its bank statements show tranches of cash arriving from various countries including Afghanistan, Russia and Australia. There are also frequent outbound transfers from STS to entities in tax havens where, in many cases, the real beneficiaries of the money are unknowable.

STS Corporation LLP is owned by two companies. These companies are based in the Seychelles, so little is known about them. Thanks to the UK’s register of beneficial ownership, however, we know that STS is ultimately controlled by Vladimir Skurikhin. It appears the company was created around the time of the Australian court case between Vertical Australia and Vertical-T, to replace the apparently fraying payments chain which had given rise to the court action.

One series of payments which deserves particular scrutiny relates to a Vladimir Starkov. In 2015, the year after Russian separatists shot down MH17 in eastern Ukraine, killing 298 people including 27 Australians, Starkov, a Russian major, was caught fighting with insurgents in the same region of Ukraine. He was convicted of terrorism offences and sentenced to 14 years jail. Later he would be transferred back to Russia in a prisoner swap deal, after being pardoned by then-Ukrainian president Petro Poroshenko.

In 2013, the year prior to the downing of MH17, the STS bank statements show semi-regular payments to a Vladimir Starkov. The amounts start in May. They vary in value but are generally increasing until November when they abruptly stop. They are not enormous sums, more in keeping with the income of a well paid Russian military operative than, say, a politician or significant customer receiving a kickback.

At this point we do not know whether the Starkov on Skurikhin’s payroll is the Starkov pardoned by Poroshenko. We have put questions to Skurikhin, without success.

Questions were also put to the Department of Defence about its knowledge of the beneficiaries of the Vertical Australia contract payments. It did not respond by deadline.

DynCorp

There is an agreement, seen by Inq and Michael West Media, in which DynCorp agrees STS will act as its agent, representing the company in business dealings in Europe and the Middle East. On its website, DynCorp says it “sustains and improves the ADF’s operational capabilities through logistic support, facilities maintenance, and project management services”. So what products or services would this defence contractor have to export via its agent?

Reporters attempted to contact a representative of DynCorp. At the time of publication there had been no response.

One intriguing aspect of DynCorp’s engagement with STS comes from the bank statements themselves, and it raises questions about the broader context in which the transactions took place. That context includes the issuance of the Request for Tender by the ADF, the initial fulfilment by Vertical Australia, continued fulfilment by DynCorp Australia, the court case, the payment for the services, and beyond.

These questions into so-called rotary wing services — helicopters in layman’s language — are compounded by the fact that, at the exact time the contracts were rolling out, there was a parliamentary inquiry into irregularities relating to the tender process for so-called fixed wing services in Afghanistan.

The inquiry found that — due to both past experiences and current circumstances — there were “significant probity risks, particularly in respect of conflicts of interest, breaches of confidentiality” and that contracts in the Middle East Area of Operations (MEAO) had a notorious history of controversy.

“Defence was notably inattentive when it came to identifying and managing probity risks, especially conflicts of interests. Thus a cloud of uncertainty lingers over the integrity of this tender.” 

Due to the reluctance of Defence to comment on the transactions, we have limited information about the contracts, where the money went, or how it was spent. But the DynCorp payments raise two specific concerns. Firstly, their description does not seem to reflect their true purpose, a known red flag for money laundering. Secondly, two mislabelled transactions are immediately followed by large transfers from STS to a highly suspicious and ultimately anonymous beneficiary.

Mislabelled transactions

Between October 2012 and February 2013, more than US$1.1 million was transferred from DynCorp to STS. The transaction descriptions that appear in the STS accounts claim that they are refunds for overpaid legal fees.

From the timing and the size of the payments, it appears that these transactions are almost certainly part of the funds which the NSW Supreme Court ordered should be remitted to Vertical-T.

In her orders on the case, Chief Judge Julie Ward specified that the $2.3 million should be paid to the new agent DynCorp, who would in turn pass the funds to Vertical-T.

Yet it appears that the US$1.1 million were in no way related to legal fees. They were, in fact, for services provided by Vertical-T — services which were invoiced in September and October 2011 and would presumably be taxable in Russia.

So what are two companies controlled by a Russian tycoon doing soaking up the resources of Australia’s court system in a dispute, and why would the payments be described as refunds on legal fees?

Around the time in question, sham litigation had become a popular tool for money launderers. In one scenario, an overseas litigant prepays their legal fees. Shortly after, there is a surprise turnaround, the litigant advises that the case has been settled and requests the return of the fees. 

In another scenario, companies engage in a sham dispute over, for example, a fictitious loan. This leads to money being paid in to court, and later paid out with an authentic court order attached. In either scenario the money is now “clean”.

That is not to suggest that the dispute that ended in the NSW Supreme Court wasn’t genuine. Nevertheless, there are some important facts to consider.

The dispute arose when Vertical-T advised its agent, Vertical Australia, that it should no longer transmit the funds via its intermediary in Cyprus, Wellman Limited, but rather should transmit them directly to Vertical-T instead. Wellman objected to this course of action, insisting that Vertical Australia was contractually obliged to send the funds to it.

Faced with competing demands, and apparently keen to avoid being sued, Vertical Australia paid the funds into the court. In the court action, Vertical Australia’s sole director and shareholder, Yuri Tchernobryvko, said he was aware that Skurikhin was a shareholder in Wellman. Vertical-T denied, however, that Wellman was associated with it. It said that it did not control Wellman, and that Wellman “was an entity established by Ms Baraney”.

