The most discussed topic of the week were searches at the offices of JSC Oboronservis, a company subordinate to the Ministry of Defence, and apartments of some current and former military officials. The searches were conducted as part of five criminal cases investigated by the Main Military Investigation Department of the Investigative Committee of Russia (GVSU SK). The investigators found that real estate in Moscow and other regions of Russia in the books of JSC Oboronservis were sold at deliberately low prices, causing more than 3 billion in damages to the state.

The searches started on Thursday. According to news reports, the investigators first visited the home of the former head of the Department of Property Relations of the Ministry of Defence, Evgenia Vasilyeva. 33-year-old Ms Vasilyeva is considered to be the closest associate of Minister Anatoly Serdyukov. Moreover, Serdyukov was present during the search at his former subordinate's home.

According to investigators, officials of the Ministry of Defence were picking out from the property complex of Oboronservis the most marketable and prestigious objects and sites. Then, huge amounts of budgetary funds were being pumped in these properties, after which the property was being sold at significantly reduced prices to commercial entities.

The investigators cite several deals. For example, “in the Temryuk district of the Krasnodar Region the officials of the Department of Property Relations of the Ministry of Defence, which is headed by Evgenia Vasilyeva, first illegally seized from the federal government and leased to subordinate enterprises land plots of more than three hectares. Next, at the expense of the Ministry of Defence a suburban residential complex worth more than RUB 300 million was constructed on that land plot. And later, the site was sold for only RUB 92 million [1]”. Similar transactions were carried out in Moscow, where they sold buildings and land plots formerly owned by Soyuz Hotel, an enterprise subordinate to Oboronservis, as well as by the General Directorate for Troops Accommodation and the State Design Institute for Special Construction. Analysing the financial and accounting reporting of these enterprises, Novaya Gazeta learned the details of these transactions.

Soyuz Hotel, located on Universitetsky Avenue, is a subsidiary of Lefortovo Hotel Complex, which is a part of Oboronservis structure. Information about the sale of Soyuz Hotel can be found in the reports of Lefortovo for 2010. On September 13, 2010, the board of directors discussed the sale of the land with a building located thereon, to a Business-Invest LLC. Whether intentionally or not, the identity of the buyer was not specified, so finding out among many dozens of companies having the same name the company which bought the building and the land is a tough job. The deal amounted to RUB 600 million, which is one and a half times cheaper than the market value, as believed by the investigators. But the story does not end there. The explanatory note to the financial statements of Lefortovo said that in connection with the liquidation of Soyuz Hotel, the company had fired 80 people, for which purposes a reserve of RUB 3.6 million was formed, to provide severance pay.

Still, it doesn't end there either.The decision to sell the building and the site on Universitetsky Avenue was taken by the board of directors on September 13, 2010, and a month later, on October 15, the same board of directors decided to rent the same building from the same Business-Invest LLC for RUB 3 million a year. What we have in the end is this kind of scheme: the Ministry of Defence officials sold a building to a commercial enterprise for a much lowered price, fired 80 people whom they had to pay RUB 3.6 million in severance pay, then a month later rented the same building from the same commercial enterprise for RUB 3 million. Persons responsible for the scheme: Alexander Elkin, General Director of JSC Slavyanka; Lev Vinnik, Advisor to the Minister of Defence; Denis Vasilyev, Head of the Department of Property Relations of the Military Department; Denis Duchkov, Deputy Head of the same Department; Sergey Shtykulin, Deputy General Director of JSC Oboronservis (all of them from June 2010 to June 2011 were on the board of directors of Lefortovo Hotel).

In March 2011, Lefortovo Hotel Complex made another interesting real estate deal. On March 23, the board decided to sell the premises of 149 square meters located at 22/1 Rublevskoe Highway. The transaction amount was not specified, but in the cash flows statement for 2011, under “Proceeds from Sale of Non-current Assets”, stands a sum of RUB 23 million. The property was bought by Karamella Company. According to the Russian Register of Legal Entities, this company is owned, in equal shares, by Alexander and Natalia Kolesov, whose names match the names of the former chief of the Centre for Orders and Deliveries of Material and Technical Supplies of Logistics Services of the Armed Forces of the Russian Federation and his wife.

