New Details on the ‘North-South’ Project Criminal Case: About 1.2 Billion AMD Withdrawn through ‘Phantom’ Transactions

The investigation into alleged criminal actions and abuses by officials during the implementation of the ‘North-South Road Corridor’ project continues at the Office of the Prosecutor General of Armenia under Article 308, Part 2 of the Criminal Code of the Republic of Armenia.

The investigative team is actively conducting numerous investigative and procedural actions in a large-scale and multi-episode criminal case to expose all manifestations and episodes of crimes and to provide legal evaluation of the actions of all individuals involved in the criminal activities.

According to the factual data already acquired during the preliminary investigation, various formal ‘phantom’ transactions and acts of document forgery, theft, and willful tax evasion by numerous companies involved in the program have been revealed.

Specifically, within the framework of the ‘Reconstruction and Improvement of the M1 Road from Talin to Gyumri’ segment of the program, two contracts were concluded in June 2016 between companies for the provision of blatantly unjustified consulting services during the construction of the Talin-Lanjik and Lanjik-Gyumri roads. Based on these contracts, about 1.2 billion AMD (including VAT) worth of tax invoices were issued in the name of one of them from 2016 to 2018.

It has been established that the contracts were signed for the purpose of reducing tax obligations, for which ‘phantom’ transactions were arranged, as well as fraudulent entrepreneurship was carried out. No type of consulting services was provided under these contracts according to tax invoices; thus, essentially, ‘phantom’ transactions took place.

It has also been clarified and substantiated that during the period from 2016 to 2017, employees of the company that provided consulting via forged documents withdrew about 600 million AMD in cash from the company’s bank account, which was transferred to the individual who actually managed the company, while these funds were recorded in the company’s accounts as dividends paid to another person— the founder of the company.

To calculate the reduced tax obligations of the involved companies and the damage caused to the state, professional tax audits have been appointed, which have recorded unpaid taxes amounting to 1.01 billion AMD (including fines) through two audit acts. Other audits are still ongoing.

Based on the factual data obtained during the preliminary investigation of the criminal case, on April 30, 2019, a new criminal case was initiated regarding the ‘North-South Road Corridor’ project with characteristics of offenses prescribed by Article 189, Part 3, and Article 205, Part 2 of the Criminal Code of Armenia, against the director of another LLC involved in the project for willfully evading tax payments by acquiring forged documents from several companies without actual delivery of goods or rendering of services and incorporating them into the documents submitted to the Armenian State Revenue Committee as per the established procedure, thus avoiding paying taxes in especially large amounts.

In addition to the aforementioned, by the prosecutor's instruction, three more criminal cases initiated under Article 205, Part 2 of the Criminal Code of Armenia, regarding companies involved in the ‘North-South Road Corridor’ project which are being examined by the investigative department of the State Revenue Committee have also been consolidated into the main case being examined by the Investigation Committee of the Republic of Armenia.

It has been established from the evidence collected during the preliminary investigations that, without actual provision of services, about 195 million AMD worth of false accounting documents were provided, resulting in evasion of tax payments to the state budget in especially large amounts, simultaneously causing the state substantial damages.

According to preliminary calculations performed in two companies regarding the circumstances of these possible ‘phantom’ transactions and the specific extent of the damages caused to the state, they may incur total tax liabilities totaling about 600 million AMD to the state (including fines and penalties). In this regard, a financial forensic expertise has been appointed to obtain a final calculation and to establish the extent of the damages caused to the state.

The preliminary investigation continues.