The Ukrainian Week went on a search for the treasures of the president’s family
He has been ruling Ukraine with an iron first for a year. Within a very short time Viktor Yanukovych subjected all branches of power to himself and did an about face in domestic and foreign policy. The national TV channels are afraid to criticize him and the splintered opposition blames him for an entire range of mortal sins. The head of state is considered to be the creature of Donetsk-based financial-industrial groups, but he pulls representatives of mighty clans closer to himself just as easily as he pushes them away. Independent observers estimate Mr. Yanukovych’s assets to be tens of millions of dollars. He is rolling in luxury even though his tax reports show him to be no richer than the owner of a chain of tobacco kiosks. The Ukrainian Week decided to investigate the extent of the Yanukovych family’s business interests and was rewarded with some surprising findings.
A COMPLEX NETWORK OF CONNECTIONS. PART I: OLEKSANDR YANUKOVYCH
Of all of the possessions Mr. Yanukovych has, the general public really only knows about Mezhyhiria and Sukholuchia – a total of nearly 130 hectares of forest preserves north of Kyiv where royal-style villas are being built with haste. But Mr. Yanukovych himself claims ownership of a mere 1.5-hectare plot of land where his ritzy country house is located. And technically, he is telling the truth. The business connections of the companies that legally own the rest of the land are not linked directly to the president but instead are tied to his eldest son, Oleksandr.
The two companies in question are Tantalit Ltd. and Dom Lesnika Ltd. The former is owned – according to open sources – by the young businessman Pavlo Lytovchenko and the Edelveis company. Edelveis is in turn controlled by Capital Building Corporation (CBC), which is registered at 102 Bohdan Khmelnytsky Avenue in Donetsk. Other sources however, point to Skhidavtotrans Ltd., another Donetsk-based company. But the business connections of both companies bring us to the same people.
Dom Lesnika Ltd. was registered in Brovary, a small town just beyond Kyiv's city limits. This company has a “sister company,” Dim Myslyvtsia Ltd., which shares a legal address with CBC. Furthermore, the Ukrainian Week found that these two sister companies share some founders in common – Oleksandr Yurchenko and Pavlo Lytovchenko.
The building in Donetsk where the above companies are registered was demolished and a modern business center, Stolychny, is now being built in its place by Management Assets Corporation (MAC) registered, again, at the same address. Our sources point to Oleksandr Yanukovych as its only founder. Officially, MAC is a co-founder of CBC, the one that is linked to Mezhyhiria. Another detail: one of the top managers of CBC and MAC was (and perhaps still is) an Andrii Fedoruk.
102 Bohdan Khmelnytsky Avenueis the legal address of yet another company – Donbas Energy Company Ltd. (Donbas-Encom). This company specializes in the distribution and supply of electricity and its founders include Oleksandr Demianenko, Oleksandr Shpak, and Yurii Kolmykov. To our knowledge, this trio founded or co-founded 10 commercial companies in 1998–2006 most of which sell electricity and fuel.
However, for the purposes of this article, we will focus on just one of them – Donbasnaftoprodukt Ltd.
Donbasnaftoprodukt is a fairly powerful player on the Ukrainian fuel market and stands out primarily because it once employed Oleksandr Yanukovych as deputy CEO. Second, its founders, apart from little known companies, include a Swiss offshore company, Leman Commodities, which is associated with Rinat Akhmetov. So, it turns out that the president's oldest son was a top manager working for Ukraine’s richest man. But, then again, there is no absolute certainty that this investment was made by Mr. Akhmetov himself.
A COMPLEX NETWORK OF CONNECTIONS. PART II: VIKTOR YANUKOVYCH JR.
The extended network of the president’s business connections can be traced also through his younger son. When running for a seat in the Verkhovna Rada representing the Party of Regions, Viktor Yanukovych Jr. wrote in his biography that he previously worked as deputy CEO of BK-Engineering Ltd. This construction company's founders included two Donetsk businessmen with Armenian surnames and two limited-liability companies – BK and Vesprom.
BK Ltd. is also a co-founder in the Altair group of construction companies and further to that investment, established the private enterprise Vuhlepostachannia and the Jaguar Financial Company in the spring of 2004. According to the Ukrainian Week's sources, Vuhlepostachannia was founded by Viktor Bondik, a brother to Party of Regions MP Valerii Bondik. A number of mass media outlets have reported him to be a nephew to Viktor Yanukovych. As far as we have been able to ascertain, the founders of Jaguar are Iryna Datsko and the Nova Astrum company which registered in Great Britain. Jaguar co-founded up to 18 companies most of which operate in the construction or real estate sectors. Our attention was drawn to one of them – Uglepostavka Ltd. founded in Kramatorsk in 2000 by (in addition to Nova Astrum) the D.K. financial company registered in the same city of Kramatorsk. Some other co-founders are, according to our sources, Serhii and Oleksii Bluzniuk (both share the patronymic name Anatoliiovych). The official biography of Anatolii Blyzniuk, the head of the Donetsk region State Administration, indicates that he has two sons, Serhii and Oleksii.
