Poroshenko’s man in defense industry accused of graft & smuggling: truth or pre-election manipulation?

Weeks before the presidential election, incumbent President Petro Poroshenko is accused of covering up a massive graft scheme in the defense sector. Photo: tsn.ua 

Ukraine

Article by: Bohdan Ben

On Monday, 25 Feb, a journalistic investigation about corruption in the Ukrainian defense industry was published by the Bihus.info project. It accuses Oleh Hladkovskyi, Deputy Secretary of the National Security and Defense Council (RNBO), a close friend and business partner of the President Poroshenko, of laundering US$9.2mn in state defense procurements. The guilt of Poroshenko himself is not yet directly proven, though the investigation implies just that. Thus the investigation may seriously influence the upcoming elections, even if some conclusions are debunked. So, is the investigation trustworthy, and how did the top officials react to the accusations?

This is not the first journalistic investigation about corruption in the Ukrainian defense industry, as well as not the first one about Oleh Hladkovskyi. Yet, this latest investigation by Bihus.info is claimed to be the biggest and most thorough – the journalists spent two years on it.

The scheme revealed by investigative journalists

Image: translated screenshot from the video

Money was laundered through selling old details for military vehicles as new ones to enterprises of the Ukrainian defense industry. The details were brought by contraband from Russia and even taken from old Ukrainian vehicles to be resold. Moreover, details were sold at a price two to four times higher than the market price.

To cover up the whole process, several sham enterprises were created. The main one was “Optymumspetzdetal” which served as the main distributor. Several smaller ones created the illusion of competition and withdrew cash at the end of the chain.

Illustration of the scheme from the video. Real state factories were “buying” details from “Optymumspetzdetal” which in its turn “bought” them from sham enterprises. De-facto, these enterprises were used to withdraw cash. Source: translated screenshot from the video

Such a scheme is especially painful for the current Ukrainian government which declared in 2015 that Ukraine ceased buying details for military vehicles from Russia. 35% of the market was covered by Russian firms in 2014 but was restructured in 2015. Yet, the investigation of Bihus.info shows that this change was made only on paper. In fact, many details were still brought from Russia illegally.

Main players in the scheme

The main players in the money laundering were rather hidden from the public eye. Vitaliy Zhukov and Ihor Hladkovskyi are two friends in their twenties.

Vitaliy Zhukov and Ihor Hladkovskyi on summer vacation with their wives. Source: screenshot from the video.

Vitaliy Zhukov had experience of working in the state defense concern Ukroboronprom. He was responsible for most of the routine work in the laundering: organizing supplies to factories, providing documentation for sham firms etc.

Ukroboronprom (abbreviated from “Ukrainian defense industry”) is a state-owned association of multi-product enterprises in various sectors of the Ukrainian defense industry. It provides a substantial part of armaments for the Ukrainian army. Ukroboronprom is considered as one of the most corrupt institutions in Ukraine due to numerous reports about corruption in different enterprises.

The second player, Ihor Hladkovskyi, is the son of Oleh Hladkovskyi, who, in his turn, is the business partner and friend of Poroshenko.

Oleh Hladkovskyi, the business partner and friend of Poroshenko. Source: Economika vid proroka

Oleh Hladkovskyi, the father, is a shareholder in the “Bohdan” corporation together with Petro Poroshenko. Officially, he bought a part of the stocks from Poroshenko in 2009, though they were business partners and friends since the 1990s. From 2015 till today, he was the First Deputy Secretary of the National Security and Defense Council of Ukraine (RNBO). RNBO is the institution that helps the President to professionally fulfill his duties as a commander-in-chief.

Ihor Hladkovskyi, the son, was responsible for ensuring the obedience of directors of state enterprises belonging to Ukroboronprom. They had to sign contracts with sham enterprises controlled by the two boys and were supposed to warn about any audit and control conducted by the SBU (Security service of Ukraine) or tax administration. To wipe out any disagreement among directors of state enterprises, Ihor Hladkovskyi called his father to interfere when needed. Finally, the directors also received their part of costs in the scheme.

Unfortunately, the journalists haven’t uncovered further details yet. The role of higher officials such as Ihor Hladkovskyi, and, possibly, Petro Poroshenko is expected to be presented next Monday in the next series of the videos.

The hierarchy of those accused of laundering as presented in the video. President Poroshenko is depicted as the chief in the top. Father and son Hladkovskyi in the second line. Minor players in the bottom, managed by Vitalyi Zhukov depicted in the left corner.

The journalists claim that the President is implicated in the scheme because he appointed Ihor Hladkovskyi and should control the defense sphere where he works. Also, the journalists name the president’s enterprise “Kuznia” as a part of the scheme. “Kuznia” bought UAH70mn (US$2.6mn) worth of details from the two boys.

Is the investigation trustworthy?

