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Life of the company suspected of supplying equipment to Crimea

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A few months ago, Europe was shaken by yet another scandal involving probable supplies of dual-use goods to Crimea. The defendant in the affair was a Cypriot holding, whose Lithuanian subsidiary “Run Engineering” was suspected of supplying water purification equipment. A few months later, holding owner Marina Karmysheva has not received any proper explanation from the Russian counterparty company “Voronezh-Aqua” yet and decided to provide an exclusive update on the situation.

Marina Karmysheva is one of many Russian economists who left the country in the early 2000s. At that time, when store shelves were empty and the financial market was much less civilized than now, a professional with expertise in finance and law had a small chance of successful career.

“At the time of my departure from Russia, I had accumulated considerable knowledge of investment strategies, and I was sure that I could build a successful career in a European country or with foreign partners. The crisis of 1998 finalized my decision. Not long before the crisis, I had got to know some European partners in the fields of shipbuilding, cargo transportation, and construction, and saved funds for relocating,” says Marina. “I also began to think about starting my own business.” Sale of her property was Marina’s final break from Russia.

A life-changing opportunity came in 2008, when one of the large and long-established investment companies in Cyprus basically stopped all its activity. “The audit report, which I had reviewed before the deal, showed that all financial indicators had decreased by dozens of times. The company had neither turnover nor assets, but at the same time it had all the infrastructure: active accounts, recognized name and experience of work at the international level.”

Marina used the investment capital accumulated during the previous years of her work in Cyprus and the funds from the sale of her property in Russia to execute the deal at face value and to restart the company's activity. The sale of securities by Cyprus tax residents is tax exempt, which helps financial and investment companies of the country to quickly restore their turnover. Marina's company was one of them. “Historically, the group’s main activity has been investment in securities representing international business without a specific country orientation. While, for example, construction business is totally local in nature and is run exclusively in Cyprus,” says Marina. “Some time ago, in addition to securities trading, we started commodity trading (trading in natural resources) as well."

At the same time, work experience had shown the need to diversify the business. It shaped the foundations of the company's new strategy: investing a considerable part of profits from its operations in financial markets into projects in those areas of economy that have future fundamental value or innovative and social nature.

“Housing, water, electricity - these markets are subject to fluctuations like any others but tend to recover faster. I was looking for projects that would have stable demand. Besides, when the RLA group started engaging in construction projects, we were looking for ways both to ensure a stable supply of high-quality fresh water to our own facilities and to try this experience in the development of the water-supply infrastructure in general."

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This is how the idea of ​​investing in Run Engineering originated. At that time, the country was going through the harsh experience of the drought of 2008, when cities had no running water for days. Drinking water was delivered by tankers from Greece, it often got spoiled during shipment, and there was not enough equipment for high-quality purification treatment.

“This sad experience underscored the enormous value of clean drinking water and perspectives for this area of work all over the world. So, we decided to develop this business with emphasis on innovation,” says Marina.

The company's new focus has brought good results. Companies that pay over 30 million a year in taxes are considered significant everywhere.

However, Russian journalists’ suspicions have called into question 20 years of business.

“After the publications, we contacted the office of the company “Voronezh-Aqua” for clarifications but have not received any. It became evident that this company is defective not only in executing timely payments, but also in maintaining the European business tone. We are deeply disappointed with Voronezh-Aqua’s behavior and absence of reaction. The publications allege that the equipment has probably ended up in Crimea. And we hoped that Voronezh-Aqua would address these allegations.”

To protect its reputation, Run Engineering hired an independent law company that audited its documentation and confirmed that there had been no violations from its side. These clarifications were necessary for European partners and banks to continue cooperation.

“Russian journalists stated “probably,” “presumably.” However, we deemed it necessary to provide clarifications, audit results, and documents to all our partners,” says Marina.

Marina's partner companies say that the essence of the events has got distorted as they were being reposted by the Russian press. This made the Cypriot holding break its silence. “First, we turned to international and national experts. Now we are considering the possibility of a lawsuit against Voronezh-Aqua,” says Marina. Her company plans to pursue legal action for deliberate distortion of information.

If such a process takes place, it could become a precedent in relations between Russia and Europe. “And it will make Russian partners take on more responsibility in their relations with European companies,” comments Marina.

One of the questionable issues was the use of photographs of the company's industrial facilities on Voronezh-Aqua’s website. Specifically, it stated that an industrial facility located in Lithuania was the property of the Russian company.

Run Engineering found out about Voronezh-aqua’s claims that it runs an assembly shop within the European holding’s facilities from media publications. “I guess the company wanted to raise its status in the eyes of other clients, as I know that there are a lot of large Russian manufactures among them. And European equipment in this field is highly valued. Voronezh-aqua’s representatives participated in the technical workshops and project details discussions: ordinary part of work of engineers in the framework of such contacts; but no one would have allowed to present our facilities at another site as its own, it is simply unacceptable for us,” says Marina.

The European company was also unpleasantly surprised to find out that Voronezh-Aqua was not quite open about its plans for the further use of the equipment. “As a matter of fact, we still don't know where this equipment is and how fair the accusations are,” says Marina.

The incident with the equipment for water-purification systems resembles the situation with the supply of turbines several years ago, when the supplier company didn’t manage to obtain from the Russian legal system any clarifications and satisfaction on the intended purpose of the equipment and legality of its use in the temporarily occupied territory of Crimea.

The details of both cases are similar. Companies manufacture universal equipment that can be used both in factories and at municipal facilities, that is, wherever water is needed.

“The sale terms are standard: it is a detailed technical description of our equipment and methods of installation. At the same time, there are no mechanisms to control trade relations between the countries that would allow us to trace its use and whereabouts up to the destination,” says Marina.

Experience of Run Engineering has shown that in the context of sanctions against the illegal annexation of Crimea, international and intergovernmental regulations are essential. The ongoing conflict between Run Engineering and Voronezh-aqua is confirming it. “Following the prominent international events of 2014, we hired a team of lawyers with world renowned expertise in international relations. It is common in the business practice of companies that are even bigger than ours. At the same time, international expertise seems to be insufficient if articles with the words “probably” and “presumably” are getting published,” says Marina.

Such regulations, which Russia will have to abide by out of respect for international law and the foundations of international trade, should prevent not only the use of equipment for unintended purposes but also errors in documentation.

We are talking about the administrative violation case committed by an employee of a customs brokerage company facilitating customs clearance of the export documentation. When he was registering one of the Run Engineering shipments, the broker made a mistake: he did not note that the cargo included dual-use goods, and customs officials were not provided with a license for exporting these goods.

The company did have that license, as it was later recorded in the court documents. The court ordered the brokerage company to pay a fine. “International regulation would bring clarification regarding such errors as well,” says Marina.

“We have hired a group of international lawyers who are considering the possibility of pursuing legal action against Voronezh-Aqua for distorting information about our cooperation. We hope that this will become a high-profile case in the Russian court. If Russian companies intend to build fair relationships with European partners, such as our holding, they should comply with the generally accepted code of ethics,” says Marina. An important aspect in our work with international lawyers is the fact that there is still no clarity regarding the location of the equipment.

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