State Design Institute for Special Construction, subordinate to the Ministry of Defence, is located in the centre of Moscow in Smolensky Boulevard. The Institute's statements for 2011 state that on August 03, 2011, they made a deal for the sale of real property (complex of buildings located at 19 Smolensky Boulevard, buildings 1, 6, 11) to a Teorema LLC. As was the case with Soyuz Hotel, the identity of this Teorema LLC is not indicated, so at this point it's difficult to find out who is behind this company. The transaction price was USD 1.6 billion, which, according to the investigation, is significantly below the market value. Financial statements for the same period show that in early 2011 the buildings were still on the balance of the Institute, and by the end of the year next the line “Buildings” is blank. Which pretty much means: the Institute is still there, but the buildings in which it was located aren't there any more. Persons responsible for the deal: Evgenia Vasilyeva, at that time Head of the Department of Property Relations of the Ministry of Defence; Natalia Dynkova, Director of JSC Agroprom, subordinate to the Ministry of Defence; Elena Kalnaya, Head of a division of the Department of Property Relations; Anton Balanovsky of the same Department; Dmitry Maltsev, Deputy General Director of JSC Oboronservis (all of them, at the end of 2011, were on the board of directors of the Institute).

After the Defence Ministry officials had sold the building, owners of the Institute changed as well. In late 2011, 70% of the shares of the Institute were acquired by VitaProject LLC. This company has an interesting history. Until 2012, it belonged to Expert Center for Legal Support, founded by Ekaterina Smetanova from Saint Petersburg. In the media, Ms Smetanova was called a good friend of the former Head for the Department of Property Relations of the Ministry of Defence Evgenia Vasilyeva. However, in early 2012, Ms Smetanova was having some problems. As reported by Kommersant, she was involved in a criminal case, connected precisely with the sale of property of the Ministry of Defence. According to the investigators, Ms Smetanova had promised to sell to a certain businessman the building of a military commissary (Voyentorg) in Samara, at a significantly lowered price, getting from it a cut of RUB 18 million. She was arrested in the moment of receiving the bribe, but was soon released on her own recognizance. After all this trouble, Expert Centre for Legal Support has changed its name and owners. However, judging from the transaction with the State Design Institute for Special Construction located in Smolensky Boulevard, all these changes were purely formal. Especially since the Ms Smetanova's former company today is located at 19/1, Smolensky Boulevard – the very same building that housed the Institute and was sold so cheaply.

After VitaProject, 29.9% of the Institute were bought by JSC Sosnovoborelektromontazh. This company is a part of Titan-2 Holding, which is controlled by the family of the former Deputy Defence Minister and the current manger of Spetsstroy, Gregory Naginsky.

JSC GUOV (former General Directorate for Troops Accommodation, which was reorganized into a joint-stock company, who is a top contractor for construction of housing for military personnel) is located in the centre of Moscow at 30, Bolshoy Predtechensky Lane. According to the investigators, this building was also sold to a commercial entity with a generous discount. No information about this deal was found in the statements of the company, but what we do know is the fate of this building.The financial statements of JSC Oboronstroy for 2011 indicate that the company rents the premises located at 30, Bolshoy Predtechensky Lane for RUB 16.8 million. Apparently, here they've used the same scheme as with Soyuz Hotel: the building was first sold very cheaply to a commercial enterprise, then, rented from the same enterprise.

This is not the only interesting deal of the General Directorate for Troops Accommodation. In its 2011 statements JSC GUOV reported that in January-February 2012 it sold real property (buildings and land plots), previously owned by its construction branches: KZhBI (Reinforced Concrete Plant) No. 211, TsIL (Central Measurements Laboratory) No. 458, KZhI (Reinforced Concrete Plant) No. 162, Baltic Military Construction Department, PK (Production Facility) No. 55. Total value of the deals amounts to RUB 2.5 billion. All the real estate was bought by a company Investstroy-15, which belongs to Sergei Khudyakov and Nicholai Avdeev. This company was already a subject of claims of the Audit Chamber. According to the inspectors, Investroy-15 was receiving contracts from JSC GUOV and then entering into contracts for the same work with the branches of the same JSC GUOV. Thus, all the work was actually performed by employees of the General Directorate, and a large brokerage margin was taken by the commercial entity.

Right now it is difficult to assess whether the price of RUB 2.5 billion for the property sold to CJSC Investroy-15 was particularly fair. But there is another thing that we do know. Financial statements of JSC GUOV for 2011 state that due to the sale of property complexes of its branches, these have ceased their activities, and most of the production staff was fired. How many people worked in the sold branches? Judging by the statements of JSC GUOV, 1,650 people, as of 2010.

On the day when the investigators raided and searched the houses of Anatoly Serdyukov's subordinates, the Defence Minister met with Vladimir Putin. The President instructed him to assist the investigation. We will be monitoring how Mr Serdyukov is fulfilling this order.