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Wednesday
Mar292017

Report: Bombardier Sweden linked to $85 million Azerbaijan payments

Authorities in Sweden arrested an executive and questioned several others from international engineering and manufacturing firm Bombardier as part of an investigation into corruption in Azerbaijan.

A March 17 report by the Organized Crime and Corruption Reporting Project (OCCRP) said Bombardier Transportation AB is suspected of paying "millions of dollars in bribes to unidentified Azerbaijani officials through a shadowy company registered in the United Kingdom."

The UK intermediary was identified as Multiserv Overseas Ltd.

Swedish anti-corruption prosecutor Thomas Forsberg told the OCCRP that Multiserv Overseas has “no employees or business.”

Bombardier is headquartered in Montréal, Canada. It produces aircraft and train equipment.

In 2013, the OCCRP said, the Stockholm-based train division won a $350 million contract to supply Azerbaijan with an interlocking system for railway switches and signals.

Contracts obtained by Swedish investigative reporters apparently showed "Bombardier Sweden selling equipment to Multiserv Overseas, which then [sold] the identical equipment back to Bombardier’s Azerbaijan affiliate for an inflated price."

Multiserv made a profit of $85.8 million in the deal, the OCCRP said.

"The money was then channeled offshore," according to the report.

Export records showed deliveries of the equipment directly from Bombardier Sweden to Azerbaijan and not to Multiserv.

The Bombardier employee arrested on March 10 was Evgeny Pavlov, a Russian citizen. His LinkedIn profile lists him as a Bombardier sales executive.

Police said Pavlov is suspected of aggravated bribery.

Thomas Forsberg from the prosecutors office said several others at Bombardier's Sweden operation were served a “notice of suspicion.” 

A Bombardier Sweden spokesperson, Barbara Grimm, told the OCCRP that Multiserv Overseas "is a bona fide company, we have done due diligence with them. They meet our code of ethics.”

The investigation in Sweden began after the OCCRP published a report in April 2016 showing alleged links between Multiserv Overseas and close associates of Vladimir Yakunin, the former president of Russian Railways.

The report alleged that Multiserv was an intermediary for a similar Bombardier deal in Russia.

Bombardier trades on the Toronto Stock Exchange under the symbol BBD. The company has about 66,000 employees. Revenues last year were $16.3 billion.

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Richard L. Cassin is the publisher and editor of the FCPA Blog.

Reader Comments (4)

Its an unfortunate turn of events, but yet another example of where traditional 3rd party due diligence practices are not up to speed in identifying high risk entities and potential anonymous shell companies.

From this case, two items stand out. The geographic data points of the involved parties. Canadian company doing business with a UK company that has Cypriot and Russian directors. This red flag is considered a geographic mismatch and is normally not included or reported in a traditional 3rd party due diligence request.

The second is the address of the entity. 5 Fleet Place, London EC4M 7RD England. There are over 400 companies registered at this same address. Another red flag for identifying anonymous or high risk entities, yet, it is also not a typical 3rd party due diligence metric.

Bad actors have known for some time the limits and methods of traditional due diligence activities and they have devised very easy ways to minimize the number or existence of red flags. In many instances they are guided by unethical attorneys and consultants. Its time for the compliance industry to consider revamping and enhancing due diligence activities to match the risks of today, IMO.
March 29, 2017 | Unregistered CommenterRyan Hubbs
Ryan mentioned in the previous post that traditional due diligence is, in many cases, lacking in looking beyond what is officially put forward. His comment about 400 businesses registered at the same address should be an obvious red flag. There are additional open source data sources which should be looked at, for example the Panama Data. Companies House in the UK also provides details of "Persons with Significant Control" which can also provide indicators of "red flag" issues.

Relying on 3rd parties to conduct such checks may be a cost effective option, provided that the organization selected applies an investigators approach to due diligence and not just a "tick box" exercise
March 30, 2017 | Unregistered CommenterRichard Kusnierz
Bombardier have their own in-house due diligence, which appears particularly lax when it comes to deals in certain countries. On a par with SNC Lavalin
March 30, 2017 | Unregistered CommenterMartin
Once again, a company originating from a country listed in the Top 10 of TI's CPI 2016 has been involved in a corruption scandal. Once again, the business was conducted in the CIS countries. I believe that once again the company adopted "when in Rome..." approach in dealing with their customers in corrupt and kleptocratic states. Will they ever learn?

I am also critical of the World Bank - financier of this project. Where was their due diligence?
May be DOJ or Canadian Authorities should go after the WB for engaging in corrupt behaviour via third parties? Just a thought....
March 30, 2017 | Unregistered CommenterPerson in the know
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