Bombardier Transportation won a lucrative tender to install train signalling systems in Azerbaijan by keeping a separate set of books that concealed the presence of a Russian-controlled shell company from the World Bank, and ignored a whistle-blower who raised alarms, a Swedish court heard on Thursday.
The shell company, known as Multiserv Overseas, appears as a subcontractor on Bombardier's internal bid books for the 2013 contract, which were approved by senior Bombardier Transportation executives based in Sweden, Belgium and Britain.
But Multiserv Overseas, which appears to have made an $84-million (U.S.) profit in the deal, is not listed in the submission to the World Bank and the government of Azerbaijan from the Bombardier-led consortium that won the $340-million contract.
The Swedish court – where Bombardier employee Evgeny Pavlov is on trial charged with aggravated bribery in connection with the Azerbaijan deal – also heard that a whistle-blower at Bombardier Transportation Sweden sent e-mails to his superiors in Stockholm and Berlin last year outlining his concerns about Multiserv Overseas, but was ignored.
The whistle-blower, Fredrik Hellander, has since left Bombardier, and is listed as a prosecution witness in the case against Mr. Pavlov. In a transcript of his interview with police, Mr. Hellander, who worked for the company as a strategic buyer, says that Thomas Bimer, a vice-president and director of sales, told him Bombardier's relationship with Multiserv Overseas was "not something I [Mr. Hellander] need to worry about." Among those whom Mr. Hellander e-mailed about his concerns was Laurent Troger, the president of Bombardier Transportation, the Berlin-based railway arm of Bombardier Inc.
On Monday, The Globe and Mail asked Bombardier's media relations officials at corporate headquarters in Montreal about the status of Mr. Troger and Konstantin Khromushkin, head of Bombardier's representative office in Russia, who is also mentioned in court documents. Bombardier had not responded to the questions by Thursday.
While only Mr. Pavlov is on trial in Stockholm, Sweden's National Anti-Corruption Bureau has named five other employees of Bombardier Transportation Sweden as suspects.
The suspects include Peter Cedervall, president of the company's rail control solutions division.
Prosecutors say the trial is as much about Bombardier's corporate culture as it is about Mr. Pavlov's alleged actions. The evidence introduced in court points to the practices used in Azerbaijan being applied in deals across Russia and the former Soviet Union.
An internal Bombardier bid document that company officials refer to as the Blue Book is among documents submitted as evidence.
"We're saying one thing in the Blue Book, and the reality is something else. That is a little bit difficult to explain," Carolina Lonn, head of contracts and legal affairs at Bombardier Transportation Sweden, says in a Dec. 18, 2016, phone call to Mr. Bimer that Swedish police recorded. Ms. Lonn and Mr. Bimer are among those considered suspects in the case.
The conversation between Ms. Lonn and Mr. Bimer was one in a series of crisis calls among company executives immediately after the publication of a Globe and Mail investigation into Multiserv Overseas that found the company – a partner on more than 125 Bombardier transactions that went into Russia, in addition to the Azerbaijan deal – had no apparent business purpose, and a shifting ownership and management structure that involved overseas tax havens.
It is not clear whether anyone at Bombardier Inc.'s corporate headquarters in Montreal signed off on the Blue Book for the bid, which was approved on April 4, 2013 – one day before the formal bid was submitted.
The court redacted some parts of the Blue Book at the request of lawyers for Bombardier. Evidence about them was heard behind closed doors on Thursday, with media and the public barred from the courtroom.
"Bombardier denies any allegations that it acted improperly," company spokesman Simon Letendre wrote in an e-mail last week. "We take these allegations very seriously as they assert conduct that does not reflect our values or the high standards we set for ourselves. We are carefully reviewing the legal filings and support a complete accounting of all the facts and circumstances surrounding this project. As the legal proceedings are ongoing, we cannot and will not comment any further at this stage."
The company has not responded to follow-up questions about the evidence that has been made public in Sweden. Bombardier said in June that it had severed its six-year relationship with Multiserv Overseas, and had suspended Mr. Pavlov and Mr. Cedervall pending an internal investigation.
Multiserv Overseas was founded by in 2010 by Yuriy Obodovskiy, a man referred to in Bombardier internal correspondence as a key partner because of his access to Vladimir Yakunin, the former head of Russian Railways and a long-time confidante of Russian President Vladimir Putin. In a phone conversation recorded by Swedish police, Mr. Cedervall says Multiserv Overseas is now controlled by Alexey Krapivin, another associate of Mr. Yakunin.
Mr. Yakunin ran Russian Railways for a decade before resigning in 2015 amid allegations of massive corruption. Bombardier's relationship with Mr. Obodovskiy and Mr. Krapivin – who are frequently referred to simply as "The Partners" in Bombardier internal correspondence – appears to have continued until earlier this year.