Some skeptical questions were asked about the investigation, particularly, but not only by, government institutions.

The source of the information was not presented in the video and remains unclear. Lesia Ivanova, the journalist of the project, explained:

Dozens of people. Dozens of meetings… Workers of the state defense concern, businessmen, SBU officers, the military, journalists, tax officials, customs workers, border guards… Last year we talked with everyone who could tell us about scams in the defense industry. In spring 2018, we got a letter… from a disposable e-mail address, it had a link to an archive containing the fraudsters’ correspondence. It had names, dates, amounts of bribes and kickbacks.”

Not only messages, but documents and personal photos were included in the correspondence as well. Lesya Ivanova tells that Bihus.info spent half of a year to compare the correspondence and official documents to prove it is real.

Journalist speaking with Olena Sirnyk, fake owner of one of fake companies who was promised to be given UAH1000 ($37) per month. Source: screenshot from the video

However, neither the “dozens of people” whom the journalist talked to were named, nor were documents proving the correspondence provided (except for some small examples). The logic and sources of the investigation remain unclear in spite of the impressive presentation. Of course, there is no possibility to include everything in a relatively short video. Yet, unless there is a thorough publication of the investigation with all arguments, nothing can be concluded for sure.

Some cautions remain regarding the accusation of Poroshenko. Saying he had not effectively combatted and ignored the corruption in the defense industry is one thing; saying he was himself the main offender at the top of the pyramid, as the journalists presented, is quite another.

Let’s calculate: according to the investigation, at least UAH250mn ($9.2mn) were laundered in the last three years (if unconfirmed operations are added, the sum may rise to UAH1bn ($37mn)). Most of the money was divided between the “boys,” some were paid to “Ukroboronprom” officials and directors of the factories for their support of the scheme. At the same time, Poroshenko donated more than UAH700mn ($26mn) for charity. Half of these costs went to the army. It is a strange logic to steal money in order to donate more later.

On the other hand, justifying the president is not easy, either. Why wasn’t the corruption in the army, already investigated and well known in 2015, tackled? Why did it reach this unprecedented scale? These questions remains without no clear answer from Poroshenko and deal a blow to his electoral support.

Reactions

Ihor Hladkovskyi, the higher official in the presented corruption chain, asked to suspend his duties until the case is investigated by the Anti-Corruption Bureau:

“In order to prevent any insinuations, I personally appeal to the Main Military Prosecutor’s Office and NABU with a statement to check everything that is set out in the ‘investigation’ as soon as possible and give answers to me and the whole society. I request to suspend my duties as the first deputy secretary of the RNBO for the time of the investigation.”

President Poroshenko didn’t comment officially on the situation but supported the dismissal of Ihor Hladkovskyi. Sviatoslav Tseholko, press secretary of the President, commented on Facebook:

“The President of Ukraine supported the dismissal of Oleh Hladkovsky from his duties of the First Deputy Secretary of the RNBO for the time of the investigation. Petro Poroshenko demands that the law enforcement agencies carry out an urgent inspection of the information provided by the journalist program ‘Our Money’ for the refutation or confirmation of the published information.”

At the same day, the special anti-corruption prosecutor’s office launched criminal proceedings based on the information in the journalist investigation. Detectives of NABU will analyze facts of corruption in the defense sector presented in the journalistic investigation.

In the Facebook post, NABU tells that they have been investigating most of the cases highlighted by Lesya Ivanova since 2015 and some of them are already in the courts. However, many people question the effectiveness and honesty of NABU in the comments to the post. This is the illustration if general disenchantment in anti-corruption institutions among many citizens.

The statement of Ukroboronprom is in line with NABU’s statement:

“Ukroboronprom considers it inappropriate to evaluate the content of information released by the program ‘Our money.’ The journalists did not indicate its source and made manipulative statements based on separate disparate pieces of data. At the same time, we inform that the topics of the program… indicate that its authors used information that could be obtained in the framework of criminal proceedings opened in 2015-16.”

At the same time, the director-in-chief of Ukroboronprom is appointed by the president, as is the director of NABU.

However, the most ridiculous statement was made by another presidential candidate, Yulia Tymoshenko. As her electoral support has been falling in the last two months, she was happy to make use of the published investigation and did so dramatically. Tymoshenko announced the start of Poroshenko’s impeachment procedure. She didn’t take into account that Ukraine has no law on impeachment yet. The existing regulations in the Constitution of Ukraine make such a procedure considerably long. The elections will already pass over before the impeachment would be finished.

Yulia Tymoshenko announcing the beginning of the impeachment procedure in an almost empty parliament. Source: screenshot from video

Overall, directly accusing Poroshenko based on the published video is difficult for now. However, after the journalistic investigation exposed real cases of large-scale corruption in the defense industry, the president is being asked old questions that were forgotten in the public space once again.

Edited by: Alya Shandra

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