In September 2013 the Prosecutor's Office of Georgia has brought charges against the former Governor of the President of Georgia in Mtskheta-Mtianeti Tsezar Chocheli for fraud and money laundering. Due to high public interest towards the case, Transparency International (TI) Georgia has studied the case circumstances.
Prosecution's allegations
Tsezar Chocheli was indicted in relation to two episodes:
Tsezar Chocheli
Tsezar Chocheli's business activities originated since 1990s. Back then he (together with family members and friends) has founded company "Lomisi" in borough Akhalgori. In several years the company has considerably expanded its activities and the brewery "Natakhtari" was established, which was alienated in 2007 to "Anadolu Group", the founding company of "EFES".
In 2008 Tsezar Chocheli's brother Iago Chocheli has founded the construction company "Mixor", and in 2009 this group has established the largest confectionary plant in the Caucasus "Barambo", and in 2011 the "Georgian Beer Company" (Zedazeni). Tsezar Chocheli was the Mtskheta-Mtianeti Governor from February 2008 until October 2012.
Companies associated with Tsezar Chocheli currently employ thousands of people. According to the management of the companies, their majority is formed by the internally displaced persons from the conflicting regions.
Privatization of the "Ferro-Concrete Sleeper Factory" LLC
On 9 September 2010 the Ministry of Economy and Sustainable Development of Georgia has put up the "Ferro-Concrete Sleeper Factory" LLC for privatization on the auction for 6,800,000 USD. The auction was announced publicly and the information outlets were already reporting [1] about it on 3 September 2010. Only one company - Iago Chocheli's (Tsezar Chocheli's brother) "Mixor" LLC - has participated in the auction and consequently won. 6,850,000 USD were paid for the factory put up on the auction. No investment or any other extra condition was set at the auction.
Analysis of the prosecution's allegations
TI Georgia's lawyers have studied a part of case materials and we believe that the prosecution's allegations include several significant weaknesses:
1. Problem associated with calculation by the Prosecutor's Office of 19-million damage inflicted on the state.
The prosecution's indictment [2] makes it clear that while calculating these damages, the Prosecutor's Office is building on the opinion that the auditor has artificially reduced the market value of "Ferro-Concrete Sleeper Factory" LLC at the instruction of the Deputy Minister of Economy.
By the time of the auction the "Ferro-Concrete Sleeper Factory" LLC had executed the 75-million contract with the "Georgian Railway" on the supply of sleepers, which is not included in the factory's audit and accordingly is not reflected in the factory's overall value. The prosecution believes that the auditor invited intentionally by the Deputy Minister of Economy has deliberately ignored the contract executed with the "Georgian Railway" and thus artificially reduced the factory's value.
The Prosecutor's Office notes further that while working on the report, the auditor has deliberately used information on the factory's debtors-creditors and the bookkeeping data as of 12 August 2010 and based on these data he has determined the factory's market value as of August 25. Accordingly, the report did not include the income gained by the factory over this period and the originated claims, including the 914,085 GEL indebtedness of the "Georgian Railway" towards the factory. The prosecution alleges that based on this false report the factory's market value was reduced artificially.
In our opinion, while calculating the damages the investigation should have taken into account the condition of the factory's buildings-facilities and installations prior to privatization. Probing into this factual circumstance would be important, because the majority of installations in the "Ferro-Concrete Sleeper Factory" LLC was amortized at the time of privatization, thus raising questions about calculation of the factory's market value. The factory's current owners explain that at the moment of putting it up on the auction, the factory in fact could not function, majority of production installations was not fit to use and the factory's major building-facility was on the verge of destruction. Photographs (see below) and geological assessment [3] report of those times attest to the factory's grave condition.
2. It is equally unclear why the Prosecutor's Office does not take into account the form by which "Mixor" LLC has acquired the factory, because the property was acquired through an open auction and the auction is a most acceptable form of establishing a market price. Accordingly, disputing a price generated at the auction requires much more justification.
Although only one company has taken part in the auction, formally the factory was alienated through an open auction and other parties could also participate. The Prosecutor's Office must prove that the deal was struck and other participants were prohibited from taking part in the auction. Further, it has to be taken into consideration that during those times transferring the property to investors for a symbolic price or through direct sale was a widespread practice, and therefore it is essential that the prosecution presents concrete evidence on the nature of the deal.
