Poroshenko Sweeps Out the Traces of Money Theft of Ukraine’s Defense Budget
On February 12, 2018, the head of the state company “Ukroboronprom” Roman Romanov resigned. “I wrote a statement about it last year, I hope that the President of Ukraine, Petro Poroshenko, will support my decision,” he said on the official website of the state company. Earlier, on December 27 of the past year, Groysman initiated the dismissal of the head of “Ukroboronprom” because of “the problem of paying salaries to employees of some enterprises of the company.” However, for such a “childish” reason, interested people at the very top of the country carefully hide much more serious things, which should lead not only to resignations, but also to criminal responsibility. We learned about it by conducting our own journalistic investigation. But let’s talk about everything in order.
Roman Romanov headed Ukroboronprom in July 2014. Then the media immediately noted his high loyalty to the President, because he was the head of the election headquarters of Peter Poroshenko in Kherson region in 2014. At his disposal yesterday’s businessperson received “Ukroboronprom”, consisting of 134 state-owned enterprises located almost in all regions of Ukraine. The main industries in which “Ukroboronprom” is present are aircraft construction and repair, the production of armoured vehicles, radio electronics, and shipbuilding. The concern unites more than 30 design bureaus. The total production area of the enterprise “Ukroboronprom” is about 9 million square meters. About 80 thousand employees work at the Comapny’s enterprises.
We should recall that the State Company “Ukroboronprom” was created by the Resolution of the Cabinet of Ministers of Ukraine No. 1221 of December 29, 2010, in pursuance of President Yanukovych’s Decree. The main unspoken tasks of such a concentration of enterprises in the defense sector were to obtain full control by the President over the financial flows of the Ukrainian defense industry and the possibility of subsequent withdrawal of attractive assets out of state control. It was for these tasks that the Charter of the Comapny was issued and the structure of its management bodies was determined.
The supreme governing body is the Supervisory Board. It consists of five people, three of whom are appointed by the President, and two – by the Cabinet of Ministers of Ukraine. The Cabinet did not hurry to appoint members of the Supervisory Board on its quota. Since November 2016, after Sergey Pashinsky left the Supervisory Board, in view of the lack of a quorum in the Supervision Council, Roman Romanov, in accordance with the Company’s Charter, was able to make important decisions solely.
From the very beginning Romanov’s personnel policy has become the subject of numerous investigations and publications in the media. Representatives of the Kherson community – friends, cousins and relatives – were appointed to many leading positions in the Concern and its enterprises.
At what, speech often did not go about any special professional preparation and knowledge of a subject. Loyalty was important. Strictly speaking, before the appointment in “Ukroboronprom” the main sphere of professional interests of Roman Romanov himself was the car trade in the southern regions of Ukraine.
In August 2014, Sergei Pinkas was appointed first deputy to Romanov. He worked as a vice-mayor of Tsuryupinsk in the Kherson region. Since July 2015, the native of Kherson region Arthur Cherubimov began to work as deputy Romanov at the Company. From November 2015, the former deputy prosecutor of the Kherson region, Vladimir Kostritsky, was appointed deputy general director. Acting director of the Zhitomir Armoured Works is Mikhail Mosin, who in 2011-2013 headed the Kherson Electrotrans Company and was convicted of forgery. In 2015, Aleskey Babich managed to work as the head of the Zhitomir armoured factory.
According to the media, his brother Andrey Babich, also a native of Kherson, worked as deputy head of the apparatus of the general director of “Ukroboronprom” and was one of the members of the commission for the selection of candidates for the positions of directors of the company’s enterprises. Since February 2017 Alexey Babich has been in charge of the Kharkov Morozov Machine Building Bureau. Vadim Shtepenko, head of the press and information department of the Kherson regional state administration, in 2014-2017 worked as the head of the State Enterprise “Artillery Armament Design Bureau”.
According to the media, a representative of the Kherson country association Vladislav Lisitsa worked as acting director of the Kiev armoured plant in 2015, and another native of Kherson, Nikolai Kistrin, was the director of the Nikolayev Armoured Factory. Alexander Pashchenko, the son of ex-deputy director of Ukroboronprom Yuri Pashchenko, is the director of the Kharkov machine-building plant FED. Some of these enterprises are involved in a number of criminal cases involving the withdrawal of state budget funds and tax evasion in 2015-2016.
