It was one of the biggest revelations about corruption since Ukraine’s EuroMaidan Revolution ended Viktor Yanukovych’s presidency in 2014.
On Feb. 25, Nashi Groshi investigative journalists revealed that the son of Oleh Hladkovskiy, deputy head of Ukraine’s Security and Defense Council and a top ally of President Petro Poroshenko, allegedly played a leading role in a scheme that embezzled millions of dollars from state defense enterprises.
The investigation exposed a small group of well-connected young men who journalists say were smuggling used parts for military equipment from Russia and selling them to Ukrainian defense companies at inflated prices.
According to Nashi Groshi, the central figures in the scheme were Ihor Hladkovskiy and entrepreneurs Vitaliy Zhukov and Andriy Rogoza. Messages the three men sent during the years 2015–2017 show them discussing multimillion-dollar deals with state defense companies, paying kickbacks to their CEOs, and negotiating with suppliers in Russia.
The investigation was based upon leaked messages and documents that the journalists said they received from an anonymous source and verified by matching the information in them against other sources.
And while it wasn’t the first investigation revealing corruption in what is now a $7.6 billion-a-year defense sector, or 6 percent of the nation’s economic output, it is the first to reach so high into the upper echelons of the Ukrainian government and to provide such damning detail.
The 46-minute video investigation sent shock waves through Ukrainian society, receiving nearly 600,000 views on YouTube in less than four days.
In the publication’s wake, Poroshenko called for an investigation of the journalists’ claims on Feb. 26. Meanwhile, Oleh Hladkovskiy announced that he will suspend his work at the Security and Defense Council while the matter is investigated — but also called it all “a brazen lie.”
In a comment to the Interfax-Ukraine news agency, his son denied the accusations and said he would take the journalists behind the investigation to court.
Meanwhile, the Special Anti-Corruption Prosecutor’s Office, ethically tainted by allegations that its chief sabotaged other criminal investigations, has opened an investigation into Nashi Groshi’s discoveries. The case is preliminarily classified as an investigation of embezzlement through abuse of office, but could potentially lead to other criminal charges, the agency’s spokesperson, Olga Postoliuk, told the UNIAN news agency.
The Kyiv Post reached out to Rogoza, one of the men named in the story, but received no comment by the time this story was published. Zhukov could not be reached for comment.
Nashi Groshi will air the second part of the investigation on March 4. The journalists say it will explore Oleh Hladkovskiy’s connection to the scheme.
Hitting where it hurts
Nashi Groshi’s investigation came out just one month before the March 31 presidential election, when Poroshenko will seek a second term in office. During his campaign, Poroshenko has presented himself as a major supporter of the army and appealed to the public’s patriotism amid Russia’s five-year war that has killed 13,000 Ukrainians and led to Kremlin occupation of 7 percent of the national territory.
Poroshenko has argued that he is the best of all presidential candidates to take on the nation’s enemy, Russian President Vladimir Putin.
Poroshenko has repeatedly spoken out harshly against corruption in the defense sector.
“Those who steal from the army — we will cut off their hands,” Poroshenko said in October 2017.
So a scandal touching the president’s inner circle has clear implications on his re-election chances. Even before the defense corruption allegations broke, Poroshenko was running behind comic actor Volodymyr Zelenskiy and running neck-and-neck with ex-Prime Minister Yulia Tymoshenko. The top two vote getters in the March 31 race, assuming none of the 44 candidates wins a majority, will advance to the April 21 runoff election.
Hladkovskiy is one of the closest allies of Poroshenko: he was Poroshenko’s business partner in the Bohdan auto production company. In 2015, Poroshenko appointed him deputy head of the Security and Defense Council, even though he had no experience in public governance or the military. According to his official biography, Hladkovskyi leads the council’s interagency commission on military technical cooperation and export control.
