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. Last Updated: 07/27/2016

The Mob, an Actress and a Pile of Cash

Three Romanians with no business experience and an Israeli with alleged mob ties register a trading company in a Hungarian village. Before the company is even legally formed it is granted the rights to transport billions of dollars' worth of natural gas from Central Asia, across Russia, to Ukraine.

These shareholders are, at least on paper: an actress hoping to earn money to pay her phone bill; a nurse; a computer programmer; and an alleged associate of a Ukrainian-born crime lord who is on the FBI's "most wanted" list for money laundering, racketeering and fraud.

Linked to the same mobster, according to the Russian government, is the head of the new company, Eural Trans Gas, which stands to gain about $1 billion a year in pre-tax profits that could have gone to Gazprom.

Sound dodgy? For Gazprom's minority shareholders, the tale just gets worse.

Not only has the world's biggest gas company let the little Hungarian operation take over a lucrative export channel that it had pledged to regain control over, it has also been supporting it with almost $300 million in loans and guarantees.

The gas giant, according to its own financial statement for the first half of 2003, is the guarantor of a $227 million loan to Eural TG from state-owned Vneshekonombank. On top of that, Gazprombank, which is 100 percent owned by Gazprom, loaned another $70 million to the company, according to a list of the bank's 10 biggest borrowers obtained by The Moscow Times.

Investors thought Gazprom management had put an end to such practices. When President Vladimir Putin put a loyal lieutenant, Alexei Miller, at the helm of the gas monopoly back in 2001, Miller vowed to liquidate the murky schemes used by former management to siphon off up to $3 billion a year from the company.

Miller regained most of those lost assets and eliminated a lot of the murky trading deals that mainly benefited Itera, an octopus-like structure based in Florida and widely believed to be tied to the old management team.

But Miller failed to retrieve one of the biggest channels -- the sale of gas from Turkmenistan to Ukraine. Instead of wresting it back from Itera, as he said he would, it has been turned over to Eural TG.

Investors say Gazprom's financial aid to Eural TG appears to point to closer connections between the two companies than Gazprom is willing to admit. They say it is a clear sign that having managers loyal to the state does not necessarily mean greater transparency.

"Gazprom's support for Eural Trans Gas does not make business sense," says William Browder, the head of Hermitage Capital Management, which owns shares in Gazprom.

"One has to question the management's motives. None of their current arguments make sense to us," he says. "It does not seem in line with Putin's law-and-order campaign."

Putin's crackdown on corruption and the jailing of Yukos founder Mikhail Khodorkovsky on charges of fraud and tax evasion to the tune of $1 billion are seen as part of a Kremlin campaign to gain greater control over the oil industry.

"The creation of Eural Trans Gas is comparable to what Gazprom did with Itera, which ultimately led to Putin's dismissal of the previous management team," says Vadim Kleiner, Hermitage's director of research.

Others say turning over the Turkmen-Ukrainian operation to Eural TG is even more outrageous than letting Itera take over Gazprom markets in the former Soviet Union.

"This would not be the first time Gazprom has created its own competitor," says Valery Nesterov, energy analyst at Troika Dialog. "But at least Itera is more solid, has its own reserves and extracts gas. Eural TG is just a trading firm that at best can be called shady."

According to a copy of company documents obtained by The Moscow Times, Eural TG was launched with just $12,000 in start-up capital.

The Deal

The contract appointing Eural TG the agent for transporting 36 billion cubic meters of gas per year from Turkmenistan to Ukraine was signed by Gazprom deputy chairman Alexander Ryazanov on Dec. 5, 2002, according to company documents.

Eural TG was registered in Hungary on Dec. 6, 2002.

In return for its services, Ukraine is obliged to pay Eural TG 38 percent of the value of the deal, or 13.7 bcm in gas, according to Naftogaz Ukrainy, the Ukrainian gas monopoly that is paying Eural TG under the deal.

Now that Eural TG is beginning to export gas from Ukraine -- it already has one contract under its belt to sell Poland 2 bcm by July 2004 -- it is on track to post a pre-tax profit of more than $1 billion a year if it can export the rest of the gas Ukraine pays it, even after paying Gazprom $450 million in annual fees for the use of its pipeline network.

Gazprom says it was forced to give up the trade deal and bow to the wishes of its Ukrainian counterpart, which, it says, insisted that if Itera had to be replaced, the new agent had to be Eural TG.

Gazprom says its $227 million loan guarantee is designed to give it leverage over Eural TG's trading deals because it is collateralized with the gas Eural TG is being paid with.