Upon analysing this information, there are questions: at the time of appointment in the “Ukroboronprom” whether the seller of cars Roman Romanov had the appropriate admission to the state secret, which should be with the head of the defense company? Moreover, can car sellers, agrarians and communal workers with a criminal past build an effective defense-industrial complex of Ukraine? Alternatively, have these 11 Poroshenko’s friends come to steal the country’s defense budget?
It becomes even more interesting when you begin to analyse scandals around the “Ukrobonoprom” during the leadership of Romanov. In addition, these are only those that exposed the media. In December 2014 – purchase of goods of Russian origin: state company Ukrinmash purchased military equipment from the American corporation ATN Corporation, which according to media reports, resells products manufactured in Russia. December 2014 – scandalous purchase of Saxon BTR at inflated prices worth $ 3.8 million. As Ukrainian media reported in this regard, initially it was exclusively a volunteer initiative – the concern “Ukroboronprom” was asked to take part because a state intermediary was required.
After “Ukroboronprom” appeared in the scheme, the price of each car has increased almost twice (from 586.5 thousand to 979.5 thousand UAH.), and the estimated commissions have reached almost 8 million UAH. “These are completely useless semi-armored trucks that cannot be used at the front line… There is nothing more immoral than representing the transfer of these cars as “good news” for Ukrainians,” criticized the deal, ex-Chief of the General Staff of the United Kingdom, Richard Dunnat.
Further scandals do not stop. January 2015 – transfer of understaffed equipment from the Lviv armored factory to the troops. February 2015 – pre-trial investigation found that the leadership of the State Enterprise “Zhytomyr Armoured Factory” in collusion with LLC “Ukrvagonremrans” squandered 17.8 million UAH. September 2015 – fictitious purchases of UAH 50 million, which led to the initiation of a criminal case by the main military prosecutor’s office.
December 2015 – fictitious agency services worth $ 1.95 million. SE Ukrinmash concluded a deal with the British company Fuertventura Intel LP, which received $ 1.95 million in October and December 2015 for intermediary services. The investigators of the National Academy of Sciences of Ukraine have established that the company is registered at the address of mass registration in the UK and specializes allegedly in the trade of electrical goods, and a citizen of Ukraine opened its account on the eve of financial transactions.
The 2016th became for Ukroboronprom especially productive for mishaps and scandals. In April 2016, NABU opened criminal proceedings against officials of the state enterprise “Kharkov Armoured Factory” on suspicion of fictitious procurement of weapons and spare parts for 37.5 million UAH. In June 2016, Roman Romanov publicly acknowledged that “Ukroboronprom” overestimated its ability to launch serial production of the Dozor-B armoured car.
July 2016 – during the exercises at the “Wide Steppe” site, where the mortars “Molot” produced by “Ukroboronprom” were involved, the commander of mortar died and several other soldiers were injured. Romanov said that mortars were wrongly exploited and the military needed to learn how to use them. September 2016 – Nikolaev’s media published materials about the possible participation of the management of the State Enterprise “Shipbuilding Plant named after 61 communards” in stealing property, under the auspices of the management of the “Ukroboronprom”.
November 2016 – purchase of equipment at inflated prices through firms with Russian origin. Investigators reported the procurement scheme for Ukrinmash, part of Ukroboronprom, caterpillar belts for military equipment and engines of Russian production for BTR-70. The supplier was the British firm Rion Assets Company LTD. The director of the British supplier Ukrinmash was a citizen of the Seychelles islands Selma Francis. Rion Assets Company LTD opened the bank account of in Latvia.
According to journalists, the Ukrainian enterprise spent $ 121.2 thousand for 20 units, or $ 6060 per piece, for the purchase of caterpillar belts. For the purchase of engines for BTR, $ 160,000 was spent for 20 units, that is, $ 8,000 apiece. According to journalists, the price of the engine was overestimated by 3-4 times. The Ukrainian representative of Rion Assets Company LTD is affiliated with Splav-Ukraine LLC, the sole owner of which is the Russian Closed Joint-Stock Company Splav from Novgorod. At the same time, the SBU did not reveal the facts of corruption in the contract for the purchase of engines for BTR-70 from a British company.