3. The money laundering charge is not sufficiently substantiated. Judgment in the resolution on indictment and the submitted factual circumstances do not attest to the elements of a crime.
All companies associated with Tsezar Chocheli are currently arrested (property and shares). Prosecution alleges that Tsezar Chocheli was illegally disposing of incomes generated from the "Ferro-Concrete Sleeper Factory" LLC, by which he was legalizing illicit income (money laundering).
We find that justification and factual circumstances provided in the indictment [4] are insufficient for corroborating the money laundering charges, and accordingly the elements of money laundering are not identified. In particular, Section 1 of Article 194 of the Criminal Code of Georgia defines legalization of an illicit income. Pursuant to the law, this is the legalization of illegal and/or unjustified property aimed at concealing its illegal origination. Section 2 of the same article defines illegal property, which is the property, as well as income generated from this property, securities (shares), which a person, his/her family member, close relative or associated person has obtained through violations of the law. The indictment talks about reinvestment by Tsezar Chocheli of dividends received from the factory in his other companies, which, the prosecution alleges was aimed at concealing the illegal origination of the money. It is unclear why the prosecution thinks disposing of the dividends is illegal. The owner is fully entitled to dispose of income received from one company at his/her discretion and use it to invest in other companies. This cannot be money laundering, because in order for the crime stipulated in Article 194 of the Criminal Code of Georgia (money laundering) to exist, it is essential that the aim to conceal illegal property or income is identified. Achieving such aim by disposing of the dividends is out of question.
4. The reason behind arresting of assets of all companies associated with Tsezar Chocheli by the law-enforcement agencies is unclear.
Paragraph 1 of Article 151 of the Criminal Procedure Code of Georgia defines grounds for arresting the property. Pursuant to this article, if there is information that the property will be hidden away or spent and/or the property had been obtained by committing a crime, the court is entitled based on the motion of the party to arrest the property (including bank accounts) of the defendant and/or person associated with him/her. The arrest of property is applied to secure potential deprivation of property. Considering that the money laundering charges require additional justification and factual circumstances, the reason behind simultaneous suspension of several company activities during the criminal judicial proceedings is unclear.
The activities of arrested companies are halted and they are experiencing considerable financial problems, not to mention the adjournment of court trials at the initiative of the Prosecutor's Office and thus delay in consideration of the case.
In light of the case circumstances, we urge the law-enforcement agencies to treat this case with more responsibility. It is obvious that in case of substantiated assumption the investigative authority is authorized to request injunctive measure. In case of a crime no one can be released from liability, but at the same time it is crucial that the investigation does not leave questions. In this case it is necessary that the investigation is conducted timely and impartially, so that the legitimate interests of either party are not infringed upon. Application of disproportionate measures on grounds of investigation, which lead to suspension of activities of business entities, is unacceptable.
Before Privatization:
After Privatization:
Links
[1] http://www.myvideo.ge/?video_id=1048957
[2] http://transparency.ge/sites/default/files/post_attachments/%E1%83%93%E1%83%90%E1%83%93%E1%83%92%E1%83%94%E1%83%9C%E1%83%98%E1%83%9A%E1%83%94%E1%83%91%E1%83%90%20%E1%83%91%E1%83%A0%E1%83%90%E1%83%9A%E1%83%93%E1%83%94%E1%83%91%E1%83%98%E1%83%A1%20%E1%83%A8%E1%83%94%E1%83%A1%E1%83%90%E1%83%AE%E1%83%94%E1%83%91%20-%20%E1%83%AA%E1%83%94%E1%83%96%E1%83%90%E1%83%A0%20%E1%83%A9%E1%83%9D%E1%83%A9%E1%83%94%E1%83%9A%E1%83%98.pdf
[3] http://personal.crocodoc.com/AQBGeow
[4] http://transparency.ge/sites/default/files/post_attachments/%E1%83%91%E1%83%A0%E1%83%90%E1%83%9A%E1%83%93%E1%83%94%E1%83%91%E1%83%90%20-%20%E1%83%AA%E1%83%94%E1%83%96%E1%83%90%E1%83%A0%20%E1%83%A9%E1%83%9D%E1%83%A9%E1%83%94%E1%83%9A%E1%83%98.pdf
[5] https://transparency.ge/en/category/tags/judiciary
[6] https://transparency.ge/en/category/tags/judical-system
[7] https://transparency.ge/en/category/tags/propertyrights