Why Ukraine’s defense corruption scandal is actually a good thing

Ukroboronprom, Ukraine's state monopolist in the defense sector, will now undergo an international audit after journalistic investigations uncovering corruption. Photo:
nashemisto.dp.ua 

Ukraine

Ukraine’s state concern of defense industries Ukroboronprom is rocking from a corruption scandal triggered by two videos from the Bihus.info investigative journalism project. The latest one accuses Ukroboronprom of procurements at prices five times higher than the market average. The first one was dedicated to how Oleh Hladkovskyi, President Poroshenko’s business partner, allegedly laundered $9.2mn in defense procurements. Although the journalists’ main evidence is correspondence provided by an anonymous source, Ukroboronprom didn’t reject the investigation. Instead, it prompted Ukroboronprom officials, President Poroshenko, and the Prosecutor’s office to react and strive for more transparency in the defense sector.

The third part of Bihus.info project (with English subtitles). The video accuses the Ukroboronprom enterprise of purchasing altimeters at prices five times higher than the market average.

What the journalists claim and how they prove it

In the first two parts of the investigation, published a week ago and already analyzed by Euromaidan Press, Bihus.info journalists accused Ukroboronprom directors and owners of sham firms of procuring illegally obtained details of military vehicles at inflated prices for state enterprises. Oleh Hladkovskyi, the First Deputy Secretary of the National Security and Defense Council of Ukraine (RNBO), and a close friend of Petro Poroshenko, was accused of being at the top of this pyramid.

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

Public outrage followed the first scandalous video and Poroshenko dismissed Hladkovskyi from all of his positions. But skeptics noticed that the video lacks strong evidence and can serve rather as an inquiry into Ukroboronprom’s dubious procurements rather than a definite accusation.

In the third part of the investigation published on 4 March, journalists described a single case of money laundering in the purchase of altimeters by Ukrspetsexport, an enterprise which is part of Ukroboronprom. According to the video, Ukrspetsexport purchased 6 altimeters from the private company AN-service for over UAH14mn (US$567,821) while AN-service bought them for $84,000 from a company in the United Arab Emirates. This difference in price – nearly seven times – is claimed to be money laundering.

The journalists’ main accusation: the altimeters were sold in Russia for $84,000, yet by the time they reached Ukroboronprom in Ukraine, the price was $567,871. Source: screenshot from the video

However, the journalists don’t publish any proof of the connection of the accused officials to the purchase except for correspondence provided by an unknown source. Lesia Ivanova, the main investigative journalist confirmed in an interview to Ukrayinska Pravda that they don’t have any idea who sent them the correspondence and from where.

Another weakness of the investigation is that the journalists didn’t publish financial reports necessary to prove that the “special equipment” indicated in the open database is indeed those very overvalued altimeters.

Euromaidan Press tried to follow the dubious procurement on Prozorro (an open database of all state purchases), contacted the person responsible for the purchase at Prozorro and AN-service. In fact, information on the object of procurement is not publicly accessible on Prozorro (the object is indicated there as “special equipment”). This information can be disclosed only by the subjects of the purchase privately. We asked Bihus.info on how they found out what was actually being purchased under the codename of “special equipment.” They pointed to a tax accounting base which, actually, is not publicly accessible (journalists could access it only illegally through personal connections). The journalists didn’t provide the documents to us on our request, though these scans are decisive to prove that corruption indeed took place.

However, despite this lack of documents in the publication, Ukroboronpom didn’t fully reject the journalistic investigation. The state concern responded that Bihus.info manipulated the data because they interpreted a part of the contract as the entire contract. At the same time, Ukroboronprom says that:

“we [Ukroboronptom] do not comment on the issue of delivery of altimeters to Ukraine, since the Concern’s companies did not provide logistic services” Also, “Information about the price of this or that special detail is confidential information.”

The money laundering apparently could be conducted through the private company AN-service about which Ukroboronprom “does not comment,” with Ukroboronprom being formally clean.

So, what’s the bottom line? Neither bihus.info nor Ukroboronprom have published documents confirming of their positions since the documents are private. The whole story could remain in limbo if not the reactions of top officials who didn’t openly deny the accusations and prices of the purchase. Instead, they started investigations and began making Ukroboronprom more transparent, in that way at least partially confirming the accusations.

The first prosecutions

On 6 March, the Prosecutor’s office expressed its suspicion to Andryi Rohoza.

According to the first video, Andryi Rohoza was the head of Optiumspetzdetal, the main sham enterprise supplying illegally obtained details to Ukroboronprom. Previously, the Prosecutor’s office had accused him of fraud in 2018.

Andriy Rohoza. Source: screenshot from video

According to the Prosecutor’s Office, Andryi Rohoza was accused of evading taxes and embezzling UAH26.6mn ($1mn). Then, he compensated the damage caused to the state, so a preventive measure wasn’t applied to him.

According to Prosecutor General Yuriy Lutsenko, the recent media-scandal is based on leaked data from the Prosecutor’s Office. It’s important to take into account the previous work done by the Prosecutor’s office. Since 2014, 480 criminal offenses at the enterprises of Ukroboronprom have been registered in the database of pre-trial investigations. 111 of them were sent to courts. 77 sentences were already passed, including against directors of Ukroboronprom enterprises. The case of Optimumspetzdetal, according to Lutsenko, has been investigated since 2016 and the journalists published their video a few days before the Prosecutor’s Office would have reported suspicion to Andryi Rohoza.