In December 2016, the ex-governor of the Odessa region, Mikhail Saakashvili, discovered the laundering of funds during the purchase of components for military equipment. According to Saakashvili’s statements, 4.6 million UAH were “washed away” during the purchase of engines for BTR-80. “The engines purchased through a German citizen Nabiev were sold to the Ukrainian army 2.5 times more expensive than their cost,” said the ex-head of the Odessa Regional State Administration and noted that the seller was the SRL Auto Present company (Moldova).
In January 2017, NABU’s possible suspicions about the management of Ukroboronprom finally surfaced. Artem Sytnik said that the NABU is investigating criminal cases against officials of the state concern “Ukroboronprom”.
Moreover, this all happens while in many media of the country the image of Romanov broadcasts as a fighter against corruption, a principled and qualified top engineer. However, is it possible that, for more than three years, a thoroughly corrupted state structure was headed by a crystal-clear manager, who is actually responsible for everything that happens in his institution under his jurisdiction? Can he not be involved in corruption and criminal schemes of his subordinates? The question is rhetorical…
In fact, today the Ukrainian media do not even have a tenth share of information about the real extent of abuses in the “Ukroboronprom” during Romanov’s leadership. The main reason for this deficit is the state secrecy regime that spreads over most of the Concern’s contracts and the actions of investigators investigating abuses at the Concern’s enterprises.
People’s deputies of Ukraine repeatedly drew attention to the excessive closure of the “Ukroboronprom”. For example, member of the parliamentary committee on defense Taras Pastukh stated that having the highest level of admission to classified materials, he could not get answers to any of his questions about how the Concern manages the funds allocated to him.
«Let “Ukroboronprom” bring contracts, and you will see that prices are different for the same position, the price tag fluctuates by 30-40%. Let the leadership give an answer, maybe there is no corruption, but for today, we can only guess about it. And why we cannot see these contracts, raises even more questions,” Pastukh said.
People’s Deputy Igor Sobolev in this regard supported general indignation: “We must get used to the thought and practice that in the secret defense, apart from operations and their planning, there are only separate details of individual military equipment. Information about how much the BTR was bought; the tank or sight can never be secret”. It is worth mentioning that the parliamentary control over the expenditure of taxpayers’ funds for arms purchases is the practice of all civilized countries.
Nevertheless, even in such circumstances, the volumes of criminal activities and violations by the enterprises and management of the Concern during 2014-2016 are impressive. For example, according to law enforcement agencies, more than three dozen enterprises of “Ukroboronprom” in 2015-2016 used the services of converting centers, thus laundering about 300 million UAH. Deputy Director of Security “Ukroboronprom” Vladislav Gadion in the fall of 2016 in the mass media announced the volume of recorded violations amounting to 648 million UAH. Can Roman Romanov not know where to share this money?
In addition, journalists note the abuse of remuneration payments to foreign agents for assisting Ukrainian special exporters in the implementation of foreign economic contracts. Through unreasonably high payments, 10% and 15% of the sums of export contracts can be withdrawn.
People’s deputies of Ukraine and public figures give their own estimates of the extent of abuse. For example, people’s deputy Taras Pastukh noted in the media that in 2015-2016, up to 20% of the state defense order was stolen.
The ex-governor of the Odessa region, Mikhail Saakashvili, said that the purchase of arms for 2016 was used to launder 2.9 billion UAH. According to the information of the Concern, the volume of exports in 2016 was about $760 million. And the volume of the state defense order received by the enterprises of Ukroboronprom was 4.5 billion UAH. It is easy to calculate how many means can be derived through possible corruption schemes of a 10% agent fee from the amount of export contracts, and how much can be deducted from the budget at the supposed 20% theft on the state defense order.
Opacity of the economic activity of the Concern under the leadership of Roman Romanov, multiplied by the secrecy of the majority of contracts, does not allow even Ukrainian parliamentarians to obtain from the management of “Ukroboronprom” distinct answers to acute questions about the financial aspects of the Concern’s work.