Vesprom Ltd., another co-founder of Bk-Engineering, according to the sources that spoke to The Ukrainian Week, was set up in 1997 by the Association of Financial, Industrial, and Commercial Companies “Donbas Clearing and Financial Center,” Skhidavtotrans Ltd. (which may be linked to Mezhyhiria), and Promsnabtekhnika Ltd. In turn, Vesprom set up six organizations of which three, in addition to BK-Engineering, deserve closer consideration. The first one is Kinoteatr Zoriany Ltd. This is the same movie theater in Pechersk district where the Party of Regions holds its large-scale events. The second one is the Vidrodzhennia Ukrainy charity foundation. A portion of land in Mezhyhiria was set aside for this foundation. Finally, the third organization is Donetsk Special Economic Zone Ltd. which was set up when Viktor Yanukovych Sr. was the governor of Donetsk region. Contributions to this company’s authorized capital were made through controlled companies by nearly all Donbas oligarchs, including Rinat Akhmetov, the Kliuiev brothers, Vitalii Haiduk, Serhii Taruta and others. As the chief of the region, the future president of Ukraine actively lobbied for free and special economic zones which became akin to “black holes” in the national economy as they were used for tax evasion purposes.
THE SHADOW OF THE COMMUNIST PARTY
The above facts offer insufficient grounds to the claim that Viktor Yanukovych’s family and the president personally have extensive business interests. The president’s relatives are official founders in some other businesses, so one can make guess about their connection to any significant capital. However, Ukrainian realities are such that one does not have to have legal corporate rights to assets in order to own them. This prompts us to formulate the question differently: Did Viktor Yanukovych Sr. have opportunities to enrich himself and create his own business empire? After a close analysis of his background, we conclude that yes, he certainly did.
Viktor Yanukovych’s official biographers now attribute his career successes to his industriousness and positive human qualities. But it is doubtful that he climbed the career ladder the way he did without powerful protection. And the protection came, in all likelihood, from his wife’s relatives. His life took a drastic turn precisely in 1972 when he married Liudmyla Nastenko, a niece of Oleksandr Sazhyn, head of the People’s Court in Yenakievo. As soon as next year this court cleared Mr. Yanukovych’s criminal record (this is different from cancelling a conviction. – authors), even though he would have finished serving his sentences only in 1975. That year the former prisoner also obtained a degree from a mining vocational school. In 1974, he enrolled as an extramural student at Donetsk Polytechnic Institute. In 1976 – with nothing more than secondary vocational education – he became the chief of the trucking company which was part of the Ordzhonikidzevuhillia Production Association. He thus pulled off a trick unheard-of at the time: in the Soviet Union, a young man just 26 years old and with two past convictions to boot stood an almost zero chance of being appointed as chief of a large enterprise. Then in 1978, the Donetsk region Court cancelled Mr. Yanukovych’s convictions, i.e., reversed them by concluding that he had been convicted wrongfully.
In 2005, after the Orange Revolution, the Prosecutor General’s Office suspected that the document confirming the reversal of Mr. Yanukovych’s convictions was a forgery. These suspicions were confirmed by an expert examination, but the case was never brought before court. We will risk a conjecture here and assume that the prosecutors made a mistake in 2005 and that the 1978 convictions were indeed reversed. Otherwise the future president would not have been accepted to the Communist Party in 1980. He could have been rejected simply because his father was in German captivity in the 1940s and his mother was an Ostarbeiter in Germany. This is not to mention the criminal past of a potential future party member.
Today it is impossible to say who exactly who paved the way for Mr. Yanukovych and cleared up the dirt from his past. “I believe that he had protectors among the CPSU members. We shouldn’t forget about the ‘guiding’ role of the party,” says Yurii Yakymenko, director of political and legal programs at the Razumkov Center. Under the Soviet Union, the CPSU played a key role in the life of society, and protection of its leading figures opened many avenues – even to patent criminals. Veteran law enforcement officers remember that in the second half of the 1980s they had a persisting suspicion that criminal bosses enjoyed the protection of party nomenklatura. They failed, however, to find evidence to back up these feelings: officials in the Ministry of Internal Affairs and the Prosecutor General’s Office were appointed by that same nomenklatura.
At the time, the criminal clans were getting on their feet firmly planted in Donbas, in particular the group led by Akhat Bragin, aka Alik the Greek, in which future billionaire Rinat Akhmetov embarked on his “career.” Representatives of this group specialized in racketeering, fraud, and speculation (a crime in the Soviet Union). It is easy to conclude that Alik the Greek had ties to the government since all criminal cases against members of his group were closed under pressure from above.
Corruption was rampant in state-owned enterprises. (There was no other kind at the time.) People got rich using a simple scheme: selling some of their goods on the black market. Coal was in demand because private dwellings in the Donbas region did not and still do not have gas supplies.
