On July 24, 2020, the Main Investigation Department of the National Police of Ukraine initiated a pre-trial investigation in the criminal proceedings on the fact of committing large-scale fraud by officials of LLC “Stark Shipping”. The point at issue is forging documents (accounts) and embezzlement of shipowners’ monetary assets.
Information on fake accounts was disseminated by LLC “UKRFLEET-SERVICE”, which director Ruslan Babikov was interviewed by us to find out the details and make a coherent picture of what was happening.
DISBURSEMENT ACCOUNT-Ruslan, please tell us how it all started?
On May 15, 2020, the founders of LLC “Ukrflot-Service” began the company liquidation procedure by way of submitting to the state registrar an official
decision formalized as the Minutes on liquidation in accordance with Article 105 of the Civil Code of Ukraine. As far as I know, this decision was taken in connection with the restructuring of the business, while preparations for the liquidation procedure began much earlier. In the professional environment of the companies which provide towing services,
both the process and the result of the restructuring are well known.
One of the main and most labor- intensive preparatory stages of the liquidation procedure was the audit of the company’s activities over the past few years. We engaged a large specialized audit company for this purpose. As a result of the audit, we received a number of small comments, for the elimination of which it was necessary to clarify some data. These included data related to various kinds of reconciliation reports, invoices, reports of the services rendered, etc.
I will not go into details of our long-running correspondence with clients and shipowners. The bottom line is that, as a result, we received from one
of the shipowners (DS Norden, a global operator of the bulk and tanker fleet with a total capital of about $ 2 billion), primarily, disbursement accounts, in which we first noticed inconsistencies, and then ALLEGEDLY our accounts, where we saw the amounts of payment for the towing services rendered by us, which significantly differed from those indicated in
our invoices and in the reports of the services rendered, drawn up with LLC “Stark Shipping”.
And you immediately realized that there is foul play here?
No, of course not. Firstly, we immediately began to reconfirm and analyze the data which we received, it took us a certain amount of time for all sorts of reconciliations, etc. Secondly, although all signs pointed to the fact of deception, we could not believe in such a blatant deception, all the more so, because it was STARK SHIPPING, an active member of MACN (Marine Anticorruption Network). And it was only when the shipowner provided
us with invoices for all 11 vessels, which we had served over the past six months, that we had a real epiphany.
None of the invoices provided by the shipowner coincided with those which had been issued by us to LLC “Stark Shipping”!
Our first reaction was shock and serious fright. Just imagine: we suddenly found ourselves to be almost accomplices in some scheme we did not understand ourselves, and at the same time, the most powerful global shipping company which can afford the best lawyers in the world was the victim!
We immediately wrote to the shipowner a letter with the notification that NONE invoices sent to us by them had never been issued by us. And they
offered to coordinate our actions in the further investigation of this incident.
After that, on July 21, 2020, our company LLC “Ukrfleet-Service” distributed an open letter with attached copies of genuine and falsified invoices.
-We wrote and distributed among the maximum number of shipowners an open letter, in which we informed them that we had revealed the facts of falsification of invoices. In support of this information, several original invoices issued to the agent and corresponding falsified invoices, which had been issued to the shipowner by the agent of LLC “Stark Shipping” were published.
A LITTLE ARITHMETICS-The amount of damage was announced 76,000 USD. Can you explain what this figure is and where have it come from?
-This is the difference between the total amount of all invoices which we issued to STARK SHIPPING and the total amount of falsified invoices which the shipowner sent to us and which it apparently received from the STARK SHIPPING agent. We checked the invoices relating to 11 vessels we served in 2020 and all invoices relating to all vessels contained overstated amounts. On average, the discrepancy was about 7,000 USD per vessel, and the total was about 76,000 USD for 11 vessels. This information relates to one shipowner, and only for the first half of 2020.
It should be noted that after the incident had been made public, our company received a lot of requests from other shipowners containing demand to check their accounts too. This is a colossal amount of work
which was not scheduled by us, therefore, on July 24, 2020, we arranged access for the shipowners to the reports of the services rendered and the invoices issued to STARK SHIPPING in 2019-2020 so that they could check them on their own.
-Has it already become possible to assess the scale of falsification and loss of shipowners?