But Naftogaz Ukrainy says that Eural TG is Gazprom's creation all the way. "All the agreements with Eural Trans Gas were made by Gazprom," says Naftogaz spokesman Konstantin Borodin. "It is a contractor for Gazprom."

The Mobster

Reports that Eural TG is linked to notorious Ukrainian-born organized crime lord Semyon Mogilevich, whom the British government has dubbed "one of the world's top criminals," are starting to haunt Gazprom.

"The ownership of this company is a dark story and it smells bad," says Troika's Nesterov. "Potentially this is very dangerous for Gazprom."

The respected publication Jane's Intelligence Digest was the first to blow the whistle on the company's relationship to Mogilevich.

In January, the magazine said that it had "uncovered links" between Eural TG and Mogilevich, pointing out that Eural TG and a company tied to Mogilevich and headquartered in Cyprus called Highrock Properties share the same Budapest address.

According to Jane's, one of the directors of Highrock Properties is Igor Fisherman, who was indicted in America earlier this year along with Mogilevich for allegedly fleecing investors out of more than $150 million in a fraudulent stock scheme. A U.S. federal court charged them with 45 counts of racketeering, securities fraud, wire fraud, mail fraud and money laundering.

Highrock Properties' address in Israel is reportedly the same as the address of one of Eural TG's four owners, the Israeli Zeev Gordon, who, according to a copy of company filings with the Hungarian Registration Chamber, is registered as living at Tel Aviv, 35 Shaul Hamelech Street, America House.

None of these allegations could be confirmed independently, but a copy of a letter written to Interpol by Russian Interior Ministry Major General A. P. Mordovets links the head of Eural TG, former Hungarian Education Minister Andras Knopp, to Mogilevich. Mordovets told Interpol in the letter, a copy of which was obtained by The Moscow Times, that Knopp helped Mogilevich create a cigarette smuggling ring in the 1990s.

The letter, which was written in 1998 when Knopp was a vice president at major German cigarette maker Reemtsma, says Knopp supported Mogilevich's appeal for Hungarian citizenship. It says Mogilevich introduced Knopp to members of the Russian government responsible for the cigarette business. It alleges Mogilevich "threatened to kill" an individual who was disrupting their smuggling operation.

German investigators began looking into Reemstma's possible involvement in cigarette smuggling in 2000, but no charges were ever filed.

Knopp's assistant said he could not be reached for comment, but in an interview with the Kyiv Post earlier this year, Knopp confirmed Eural TG did business with Mogilevich-linked Highrock Properties. He denied, however, any ties with Mogilevich himself.

"I have never seen or heard Mogilevich on the premises of Eural TG, though he is obviously always with us because unsubstantiated news reports make the claims regularly," he told the Ukrainian newspaper. "We are not hiding from anyone. We are absolutely legal, available and ready to answer questions."

Nevertheless, the reports of ties with organized crime were compelling enough to attract the attention of the U.S. State Department. In May, the then U.S. ambassador to Ukraine, Carlos Pascual, lashed out at the Gazprom-Naftogaz-Eural deal and expressed concern about the latter's links with organized crime.

Phone Bills

Apart from Gordon, the other three registered shareholders of Eural TG appear to live pretty much in poverty. According to a copy of the latest company filing with the Hungarian Registration Chamber, as of Nov. 21, Eural TG's other owners are three Romanian citizens -- Anca Negreanu, Mihai Savu and Louise Lukacs -- who live in the town of Cluj-Napoca. The ownership structure has not changed since the company was established last December.

A Romanian investigative reporter, Paul Radu, who works for the Jurnalul National, a Romanian newspaper, visited these three Eural TG "owners" in their homes.

"Anca Negreanu and Mihai Savu are a young couple in a pretty bad financial situation," Radu wrote in the paper in March. "They live in a room in Anca's mother's apartment. Anca is a nurse and also studies psychology. Mihai works for a computer software company in Cluj."

The three were contacted by a Hungarian lawyer named Karl Ferenc who was a friend of the other Romanian shareholder, actress Louise Lukacs, and told them they could make some money if they traveled to Hungary to register as the official owners of Eural TG, he wrote.

"Karl Ferenc called me. He is an old and trusted friend. He told me to enter this business," Lukacs was quoted as saying. "I accepted and I hope I will get some money out of this. At least to cover my phone bill. I have to pay more than 1 million lei [$34] every month for the phone. I don't know what exactly it is with this business. You better ask Karl."

Attempts by The Moscow Times to contact Ferenc were unsuccessful.

