Ukraine corruption exposed

Paper trail leads to massive corruption at heart of Ukrainian banking
Graham Stack in Kyiv
February 26, 2014


With former president Viktor Yanukoych and most of his cronies on the run, the full extent to which they have looted Ukraine is now coming to light as activists and journalists sift through documents abandoned in the haste of flight. Document scraps recovered by bne point to a billion-dollar fraud masterminded by one of Yanukvych's closest allies, which is giving rise to concerns that the financial position of Ukraine could be even worse than pessimists predict.

Eight scraps of paper fit together to point to one of the largest frauds in recent history, with potentially billions of dollars stolen from the Ukrainian state. According to the document fragments retrieved by a bne reporter, in December or later Ukraine's 18th largest bank, Brokbiznesbank, opened a UAH650m (roughly $77m at the time) credit line for a sham firm involved in money laundering. The document fragments show that the bank's supervisory board voted to open a credit line of UAH650m to a firm called TOV Virtus XXI – a sham firm with straw men as director and owners, and no employees, offices or public profile, according to bne enquiries.



Such firms are generally used in Ukraine to channel funds through the banking system, ie. money laundering. Tax police even filed criminal charges against Virtus XXI for large-scale embezzlement of state funds in 2012, in connection with a $11m tender that the company won in 2011 to supply electrical equipment to state-owned energy company Naftogaz.

Earlier journalist investigations by Forbes Ukraine named Virtus XXI as part of a network of sham firms operated by the Brokbiznesbank owner, 28-year-old oligarch Serhiy Kurchenko, to launder the proceeds of politically-protected business schemes and fraud. Kurchenko was the subject of an in-depth investigation by bne only in November.



Thus the $76m loan to Virtus XXI appears to have been simply Kurchenko looting his own bank. And given this and another fraud detailed below were only the 30th and 31st items on the agenda being voted on by the Brokbiznesbank supervisory board at that meeting, it suggests these schemes were only the tip of the iceberg, with the total figure looted from the bank possibly running as high as $1.5bn.

Thin edge of the wedge

The document fragments show the bank's supervisory board at the same meeting also voted to make payments to another sham firm, TOV Bat Treyd Liga, under a contract dated December 12, 2013. Bat Treyd is mentioned in anonymous leaks on various websites as being a sham firm providing money-laundering services, analogous to Virtus XXI.

With Virtus XXI and Bat Treyd being the 30th and 31st items on the agenda, it is likely that previous items on the supervisory board agenda detailed loans to be made to sham firms operated by Kurchenko, and thus siphoned off from the bank.

According to National Bank of Ukraine statistics, Brokbiznesbank made just under $1.5bn in new loans in the fourth quarter of 2013 – the period to which the document dates – more than doubling its credit portfolio from UAH11.3bn (October 1, 2013) to UAH23.6bn (January 1, 2014), despite the economy being in free fall. The document recovered indicates that these $1.5bn funds were looted from the bank.

In early February, Brokbiznesbank ran into what it said were technical problems with its payment system that prevented it dispensing cash to customers. The bank's representatives announced February 13 it had received UAH1bn ($120m) in a refinancing loan from the central bank, and expected to soon receive a further UAH1bn tranche – funds that may also have now disappeared from the bank.

The bank strongly denies any allegations of wrongdoing. In a press release dated February 21, first deputy head of the bank, Petro Pekur, a long-standing Kurchenko associate, claimed the bank's business was booming. "Despite the information attacks, since the start of February 2014, more than 2600 new depositors have entrusted their savings to Brokbiznesbank, confirming depositors' trust in the bank," Pekur said.

The bank's holding company, Vetek, for its part issued a press release on February 24 claiming that, "despite the difficult political and economic situation in Ukraine, the group's companies continue to work as normal." At the same time, Vetek employees shredded documents and had cleared their desks. Security personnel at the offices told bne that this was their first day of work there.

Branches in Kyiv of Kurchenko's smaller bank, Real Bank, were shuttered February 24. Other Kurchenko projects such as the construction of a giant basketball arena in Kharkiv are frozen, according to webcams at the site. Players are also leaving Kurchenko's football club, the venerable FC Metalist Kharkiv, due to unpaid salaries. Kurchenko himself is believed to have fled to Russia.

Prosecute the prosecutor

The apparent massive fraud at Brokbiznesbank is only part of one of the largest frauds in recent history, perpetrated by the country's highest legal office, the former prosecutor general Viktor Pshonka.

