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. Last Updated: 07/27/2016

Prosecutors Probe Weapons Exporter

The Prosecutor General's Office has notified arms-export giant Rosoboronexport of large-scale financial violations by its main predecessor, Rosvooruzheniye, involving nearly $40 million worth of OVVZ government bonds

Some observers saw the move as an attack against Rosvooruzheniye's former chief Alexander Kotyolkin.

The prosecutors' letter to Rosobor-onexport was based on an Audit Chamber report released last year that said Rosvooruzheniye's former management illegally entered the bonds into the charter capital of a fully owned Rosvooruzh-eniye subsidiary called RVS Investment Co. RVS was set up in 1994 under Rosvooruzheniye's department for scientific and technical production, a source from the military-industrial complex said. The department handled deliveries of civilian technology, raw materials and other goods not directly linked to arms exports, and RVS, the source said, was used to carry out such contracts.

Initially, the OVVZs were on the balance sheet of Oboronexport, one of three companies on the basis of which Rosvooruzheniye was formed.

According to the Audit Chamber, Rosvooruzheniye also violated currency laws in transferring $1.2 million from the accounts of Oboronexport — which was being liquidated — to RVS. Furthermore, the auditors discovered an illegal transfer of OVVZs worth $1.13 million to a company called ZAO NIKO, an agent in paying Rosvooruzheniye's debts to the military-industrial sector.

A Rosoboronexport spokesman confirmed his company had received the prosecutors' notification and was instructed to rectify the situation within a month. The spokesman, who asked his name be withheld, declined to specify how his company would "rectify the mistakes" or whether RVS still exists. It is unclear who now holds the OVVZs.

The Prosecutor General's Office also noted some violations not turned up by the Audit Chamber report, Leonid Zhigalov, a chamber spokesman, said in an interview. For example, prosecutors accused Rosvooruzheniye of incorrectly drawing up an agreement to transfer OVVZs worth $12 million to MAPO Bank. Under the agreement, Rosvoor-uzheniye could not retrieve the bonds.

Karen Martirosov, the external manager at MAPO Bank, which has been declared bankrupt, said he knew nothing of the OVVZs, although he did acknowledge that Rosoboronexport is among the bank's creditors.

Some observers have said prosecutors' attention to the case may be linked to an attempt to strip Kotelkin of the last of his influence in the arms industry.

A source in the military-industrial complex speculated that the investigation could have been "ordered" by Kotyolkin's foes. At the time of the Audit Chamber probe, Rosvooruzheniye head Alexei Ogarev and Kotyolkin, who served as his adviser, were locked in battle with Deputy Prime Minister Ilya Klebanov and head of state weapons agency Promexport, Sergei Chemezov. The latter group enjoyed the backing of President Vladimir Putin, and their plan for reshuffling the industry won out.

"Kotyolkin ran the company at that time," he said. "And now the task is to completely eliminate his influence."