Moscow firm that Frank Fahey denies links to collapsed in unusual way, writes Colm Keena
Tressals Hair & Beauty Salon on Ulitsa Seramitchova, Moscow, was a bit of a phenomenon when it opened in late 1994.
The Soviet regime had gone and western retail outlets were beginning to appear in the Russian capital. Some people had money to spend, even hard currency, and Irish investors were among the first to open supermarkets selling western goods, for prices beyond the reach of most Muscovites.
In January 1995, the Moscow Times ran an article on the new hair and beauty salons that had opened in the city, including "Ireland's latest contribution to the Russian market". Tressals was offering image consultancy services, including advice on the latest western styles and six-week hair and beauty programmes for brides to be, the article said.
The Irish Times has seen a document that names four people, including Ethelle Fahey, as being behind the business. Ethelle Fahey is the name of the wife of Frank Fahey, Minister of State at the Department of Justice and Law Reform. Two sources have said they believed at the time that Fahey was linked to the salon.
Fahey has denied that this is the case but would not discuss the matter further.
The salon was a small part of a portfolio of successful businesses set up in Moscow in the 1990s with the help of a Limerick-based business, Irlasto. Irlasto specialised in business ventures in Russia in the early and mid-1990s.
The company collapsed spectacularly in 1996 when one of its partners, Dmitri Kishiev, apparently simply took over the businesses and ran the Irish partners out of town. The first business to be taken over was apparently Tressals.
Irlasto's annual report for 1993 states that the combined Irlasto operations had a turnover of £20 million that year. The group was involved with two fashion shops; a superstore; a home decoration store; three supermarkets, a pub and a night club. The directors' report filed with the accounts, and dated October 1994, states: "A Chinese restaurant and a beauty salon have recently been opened by our leisure division and both are trading satisfactorily."
When asked about the beauty salon, Fahey said: "I had no involvement in it. I have no comment to make in relation to Irlasto. Thank you very much." He would not comment further.
When a request for further comment was put to his press office, a reply by e-mail stated: "The Minister fully complied with the registration of his interests to the Standards in Public Office Commission for 1995 and 1996."
There is no mention of the Russian business in Fahey's entries in the register of members' interests covering the 1995 and 1995 period. Members were obliged to declare interests owned by themselves or connected parties, including spouses, where the property was worth in excess of £10,000.
In 1995 Fahey, who was a senator at the time, declared ownership of shares in Ryan Hotels, Silvermines and Anglo Irish Bank, as well as property being let at Eglinton Court, Galway, and Glenmore, Galway.
The register covering the period February 1996 to January 1997, showed Fahey as no longer owning any shares, but still owning the two let properties.
In more recent years, Fahey has built up a multimillion euro property portfolio, with property in Ireland, France, Belgium, Portugal and the US.
In the early 1990s, foreigners wishing to invest in Russia needed to have Russian partners. Irlasto was a Limerick-based business that had teamed up with two Russian partners, Dmitri Kishiev and Victor Schenkov. The chief executive of Irlasto was businessman Kieran Walshe. The earlier businesses established were the supermarkets and the clothing stores. A company in Cork, Steamline, shipped goods to the Moscow supermarkets, sourcing a lot of their produce from Musgraves.
The clothing stores were part owned by Joe Walsh Holding Ltd, a Limerick company now in liquidation.
These elements of the Irlasto operation were high turnover, profitable businesses. After these businesses had become established, new investors, many of them in the Limerick area, became involved in Russia by way of the Irlasto operation, setting up businesses using the Irlasto framework, and paying management fees. The Tressals operation is understood to have been one of the smaller enterprises set up in this way.
Ownership of the businesses was usually split between the Irlasto shareholders, the Russians, and the investors behind the particular business at issue. In some cases, the latter were Irlasto shareholders.
Ownership was almost invariably by way of companies in Cyprus as Cyprus was one of the few countries that had a double taxation agreement with Russia. Often these companies were in turn owned by other Cypriot companies that represented the various shareholders.
At one stage, 30 to 40 Cypriot companies, with associated bank accounts, were in operation. Sizeable management and consultancy fees were charged by one Cyprus company against another and it appears that this was a way for shareholders to withdraw money from the businesses.
Also regular deductions were made from some businesses to "madam" which was a codeword for the Russain Mafia, which was paid protection money. The payments were sometimes as large as €100,000 and were made to Swiss bank accounts. There is no suggestion such payments where made on the part of Tressals or with the knowledge of its pricipals.
The Irlasto operation also involved an Isle of Man company, Irlasto IVK. This company described itself in Isle of Man filings as an investment holding company managed and conducting trade outside the Isle of Man. No financial details are available. The company was struck off in the late 1990s for failing to file returns.
At one stage, the Moscow businesses were doing very well. The supermarkets had a turnover of $21 million in 1995, and pretax profits of $1.3 million. The retail clothes business had a turnover of $14 million in 1995, and profits of $5.4 million.
The Irish Times is not aware of the details concerning the Tressals business or how its ownership was structured. It had approximately 14 employees and was in operation for about a year and a half, according to one source. Then, one day in 1996 staff turned up at the shop to be told the Russians had taken over. A similar takeover is understood to have occurred subsequently with the other businesses and Kishiev is said to have taken control.
Prior to the takeover, the Irlasto shareholders had ambitious plans for their venture. They were considering branching into property development and made one property purchase (this too was reportedly taken from the Irish investors). British investment firm Framlingtons invested in Irlasto, as did Barings Bank, and a flotation was being considered. Between the two of them, the British institutions invested some $4 million. The investment has not been recovered.
A due diligence examination of the supermarket operation in 1995 discovered that up to $2 million had been stolen from its takings. It seems it was around this time also that the relationship between the Irish and Russian partners began to break down.
Irlasto was eventually placed in liquidation. The Limerick liquidator, Norman O' Leary & Co, has not yet completed its work but filings in the Companies' Registration Office indicate little if any money has been recovered.
Amongst those who lost out was the Bank of Ireland, which lost £120,000.
