The Great Russian Oil Heist: Criminals, Lawmen, And The Quest For Liquid Loot
23 Mar 2021

By Sergei Khazov-Cassia, RFE/RL, 22 March 2021

RFE/RL — Russian law enforcement officers play a key role in the industrial-scale theft of oil from the country’s network of pipelines, an illicit business that robs the public coffers of hundreds of millions of dollars in revenue and wreaks damage on the environment, a new RFE/RL investigation shows.

The investigation, published on March 22 by RFE/RL’s Russian Service, known locally as Radio Svoboda, focuses on the energy-rich Khanty-Mansi Autonomous District in western Siberia, though multiple sources said that oil-theft schemes in other Russian regions operate in a similar fashion.

Organized crime groups siphon off untold amounts of oil using illegal taps and hoses to pump the liquid loot from pipelines into waiting tanker trucks or river barges, while police and security officers provide protection and logistical assistance in exchange for a cut of the illicit profits, the investigation found.

The investigation is based on interviews with numerous sources in the Khanty-Mansi region, a sprawling area that is bigger than Spain and is centered some 2,000 kilometers east of Moscow. They include current and former law-enforcement officials, private security contractors, security specialists at oil companies, and people close to organized crime groups in the region.

All of these sources requested anonymity, citing fears of retribution from officials or criminal organizations. But the portrait they paint of tight collaboration between law enforcement and organized crime is also reflected in records related to individuals who claim they were targeted with prosecution for fighting the systematic heist of hydrocarbons.

Radio Svoboda obtained access to a trove of documents linked to criminal cases against local ecologist Mikhail Karateyev and a former district police chief named Sergei Zinchenko, both of whom implicated police and Federal Security Service (FSB) officers in oil-theft schemes.

Radio Svoboda also obtained a copy of an archive of materials — including official records, interviews, and other evidence — amassed by Eduard Shmonin, a local journalist specializing in kompromat, or compromising materials.

Shmonin, who admits to having taken money to refrain from publishing kompromat, links a wave of criminal charges he was hit with to a documentary, titled Criminal Oil, that his TV channel aired about oil theft and corruption in the region.

Violent turf wars occasionally erupt over access to the illegal pipeline taps, and oil companies that combat theft regularly face pushback from authorities, while those who are caught stealing oil often receive lax punishment if the cases make it to trial.

“A vast majority of the criminals are handed suspended sentences and, as a rule, return to criminal business,” a spokesman for Transneft, the state-controlled oil pipeline company that is the world’s largest, said in January.

In total, Transneft has uncovered 566 illegal pipeline taps over the past three years, the spokesman said.

That may be just the tip of the iceberg.

The full scope of the losses to Russian oil companies and the state budget due to oil theft remains unclear. State-owned investment bank VTB Capital estimated in 2013 that oil companies at the time were losing the ruble equivalent of $1.8 billion to $3.5 billion annually due to oil theft. It estimated the losses to the Russian budget at $632 million to $1.2 billion.

But none of the sources who spoke to Radio Svoboda could even give an estimate of the total amount of oil that is stolen in any particular district of the Khanty-Mansi region, much less nationwide.

How To Tap An Oil Pipeline

Oil in Russia is stolen at every stage from extraction to refining, according to sources who spoke with Radio Svoboda and records reviewed by this reporter. The main methods are illegal pipeline taps and theft during production and transport.

The pipeline tapping is carried out by organized crime groups. These outfits are often involved in theft during production and transport as well, typically with the help of insiders at oil companies or subcontractors.

In almost all cases, the oil thieves operate under the protection of law enforcement officers from agencies including the regular police, traffic police, and FSB, multiple sources told Radio Svoboda.

Employees in security departments of oil companies and the private security firms they hire to guard pipelines also frequently play key roles, the sources said. Judges and officials from the powerful Investigative Committee, the Russian equivalent of the U.S. FBI, can also be bribed for protection.

A 2020 study by Russian energy-sector analysts came to a similar conclusion: In numerous regions, it said, “powerful criminal groups with strong ties to the Interior Ministry, prosecutors, and courts have formed around the theft of fuel.”

The sources told Radio Svoboda that up to half of a truckload of crude oil can be stolen during transport.

Organized crime groups also steal gas condensate. The substance, which forms in natural-gas pipelines, is mixed with gasoline and sold at gas stations in the region.

Exploiting illegal pipeline taps, criminal groups deploy a range of schemes to siphon off the oil with hoses.

Organized crime groups typically insert the taps with the complicity of employees of private security firms and oil companies, sources said. Contractors who lay pipelines sometimes insert taps themselves and sell the geographical coordinates to interested parties for about 200,000 to 250,000 rubles ($2,700 to $3,400).

The head of a pipeline section or a mechanic working at a booster station can also recommend efficient locations for illegal taps — and turn a blind eye to pressure drops in the pipeline as oil is secretly siphoned out.

The theft itself is often carried out under cover of darkness and may involve roughly seven to 15 people, including tanker-truck drivers and lookouts stationed to watch the roads nearby.

The illegal taps are frequently outfitted with motion-sensor cameras that feed footage to police and FSB officers involved in the theft, sources said, allowing them to monitor the operation and keep an eye out for interlopers.

Traffic police may also be looped in, providing safe passage for trucks toting stolen oil — some of which is taken to local mini-refineries known as “samovars,” after the traditional Russian teakettle, and some of which is sent to be loaded into railway tankers.

Formally, the stolen oil is purchased by one fly-by-night company from another, slapping on a veneer of legality as it makes its way to the end buyer.

Because the stolen oil ends up in the hands of the thieves with no record of its extraction, the scheme evades Russia’s mineral extraction tax. It is subject to a value-added tax, though most of the related transactions are conducted in cash, and the shell companies often acquire tax debts and file for bankruptcy before paying them.

The end buyers include both large and small oil refineries across Russia. The stolen oil can be bought at a price that is 30 to 50 percent cheaper than its legal counterpart, according to sources. A worker with the internal-security department of a large Russian oil firm told Radio Svoboda that the end buyers can even include oil companies that have extraction licenses but don’t have their own extraction operations. These companies simply sell the stolen oil into the Transneft network, declaring it as extracted oil and pocketing the price difference as profit.

Transneft did not respond to a request for comment.

The illegal tapping of pipelines also presents ecological problems. Thieves have little motivation to clean up spills that result from the practice. Spills from illegal taps go largely unnoticed by local residents and environmental inspectors, and no real restoration is carried out. The spilled oil is either left on the ground or buried.

“Criminal [pipeline] taps last year caused more than 60 percent of incidents linked to spills of oil and petroleum products,” Transneft spokesman Igor Dyomin said in January.

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