Therefore, on October 21, 2016, the parliament thwarted consideration of the issue of granting an additional 4 billion UAH of state guarantees for the provision of programs for the defense industry complex. Anti-corruption MPs spoke out for tougher anti-corruption control in the industry. The demands of parliamentarians were unambiguous: the management of the concern must first report on the billions already spent, and only then ask for more money.
“You cannot spend money on the oxygen. The first step was to be the approval of the state defense order. We need to see a clear breakdown on budget items and state programs, which will go to the 4 billion. And not just to allocate money to someone’s verbal obligations”, said the People’s Deputy Viktor Chumak.
Roman Romanov, as the media stressed, said that the reason for the underfunding of the state defense order was ineffective work of the Verkhovna Rada in making the necessary bills. The Secretary of the Verkhovna Rada Committee on National Security and Defense, People’s Deputy Ivan Vinnik said that such statements by the leadership of the “Ukroboronprom” look like lobbying for commercial interests: “Ukroboronprom” is an economic entity; it has nothing to do with the formation of a national policy in security and defense. The Verkhovna Rada government, the President, is responsible for this. Therefore, when an economic entity begins to comment on the activities of agencies from the security sector, it looks like a certain lobbying of their interests. In this case – in the commercial plane”.
At the same time, some media published information that at the end of November 2016, Izyum Instrument-Making Plant, which is part of the Concern, announced a tender for the acquisition of Toyota Highlander. Approximate price of such a car – from $ 50 thousand And in April 2017, the Concern decided to refresh the fleet and bought five not-so-cheap cars “Skoda” for 3.5 million UAH. Probably, because the underfunding of the state defense order is not a reason to refuse new cars? Moreover, at the end of 2016, the Cabinet of Ministers decided to reduce the share of net profit from 75% to 30%, which Ukroboronprom should transfer to the state budget.
One of the possible reasons for the concern of the head of the “Ukroboronprom” about financing the state defense order was that the servicing of the needs of internal customers and the supply of modernized Soviet-made equipment to the troops is an easier task than achieving successes in the field of export of new weapons and military equipment. Meanwhile, even internal customers – Ukrainian law enforcement agencies – are also in no hurry to acquire arms and military equipment and services from the Concern. If in 2015 “Ukroboronprom” received 67% of the total state defense order, in 2016 – slightly more than 52%.
“The state should not create any structures, but create conditions and demand, so that the structures themselves arise and develop. I do not see any problem in making each of the enterprises of the Ukroboronprom independent and working in a competitive environment”, media quoted Artem Vjunnik, director of the UAV’s private company Athlone-Avia. – Today these are not factories, and their directors are not directors in full understanding. They are the storekeepers and the heads of the shops”.
One of these “managers”, Romanov’s 30-year-old protege Pavel Barbul, head of the State Foreign Trade Enterprise “Spetstekhnoexport” is a private figure of the criminal chronicle. Only in 2016 Pavel Barbul declared a salary of 1.7 million UAH! “Spetstekhnoexport” became a figurant of one of the largest cases of money laundering in the history of defense enterprises.
From November 2014 to October 2015, “Spectechnoexport” transferred about 90 million UAH for the supply of aviation equipment and services to the accounts of LLC “Khartech” and OOO “Technocomlect.” Subsequently, commercial firms transferred these funds to the accounts of several individuals who received money through the banks’ cash desks.
In addition, in November 2016 it became known that Spetstekhnoexport in 2015-2016 transferred more than 80 million UAH. for allegedly delivered equipment to the company “Spetsprommechanization”, which the police consider fictitious. This is stated in the resolution of the Pechersk District Court of Kiev.
The investigation found that a group of people in Kyiv, Kherson, Dnepropetrovsk, Zaporizhzhya oblasts and Kiev provided services for the illegal conversion of non-cash funds into cash and took part in the theft and legalization of money from state-owned enterprises.
Nominal founders registered a number of firms with formal managers. Interrogated as a witness, the head of the company Spetsprommechanizatsiya reported that she had not carried out economic activities and she knew nothing about using the bank account. She explained that she became the head of the firm for a fee. And this is only part of the fraudulent activity of Pavel Barbul. Moreover, first, his leader Romanov must be responsible for this situation.
