Editor’s Note: This is part of a series of investigative reports based on documents recovered from deposed President Viktor Yanukovych’s Mezhyhirya estate after the Ukrainian leader abandoned the presidency on Feb. 21-22 and fled to Russia, where he is living in exile. The documents and stories are published by YanukovychLeaks.org website.
This was the case when money came and went easily.
Former President Viktor Yanukovych had plenty of money flowing to his personal coffers, often in cash. He spent it just as easily, and frequently the clean payments went through two pocket banks, UkrBusinessBank and Radikal Bank, according to YanukovychLeaks documents.
A part of these operations can be qualified as criminal activity, which included legalization of shadow income, fictitious business activities and tax evasion, financiers and accountants say. But investigating these crimes might prove to be tricky: many of the firms featuring in these schemes were bankrupted long ago, and people who were involved, are out of reach.
UkrBusinessBank, the pocket bank
When Yanukovych came to power in 2010, UkrBusinessBank became a key institution for him and his family.
Not only did it service most of the companies that belong to the close circle of the fugitive former president, it also played a role of the president’s financial clearing center.
The bank’s flurry of (often unsavory) financial activity for the good of Yanukovych’s Family, however, helped the bank to transform a small regional institution that ranked 63th by assets in the National Bank ranking, to the 39th spot in just four years. The bank acquired an ill reputation at the same time, however.
But as market players talked about closeness of the bank to Yanukovych’s family, and in particular his elder son Oleksandr, all they had to rely on was circumstantial evidence. The pool of this evidence has increased significantlty since the escape of the former president.
Originally it was known that UBB had been headed by Serhiy Arbuzov, who went in to work as Yanukovych’s National Bank governor, and then first deputy prime minister. In 2011, when Arbuzov was the NBU governor, the bank got a contract to equip all tax inspections in Donetsk with payment terminals, and had plans to do the same nationwide.
UBB failed to respond to multiple attempts to get comments for this story by phone or in writing.
Pay for nothing
But the body of the most telling evidence of a close connection between UBB and the Family are the documents found in Mezhyhirya. They serve as proof that most of the bank accounts crucial for the creation and functioning of Yanukovych’s opulent residence were open in UBB.
From the main Yanukovych company Tantalit, to development companies SPS-Group and AVK that built his residence, to his service company KyivUniversalService and security firm Dellit – all of them banked with UBB.
Among the bank’s clients were Yanukovych’s pocket charity foundation Vidrodzhennya Ukrainy, which was a part of privatization scheme that transferred Mezhygirya to his ownership, and Dom Lesnyka, which owned vast hunting grounds in Sukholychya, a short drive away from his residence.
A part of the transactions needed to keep Mazhygirya going went through UBB. But a lot of bank accounts of subcontractors were open in another Family bank, Radical Bank.
The prices paid for services through UBB have been found to be significantly inflated, according to YanukovychLeaks.
For example, for a study of social real estate market in Ukraine AVK paid two contractors Hr 38 million and Hr 75 million.
“The price of all social real estate in Ukraine could be lower than the price paid for the study,” says President of Confederation of Developers Lev Partskhaladze.
Another study of a part of real estate market cost Hr 54.1 million. On top of that, a search for a buyer for a cultural and health center cost Hr 61 million.
“Prices like these did not even exist in the crisis 2008 year, when the real estate market was bubbling and seemed like the tastiest morsel for investors,” says former director for development of Homeland Estate and real estate expert Inna Shabatina.
A marketing research of construction materials and innovative technologies cost AVK another Hr 33 million. Shabatina says that the cost of that research is overblown by about 50 times.
Market players say they can not at all understand the purpose of this study. When someone plans to build something, as a rule they do not conduct market research of building materials, but rather organize a tender where producers take part. The offer of best value for money is then chosen, sayd Shabatina.
The only contract that does not raise eyebrows is the “plan of landscape design and planting for the culture and health center,” for which the contractor paid Hr 40 million. “In theory, it could have cost that much. It all depends on the territory,” says Partskhaladze.
