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Ukrainian MoD contractor nabbed amid $ 1.2 bn fraud probe as minister vows to clean house

Ihor Hrynkevych’s attempt to give a $500k bribe amid an ongoing probe of corruption at Ukraine’s Defense Ministry backfired badly as minister Rustem Umerov announces he will “clear the system”
Ihor Hrynkevych corruption scandal Ukrainian Ministry of Defense
Ihor Hrynkevych (far right) is suspected of embezzling $1.2 million on contracts with the Ukrainian Ministry of Defense. Photo: from his charitable organization
Ukrainian MoD contractor nabbed amid $ 1.2 bn fraud probe as minister vows to clean house

Article by: Maria Tril, Alya Shandra

On 29 December 2023, Ukraine’s State Bureau of Investigation (SBI) detained the Lviv businessman Ihor Hrynkevych, who allegedly offered $500,000 to a senior SBI official, the bureau reported.

His detention comes amid an announcement of an internal shakeup by Defense Minister Rustem Umerov, who claimed that one of the priorities of his team would be to “clear the system from dishonest participants – inside and outside the institution” and that an internal audit conducted over four months had determined that UAH 10 billion ($264 million) had been stolen from Ukraine’s Ministry of Defense.

Hrynkevych corruption case

According to the SBI, the bribery attempt comes amid an ongoing criminal investigation into procurement fraud related to clothing and linen contracts for Ukraine’s Armed Forces. The Lviv businessman’s companies won 23 bids worth over $1.5 billion to supply the Defense Ministry.

The investigation found that Ihor Hrynkevych’s companies, which were previously involved in construction, did not have proper manufacturing, warehouse, and other facilities for the production and storage of material for the needs of the Ministry of Defense (MoD). This led to state budget losses worth $1.2 billion and disruption of supplies.

The businessman’s companies didn’t fulfill at least six contracts. The companies delivered goods to military warehouses in small quantities for seven more contracts but received full payment, the SBI reported.

An additional eight contracts were fulfilled with 3-5 month delays. Analysis of foreign trade contacts and customs documents indicates overpricing of goods supplied to the military.

“The SBI is also examining the potential involvement of former Defense Ministry officials who failed to take any legal action to enforce or terminate problematic contracts,” said the statement.

The investigation reports that the total damages could exceed $1 billion.

At what stage is the case now?

On 30 December, the Pechersk District Court of Kyiv imposed pre-trial detention on Hrynkevych with an alternative bail of over UAH 420 million ($11 million). As of 8 January, the businessman remains in custody.

The detained businessman may face up to eight years in prison under Ukrainian law if charged and convicted of offering a bribe to a government official, the SBI said. The SBI said it is considering requesting pre-trial detention.

The results of the SBI investigation and suspicions of possible procurement corruption in the Ministry of Defense are still pending.

The scandal has involved the businessman’s family, which includes his wife, daughter, and son. This is because, as per journalist Tetiana Nikolayenko from the Defense Ministry’s Public Anti-Corruption Council, none of the companies are registered to Ihor Hrynkevych himself. His wife and daughter have withdrawn from the list of beneficiaries, and one of the companies is registered only to his son.

On 9 January, Ihor Hrynkevych’s son Roman wrote on Instagram that his family’s activities complied with the current legislation.

According to the founder of the investigative journalism program Nashi Hroshi, Yuriy Nikolov, the Defense Ministry is canceling almost all contracts with companies linked to the family of Lviv businessman Ihor Hrynkevych.

The head of the Defense Ministry’s Press and Information Department, Illarion Pavliuk, said to Radio Liberty on 10 January that the Defense Ministry is “examining under a microscope” the agreement with the company associated with Hrynkevych, which is still in force.

“We are studying all the details extremely carefully. If even the smallest violations are discovered and there are grounds for terminating the contract, it will be terminated,” Pavliuk said.

He said this is an agreement for catering for the military in Mykolaiv and Kherson oblasts, valid from 1 January to 1 April 2024. As of now, no violations of this agreement are known.

“There are currently no grounds to terminate it. We are closely examining everything related to this contract, the quality of services provided,” the Ministry of Defense representative told Radio Liberty.

On 11 January, a Ukrainian court seized the property of Ihor Hrynkevych’s family and affiliated companies on the initiative of the State Bureau of Investigation, SBI reported.

The business assets were seized to compensate the state for the losses inflicted. They include real estate, premium cars that are owned by the businessman’s family, as well as property and accounts of companies under his control.

Experts estimated that all products supplied by the businessman’s companies for the needs of the Ministry of Defense in 2023 do not meet quality characteristics and are unusable, according to the SBI.