No Worries

Gazprom and Naftogaz brush off concerns over Eural TG's shareholder structure and allegations of its links to organized crime.

When asked why Naftogaz had decided to make three Romanians and an Israeli linked to organized crime major players on the geopolitical stage, at least nominally, company spokesman Borodin says simply: "Eural TG made the best offer and we took it. After working together for nearly a year, we trust the management of the company."

Both Naftogaz and Gazprom say they knew of no contacts between Eural TG and Mogilevich and that they are unconcerned by reports to the contrary.

"[These allegations] are important only if there are official charges brought against the leaders of this company," says Gazprom spokesman Sergei Kupriyanov. "Khodorkovsky is right now sitting in prison and Yukos continues to work."

Though Gazprom and Gazprombank are now backing the company with nearly $300 million in loans, Kupriyanov says the company's shady ownership structure is of no concern either.

"We understand that this is not the most transparent company in the world. But we have no choice," he says. "If we buy the company, then we will do the due diligence. But if we are lending to it, then we demand collateral."

Blaming Each Other

Gazprom has already tried to buy the company. When news of the Eural TG deal first broke, Gazprom tried to wave aside investors' concerns by saying it and Naftogaz were each about to buy 50 percent of its new broker. That way, it said, it could get a share of the transit fees.

But those talks broke down over the summer and have not been renewed. The two sides blame each other.

Gazprom blames Naftogaz for refusing to allow it into the venture on a parity basis. But Naftogaz says the buyout fell through because Gazprom's ownership of companies already based in Hungary would have made Eural TG ineligible for the offshore status and the associated tax breaks it now enjoys.

"If Gazprom wanted to take the business away from Itera it had to compete," Borodin says. "You can only do this through an offshore company. Itera was an offshore company."

Borodin says if Gazprom becomes the sole transit agent it will have to pay greater taxes in all the states through which gas is transported.

Gazprom says its hands are tied, and that "certain moments in our relationship [with Naftogaz] go beyond commercial relations."

Gazprom says an intergovernmental agreement good through 2006 means it cannot attempt to force its way into a deal by threatening to turn off access to its pipe network.

"There are a lot of conflicting interests," says Kupriyanov. "We want to supply gas ourselves. They want to do it independently. We are dependent on them for transporting gas to Europe. They have large debts to us, and so on."

Kupriyanov says if Gazprom tries to push Eural TG out Ukraine will retaliate by raising transit fees for Russian gas heading to Europe.

"The security of our supplies to Europe depend on Ukraine. We can be hit with fines if the gas does not get through," Kupriyanov says. "It makes no sense for us to break our heads trying to get in on this deal."

Western Rivals

In an ironic twist, Gazprom's funding of Eural TG may just fatten it up for a Western rival eyeing a way to break into Gazprom's monopoly on exports to Europe from the former Soviet Union.

British-based JKX Oil & Gas, which already has stakes in a number of Ukrainian oil ventures, has been trying to buy part of Eural TG together with a company called Benam Holdings since July, according to JKX.

JKX company has several heavy hitters behind it, including former British Trade and Industry Minister Peter Fraser and controversial Swiss tycoon Bruce Rappoport, who has close ties to the Israeli government.

JKX, for now, says it cannot say what Benam Holdings is. A web search for the company also came up with no results. Like Gazprom and Naftogaz, JKX says it is not worried about Eural TG's ownership structure, adding that any future deal will be conducted in the interests of its own shareholders.

Shrugging Crusader

Boris Fyodorov, the independent Gazprom board member whose crusading against the monopoly's relationship with Itera nearly landed him in jail, says he's prepared to give the new Gazprom management the benefit of the doubt on Eural TG.

"Fighting Ukrainians today can be more costly -- it is Ukrainian gas," he says.

"Neither I nor any of the other directors like the situation. But the general position is not to fight Ukraine."

Fyodorov told a conference call with concerned investors Wednesday that he had raised the issue at a meeting Friday with Gazprom CEO Miller and was told that Eural TG "is purely a Ukrainian effort."

He also said Economic Development and Trade Minister German Gref wants to raise the issue with Gazprom management, as do investors.

"Gazprom's explanations have not cleared the matter up for investors," Troika's Nesterov says. "Instead, what they've heard has worried them. We would like a clearer explanation from Gazprom on why and how this company was created."

According to Fyodorov, Eural TG's relationship with Gazprom will be terminated when a new gas supply contract between Gazprom and Turkmenistan comes into effect. But that will not be until Jan. 1, 2007.