-There are no exact data yet, but it is already possible to give a preliminary estimate and get an approximate idea of the scale of fraud. On each of
the DS Norden vessels, the agent overestimated the disbursement by an average of 7,000 USD. The total number of vessels provided with towing services in 2019 and 2020 at the request of this agent is 119 vessels. Well, in total, everyone can figure it out for themselves …
However, all these are just assumptions, and only preliminary ones. It will be possible to state some definite facts only according to the results of the investigation. STARK SHIPPING works as a shipping agent not only in Chornomorsk, and, perhaps, a lot of interesting things lie ahead.
In the near future, everything will depend on the information provided by other shipowners involved. It is possible to clarify whether there were any other facts of manipulation only on the basis of an analysis of their disbursement accounts.
Christian Vinther Christensen, head of DS Norden’s Dry Cargo Department, voiced the company’s position on the incident for the online publication ShippingWatch:
«They made some false invoices, and we have pretty strong evidence of that,» «They just list a different figure. Otherwise they’re exactly the same. It’s so deceitful. We’re pursuing this as a criminal case through our lawyer in Odessa.» «In the long term, customers end up paying when corruption
is taking place. Our customers are pleased that we have an aggressive approach to it. There are many others involved. I think that one can expect an uncovering of various things down there, and we’d like to take part in that. It’s in our interest,» «We have indications that they’ve started to transfer funds from (…) to another company. But we’re quite hopeful. One thing is to get the money back. Another is that we want to set an example. You don’t do this to Norden or Ukraine. Ukraine is in the midst of a fairly
big transformation, and its president has openly stated that it will fight corruption. We need to take part in that,» «That’s also why we’re reacting strongly to this. It’s very unheard of. We have every interest in ensuring
transparency, and we have a zero- tolerance policy toward fraud and corruption.»SLEIGHT OF HAND AND … YES, NEVERTHELESS, IT IS FRAUD-How could it happen that such a massive overstatement of invoices remained unnoticed for so long?
-A loophole, thanks to which manipulations with invoices became possible, was the discount which LLC “Stark Shipping” received officially, under a
contract for the provision of towing services. Moreover, we provided both a discount for the current tariff and an additional discount for overtime. From the documents which the shipowner sent us, it is clear that the shipowner was invoiced without taking into account all the discounts granted. It is still impossible to determine how STARK SHIPPING kept this discount for itself, since we do not know where the ship owner’s funds were actually transferred to when it paid the disbursement account. It is possible that some non-resident companies were used. For example, we know from open sources that there is a company bearing the same name registered in Latvia — Stark Shipping SIA, 40203144443, Latvia, as well as Stark Shipping Limited registered in the British Virgin Islands. The founders of these companies are the same persons as in LLC “Stark Shipping” in Ukraine.
“RESPONSE”— Nonetheless, STARK SHIPPING responded — on Facebook. First on the 23rd and then on the 28th of July. Can you comment?
— As we expected, all they could answer was to declare that it wasn’t their fault, and that we should not be trusted, since the company is in the process of liquidation.
But none of their attacks on our reputation in any way explains where the falsified invoices came from. We wrote about this in our second open letter — there are only three questions which make practical sense in this situation:
— who falsified the original invoices for the client;
— who overstated the cost of the service;
— into whose accounts the money was received.
I am sure that the investigation will be able to answer these questions.
— However, in fact, LLC “Ukrfleet-Service” has actually been liquidated for the moment.
— I started with this question. I can add that at leasttwo months and five days are provided for under law as liquidation period, from the beginning of the official liquidation procedure until its end, and in the process it is necessary to undergo a number of checks. We conducted a preliminary internal audit, underwent all inspections and successfully completed the liquidation procedure at the end of July. The only connection of these events with the story related to STARK SHIPPING is that, in fact, the liquidation procedure helped to reveal the facts of falsification.
Since it was me, whom the founders offered to become the head of the liquidation commission, and I gave my consent to this, then the originals of all the necessary documents which have not been placed in the archives will be kept by me for 3 years. They will be available and, obviously, will be provided to the investigation, to the court or other interested parties in the legal process on the basis of their legal requirements.
— What about the tender which STARK SHIPPING mentions in its publications?