Previously, the National Agency for Asset Recovery and Management published a list of the traced assets, in particular:

  • 17 residential properties, including three apartments owned by Ihor Hrynkevych’s wife Svitlana; 1 Lviv apartment owned by Yaryna Hrynkevych; 1 Lviv apartment owned by Marian Shved;
  • Seven non-residential properties, including commercial space in Kyiv;
  • 18 land plots, including significant plots in Kyiv Oblast, belonging to Ihor Hrynkevych and his son Roman Hrynkevych;
  • Nine luxury vehicles;
  • Share capital worth UAH 14,7 million ($ 389,000)
  • 12 weapons;
  • Three intellectual property rights.

According to ARMA Deputy Chairman Pavlo Velikorechanin, the agency has identified that the suspects have bank accounts in over eight institutions.

Meanwhile, as the businessman was winning tenders and improperly disbursing the funds, his family members were boasting about their gorgeous lifestyle on social media.

Ihor Hrynkevych’s daughter, Olha Shved, was also involved in a scandal in August 2023, Ukrainska Pravda reported. The young woman published a photo on her Instagram stories in the gold VIP carriage of one of the Ukrainian Railways trains.

Hrynkevych corruption case

Sevhil Musaeva, editor-in-chief of Ukrainska Pravda, said on Facebook on 7 January 2024 that she was offered money to delete this news back then.

Why is it important?

After being appointed to lead Ukraine’s Defense Ministry, Rustem Umerov had launched probes into possible corruption in his institution. Procurement scandals had plagued the ministry while it was headed by his predecessor Oleksiy Reznikov, who resigned on 5 September 2023.

Apart from Hrynkevych’s case, the probes have resulted in a former Ministry of Defense official being suspected of embezzling almost a billion hryvnias ($25 million) during the procurement of bulletproof vests for the Ukrainian Armed Forces. On 8 January, the Prosecutor’s Office informed that Yuriy Shapoval, former deputy defense minister, is suspected of procuring bad quality bulletproof vests that cannot be used in the army.

These charges were added to two other counts: one for procuring substandard bulletproof vests for UAH 350 million ($9.2 million) that did not pass ballistic tests, and another for the procurement of poor-quality fatigues, valued at $25 million, that are unusable under winter conditions. Shapoval is currently under custody.

In December 2023, the Ministry of Defense and Ukraine’s Security Service announced that they had thwarted an embezzlement scheme by which UAH 1.5 billion ($39.6 million) was stolen during the purchase of ammunition. By this scheme, contracts for the purchase of ammunition were made at prices 30% higher than market value and were characterized by production speeds slower than usual.

When commenting about the fight against corruption in his ministry, Defense Minister Rustem Umerov announced that the Ministry of Defense is implementing a new procurement architecture based on NATO standards. As part of it, procurement of all non-weapons items, such as food, clothing, and fuel, will be made by the State Logistics Operator, created in November. Umerov said that it had cut costs by 20% during the four months of his work. Meanwhile, weapons are procured by the Defense Procurement Agency.

“These procurements are just starting and we will see the results, but it is already clear to us that there will be no such mess as there was in Reznikov’s ministry,” Yuriy Nikolov, an investigative journalist who uncovered a food procurement scandal that eventually led to Reznikov’s demise, commented to Apostrophe.

One of the ways that the State Logistics Operator will attempt to sieve through shady contractors of the Defense Ministry is to introduce risk indicators such as unfulfilled contracts.

Clearing out the Defense Procurement Agency could be more problematic. Under Volodymyr Pikuzo in 2022, it made a payment of $19.8 million to a US contractor for the repair of 155 mm M109 howitzers, but the repair turned out to be of poor quality, and the claim process is still ongoing. Pikuzo also did not respond to inquiries by civic anti-corruption bodies. Currently, the agency has an acting head, and is yet to be chaired.

Truly reforming weapons procurements will require a systemic reform, Olena Tregub, member of the Public Anti-Corruption Council at the Ministry of Defense, executive director of the Independent Anti-Corruption Commission, told Apostrophe. Currently, the market of contractors working with the Defense Ministry is not in the best state: sometimes, all of the contractors applying for a tender were not honest.

Moreover, the general state of Ukraine’s law enforcement system plays a role. Rustem Umerov’s desire to avoid corruption scandals in his agency is laudable, but the scale of money flows in Ukrainian defense is huge, and no anti-corruption council can keep up. It is ultimately up to Ukraine’s law enforcement agencies to prosecute cases of wrongdoing. However, the food procurement scandal that led to Reznikov’s dismissal has yet to find a resolution, Tregub said.

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