The non-transparent activities of the Concern “Ukroboronprom” have been repeatedly discussed. In September 2016, People’s Deputy Vitaly Kupriy, deputy chairman of the Verkhovna Rada Committee on Legislative Support of Law Enforcement Activity, spoke of large-scale abuses in Ukrobonprom, which caused damage to the state at UAH 283 million. The deputy urged the President, the Prime Minister, the heads of the National Security and Defense Council and the Fiscal Service to stop the misappropriation of budgetary funds, enclosing to their appeal the detailed scheme of alleged offenses received from patriotic employees of the state concern. Kupriy also mentioned the individuals and legal entities involved on this schemes.
In his address, the deputy noted that there are systemic financial irregularities in four Concern enterprises: the Zhitomir Armored Plant, the Kyiv Armored Plant, the Odessa Aviation Plant, and the Civil Aviation Plant 410. Budget money from these enterprises was derived through artificial overstatement of the volume of the tax credit for VAT, as well as through the conduct of non-cash transactions with the subsequent withdrawal of funds into the informal sector of the economy through a number of fictitious enterprises.
Following this statement, in January 2017, the head of the NABU, Artem Sytnik, said that the NABU is investigating criminal cases against officials of the state concern “Ukroboronprom.” In april, the Pechersky District Court of Kyiv authorized the military prosecutor’s office of the Lugansk garrison to withdraw the documents of the concern “Ukroboronprom” about cooperation with Optimumspeczdetal LLC, Inter Steel Ltd. and LLC Renal, which they suspect of fictitious activities.
The investigation found that in 2014-2015 GP Kievsky Armored Factory received six orders from the Ministry of Defense for the repair and maintenance of special purpose vehicles. In the future, the plant showed in tax reports that in August-November 2015 it allegedly acquired the leading bridges to special equipment from “Renal Firm” for 5.28 million UAH. In its turn, the company allegedly bought bridges and components for them from Optimumspecdetal and Inter Steel Ltd. for almost 13 million UAH. Then she cooperated with the companies “Optimumspeczdetal”, LLC “Napoli Group” and LLC “Midland Invest”.
The Prosecutor’s Office analyzed the tax invoices throughout the operation and did not establish the facts of providing logistics services for the delivery of goods. In addition, during the interrogation, the director and founder of Promokmarketgroup stated that she registered the firm for cash consideration and did not engage in business. During the searches at the place of registration “Optimumspeczdetal”, “Inter Steel Ltd” and “Firm Renal” none of the firms were found.
The investigation found that in the last few years, other three state enterprises that are members of the Ukroboronprom Concern were engaged in economic activities with these three enterprises.
In April, searches were also conducted at the Odessa Aviation Plant. According to the media, the activities of the aviation plant are the subject of several criminal proceedings. One of them is open on part 2 of Art. 191 and part 1 of Art. 212 of the Criminal Code of Ukraine – “misappropriation, embezzlement or possession of property through abuse of power” and “evasion of payment of taxes, fees and other mandatory payments”.
Also in April, Shevchenkivskyi District Court of Kyiv arrested bank accounts of Partner Center LLC. The State Fiscal Service suspects merchants in collusion with the leadership of the Zhitomir Armored Plant. LLC during 2013-2015, according to the documents, supplied components to the plant, fictitious firms were involved in the supply chain. Damage – 3.38 million UAH.
In the spring of 2015, Mikhail Mosin was in charge of the ZhBTZ. Earlier, he was convicted of forgery when he headed “Khersonelectrotrans”. As we managed to find out in general only in 2014-2015, more than 15 criminal proceedings were opened on abuses committed by the management of “Ukroboroprom” enterprises.
In addition, how many things are left behind the scenes – no one knows. And what do we see today? The man who led this grandiose scam pyramid “smiles and waving” to all. “Our team gave a powerful impetus to the development of both the Ukrainian defense industry and the entire economy of the country. We understand how for a couple of years to create a defense industry that will ensure the independence and territorial integrity of any state”, he said.
And in the meantime, when the guilty people easily escape from any criminal responsibility, they continue to steal money from the defense budget in the corridors of “Ukroboronprom” , President Poroshenko asks for Javelins in the US, because for some reason “the defense industry that will ensure the independence and territorial integrity of any state” does not work in Ukraine.