The successful prosecution of a Foreign Corrupt Practices Act case in the U.S. has shed light on a lucrative aspect of Ukraine’s endemic corruption, and even shows how bribes were paid.
On Dec. 20, agricultural trading houses Alfred C. Toepfer
International Ukraine (ACTI Ukraine) and its parent company Alfred C. Toepfer
International G.m.b.H. (ACTI Hamburg) pleaded guilty in the Central District of
Illinois of paying roughly $22 million in bribes to Ukrainian government
officials via third-party vendors, according to a U.S. Justice Department
statement. The scams involved in the prosecution’s case spanned from 2002-2008.
In return, the companies, both
of which are subsidiaries of Archer Daniels Midland Co. headquartered in the
Illinois city of Decatur, received more than $100 million in VAT (value-added
tax) refunds and made $33 million in illegal profits as a result of the
bribery, reads a U.S. Securities and Exchange Commission complaint on the
matter.
More revealing, however, is
how the bribes were paid to release the VAT refunds.
In one scheme the SEC
outlined, the subsidiaries – ACTI Ukraine and ACTI Hamburg – “inflated
commodities contracts with a Ukrainian shipping company to provide payments to
government officials.” In another scheme, “the subsidiaries created phony
insurance contracts with an insurance company that included false premiums
passed on to Ukraine government officials.”
The bribes usually were
generally 18 to 20 percent of the corresponding VAT refunds, according to the
SEC complaint. Neither the Ministry of Revenue and Duties of Ukraine nor Archer
Daniels Midland would say which government officials were the beneficiaries of
the bribes.
German citizen Bjoern Stendel
headed ACTI Ukraine during the period when the bribes were paid. When contacted
by the Kyiv Post, Stendel said, “I have no comment, I have no idea.” In an
e-mailed message, ADM said it wouldn’t comment on personnel matters “and cannot
say who may or may not have been involved.”
After helping Canadian grain
handler Viterra set up operations in Kyiv in 2010, Stendel moved on to work for
Soyuz Ukraine, a unit of Swiss-based Soyuz Commodities that is part of Russian
investment group Summa Capital.
ADM did, however, say that it
and ACTI “have taken disciplinary action, including termination, with a number
of employees,” adding that it wouldn’t comment on the amount of bribes that were
paid to Ukrainian government officials.
ADM’s chairman and chief
executive Patricia Woertz told Reuters that “the conduct that led to this
settlement was regrettable, but I believe we handled our response in the right
way,” referring to the disciplinary action the company took and its agreement to
pay more than $54 million in criminal and regulatory penalties along with its
subsidiaries.
Although the SEC complaint
didn’t specifically identify company executives who were involved or aware of
the bribes, it did refer to “senior managers at ACTI Ukraine (who) conspired
with the owner of the Shipping Company to artificially inflate invoices.”
“Between February 2007 and
August 2008, the ACTI Ukraine general manager organized a scheme through which
ACTI Ukraine used a Ukrainian insurance company…to funnel improper payments to
Ukrainian government officials,” reads an excerpt from the SEC complaint.
VAT refund headaches
Receiving VAT refunds in
Ukraine has been a constant headache for foreign companies. In 2002-2010,
according to the SEC complaint, the Ukrainian government determined to delay
paying the VAT refunds owed or did not make any refund payments at all.
During these years, ACTI
Ukraine accumulated receivables for VAT refunds, including as high as
approximately $46 million at certain periods.
In 2008, the last year of the
VAT-refund bribery case, Washington, D.C.-based U.S.-Ukraine Business Council
complained of VAT refunds due “with lag times that range from months to over a
year, and in some cases with an ultimate bureaucratic denial of valid refund
claims.”
The international business
association estimated that for some of its member companies, problems getting
VAT paid on exports amounted to hundreds of millions of dollars. “VAT refund
arrears continues to grow as the government either refunds in a very delayed
fashion or in some cases finds pretexts not to refund at all,” reads a USUBC
note from Feb. 25, 2008.
A year earlier in April 2007,
the office of the U.S. Trade Representative, America’s chief trade negotiator
and principal advisor to the president, said the period for obtaining a refund
of VAT payments can take 3 to 18 months for foreign companies.
“In August 2006, the
government of Ukraine decreased the pace of VAT refunds, reimbursing only 76
percent of verified claims, down from 87 percent refunded in 2005,” reads an
April 2, 2007 statement by the U.S. Trade Representative.
Current VAT refund trends
The Revenue and Duties
Ministry told the Kyiv Post that it is cracking down on corrupt officials in
its office although it wouldn’t name the bribe takers related to the VAT-refund
case. It said that since Jan. 1, 922 ministry employees have been disciplined
for “wrongful acts,” while 147 were fired for the infraction.
In addition, 23 ministry
officials have been found guilty of civil violations, and there are 271
criminal cases open, 39 of which for illegal gain. The ministry’s internal
security records show that 23 were convicted in courts, 10 of whom for illegal
gain, which include bribery.
This year the revenues and duties ministry plans to make
Hr 24.2 billion in automatic VAT refund payments, which is 4.5 percent more
than in 2012, and 52.2 percent more than in 2011.
According to Ekonomichna
Pravda, as of July VAT arrears were Hr 4.5 billion, while Hr 11 billion worth of refunds
was being disputed in courts.
However, a corruption watchdog
says that VAT refunds are doled out manually. Meanwhile the practice of giving
bribes to obtain refunds still exists.
“There is no automatic VAT
refunds otherwise there wouldn’t be arrears in this area,” said Vitaliy
Shabunin, chairman of the Anti-Corruption Center. “The practice of giving
kickbacks to obtain them is 20 to 40 percent of the corresponding VAT refund
amount.”
Kyiv
Post editor Mark Rachkevych can be reached at either [email protected] or
[email protected].