Other contracts look even more like they’re fictitious. One of them is a contract to monitor the media to gauge real estate prices in 2010, for which AVK paid Hr 47 million.
“Even if this is a complex study in the whole of Ukraine, this information is no secret and it can be accessed freely though open sources. I am sure that the client will not pay more than Hr 20,000 for research like this. Moreover, any adequate manager will assign it to their manager to get a compilation of prices,” says Shabatina.
Talking to the companies who got these expensive contracts is now extremely tricky because most of them have become bankrupts. For example, TOV Geksa Ukraine, which was set up on 2007 and conducted the research of social realty market, was liquidated in 2011. The same fate struck another contractor, KF Astinal, which had been set up in 2008.
Both companies were registered in Kyiv at the same address – 4 Avtotransportna Street. The list of liquidated contractors includes APC – Aliance, Dea Ltd (which existed for less then a year), Blumarine Bud, Vilmark.
Another notable company in this list is HC Bright. According to the documents found in Mezhyhirya, the company monitored mass media. Created in March 2010, in October of the same year it became a supplier of equipment and microscopes for an entity associated with the Education Ministry.
Chances for success of investigation
The law enforcers, during their research of these and other financial activities, will come across a problem that will make it really difficult to finish the cases by finding those who commissioned and conducted the financial operations, and then attempt to return to the budget the money thet may have been gained illegally and used in these schemes.
“The only thing that can be done is, as part of the criminal investigation, to claim a loss. But it’s not clear to whom the loss was caused,” says Rostyslav Kravets, the senior partner of law company Kravets and Partners. From the legal point of view, there is no aggrieved party until someone claims they incurred a loss.
Moreover, according to the Mezhyhirya documents, massive amounts of money came to the accounts of Tantalit company, which carried more of the expenses for construction of the presidential residence, based on internal requests by AVK.
Proof of black books
Among the preserved documents with 2010-2011 date stamps, journalists counted at heast Hr 340 million, $15 million and 422,000 euro worth of income. The maximum sum of payment was almost Hr 111. Lawyers say that the money could have been obtained through corrupt means or through embezzlement from the budget. Investigators are pursuing both options.
Moreover, companies like AVK, Tantalit and Vidrodzhennya Ukrainy can be incriminated tax evasion because Mezhygirya files carry plenty of evidence of double accountancy. In some cases, information about financial transactions is spelled out in tables with income and expenditures where everything is divided into two columns, F1 and F2.
“F1 in these tables is the income and expenditure of the white books, it can be seen from the taxes paid. But F2 is for sure black cash,” says a financial consultant from a Big 4 company, who helped make sense of the documents, but on the condition of anonymity because he’s not authorized to comment on such matters.
In one of the documents, F1 column carried Hr 79,000 worth of wages paid, and marked the tax payments according to the law. “In the same row, but in F2 column, the sum of payments is Hr 360,000, but the row marked “taxes” is empty,” the consultant says.
In effect, the F1 showed the inevitable expenditures of a functioning business: payment for utilities, partial payment of wages, purchase of office goods and cleaning liquids, as well as payments that can only be made legally, such as purchase of wooden furniture for Yanukovych’s home, and capital expenditures such as extension of a high voltage power line.
“This is an operation done by a regional energy company, so it’s impossible to make a payment outside the (white) books,” the consultant said. The F2 category, as a rule, carried most expenses related to construction, as well as entertainment-related expenditures.
The unpaid taxes, in theory, can be recovered from the bank, says lawyer Kravets. He says both the bank manager who authorized the payments, as well as managers of the company which conducted the payments can be held responsible.
“Mostly these would be charges of fictitious entrepreneurship, tax evasion, but it can also be legalization of illegally obtained income,” says Kravets. All these crimes carry prison punishment of three to 15 years, depending on the type of crime and its gravity.
Victoria Rudenko is a journalist with FinMaidan, a financial website at http://finmaidan.com/
This investigative project was conducted by the Washington-based Organized Crime and Corruption Reporting Project, a Kyiv Post partner.