The network of sham firms operated by Kurchenko – including Virtus XXI – laundered revenues from politically corrupt insider business that, using the political power of the prosecutor general's office, cornered first the market in propane/autogas, then cornered the market in motor fuel imports, worth hundreds of millions of dollars.

The same network of companies also leeched on state energy company Naftogaz – the company that handles 80% of Russia's gas supplies to Europe via its pipelines – siphoning off hundreds of millions of dollars from the ailing company via inflated tenders, according to a Forbes Ukraine investigation and bne enquiries.

Not only sham Ukrainian companies were involved: according to bne enquiries, Naftogaz handed over $1bn to UK shell companies linked to Kurchenko's network that had "won" big-ticket tenders to supply offshore drilling rigs and support vessels. Around 50% of that sum may have been the embezzlers' margin.

After the theft, then came the attempt at legalisation: in late 2012, the young Kurchenko, hitherto unknown, burst into the spotlight in Ukraine when he bought FC Metallist. The spending spree continued in 2013, with purchases of one of the country's largest oil refineries and oil transhipment ports, as well as Brokbiznesbank. And as investigative journalists started to penetrate the mysterious business empire – and ask for whom Kurchenko was fronting – Kurchenko simply bought out their publications.

So for whom was Kurchenko fronting?

On the same day that the document fragments emerged in Kyiv, a document was posted on the internet from an archive found at the palatial residence of ex-prosecutor general 60-year-old Viktor Pshonka, a long-standing Yanukovych associate, who has gone into hiding and whose mansion has been taken over by opposition activists.



Pshonka's Kyiv mansion rivals the suburban estate of his boss, Viktor Yanukovych, in terms of its vulgar opulence, and even points to megalomania on the part of its owner, decked out as it is with portraits of Pshonka himself in different historical guises, including as Julius Caesar and legendary Russian general Marshal Kutusov, who defeated Napoleon.

The document found in Pshonka's archive at his abandoned house confirms long-held suspicions that the former prosector general – the man formally responsible for upholding the law in Ukraine – was the mastermind behind the criminal operation that stole billions of dollars from the state, and that Kurchenko was his frontman.



Apparently addressed to Pshonka, the document reveals him as the driving force behind Kurchenko's schemes, and actively involved in the administration. It reads: "In agreement with you, starting 2011 together with Kurchenko S.V. we implemented the 'propane' programme. From October 2012 to April 2013 inclusive, debts arose totalling UAH95m (accounts are attached). Kurchenko S.V. refuses to settle the debt, referring to your instructions. Currently the program has stopped."

Another chilling document posted on the internet from Pshonka's archive shows that he was ready to go to the utmost to defend his and his cronies' ill-gotten gains. The document contains the text of an apparently recent speech, in which Pshonka calls on Yanukovych to introduce a state of emergency, including a full-scale crackdown on the media and internet, and the prohibition of opposition parties. "Not for the first time in the modern history of Ukraine, you and I have become witnesses of actions that pose a real threat to the constitutional order and the rule of law in the country," Pshonka told Yanukovych in the document, without a hint of irony. "I, as prosecutor general and a member of the National Security Council, believe there are all grounds required by law, and a general need, to introduce a state of emergency on the territory of Ukraine for the period of 30 days."

Pshonka, Yanukovych and their cronies will go down in history as yet more proof that "power corrupts, and absolute power corrupts absolutely."

Hypocrisy, the Common link with politicians across the World.

I am watching PMQ's live with my brother who is watching it via Skype through my internet connection.  What a wonderful aid to openness, this modern internet technology!
His comments, "they are a bunch of dipshits, up their own arses; politicians who have not the foggiest idea of anything except their own shit".

Now where have I come across those sentiments before?

We, as activists in Blackpool South, had a capacity to extend meetings into everyones realm whether they had smartphone or internet.  The dinosaurs of the Party were terrified that members would participate although not attending.  So terrified are they of democracy that they have gagged the membership to open debate.  Where is this heinous censorship?  In Kiev? In Moscow? .In Bangkok?

No!  In Cleveleys...

My brother is currently in Kiev, Ukraine.  There is no Social benefit. no Government handouts to the poor and deprived.  The grotesque opulence of the bandit President, I am informed, is but a drop in the Ocean of corruption endemic in the Ukraine.  As Russia flexes its still mighty muscles, the waffling indifference of European Politics is doing more harm than good.

Hutton Report exposed in Hacking trial

Tony Blair advised Rebekah Brooks to set up a “Hutton-style” inquiry into phone hacking at the height of the scandal, a court has heard.
Mr Blair offered to act as a secret adviser and told Mrs Brooks, then chief executive of News International, that the crisis would “pass” and to “tough up”, the Old Bailey heard.