Documents from the companies registry in Cyprus show that a Liudmila Baraney and Vladimir Skurikhin established Wellman as equal partners in 2005. Shareholders and directors have come and gone, but Baraney and Skurikhin remain. At the current time, Baraney and Skurikhin are the only two directors and each owns half the company. If there was indeed a genuine falling out between Vertical-T and Wellman, it was obviously not lasting.

In relation to the next intermediary in the payment chain — the company that would receive payments from Wellman and transmit them to Vertical-T in Russia — Chief Judge Ward noted that there was a “deafening silence”. Our investigation shows that this now defunct UK company, KBL Group Limited, was another Formations House company. It was controlled by companies in the Seychelles, and those companies appear to have other close connections to Vertical-T’s Vladimir Skurikhin.

For clarity, the facts of this case do not call into question the actions of Vertical Australia or any of the parties’ legal representatives. There is nothing to suggest that they may have been in any way involved in wrongdoing.

Unknown beneficiaries

The two suspicious payments outbound from the STS account occurred on the same days as two of the large, mislabelled incoming transactions. They were reportedly sent to a Layne Desing LLP, and totalled US$730,000. We were unable to find a Layne Desing LLP in our research, but we did find a Layne Design LLP.

Layne Design LLP was a UK entity. It was incorporated on June 20, 2012, the exact same day the NSW Supreme Court was hearing the case that would ultimately direct disputed funds to Vertical-T.

Layne Design is owned by companies in the Marshall Islands, another secrecy jurisdiction. Between them, the Marshall Island companies control hundreds of corporate entities, a hallmark of wide-scale money laundering. At least one of Layne Design’s sibling companies has been accused of money laundering in a case that involved a Ukrainian High Court Judge.

Layne Design LLP appears to have been a single-use company. Following its incorporation, it lodged not a single return or document with the UK companies register. After 18 months, the apparently abandoned company was struck off.

In all likelihood, the only real order of business for Layne Design’s nominee directors would have been to open a bank account, and sign a power of attorney giving the true company owners control of that account.

Questions in the shadows

The Formations House leak throws a bright light on a complex business deal, but questions loom in the shadows — starting with the timing of the tender issued by the ADF.

The relevant tender (as far as we can establish) is dated October 25, 2010, however court documents show that the agency agreement between Vertical-T and Vertical Australia was first documented more than one month earlier on September 10. In other circumstances, such uncanny timing may not be noteworthy, but in this case the tender process was running in parallel to the parliamentary inquiry into fixed wing services in Afghanistan. 

Irregularities in the tender process were central to the inquiry, including questions about probity and conflicts of interest.

Following the tender, Vertical Australia was awarded the contract and should have made its first appearance in Commonwealth contract data in February or March 2011. But a search of the publicly available data shows no trace of any contract awarded to Vertical Australia, and the Government’s AusTender website operator was unable to locate contract information for the relevant request for tender.

Was this simply a matter of shoddy business processes or data handling capabilities? Or was the information not subject to disclosure laws?

If the data is not subject to disclosure laws, why is it so? Why is the public able to see who is awarded the contracts for say, security staff in Afghanistan, but not cargo helicopters?

NSW court documents suggest that in the days of Vertical Australia, a company called PME International was taking a cut of around 20% from the ADF payments, and in some circles, the provider of Australia’s heavy-lift rotary wing services was described as PME International Vertical-T. 

As best we can make out, PME International is a Dubai-based business with an eclectic set of interests including aviation services, general trading, advertising, art and design, and healthy salt products. We have seen some suggestions that PME is also in the business of leasing, but its website shows no sign of it. More importantly, there is no way to identify the legal entity PME from its website. A search of the site opencorporates.com shows a number of possible matches, but which is it?

It would seem reasonable that when the ADF places its trust in a supplier — any supplier — we should expect the supplier to model at least the essential values of that important government institution. However, as the DynCorp episode shows, that is simply not the case.

When DynCorp Australia inherited the Vertical-T contract, Skurikhin’s team must have asked DynCorp to remit funds to STS, and not directly to Vertical-T. We can only guess at the justification provided, but by this time it is on the court record that Skurikhin knows there is no prohibition on an Australian company paying a Russian company directly.

If DynCorp had conducted even the most cursory check they would have discovered that STS Corporation had been established only seven months earlier and therefore had a limited track record. Further due diligence would show that it was owned by two companies that are domiciled in the Seychelles. The director of STS at the time, Evaline Sophie Joubert, holds similar roles in numerous companies, so is almost certainly a proxy.

Further, given that the underlying contract was with a Russian company, and the agreement with DynCorp Australia had only come about when the previous payment arrangements collapsed, it seems implausible that alarm bells were not ringing at DynCorp. But not only did DynCorp go ahead, it appears that they added to the murkiness by describing US$1.1 million of funds as something which they were apparently not.

There are a lot of small truths here we may never know — the details of the rotary wing contracts, the real reason behind the short life of Vertical Australia, the role of PME, the full details of the court case, why the transactions were labelled the way that they were, and whether Vertical-T was the only beneficiary of the contracts or whether other parties were involved.

There does appear to be one clear winner though, and that is DynCorp. DynCorp Australia was established in 2004 and, if the public contract data is a fair representation of their history, languished for almost 10 years. An internal dispute in the payment chain of a Russian aviation tycoon was a turning point in their history, and since 2014 they have won at least $380 million of Australian government contracts. And yes, much of the profit appears to be taken offshore.

Peter Fray

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