This isn’t the first time that Hladkovskiy has been implicated in conflicts of interest in the defense sector. The Bohdan automobile company, which he still co-owns, has continued to receive state defense contracts while Hladkovskiy occupies one of the highest posts in Ukraine’s defense hierarchy.
But Nashi Groshi’s findings may have only exposed a small fraction of wrongdoing, experts say. Ukraine spends billions of dollars on its defense — and most the transactions are conducted in total secrecy, with no oversight.
“I’m not surprised at all by what I’ve seen,” said Viktor Plakhuta, a defense expert and CEO of the Free Ukraine Foundation. “Everybody knows what is going on, it was written about many times. It’s a rotten system hidden under the state secrecy laws.”
Since Russia launched its war on Ukraine in 2014, the country has increased its defense budget several times. In 2019, the budget reached a record high of $7.6 billion — around 6 percent of the country’s GPD. But while other government spending has grown more transparent in recent years, most of the defense spending has been classified — allegedly to protect Ukraine’s defense secrets from enemies in Russia.
Just two weeks before the investigation, on Feb. 14, the Security and Defense Council held a roundtable focusing on the need to bring transparency to the defense sector. Hladkovskiy was one of the participants.
Plakhuta and other experts wrote a draft bill that would make a portion of defense procurement transparent. He says he has been promoting the bill, but there has been little interest.
A simple scheme
When Russia started the war against Ukraine in 2014, the Ukrainian defense industry was receiving 35 percent of its supplies from Russia. That needed to change.
By the next year, 2015, the Ukrainian government said it had halted all purchases of defense supplies from Russia, instead producing the necessary parts or buying them from other countries.
But according to Nashi Groshi’s story, at least some of those necessary military vehicle parts were still brought from Russia — but now they were smuggled in and sold at inflated prices.
According to the investigation, the supplies were bought for cash in Russia and sold through a chain of intermediaries — often shell companies — to state-owned defense enterprises at prices two to four times above market price. The money was then converted into cash.
The profits were allegedly divided between the trio of the younger Hladkovskiy, Zhukov, and Rogoza. In one message exchange between Rogoza and Zhukov, the two allegedly discussed how the scheme wasn’t fair: Hladkovskiy, who was the least active in the scheme, received more money than the two of them, they said.
Some of the money was allegedly used to pay kickbacks to the CEOs of state-owned defense enterprises. At least one allegedly accepted kickback money directly on his bank card. Following the story, directors of two defense factories in Kharkiv Oblast were suspended.
Russia wasn’t the only supplier. In at least one instance, the group allegedly bought parts from the stock of Ukraine’s defense ministry that weren’t meant to be sold and then re-sold them to state-owned defense enterprises.
And not all the intermediaries were shell companies. In several cases, one of Poroshenko’s own companies served as the intermediary, although details of these operations remain sparse in the investigation. The company was Kuznya na Rybalskomu, a Kyiv-based shipbuilding company that until late 2018 belonged to Poroshenko and his business partner, lawmaker Ihor Kononenko. In November, they sold it to businessman and ex-politician Sergii Tigipko. The younger Hladkovskiy used to be on the board of directors of Kuznya — but for 17 days only, in August-September.
The investigation also shined a light on the lifestyles of the children of Ukraine’s elite. Only 24 years old, Ihor Hladkovskyi already has a long history of top roles, and not just in business.
He is the CEO of Hyundai Motor Ukraine, the official distributor of Hyundai automobiles in the country and part of his father’s Bohdan holding.
But he also serves as the honorary consul of the Seychelles, an island nation off the eastern coast of Africa.
The honorary consular status comes with some advantages that are vaguely defined in the Ukrainian and international legislation. Ukrainian firms that offer to help get an honorary consul status promise that its bearer will have the right for visa-free travel, can enter the country without the customs clearance, and their office can’t be searched by law enforcement. According to RFE/RL’s Schemes investigative program, in 2018, the Seychelles consulate moved to the same building as Hyundai Motor Ukraine.
