Wednesday, 13 November

A Cypriot Company's Armenian Shareholders and Ishkhan Zakaryan's Partial Discoveries

The Control Chamber of the Republic of Armenia (RA) in its last report recorded the ineffective management of grants transferred to a Cyprus company. But Ishkhan Zakaryan's "discoveries," as always, do not receive the proper attention by Armenia's law enforcement agencies. In this case as well, no criminal case was launched. And the Cyprus company provided no clarification. 

The company Four Assist Development Consulting Limited registered in Cyprus in 2012–2013 received $704,000 from Armenia in order to prepare a draft accounting legal framework and manual and develop and implement an automated accounting system.

The RA Ministry of Finance on June 13, 2012 (there was a change in the contract in May 2013), signed a contract with Four Assist Development Consulting valued at $704,000, which, excluding taxes, was transferred to the Cypriot company's account. RA Minister of Finance Vache Gabrielyan both signed the contract and made the change later. On the same day, June 13, 2012, the Cypriot company signed a subcontract valued at $288,000 with the company PHP Partners registered in the Republic of Armenia. 

Four Assist Development Consulting: an International, Offshore, and Armenian Company

Four Assist Development Consulting was registered in Cyprus in 2006. Hetq asked the Ministry of Finance whether they know who the company's founders or shareholders are. The ministry didn't answer the question.

According to the Cyprus state registry,  Four Assist Development Consulting's biggest shareholder is RA citizen Gnel Sedrakyan, with 1550 shares. He worked as an advisor to the RA Ministry of Finance in the early 2000s. He also has been involved in several European Commission programs in Armenia. 

Other significant shareholders include Yiannis Hadziyiannakis (1300 shares). He has worked for over 5 years in the RA Ministry of Finance and RA Ministry of Economy, participating in one of the European Commission projects. 

Sebastien Dubost owns 775 shares. From 2000–2003, he was acting head of the European Commission Delegation’s branch office in Armenia and has been a team leader of numerous European Commission projects. 

RA citizen Irina Grigoryan, though small, also has a share (250 shares). She is a qualified accountant. She has worked as an advisor for the finance ministries of Armenia, Georgia, and Tajikistan. She has experience in the European Commission's development assistance programs. There are also other shareholders. 

It's not the first time, it turns out, Four Assist Development Consulting has implemented a project in Armenia. Hetq asked the Ministry of Finance what other programs and at what costs the company implemented projects in Armenia. Again, there was no answer. As clarified by head of the ministry's information and public relations department Sophie Simonyan, they replied only "within the scope of their authority, and they cannot provide any other information."

Four Assist Development Consulting in 2011–2012 through European Commission funds implemented also a program called "Strengthening of the Arbitration System for the Ministry of Justice of the Republic of Armenia". During the same period, with a grant from the World Bank and the Ministry of Finance, the company implemented the "Strengthening Public Sector Internal Audit" project. The RA Ministry of Finance could not have not known about this, and it definitely was not outside of "the scope of [their] authority".

The "Implementation of International Public Sector Accounting Standards Strategy" project valued at $704,000 was implemented with joint financing from the World Bank and the RA state budget. 

The RA Control Chamber examined the grant funds the World Bank provided to Armenia in the Foreign Financing Projects Management Centre state institution, as well as the legitimacy and effectiveness of the RA state budgetary funds. The Control Chamber declared that the entire volume of work stipulated in the contract was implemented by PHP Partners under a subcontract.

"A natural question arises: if any Armenian company can implement the work with $288,000, why is it being carried out by a Cypriot company at a cost of $704,000?" asks the Control Chamber in its report.

Furthermore, the Control Chamber discovered that the drafting of the accounting legal framework regulating public sector accounting standards, piloting of the automated accounting system into four companies and the capacity building of those companies — none of this work was completed. The companies weren't equipped, and one expert from each of only three of the four companies underwent training, with no one from the fourth company undergoing training. Instead of training the approximately 50 accountants of the bodies included in the pilot phase and RA Ministry of Finance personnel, only 31 were trained.

The RA Ministry of Finance, in response to a written request by Hetq, said that $469,000 was allocated within the scope of the grant program to "Implement International Public Sector Accounting Standards Strategy 2" and around $235,000 was paid in taxes to the state budget. 

"The RA Ministry of Finance did not see the subcontract signed between the companies Four Assist Development Consulting Limited and PHP Partners registered in Armenia; moreover, it was not obliged to see and assess the subcontracting company. The RA Ministry of Finance assessed and recognized Four Assist Development Consulting Limited as the winner. Due to the [afore]mentioned, the RA Ministry of Finance has no information regarding the amount of money allocated to the subcontractor noted in the subcontract signed between Four Assist Development Consulting Limited and PHP Partners," the finance ministry replied to Hetq.

"We participated in the tender as a subcontractor; that is, by participating in the tender, it was already known that we're with Four Assist Development Consulting Limited. It's written that we signed a contract on the same day, but we had applied together already two months ago," says PHP Partners Director Hovhannes Petrosyan. 

PHP Partners CJSC has been operating since late 2005. Founding the company and occupying key positions are former employees of the state apparatus. Of the overall $469,000, PHP Partners received $240,000, according to the director; the rest, $229,000, Four Assist Development Consulting Limited commanded. 

"When we read the Control [Chamber's] report, we said, they praised us a bit too much — we didn't do that much," jokes head of PHP Partners' accounting services Vigen Yeghoyan. "Perhaps we did more in terms of volume, but one thing is very important: the cost of our one hour is 1 dram, while an international expert is much more costly. In terms of quality, their experience is irreplaceable."

Hovhannes Petrosyan says they developed the work and Four Assist Development Consulting studied other countries' experience, and in the case of problems, they consulted with the Cypriot company, and Four Assist Development Consulting Limited mainly provided the solutions. Four Assist Development Consulting and the company's experts implemented the testing of the prepared material.

Petrosyan also confesses that first, they have little experience in this field, which would significantly weaken their chances of winning the tender. Second, the tender was international, and no company from Armenia directly participated in it. "If you look, you won't see any major project in Armenia that a local consulting firm has won directly," says Petrosyan. He said as a subcontracting company, they are currently implementing a project for the Control Chamber. 

As to how Four Assist Development Consulting Limited managed its $229,000 share is not known. The Ministry of Finance didn't respond to this question of Hetq's either, while the RA Control Chamber, in response to the same question in writing, said: "In order to form the final conclusions regarding the questions you raised and to present the situation objectively, as well as to collect additional information on the costs of the goods and services purchased, according to the provisions of RA Law on Control Chamber Article 4 and Article 19 Section 4, a cross-check of the supplier companies must be conducted. And since Four Assist Development Consulting Limited is not a resident company and is found outside of the territory of the Republic of Armenia, the RA Control Chamber as prescribed by legislation cannot carry out a cross-check."

Four Assist Development Consulting Limited shareholder Irina Grigoryan says that Four Assist Development Consulting sent a letter to RA Control Chamber and asked amendments be made to the report. Hetq tried to get answers to a number of questions from Irina Grigoryan. She responded by email that she is currently in Moldova but is prepared to respond to Hetq's questions in writing. Once the answers to these questions are received, Hetq will publish them.

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