You're reading: Top officials stealing from nation at war?

Ukraine’s Defense Ministry and its secretive procurement practices have long been suspected to be a hotbed of corruption.

Those suspicions gained more currency with the Oct. 11 detention by the National Anti-Corruption Bureau of Ukraine, better known as NABU, of Deputy Defense Minister Ihor Pavlovskyi and the head of the ministry’s procurement department, Volodymyr Hulyevych. They are the targets of an investigation in a multimillion-dollar embezzlement scheme.

Pavlovskyi, who denies the accusations, is the highest-ranking military official in Ukraine to be detained on corruption charges. The NABU has noted two other suspects in the case, but said one is an employee of the procurement department, while the other works for the Department of Internal Audits at the Ministry of Defense.

The four are suspected of embezzling Hr 149 million ($5.5 million) in state funds through the purchase of fuel at inflated prices for the Defense Ministry.

Lawmaker Oleksandr Hranovsky, a top ally of President Petro Poroshenko, has also been accused of being involved in the scheme, although he also denies the charges.

The arrests underscore fears of pervasive corruption in Ukraine’s defense procurement, made possible by its highly secretive nature.

Several associates of Poroshenko, including Oleh Hladkovsky, have been accused of profiteering from the massive increase in the country’s defense spending that has occurred since Russia launched its war on Ukraine in 2014. All, including the president, maintain their innocence.

Pavlovskyi denied all of the charges against him at his pre-trial hearing. He said that the Defense Ministry had purchased fuel at the lowest price. The court on Oct. 12 placed Pavlovskyi under house arrest for two months. There was no information about a ruling on the detention of Hulyevych as the Kyiv Post went to press on Oct. 12.

Pavlovskyi’s boss, Defense Minister Stepan Poltorak, said his deputy “has been performing his duties quite professionally” since Russia’s war against Ukraine started.“But if he is connected to a crime, he should be held responsible,” Poltorak said.

Pavlovskyi’s lawyer, Rostyslav Kravets, said the evidence presented by the NABU did not point to any crime having been committed. In court, Pavlovskyi said he didn’t sign any documents that increased the price of the fuel illegally, as the NABU claimed.

“The fuel was bought at the lowest cost,” Pavlovskyi said.

Poroshenko, commenting on the case on Oct. 12, said that the army was his personal concern and that he welcomed every corruption case sent to law enforcement.

‘Cut off the hands’

“I will not allow anyone to steal in the army,” he said. “I will cut off the hands of those who will steal from the army.”

The fuel supplier in the case was Trade Commodity — a company connected to businessman Andriy Adamovsky.

Adamovsky used to be a business partner of Hranovsky, a lawmaker from the Bloc of President Petro Poroshenko’s faction in parliament. Hranovsky is also under investigation in connection with several corruption schemes.

Hranovsky, in comments made to online newspaper Ukrainska Pravda on Oct. 11, denied having any connection to Trade Commodity.

The case involving Pavlovskyi and Hulyevych goes back to early 2016. According to investigators, the Ministry of Defense auction committee called an open competition for fuel procurement. The committee selected the supplier that offered the lowest price, and the company and the Ministry of Defense signed 14 agreements together worth more than Hr 1 billion ($37 million) for the supply of fuel.

A worker passes by a train car with fuel on a railway siding in Kyiv Oblast. Two senior Defense Ministry officials were detained on Oct. 11 on charges of embezzling $5.5 million in state funds during the procurement of fuel for the military. (Kostyantyn Chernichkin)

A worker passes by a train car with fuel on a railway siding in Kyiv Oblast. Two senior Defense Ministry officials were detained on Oct. 11 on charges of embezzling $5.5 million in state funds during the procurement of fuel for the military. (Kostyantyn Chernichkin)

However, the customer and supplier in the summer of 2016 amended the contracts, increasing the price by 16 percent. According to the investigators, the amendment was illegal.

The supplier received an additional payment of Hr 149 million. On account of that, Pavlovskyi and Hulyevych are suspected of misappropriation and embezzlement of state property, charges that carry sentences of from seven to 12 years in prison if they are found guilty.

Shady deals

According to online procurement system Prozorro, Trade Commodity won 16 open procurement calls with the Ministry of Defense over 2015–2017. The company supplied gasoline, fuel for jet engines, and diesel fuel. The total value of the deals was Hr 2.2 billion (around $80 million).

