An article by Forbes Ukraine posted online on Oct. 23 reports that companies with close ties to President Viktor Yanukovych’s son, Oleksandr, this year at no cost took over majority stakes worth an estimated $10 million in five coal enrichment plants from the state.
The alleged scheme that was used to shift the assets to companies close to Oleksandr Yanukovych, according to Forbes Ukraine, was enabled by an amendment to existing legislation that the president had proposed and subsequently passed by parliament on March 13.
The amendment removes the mandatory requirement of a 50 percent minimum state stake in public companies that are leased and undergo a change in ownership type – in this case from limited liability companies to public joint-stock companies. This change, Forbes Ukraine reported, allowed firms linked to Oleksandr Yanukovych to take control of the lucrative coal plants.
In an Oct. 26 e-mailed response to the Kyiv Post, Oleksandr Yanukovych strenuously denied that any of his companies took part in the scheme transferring the assets of the five coal preparation plants.
Oleksandr said companies that he owns “have not and do not conduct business activity in public procurement, privatization (of state-owned assets) and extraction of natural resources.”
Oleksandr furthermore dismissed the Forbes article’s allegations as baseless, and said the article’s “main purpose is to perhaps discredit the president of Ukraine in the public’s eyes.”
Based on information obtained from state and government bodies, and using company incorporation documents provided by a Kyiv Post partner, the Washington, D.C.-based Organized Crime and Corruption Reporting Project, Forbes investigative journalist Kateryna Kapliuk found that an umbrella company closely linked to Oleksandr Yanukovych now controls the coal plants that the official privatization gazette valued at more than $13 million.
The magazine found that the five enrichment plants were shifted under a limited liability umbrella company – Donbas Transaction and Financial Center, or DTFC – in June when their ownership type, addresses and names changed, but not their management. Forbes wrote that Donetsk businessman Vitaliy Beliakov heads this limited liability company and also headed the DTFC association which had previously leased – and in practice controlled – the coal plants from the state. He is also a minority shareholder in DTFC LLC.
According to Forbes, DTFC association had leased the coal enrichment plants from the state, but in 2009 the eponymous limited liability company was formed because the association wasn’t allowed to hold corporate rights or conduct business activity.
In June, DTFC LLC and the state jointly formed public joint-stock companies that became the legal successors of the coal plants that underwent ownership type changes: Beliakov also became the head of each of their respective supervisory boards. And DTFC LLC, according to Forbes, became the majority stakeholder in each coal plant.
The official reason for this was, according to Forbes, citing the State Property Fund, to privatize the plants.
The magazine found no evidence that the government received money in exchange for the stakes in the coal plants. Forbes Ukraine furthermore cited the State Property Fund’s announcement that the coal plant employees would be given priority to buy the government’s shares, but found no evidence they had bought shares in the plants.
DTFC now controls between 70 and 75 percent of the following coal enrichment plants in eastern Ukraine: Komsomolskaya, Ukraina, Rossiya, Krasnaya Zvezda and Uzlovzkaya. DTFC LLC essentially took over at least $10 million worth of assets from a net worth of $13 million if the state property fund’s valuation is accurate.
Forbes reported that the same directors remained at the coal plants even though the companies had changed names and ownership types.
In one case, Komsomolskaya became a public joint-stock company, like the rest of the enrichment plants. Komsomolskaya legally succeeded DTFC association. And the plant’s address changed from Dmytrov in Donetsk Oblast where it’s located to the address of DTFC LLC in the city of Donetsk.
Forbes wrote, citing the Justice Ministry, that Komsomolskaya’s phone number belongs to Andriy Fedoruk, the current head of the Donetsk Oblast Council and former head of Oleksandr Yanukovych’s MACO property development and construction company. Fedoruk, in addition, headed Uzlovskaya LLC in the first half of the 2000s that at that time was leased by DTFC association.
Forbes furthermore found that the newly formed Komsomolskaya pubic joint-stock company was established on March 12 – the day before the crucial amendment to legislation passed in parliament that enabled the shifting of the company’s assets.
Coal enrichment or preparation is a lucrative segment of the coal mining industry. Enrichment plants wash coal of soil and rock and prepare the raw material for transport to market, making it more valuable and reducing transport costs. According to Forbes Ukraine, there are some 60 such enrichment plants in Ukraine, every one of which on average can enrich 2-2.5 million tons of coal yearly.
Enrichment plants in Ukraine typically service state-owned mines. For example, in 2011 when Beliakov became its head, DTFC association made more than $125 million on government orders that year.
Sarone Holdings Limited in the British Virgin Islands actually holds the corporate rights of DTFC LLC. Sarone, according to Forbes and OCCRP, was incorporated by lawyer Blondell Challenger of Aleman, Cordero, Galindo & Lee Trust in the British Virgin Islands.
Challenger also incorporated Follberg Investment Limited, a 25 percent beneficiary owner of Zeonbud in Ukraine, which will soon became the nation’s digital TV monopoly. Chilean courts in 2006 had summoned Challenger for questioning and suspected that he had helped launder money for the former Chilean dictator Augusto Pinochet and his family.
Oleksandr Yanukovych’s net worth in June, according to Korrespondent magazine, was more than $100 million. Forbes Ukraine says companies linked to Oleksandr, a trained dentist, won government tenders worth more than $1 billion in 2012. In August, Oleksandr was named Ukraine’s fourth most influential person by Korrespondent.
Oleksandr’s reported wealth has skyrocketed since his father became president in 2010, according to news reports.
Respected online news portal Ekonomichna Pravda reported that Oleksandr’s Ukrainian Development Bank has grown 13 times in two and a half years. According to the central bank, UDB had $325 million in funds as of July 1, making it the 65th largest bank in Ukraine. Central bank chief Serhiy Arbuzov’s mother, Valentyna Arbuzova, heads UDB.
Oleksandr Yanukovych also, according to Ukrainska Pravda, has shares in Ukrainian Business Bank which Arbuzov headed in 2003-2010 before being appointed central bank chairman.
Oleksandr is also president of MACO, whose core business is property development and construction. His company has commissioned huge projects. In Donetsk it commissioned a hotel and entertainment complex, as well as a yacht club in Balaklava on the Crimean peninsula. Oleksandr also has a stake in the famous Artemivsk Winery in Donetsk Oblast, according to Ukrainska Pravda.
In 2011, Oleksandr paid more than $1 million in income tax, according to the state tax service. He reportedly has a charity fund named after him but the Kyiv Post couldn’t find it on the Justice Ministry’s register of charity foundations.
News reports have linked two firms that lease 140 hectares of land north of Kyiv where the president lives to companies linked to Oleksandr Yanukovych, including to firms that built his father’s palatial compound complete with mansions and sports clubs.
The president has refused to say who is behind the two firms.
Kyiv Post staff writer Mark Rachkevych can be reached at [email protected].
