WRITTEN BY DANIEL BOJIN, PAUL RADU, HANS STRANDBERG (DAGENS ARBETE)

The retail giant IKEA is one of the world’s largest furniture makers, using one percent of the global wood supply each year to make about 100 million pieces of inexpensive, smartly designed furniture sold through its international network of stores.

Harvard University is the symbol of American intellectual and political power – producing eight US presidents and many of the leaders of American industry.

But for the past year, Harvard have been sitting in Romanian courts trying to keep control of national forest they bought. The state says Harvard bought some of its land from a group of figures that are under investigation for cheating the state. Subsequently IKEA bought the same forests from offshores controlled by Harvard’s investment fund.

To say these two global brands may have been duped may not be accurate. Unlike IKEA’s furniture, these deals are turning out to be neither smartly designed nor inexpensive for either organization.

Starting in 2004, Harvard bought more than about 33,000 hectares (83,000 acres) of forest land in hundreds of small tracts through local intermediaries that Romanian prosecutors have since charged with corruption and organized crime activities or who are under investigation. The deal between Harvard and IKEA also followed an unusually complex route and was facilitated by another group of Swedish- and Luxembourg- based companies connected to, or controlled by, the American university.

Romanian authorities are challenging some of the transactions on the grounds that state-owned forests were illegally reclassified as private property through a restitution program designed to return nationalized land to its former owners.

A Romanian judge has already invalidated one property deed in Harvard's portfolio, ruling that the forest was not acquired in good faith. Because the same group of suspected fraudsters bought much of Harvard’s land, it’s possible that many more tracts may end up being returned to the state.

And that is a problem for IKEA, which bought the land from Harvard and may lose some or much of its newly acquired Romanian woods as well.

Toxic Woods

Romania’s forest restitution program has been riddled with corruption and major scandals almost since it started. High-profile politicians, controversial businessmen and even a member of Romania’s royal family have been arrested and charged with corruption and money laundering in connection to the deals.

Forest restitutions grew out of Romania's turbulent history in the last century, when the Communist regime nationalized private property nationwide and many people lost land that had been in their family for decades.

After 1989, new laws in the post-Communist Romania allowed former owners and their relatives to seek restitution for their lost properties. Unfortunately, these same laws created opportunities for fraud.

Crooked businessmen and dirty politicians seized the moment, forging documents and claiming forests that had never belonged to them or to their ancestors. In many cases, fake relatives armed with piles of forged paperwork claimed some of the last standing old-growth forests in Europe and quickly sold them to foreign companies who poured tens of millions of dollars into such deals hoping for great returns.

Harvard University, through its investment arm, became a major buyer of Romanian forests starting in 2004, eventually purchasing some 33,600 hectares (83,000 acres) of forest land despite longstanding rumors of corruption in the restitution program.

Then, at the end of June 2015, Harvard University abruptly sold most of the land to IKEA.  The deal was done through a series of steps that started in 2014 when Harvard first sold the land to a Romanian company owned by offshore companies controlled by Harvard, and then IKEA took over ownership of the Romanian company.

IKEA paid more than € 56 million (US$ 62.6 million or $73 an acre) for about 98 percent of Harvard’s forest, the biggest investment in raw forests for the Swedish giant. The forests owned now by IKEA are scattered all over the country with the biggest concentration in the northeast. Harvard, which had paid more than $100 million for the properties, sold them for two-thirds of what they had paid in cash, along with an agreement that IKEA assume an unknown amount of debt that Harvard had incurred.

By the time Harvard and IKEA shook hands over the forest deal in 2015, the Romanian government was already challenging some of Harvard’s acquisitions in court. Those properties, regarded as toxic assets, included just a few hundred hectares of their overall purchases, and were not included in the deal with IKEA.

Harvard, however, knew something else that was important. Three months prior to the deal, the Romanian citizen who had been purchasing forests on Harvard’s behalf was sentenced to jail for corruption related to these forest acquisitions. The hundreds of hectares in contention may be the tip of the iceberg.

IKEA, despite an audit conducted by its lawyers that said the land was mostly clear of problems, had more disputed forests on its hands.

A Long Process

While large tracts of land may have been stolen, the government must go through a tedious series of legal steps to regain the forests. The first step in the process is to go to court to invalidate the property deeds. Then the state needs to file suit against the current owners of the forests.

The legal process, never quick to begin with in Romania’s overburdened courts, becomes more cumbersome when the new ownership is buried under layers of nested companies as in the Harvard-IKEA deals. It’s not clear why Harvard set up such a complex system of layered companies which started with the university selling the forests to itself, and Harvard would not answer questions from OCCRP citing pending litigation.

According to documents obtained by OCCRP, in May of 2015, three months before the deal was concluded, IKEA instructed its lawyers from the law firm of Wolf Theiss Rechtsanwalte GmbH to investigate the Harvard forests.

The lawyers filed a request under the Romanian Freedom of Information Act (FOIA) with the Romanian Forest Agency, Romsilva. They asked a local branch of Romsilva in the county of Vrancea for information regarding existing litigation involving the forests owned by Harvard.

The Vrancea forest officials answered that the requested information did not fall under FOIA and that they couldn’t answer anyway as the request described the location and size of the properties using a different system than the one stipulated by the agency’s own indexes.