Overall, Trade Commodity won tenders worth more than Hr 5.4 billion ($200 million), according to ProZorro.

Besides the Ministry of Defense, the company also supplied fuel to the Ukrainian state railway company Ukrzaliznytsya, the national nuclear energy company Energoatom, the state energy company Centerenergo, and also several seaports, namely Mariupol, port Yuzhny in Odesa, and the port in Bilhorod-Dnistrovsky.

Trade Commodity was founded in Dnipropetrovks Oblast, in the city of Kamyanske (formerly named Dniprodzerzhynsk) in 1999. The company’s main activity, according to the open private companies register, is producing petroleum products. The statutory capital of the company is Hr 7,400 ($274).

The Kyiv Post couldn’t reach the company director for comment.

No convictions

Vitaliy Shabunin of the Anti-Corruption Action Center said the fuel contract embezzlement case would probably go to trial. However, he said he had little hope the suspects would be convicted, even though the corruption scheme in the case is simple. There have been no convictions in any of the big cases that has NABU sent to trial, he said.

“Nothing will happen with this case without the creation of anti-corruption courts,” he said. “It will lie there (in the court), unmoving.”
The Defense Ministry has been implicated in corruption cases before.

In July, the NABU and Specialized Anti-Corruption Prosecutor’s Office detained army officials and the director and deputy director of Lviv Armor Plant on charges of stealing Hr 28.5 million ($1.1 million) in budget funds.

The officials were accused of purchasing used engines for T‑72 tanks through a shell company, instead of buying new ones.

In another case in August, the General Prosecutor’s Office served notices of suspicion to five current and former employees of the Defense Ministry on charges of negligence and abuse of power.

That case, dating to 2014 and 2015 concerned a deal between the ministry and a private company for the supply of helmets and bulletproof vests for the army. Despite the fact that similar deals were exempt from value-add tax because of the war, the ministry paid the tax to the private company and signed an additional deal, illegally paying Hr 34 million ($1.6 million).

The state prosecution service has not revealed the name of the supplier company, but said its director and accountant were also suspects in the case.

The assets of the suspects have been arrested and the case has been sent to trial, according to a statement from prosecutors.

Oleksandr Lemenov, an anti-corruption expert at the Reanimation Package of Reforms said corrupt schemes for the procurement of fuel were commonplace. However, this case is special as the NABU has a great deal of evidence. The detention of top officials is also a good signal for the public.

“UZ (Ukrzaliznytsya, another Trade Commodity client) and the Defense Ministry have always fed those who are close to power,” he said.

Even as more cases against the Defense Ministry become known, Lemenov said there was still a place in the ministry for honest officials. He said the likelihood of corruption depended on the position a person held in the ministry, and their character.

Other allies

Apart from Hranovsky, other Poroshenko allies have also been accused of being involved in corruption in the defense industry — charges that they deny.

Oleh Hladkovsky, Poroshenko’s business partner and a deputy secretary of the National Security and Defense Council, said on Oct. 12 he was ready to vouch for Pavlovskyi during the hearing.

Hladkovsky is linked to Cyprus-registered company HUDC Holding Limited, which sold four used armored Toyota Land Cruiser V8 cars worth $428,000 to state-owned defense company SpecTechnoEksport in May. The cars were allegedly overpriced, with the state overpaying by $56,000.

Hladkovsky’s office confirmed that he “used to have a connection to HUDC Holding Limited” but said he was not currently involved in managing it.

Hladkovsky has also managed to receive several lucrative military contracts for his automaker Bohdan, which was formerly co-owned by Poroshenko.

These include supplies of MAZ trucks, 60 military ambulances worth $2 million, as well as Hyundai HD65 and Hyundai HD120 trucks, according to the Nashi Hroshi investigative journalism project. Serhiy Krasulya, a Bohdan spokesman, argued that there was no conflict of interest because Hladkovsky was not involved in the company’s management, despite owning it.

Roman Romanov, a former Bohdan dealer and a political associate of Poroshenko, heads state defense firm Ukroboronprom.

Meanwhile, the Rybalsky Kuznia shipyard, which Poroshenko owns with one of his closest political allies, Ihor Kononenko, won government contracts, including military ones, worth $2.5 million in 2016, and contracts worth $560,000 in 2017, public data shows.