— The story of thee tnder is rooted in the situation related to the Nikolaev sea port. The company “STARK SHIPPING” is the exclusive agent which serves the BUNGE terminal in the Nikolaev sea port. From April 1, 2020, the STARK SHIPPING agent began to work with the towing company LLC “Nik Flot”, registered on February 7, 2020, with an authorized capital abt. $200USD, & the director who changed its name three times for the 32 years. The same person is a director in other related companies “Vega Shipping” & “Ukrainian Tug Company” with the same capital & assets of about $200 USD having 5 month history & 0 tugs.
On July 17, 2020, two tugboats – “Diamond N” and “Topaz N”, which had been earlier used by this company in the Nikolaev sea port, arrived at the Chornomorsk sea port. And as early as on July 18, 2020 STARK SHIPPING issued a tender for the provision of towing services in the water area of the Chornomorsk sea port. Naturally, one gets the impression that the tender was issued specifically for the LLC “UTC”. The only purpose was to formalize the work of its intermediary enterprise in the Chornomorsk sea port.
As far as I know, the towing companies which operate in Chornomorsk sea port – the CMTP port fleet, BLAST, P&O — did not participate in this tender, since it is not difficult to predict the result of the “transparent tender” with incomprehensible conditions.
In addition, I would like to draw Your attention to the fact that the customer of the towing services is, in fact, the shipowner (with all due respect to the agency companies). On what basis does the agent conduct tenders at the port? Why, in this case, the agent does not hold tenders for agency or pilotage services? I want to say that it is completely unacceptable to use your monopoly position as a terminal agent, from which the shipowner cannot actually refuse. But this, I suppose, is an issue to be investigated by the Antimonopoly Committee of Ukraine.
— The story of the tugboats in Chornomorsk looks quite ugly.
— Yes, and this is — to put it mildly. If you follow the publications in the media, starting from July 17, 2020, one gets the impression that there is a well-defined group of companies which uses the administrative resource and the deputy corps in their own interests. And it presses with the tenacity of an asphalt roller on the management of the State Enterprise “Ukrainian Sea Port Administration”, the management of the USPA branch in the Chornomorsk sea port, the captain of the port and in general on everyone around, in order to “correctly” organize the provision of towing services in the port.
A simple example is a permit for anchorage of tugboats at the existing USPA berths in the Chornomorsk sea port. Previously, all towing companies were denied berthing at the port’s berths on the grounds that there are no berths for vessels in the port. But with exception for the tugs with which the company “UTC” works – for some reason, berths were found for them. And how do you like purpose of a tugboat call into the port, declared by the agent of LLC “Vega Shipping” in the notice – “registration of arrival”? It looks very eloquent, considering that the owner of all the mentioned companies is one and the same person.
With regard to the situation in the Nikolaev sea port on July 15, 2020, the Main Investigation Department of the National Police of Ukraine registered proceedings № 12020000000000679 under Article 364 Part 2 of the Criminal Code of Ukraine. In an extract from the register of pre-trial investigations, which was published on his Facebook page by People’s Deputy of Ukraine Geo Leros, it is stated that “the management of the State Enterprise “Ukrainian Sea Port Administration”, using their official position and contrary to the interests of the service, unlawfully provide advantages in making calls to the water area of the Nikolaev sea port to those shipowners, who use the services of LLC “Nik Flot”, LLC “Transship” and LLC “Stark Shipping”, which led to dire consequences.”
Don’t you think that a similar scheme is being implemented in the Chornomorsk sea port, in which officials of the USPA branch are involved?
And another question, the answer to which, I am sure, is of interest to many – who is behind the scenes of these companies, or, as they say, “protects” them? The press has already published dozens of articles on this topic with names and positions. I do not want to accuse anyone of anything unfounded, but there is the fact that a certain pattern in actions is present. I hope that the investigation will provide answers to all these interesting questions.
As for the tugboats “Diamond N” and Topaz N”, everything turned out to be quite “inconvenient” with them – information that the tugs, in fact, belong to Russia, became public and caused violent indignation. Protests and rallies of port workers, appeals to the Security Service of Ukraine, the National Security and Defense Council, the General Prosecutor’s Office . . . In relation to PJSC “Novorossiysk Commercial Sea Port”, in accordance with clause 7.13. of its Charter, the special right for participation of the Russian Federation in the management of this joint-stock company (“golden share”) is applied. In my opinion, the work of tugboats, which , in fact, belong directly to the state-military aggressor — Russia is like a slap in the face of all of us! I’m talking about the moral aspect, of course. The thirst for profit for officials who carry out someone’s orders, in favor of the newly-founded towing companies, is probably the basic instinct. What do they care about the thousands of dead and tens of thousands of ruined lives? The most cynical aspect of the situation involves the fact that, according to mass media information, the Ukrainian People’s Deputies are involved in the scheme. I don’t even want to further describe this absurdity.