More than 13,500 hectares (34,000 acres) of IKEA's Romanian forests are located in the county of Vrancea. This is also the place where IKEA ran into the most trouble. The furniture and design company claims in an answer sent to OCCRP that it checked out the properties carefully: “We have made a full legal due diligence on the properties we have acquired. This due diligence is more extensive than only performing (a) check in the registry or checking the local municipality for potential issues. It involves a detailed review (of) the historic ownership chain.”

A contract obtained by OCCRP between the state forestry company Directia Silvica Vrancea and IKEA to safeguard the land labelled more than 491 hectares (1,200 acres) as being in litigation. In an answer to OCCRP questions, IKEA acknowledged the situation: “Directia Silvica Vrancea has added the word ‘litigation’ as a comment to seven areas. However, in our due diligence, which was completed in June 2015, these areas were not identified as disputed.

The Swedish company added: “We are not content with the situation and because of this, we decided not to progress with any activities in the specified areas until the matter has been officially clarified.”

A week later IKEA came back saying that, according to authorities, 400 hectares (990 acres) were in contention and the company planned to cooperate with any investigation.

An Enigmatic Entity

At the heart of the problem is how the forests were purchased. Harvard initially acquired many of its forests from a controversial group of Romanian businessmen and politicians that police nicknamed the Enigma group after a restaurant where members sometimes met. Members of the group are under investigation in other forest-fraud related cases.

OCCRP reporters viewed a Romsilva document in which the state agency claims that 400 hectares now in IKEA’s possession were initially illegally acquired by the Enigma group.

Romanian prosecutors, in answer to an OCCRP FOIA request, said that 500 hectares (1,400 acres) of forest sold by the Enigma group to Harvard-controlled companies in Vrancea County are under criminal investigation for corruption related to the restitution process. The 500 hectares include the 400 hectares of IKEA forests described above.

The Enigma group is also being sued by local authorities in the neighboring county of Buzau, in order to cancel a property deed for another 226 hectares of forest in Gura Teghii, a commune in Buzau.

 A Bad Business Design By Harvard

Harvard’s Romanian forest ventures began on Oct. 21, 2004, in a house in Sohodol, a village only a few kilometers away from the picturesque 14th century Bran Castle in the mountains of Transylvania in central Romania – often referred to as Dracula’s castle.

The house was owned by Dragos Lipan, a Romanian citizen who would become the main buyer of Romanian forest for Harvard and who would later being sentenced for corruption related to the deals.

Harvard, through its investment company Phemus Corporation, established a limited liability company that day named Scolopax SRL.

Lipan’s former wife spoke with OCCRP reporters in the Sohodol house and confirmed the meetings and that the firm was established there.

That same day, another commercial company named Oriolus Limited was established in the Sohodol house by a Swedish citizen, Jonas Jacobsson, and three fellow Swedes. Jacobsson was also one of Scolopax’s appointed managers and would become a key person in the Harvard-IKEA Romanian forest deal more than a decade later. Oriolus later managed some of Harvard’s forests in Vrancea County.

The first decision of Scolopax’s board was to give Lipan power-of-attorney in the company’s interactions with banks, courts, local authorities and private persons. Lipan became the designated business representative of Harvard’s investment company in Romania.

Nine days later, on Nov. 25th, Jacobsson, on behalf of Scolopax, gave Lipan the authority to buy forest areas of up to 500 hectares for up to € 500,000 (US$ 558,600) or about US $1,200 a hectare (US$ 450 an acre). A year later, in January 2006, Lipan received 15 percent of Oriolus, the other company where Jacobsson was already a significant shareholder with 40 percent.

By 2010, Harvard became the largest private forest owner in Romania controlling more than US$ 100 million worth of Romanian investments, most of it forests, through Phemus Corporation, a US tax-exempt 501(c3) organization founded in Boston.  Lipan became the go-to person for forest owners. The massive amount of money that Harvard was pouring in the country’s forests was unprecedented, and within just a few years Lipan was taking advantage of his privileged position to benefit himself.

In 2007, Lipan entered an agreement with another Romanian, Robert Eler, to buy 2,500 hectares of forest at an inflated price under the condition that Eler would return 30 percent of the profits to Lipan. The problem was that Eler owned no forests, so he started looking for forests for sale to be able to conclude the deal with Scolopax and Lipan.

Scolopax started buying from Eler and soon Lipan had € 1 million (US$ 1.1 million) in his bank account.

But these deals may have violated Romanian law.  According to the Romanian law, the state has pre-emptive buying rights or the first right to buy forests on sale by private owners at the asking price. The sellers need to inform the state about the sale and wait for 30 days before they can sell to other interested parties. Failure to do so could invalidate the deal. But most purchases were done quickly after Eler and his associates obtained deeds for the freshly acquired forest.

The scheme worked until the relationship between Eler and Lipan soured and Eler and his associates turned on Lipan, denouncing him to the Romanian prosecution.

Lipan said he stopped working with Scolopax in 2013. However, by this time, he had bought tens of thousands of hectares of forest, most of it from Eler or the Enigma group whose members are now being investigated for forest corruption.

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