'Toughup'

 

Her email read: "I had an hour on the phone to Tony Blair.

He said:

"1. Form an independent unit that has an outside junior counsel, Ken Macdonald [former director of public prosecutions], a great and good type, a serious forensic criminal barrister, internal counsel, proper fact checkers etc in it. Get them to investigate me and others and publish a Hutton-style report.

"2. Publish part one of the report at same time as the police closes its inquiry and clear you and accept shortcomings and new solutions and process and part two when any trials are over.

"3. Keep strong and definitely sleeping pills. Need to have clear heads and remember no rash short-term solutions as they only give you long-term headaches. 

"4. It will pass. Tough up.

"5. He is available for you, KRM [Rupert Murdoch] and me as an unofficial adviser but needs to be between us. He is sending more notes later."

So the Hutton Report was tailor made to clear the Labour government of any culpability in the suspected Murder of a leading British scientist on British soil?  Just another casualty to add to the 447 murdered by Blair's deceptions over Afghanistan as well as Iraq?

Fleetwood rewarded for years of neglect

No more free tram travel
Unfair
When we traders in Fleetwood had to put up with three years of total destruction of our town centre with some traders going out of business because of the tram track construction , we were fed none-stop promises of ‘it will be worth it when we are finished’.
Well it seems all the worry and heartache we all went through in Fleetwood now amounts to nothing as Blackpool Council wants to charge our pensioners to now ride the trams (Gazette February 17).
They also want to bring this charge on some of our pensioner customers from out of town .
We are confused how stopping the pensioner’s concession will save £700,000.
Surely the trams run to a timetable whether they are empty or full and, if pensioners can’t use the service, where is Blackpool Council going to get the full fare paying passengers from to replace the pensioners between 9am and 4pm ?
Can someone explain this logic to us all please.
Blackpool Council is reneging on the promises made to the traders of Fleetwood and the pensioners of our town , and this proposal is totally and morally unjustified .
We would ask for our MP Eric Ollerenshaw and MPs from Blackpool to look at this problem in depth please , as it affects a lot of people from all walks of life in different ways on the Fylde Coast.
Steve Lynton
Granada Fish Bar
Fleetwood

Dear Steve,
 For many years as I have travelled to Fleetwood for a drink with old friends and sometimes to stand by my grandfathers grave and have a moment of reflection.  Is it so shameful that our parents’ sacrifices have been abandoned at the altar of Political Correctness and Political Cowardice?  The one benefit of my forbearers’ benevolence was to give me the ability to discern fact from fiction, wrong from right, truth from lies.  Too many of the ills of our society are perpetuated because our generation has not instilled on the next that education is the gateway to making sound decisions.  Not enough of us give our children the ability to tell us we are wrong!  But their argument has to be made on sound historical and rational thinking.  Relying on the mantra that "my father would turn in his grave if he thought that I voted for XXXXX" can be destroyed by calmly perusing the awful state that the Champagne Socialists and the Distant “Toffs” have created for the next generation.

There is no difference between anger at High Court Judges not prepared to commit heinous criminals to life behind bars as it to not sanctioning the flaccid and jellylike councillors whose only contribution to society is to hold their hand out for their expenses. Afterall, you in Fleetwood have seen the progression that can be made by local councillors when they take on higher office and almost instantaneously bring that Office into Disrepute.  Need I name names?

Well done for writing such an eloquent letter to the Gazette.  Now set about getting rid of the bureaucrats and their lackeys who are wasting the last remnants of that finite resource you give over to them each day, your taxes.  It is not their money they have thrown down the Wyre, it is all yours.

I wish you well,

Stephen Flanigan

Brighton resident's opinions made public

Blackpool South MP, like so many politicians, uses words without thinking, says things without reason, and recites history through ignorance.  As Blackpool is drowning under the weight of Benefits dependent workshy interlopers, it is perhaps time to remember the open armed welcome that Labour MP Joan Humble made to the 20 thousand plus Polish immigrants, to the detriment of the 15 thousand annual Scottish seasonal workers.  Many of our own Scottish nationals are still unemployed, many having lost their homes because they had no work.  Too many, who Labour started on the skeleton ride into despair and unemployability because of Labour’s mindless and inept employment and worse, immigration policy.

And Gordon, to us who were born in Queentown and had our inheritance stolen by local politicians, you are reading the wrong script.  Get your history right before you preach meaningless homilies of more deception to the already disenfranchised indigenous Sandgrown’uns.

