08.05.09

Gagarinsky District Court of Moscow has started legal proceedings in a case against the general director of Interoptica, a trade and research company.

He is charged with concealing a portion of his employees’ salaries by using salary schemes through fictional insurance companies to avoid the Unified Social Tax (UST, paid by the employer) and personal income taxes. Prosecutors say he owes six million rubles in taxes from this scheme. The businessman has plead not-guilty and says that no crime was committed because his employees signed the insurance contracts voluntarily, and he did not force them into it.

Schemes using insurance companies are not a new method for minimizing taxes. However, this is the first time that the Ministry of the Interior has successfully brought a related criminal case to court. The peculiarity of this type of crime is that employees are often not aware that the salary deposited to their bank account is “grey” (under the table) and proper taxes have not been withheld. Moreover, banks are reluctant to offer information about their clients and their account activity to investigators. Currently investigators are inspecting several other large Moscow companies that use similar tax schemes.

Investigation of this case was preceded by another case that involving the abovementioned general director of Interoptika. Officers from the Tax Crimes Department (TCD) of the Moscow Office of the Central Internal Affairs Directorate became interested in the businessman’s activity in 2007. They discovered that the defendant, while acting as general director of Interoptika, during six months in 2005, transferred over 10 million rubles to the bank account of a company called "Olteks," allegedly for the purchase of a shipment of high-end eyeglass frames. However, during the investigation it was established that Interoptika actually purchased frames from a permanent supplier abroad and even declared goods through customs. Investigators discovered that Olteks was created specifically for a tax avoidance scheme, had a zero balance sheet and had only existed for a short time. Investigators decided that the transfer of funds to Olteks’ account was conducted with the sole purpose of lowering Interoptika’s stated profits. As a result, prosecutors said, three million rubles in back-taxes were owed.

The defendant plead innocent, but the Gagarinsky District Court in Moscow accepted the evidence collected by the investigation as valid and convincing and in March 2008 sentenced the defendant to two years of imprisonment with a 3 year probation period.

In the process of this investigation, officers of the Tax Crimes Department also took notice of the relationship between Interoptika and the insurance company Strakhovye Tekhnologii XXI Veka, which had caught the attention of investigators in the summer of 2004. At that time the Saratov Public Prosecutor’s Office opened a criminal case “in connection to the large-scale theft of government funds by misappropriation and misuse of funds.” Suspicion was raised against former General Director of the soccer club Sokol. The investigation established that he used budget funds (104 million rubles) to insure 220,000 soccer fans through the company, while insured tickets for 22 games of the Sokol soccer team were purchased by only 35,000 fans. 

According to the case files, the General Director of Interoptika “entered into a criminal conspiracy with unidentified persons with the purpose of avoiding company taxes on a large scale” in the beginning of 2006. For this purpose they organized a criminal scheme of paying part of employees’ (and their own) salaries through an insurance company called “Assistance-Vita.” Payments were presented as insurance benefits. In particular, two accounts were opened in Moscow banks – OAO Alfa-Bank and OAO Moscow Neftechemical Bank (MNHB). Investigators established that the bank account in MNHB received the official part of employees' salaries, but the Alfa-Bank account received the portion of salaries hidden from tax payments.

When investigators received information on the accounts of Interoptika’s employees in Alfa-Bank, it became apparent that funds transferred from OOO Assistance-Vita were reported as insurance benefits and investigators discovered that this company never had a license for insurance activities. It was also registered under the name of a homeless person and at a non-existent address.

Detectives traced the movement of salary funds on accounts and discovered that, first, money was transferred from Interoptika accounts to accounts of several insurance companies, including Strakhovye Tekhnologii XXI Veka. From these accounts, through other fly-by-night companies, funds evetually found their way to the accounts of OOO Assistance-Vita and from there returned to Interoptika. Investigators’ believe that, from January through October of 2006, Assistance-Vita transferred over 26.6 million rubles to Interoptika’s employees.

During the course of the preliminary investigation it was established that Interoptika’s employees had never actually entered into insurance contracts with Assistance-Vita, never paid insurance premiums, never applied for insurance benefits, and thought all money received through Alfa-Bank accounts had been received as wages. The defendant explained that his subordinates voluntarily, on their own initiative, found insurance companies and entered into insurance contracts with them. According to his story, a certain charitable organization – which he wasn’t able to name – offered credit to Interoptika’s employees for payments on insurance premiums. Later the insurance company, the name of which he also had difficulty with, transferred insurance benefits monthly to Interoptika’s employees’ accounts because they had not had any unfortunate occurrences. The defendant claimed that this process did not require any personal investments from his company or employees, and credit offered by the charitable organization was never reimbursed. However, based on the defendant’s statement, he and his employees received from 15,000 to 60,000 rubles in their accounts for essentially nothing on a monthly basis.

During the investigation the defendant could also not explain why the amount of the insurance benefits received by employees was equal to their official salary amount, and why the insurance contract ended with the employee’s dismissal. Moreover, he wasn’t able to explain why the charitable organization was giving money to the employees and management of Interoptika, and why these funds were never reimbursed.

After careful examination of all case files, the investigators concluded that if the company’s employees entered into insurance contracts as private person, he would continue to receive insurance benefits even after leaving Interoptika. But neither company nor its employees were able to present copies of the contacts. Therefore, the defendant’s testimony “contradicts evidence collected on the case, and defendant is proven guilty.” At the end of March, The Main Investigation Directorate served Interoptika’s General Director with final revision of the charges based on two articles of the Criminal Code – evasion of company taxes and failure to fulfill obligations as a tax agent, and the case was sent to court.

The director's lawyer argued that, “The prosecution’s theory does not correspond even with the basic articles of the Tax Code on the Unified Social Tax, and the accusation is very far-fetched. It was taken for granted that certain points do not need to be proven, and the investigation was confined by vague generalities. Even the expert evaluation was conducted incorrectly because the investigator from the very beginning placed experts into a specific framework by stating that the defendant is guilty. Consequently, the experts presented a report to the investigation’s benefit. Moreover, the investigator in charge of this case worked on a previous case against the defendant and behaved rather inappropriately. I hope the court will be impartial and without bias and deliver an appropriate ruling.”

The case is currently in progress.

Translated by Alinga Consulting Group.

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