Contracts read out Thursday in court show Multiserv Overseas purchasing sophisticated train signalling equipment – known as Ebi Lock 950s – from Bombardier Transportation Sweden for 126-million kronor, or about $20-million (U.S.) in January, 2014. Under a contract signed five months earlier, the same Ebi Locks were sold to Bombardier's Azerbaijan branch office, which was headed by Mr. Pavlov, for $104-million.
"It's not clear where this $85-million goes," co-prosecutor Staffan Edlund told the court, referring to the gap between the two prices.
The 46 Ebi Lock systems were always bound for Azerbaijan. Photos taken by World Bank auditors, however, show the signalling equipment arrived in Baku in boxes affixed with labels showing the Ebi Locks had been shipped straight from Sweden to Azerbaijan, without the detour via Moscow that the payments took.
The World Bank provided 85 per cent of the funding for the Azerbaijan project; the winning bidder was chosen by the state-owned Azerbaijan Railways.
One document not shown to the court, but revealed in last year's Panama Papers leak, is a transaction involving what appear to be 13 of the same Ebi Lock 950s bound for 13 of the same stations in Azerbaijan. In the deal, a company called Rambo Management – which the Panama Papers show is owned by Mr. Krapivin – sells Bombardier's signature Ebi Lock systems to Multiserv Overseas for $23-million.
Bombardier told The Globe and Mail last year it has never had any business relationship with Rambo Management, and could not explain how Rambo came to be selling its products – at least on paper – to Multiserv Overseas.
The evidence presented in Stockholm also sheds light on Bombardier's business practices not only in Azerbaijan, but also in other parts of the former Eastern Europe and Central Asia.
Company documents show that Multiserv Overseas was also involved in multiple continuing Bombardier projects in Russia and Mongolia.
Five other companies referred to as belonging to "The Partners" are involved in Bombardier projects in Russia, as well as the former Soviet republics of Kazakhstan and Turkmenistan.
The World Bank is separately auditing the awarding of the Azerbaijan deal. An interim report by the World Bank's anti-fraud unit (included in the 3,163 pages of evidence submitted to the Stockholm court) also names Mr. Khromushkin as one of five Bombardier employees who "appear to be directly involved in the collusive and corrupt arrangements," along with Mr. Pavlov, Mr. Cedervall, Mr. Bimer and Johan Oldhoff, who is director of sales at Bombardier Transportation Sweden.
If the findings of the interim report are upheld in the final version, it would deal a damaging blow to Bombardier's struggling rail division. If the company is found to have employed corruption or collusion in its Azerbaijan bid, it would be expelled from the contracts and automatically barred from competing for future projects funded by the World Bank, which subsidizes many infrastructure works in the developing world.
Mr. Pavlov's trial is focused on the Azerbaijan deal, and specifically Mr. Pavlov's alleged role in helping put together a consortium that involved an Azerbaijani partner company, Trans-Signal-Rabita, that prosecutors believe was invented specifically for the bid, with a business history that was fabricated to meet World Bank requirements.
The director of Trans-Signal-Rabita is Rafiq Gulmaliyev, a former Azerbaijan Railways official. The court was shown that Mr. Gulmaliyev exchanged e-mails with Mr. Pavlov about the World Bank contract – and Bombardier's chances of winning it – before the formal tendering of the bid, and while he was still working at Azerbaijan Railways.
Lead prosecutor Thomas Forsberg told the court Mr. Pavlov colluded with officials at Azerbaijan's state railway to obtain the details of the Azerbaijan contract – including the size of the budget, as well as the specifics of the World Bank requirements – long before they were officially made public. In e-mails from December, 2012, Bombardier employees in Sweden and Russia discuss an attached document that closely resembles the formal call for bids that was not published until two months later.
"Bombardier, Evgeny and his friends had access to the bidding documents long before they were public," Mr. Forsberg told the court while Mr. Pavlov sat listening to the case against him via a Russian translator.
That advance knowledge of the details of the tender allowed Bombardier to craft a bid that fit the World Bank criteria while pressing right against the ceiling of the project's $340-million budget, Mr. Forsberg said.
The Bombardier-led consortium won the contract with a $339-million bid, the fifth-cheapest of eight bids submitted. French competitor Alstom, meanwhile, likely eliminated itself by overshooting the target with a $380-million bid.
The Czech firm AZD Praha, which submitted the lowest bid, at $288-million, was disqualified by Azerbaijan Railways because of "commercial and technical deviations." Upon being notified that it lost, it sent a letter to the World Bank alleging that employees of Trans-Signal-Rabita had been simultaneously working at Azerbaijan Railways.
Mr. Pavlov's lawyer, Christina Berger, said her client denied taking part in any illegal activity. The defence will make its opening statement next week.