Gordon Marsden (Shadow Minister (Transport); Blackpool South, Labour)

It is a great pleasure to follow Sir Nick Harvey. What he said threw into sharp relief what had been said by the Minister, whose speech elevated George Orwell’s newspeak to a fine art. As the hon. Gentleman made clear, the Minister paraded his shop-soiled mantra about spending power, but objective observers might think that it was more about the freedom to dine at the Ritz.
I make no apology for focusing on the particular problems of my own town and my own council, because Blackpool, which is sixth in the index of multiple deprivation, will have suffered a cumulative cut of 20.6% between 2010 and 2016. We were hit particularly hard by the abolition of the area-based grants in the first emergency budget. The present process takes very little account of the special circumstances of towns such as Blackpool, which are experiencing pressures from incomers on services such as housing and social care. We have also been hit extremely hard by the demographic double whammy of the bedroom tax and cuts in council tax benefit, which others have already mentioned.
However, it is not just a question of the actual hardship; it is also a question of the process. Our local authority has been notified of a 2014-15 in-year new homes bonus of £25,000, the second lowest in the country. The borough treasurer says that that is due to earlier than planned demolition of the Queens Park estate and conversion programmes for houses in multiple occupation, two very worthy initiatives for which Blackpool appears to have been perversely penalised.
The cumulative budget cuts for what is one of the smallest unitary authorities in the country are expected to amount to £88 million over the five years between 2011 and 2015-16. Last week, in a report to the executive, the borough treasurer pointed out that since the approval of this year’s budget by the full council, there had been six separate announcements from the Treasury and the Department for Communities and Local Government impacting significantly and adversely on Blackpool’s central Government funding allocations for the next two years, and requiring plans for budget cuts to be revisited each time. The discriminatory nature of the proposals is demonstrated by the fact that Blackpool will lose £105 per head, five times more than the losses that will be suffered by the two authorities that will lose the least.
We are also suffering as a result of the proposed £1.1 billion top slice in the new homes bonus in 2015-16, and the transfer of an estimated 35% of that to local enterprise partnerships. In Blackpool’s case, that means losing £4.4 million of revenue support grant from the new homes bonus top slice, while receiving new homes bonus grant of only about £2.3 million. Overall, Blackpool stands to lose £2.9 million from the transfer.
When the Government make their spending and funding announcements, they should be clear, transparent and unequivocal, rather than revising downwards at a later stage. I speak with feeling because my constituency contains two of the most disadvantaged areas in England with populations of more than 30,000, namely Bloomfield and Brunswick wards. Let me describe the effects of those cuts in human terms. Virtually all the formal youth services have had to go over the last two years. The CCTV budget has been cut, the budget for trams has been cut by £100,000 this year, and the budget for the road safety partnership has also been cut. I could go on.
The reduction in the spending power of areas with higher needs and lower resources, and the changes that the Government are introducing, will not just close the funding difference, but, in time, will potentially reverse it. It is simply wrong that Blackpool should experience a cumulative cut of 20%, when Chichester experiences a 0.2% cut, Spelthorne a 1.2% increase, Reigate a 2% increase, and Surrey Heath a 1% increase. What do all those areas have in common? They are all prosperous, southern, Conservative councils.
We need to help councils to deliver economic growth in all areas of the country. That is why this week’s proposals from my right hon. Friend the Leader of the Opposition and what was said today by my hon. Friend Andy Sawford are so important. Earlier this year, my hon. Friend Roberta Blackman-Woods and I produced a pamphlet for the Smith Institute, in which we discussed some of the ways in which Labour councils are already doing things for themselves, and major changes in funding that could be made in the next Parliament.
This Government have worked on the basis of sham localism. They have talked about localism, but they have delivered centralism. We want a fundamental review, and we want to give incentives and initiatives, but that can be done only if everyone works across the boundaries of existing local and central Government and does things together. This Government have completely failed to do that. They have shown no enthusiasm for our Total Place projects, and the bankruptcy of their policies is revealed by the comments that are being made by their own council leaders as well as by ours.

Let William Shakespeare reply for all intelligent Sandgrown'uns to this Labour drivel.

MACBETH

     She should have died hereafter.

There would have been a time for such a word.

Tomorrow, and tomorrow, and tomorrow,

Creeps in this petty pace from day to day

To the last syllable of recorded time,

And all our yesterdays have lighted fools

The way to dusty death. Out, out, brief candle!

Life’s but a walking shadow, a poor player

That struts and frets his hour upon the stage

And then is heard no more. It is a tale

Told by an idiot, full of sound and fury,

Signifying nothing.