From left to right: Andriy Rogoza; Igor Hladkovskyi, son of Deputy Chairman of the National Security and Defense Council Oleg Hladkovskyi; and Vitaly Zhukov (Courtesy)
Lies revealed
The people implicated in Nashi Groshi’s story and their allies offered a mixed reaction: while denying everything and calling for an investigation of the claims, some of them also acknowledged that part of the information was true.
One of the consequences was that top officials acknowledged that Ukraine’s defense industry uses supplies smuggled from Russia — and even said it was acceptable to do so.
However, for years, defense officials and even Poroshenko boasted about fully replacing the Russian defense supplies.
The elder Hladkovskiy de facto confirmed some parts for military vehicles are still bought from Russia.
“Indeed, we import some parts from where they are produced,” he said answering a question about Russia on ZIK TV on Feb. 26. “It is a complicated process and our special services are part of it.”
Smuggling ‘acceptable’
Prosecutor General Yuriy Lutsenko also said that he knew about smuggling military components from Russia and supports the practice.
“It’s probably not a secret for anyone that, in recent years, the Ukrainian defense industry receives most of these parts from volunteers and companies that smuggle them as contraband from the territory of the Russian Federation,” he said. “During wartime, for a country at war, I find this acceptable.”
Still, Lutsenko added, selling smuggled parts at inflated prices wasn’t justified. He claimed that his office had been investigating the companies mentioned in the Nashi Groshi report since 2016.
“The journalistic investigation appeared at the moment when we were near the finish line,” Lutsenko said. He promised charges in the case soon.
Ukroboronprom, the state concern of defense enterprises that includes the firms implicated in the story, initially put out a statement lashing out at journalists for “manipulations.”
“Ukroboronprom won’t be assessing the information released by the journalists because they didn’t reveal their sources, and had a manipulative approach to the information,” the company said in a statement published on its website on the morning of Feb. 26.
Political consequences
Meanwhile, Poroshenko’s political opponents attacked him for his partner Oleh Hladkovskyi’s alleged corruption.
“This is worth an impeachment, not a second term (for Poroshenko),” Deputy Speaker of Parliament Oksana Syroid wrote on Facebook, sharing the link to the investigation on Feb. 25.
That idea was picked up by Yulia Tymoshenko, the leader of the Batkivshchyna party and one of Poroshenko’s main rivals in the presidential election. On the morning after the story aired, Tymoshenko said she had initiated impeachment procedures.
However, impeachment remains a complicated matter in Ukraine, with no precedent in the country’s history. There is an ongoing legal debate about whether it is even possible.
While Poroshenko himself called on law enforcement to check the claims in the story, his re-election camp took a more cynical approach.
“This is 100-percent election technology,” Oleh Medvedev, Poroshenko’s campaign spokesman and speech writer, said on Feb. 26. “When these things come out one month prior to the election, the goal is not to find the truth, but to influence the election.”
However, many outside of politics were shocked by Nashi Groshi’s revelation.
Among those most astounded were the people who know first-hand that despite the big defense budget, the Ukrainian army is still under-funded.
Yuriy Mysiagin is a volunteer from Dnipro. Since 2014, when the war started, he has fundraised tens of millions of hryvnia to buy equipment and other supplies for the then-impoverished Ukrainian army. He saw the Nashi Groshi story on Feb. 25 and was staggered.
“I’m shocked. I’m shocked about how big it is and how long it was going on,” he told Kyiv Post.
He said that even now military vehicle parts — the subject of the corrupt trade in the story — are in high demand in the army. Most military vehicles are old, dating back to USSR, and require maintenance and a lot of spare parts.
“All the people mentioned there need to be immediately removed from their posts and investigated,” Mysiagin said.
Defense expert Plakhuta agrees.“This is a crime and the people behind it should be put in jail,” he said. “Any amount of this stolen money isn’t worth the life of even one soldier.”