The evidence obtained during the investigation, including telephones, was transferred to an expert institution. During the RNBO meeting, Lutsenko said:

“If the expertise confirms their [telephones’] authenticity, then we… are planning to report suspicions to Rohoza’s potential accomplices… We are looking forward to the results regarding abuses of official duties that are the competence of the [National Anti-Corruption Bureau] NABU from November 2018.”

Speaking about abuses, Lutsenko mentioned high positions like the director-in-chief of Ukroboronprom and an RNBO member – likely to be Pavlo Bukin and Ihor Hladkovskyi accused by Bihus.info.

According to the journalist investigators, the already suspected Andriy Rohoza is only at the bottom of the corruption pyramid. Therefore, his suspicion constitutes progress, but the main intrigue is whether top officials Ihor Hladkovskyi and Pavlo Bukin will be detained by NABU, or will evidence to excuse them be presented.

President Poroshenko’s response

There is still no direct evidence or accusations that lead to Petro Poroshenko. Yet, both Ihor Hladkovskyi and Pavlo Bukin were appointed directly by the president. Therefore, on 4 March Poroshenko fully dismissed Ihor Hladkovskyi from his duties, with an intention to show that “everyone is equal before the law.” He told about this publicly at the RNBO meeting:

“All are equal before the law. A position, personal ties, or a surname won’t save from carrying responsibility for abuse. Neither do long-standing acquaintances with the president, deputy, opposition leaders, anyone. I think that the decisions I have made in recent days prove that this is definitely not an empty sound. This is an effective principle.”

During the RNBO meeting, Poroshenko also admitted that “we still have many purchases of old armaments and details for them [including from grey providers], but they also can be made predominantly open [for the public].”

To attain these goals, the president announced a comprehensive international audit of the defense industry and expansion of the Supervisory Board of the Ukroboronprom by representatives from NATO countries.

The RNBO meeting. Source: screenshot from video by Hromadske

Ukroboronprom buys details from Russia

After Russia’s occupation of Crimea and start of military aggression in eastern Ukraine in 2014, Ukraine ceased military cooperation with Russia. This decision didn’t come easy – from Soviet times, the industry of the two countries was closely intertwined and interdependent. Finding alternatives was not easy.

Bihus.info accused Ukroboronprom from buying details from Russia, and this was confirmed simultaneously by three top-officials. Pavlo Bukin, director in chief of Ukroboronprom, told that “we still need some grey places […] we didn’t develop our own production fully.” He confirmed, that altimeters in the video revealed by Bihus.info were bought from Russia with the help of intermediaries, including AN-service and enterprises from the United Arab Emirates.

The way of altimeters from Russia to Ukraine. Source: screenshot from the video

Oleh Hladkovskyi also confirmed in his interview to ZIK that such a policy exists:

“During my work as chairman of the interdepartmental commission of Ukroboronprom, we worked on the strategy of import substitution. Unfortunately, many components can not be made in Ukraine right now technologically. I confirm that some of them are imported from where they are produced… This is a very difficult task and our special services are involved in it. I can not reveal details, just say that people are performing a very important mission, and it even endangers their lives. The main thing for us is that restored, repaired and upgraded tanks can shoot.”

Smuggling crucial military equipment from Russia into Ukraine is not evil in itself under current circumstances, despite the two countries being de facto in a state of war, Ukrainian MP Borys Bereza wrote – after all, morals don’t fight, people, equipment, and technologies do. Prosecutor General Yuriy Lutsenko emphasized that some smuggled equipment “was used for repairing military equipment and successfully shows itself in the battlefield during the Ukrainian-Russian war.”

However, the problem is that these purchases are hardly subjected to public control and. therefore, they’re the best sphere for corruption.

What Pavlo Bukin and Ihor Hladkovskyi, the main accused in the video, will face

Unlike minor corrupt actors of the scheme already suspected by the Prosecutor’s office, these top-officials were not yet accused by NABU. The complexity is that Bihus.info hasn’t provided direct evidence for their guilt except for the anonymous correspondence. Therefore, it is necessary to wait until the Prosecutor’s office announces the decision upon the correspondence or until NABU announces official prosecution on the results if its own investigation.

Oleh Hladkovskyi, the First Deputy Secretary of RNBO (right), and Pavlo Bukin, director in chief of Ukroboronprom (left). Source: bihus.info

For now, the son of Oleh Hladkovskyi has sued the Bihus.info NGO, journalist Denys Bihus and his colleague, and filmed a parody of the incriminating video, in which promised to tell who leaked the correspondence to journalists.

Pavlo Bukin also rejected all accusations against him. Moreover, in his interview, he praised himself for good management of Ukroboronprom. Particularly, he mentions that he dismissed two directors of Ukroboronprom enterprises due to suspicions arising after the first series of the journalistic investigation. He also emphasizes that at the time of his management, new electronic procedures of tender procurements were introduced in Ukroboronprom and that he ceased Ukroboron’s cooperation with the sham enterprise Optymumspetsdetal.

While it’s difficult to come to a definite conclusion about the two protagonists in the Bihus.info investigations, one thing is sure: the videos have urged the government to purify itself before the elections. Regardless of whether President Poroshenko is implicated in the scheme or not, some prosecutions have already started and more are awaited. More transparency for Ukroboronprom is now a must that the government is expected to implement.

Edited by: Alya Shandra

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