ANALYTICAL REPORTFrom open sources it became known that the Russian tugboats “Diamond N” and “Topaz N” were temporarily imported into the territory of Ukraine by SE “Universal Towing Company” (USREOU 39537372), which is under the management of the group “Transship”: LLC “Transship”, SE “TRANSHIP”, SE “TRANSHIP BULK”, LLC “KRANSHIP”, LLC “Universal Towing Company” and others. These companies are usually registered at the same address and have the same telephone number for communication.This group of companies has repeatedly been involved in journalistic investigations related to the operation of enterprises in the occupied Crimea and operation of the tugboats of enterprises on the Kerch–Yenikale Canal. According to the company’s website, the company operates 14 tugboats, namely: Diamond N, Ariel, Yupiter, Topaz N, Hector, Siroco, Portoviy-101, Gepard, Tuman, Tornado, Pluto, Leon, Avant, Phoenix 1. According to the Automatic Vessels Identification System (AIS), the tugboats Ariel, Hector and Siroco are now in the waters of the temporarily occupied Kerch–Yenikale Canal, which is easy to see for yourself. Moreover, a significant number of tugboats, such as Siroko, Tuman, Tornado and Leon, are there under the Russian flag, which directly violates the requirements of Ukrainian law on non-recognition of the occupied territory and the prohibition of entry into the occupied ports. Also, the official website of the Shipping Register of Ukraine states that the owner of the tugboats is offshore company “HENFORD LOGISTICS LIMITED”, registered in Hong Kong. 100% of the shares of the company “HENFORD LOGISTICS LIMITED” are owned by PJSC “Fleet of Novorossiysk Sea Commercial Port”. Official statements on the acquisition of the company “HENFORD LOGISTICS LIMITED” were made publicly by the port of Novorossiysk back in 2010 (with the aim of “developing the towing business in new markets”). Today, part of these tugboats operate in the water area of the Mykolaiv sea port in close cooperation with the LLC “Nick-Flot”, and also the sea agent LLC “Stark-Shipping”. LLC “Nick-Flot” receives money for its services in Ukraine and pays to LLC “Cranship” for theuse of tugboats. Next, LLC “Kranship” transfers the money to SE “Universal Towing Company”, which in turn transfers the money for tugboats rental to the accounts of the Hong Kong company HENFORD LOGISTICS LIMITED, which is owned by PJSC “Novorossiysk Sea Trade Port”. It is clear that under such scheme, practically, nothing is paid into the budget of Ukraine, while monetary funds are directed to the actual shipowner of tugs — PJSC “Novorossiysk Sea Trade Port”. According to media reportsCONCLUSION— Thus, criminal proceedings are open, a pre-trial investigation is being carried out – can we hope that justice will prevail?
— We hope so. From the point of view of punishing those guilty in committing a criminal offense, there is hope for justice.
But there remains the question about deceived shipowners. We have now provided shipowners
with the access to our invoices so that they can verify them with their own versions of invoices and find falsified invoices. And, for sure, there will be a large number of shipowners who will find falsified invoices. However, seeking redress will be too difficult and troublesome task for many of them. Imagine a shipowner who is somewhere on the opposite side of the planet – how will they organize the process and defend their rights in such a distant and difficult country as Ukraine? Expensive, inconvenient, incomprehensible.
Therefore, we are now considering and discussing with lawyers the possibility of organizing and providing shipowners with something like a special service — legal assistance in defending their rights in this case. How this will happen in practice is not yet clear, but something needs to be done about it, because along with the shipowners, the image of our state has suffered.
I would like to stop at that. . . At least for now.
However, new alarm bells are already reaching the editorial office. It seems that the subject of the next investigation will be the personal ties of the top management of STARK SHIPPING with officials of well-known corporations-grain traders and terminals, whose employees used to impose LLC “Stark Shipping” as an exclusive terminal agent. Don’t switch!