In 1987, Mr. Yanukovych was first deputy chief of the Donetsk State Production Association. He was responsible for material and technical provision and transport and was thus in control of sizeable resources. One could cynically surmise that some of it stuck to his hands.
Shadow capital was channelled into the shadow economy, into the so-called “shops” – underground companies operating on the black market. “He (Yanukovych. – Authors) had links to a patron who was tied to Kyiv and the Industrial Ministry there,” an expert told The Ukrainian Week speaking on condition of anonymity. “This line was associated with ‘shop masters.’ These were going through the so-called quasi-politicization, i.e., they were recruiting party secretaries at the district and regional levels as their protectors.” From there the connections went up to central bodies of power.
Mr. Yanukovych was chief of the Donbastransremont Production Association when Ukraine declared its independence. In 1994, he was CEO of the Donetsk Territorial Transport Production Association. At the time, the Donbas region was the stage on which a criminal war played out between Alik the Greek’s clan and the Kushnir-Riabin group. Bursts of submachine-gun fire and explosions were heard in Donetsk. One year later, in 1995, a remote-controlled bomb exploded at the Shakhtar stadium during a soccer game killing Mr. Bragin. Mr. Akhmetov became his successor. In 1996, Mr. Yanukovych was first deputy of Donetsk region Governor Volodymyr Shcherban. One more year later, the best known public politician of the region, MP and businessman Yevhen Shcherban, was murdered. In 1997, President Leonid Kuchma dismissed Volodymyr Shcherban as governor and replaced him with Mr. Yanukovych.
It is believed that local oligarchs and the “red directors" (the heads of enterprises who had remained in their jobs since Soviet times) lobbied for this appointment. “Mr. Yanukovych was a compromise figure who suited everyone and did not rub anyone the wrong way,” Andrii Mishyn, the director of the Institute for Strategic Policy, said adding, “The managerial qualities of the future president were also taken into consideration.” Mishyn also said that before the launch of his political career, Mr. Yanukovych worked as a top manager in a profitable state-owned enterprise which had normal relations with all government agencies.
Was Mr. Yanukovych simply a protégé who gained favor with his patrons through his good service? Or had he by then turned into a sufficiently powerful figure himself with something to offer to the elites?
Yanukovych is credited with inventing the charcoal–coke–metal scheme: the state subsidized the mining of coal used to produce coke, thus greatly lowering the production cost of metal and enabling the Donetsk-based financial-industrial clans to reap huge profits in a short period of time. That was particularly true for Mr. Akhmetov’s group. While in the governor’s seat, Mr. Yanukovych lobbied for the introduction of a protective duty on imported coke which helped owners of by-product coke plants get rich. He also initiated the creation of free economic zones in the region which permitted local businesses to avoid paying some of the taxes. After Mr. Yanukovych was appointed prime minister in 2002, Ukraine’s metallurgical sector came almost entirely under the legal control of Donetsk businessmen. They followed him into top offices in Kyiv. It is highly unlikely that this did not bring Mr. Yanukovych significant hard-currency dividends.
THE PATRON-CLIENT SCHEME
If our conjectures are correct, Mr. Yanukovych must have accumulated a large amount of capital during his career and acquire numerous assets. However, there is virtually no official data that would show that – neither he nor his relatives are featured among the majority stake owners of national-level companies. We have succeeded in finding only mentions of his sons having stakes in minor-league commercial structures. But if we assume that the president’s family has more assets than is generally assumed, how does it manage them without having corporate rights?
“The transfer of rights for nominal business management has been polished to perfection in world practice,” says Volodymyr Dubrovsky, CEO of Case-Ukraine. “They usually try to fix it in documents, at least secret ones, which clearly specify the conditions for such an agreement and the duties of the sides. However, both in Ukraine and abroad there are certainly informal channels to manage businesses with which the [real] owner is not officially connected in any way. The main guarantee here is his authority and power leverage, such as security structures, criminal groups, etc.”
The nominal CEOs “would not go against the true owner, because they are perfectly aware that a business of this kind can only exist given the powerful lobbying support of its patron,” says Viktor Chumak, director of the Ukrainian Institute for Public Politics. “They are perfectly aware that they risk losing everything, even their lives, overnight. They can be punished for disobedience by removing them from among the founders or through a raid carried out by the tax police, anti-economic crime body, and other policing agencies.”
“Of course, there is, as usual, no direct evidence, but this is how all our top politicians operate,” continues Mr. Dubrovsky. “All of them without exception have businesses they ‘protect’ and benefit from. They try to have no official connection with them, but at the same time, each one is getting his money – most frequently as cash transfers to special offshore accounts in Swiss or Cypriot banks. Relatives are often used to manage money flows. For example, they can be on the staff of a controlled company and receive the money due to the owner in the form of dividends or even salary. In turn, the owner operates in the so-called administrative rent mode, i.e., he utilizes his status, position, and connections to protect the interests of his company as much as possible.”
“Large businesses in Ukraine are directly linked to the government, most often precisely through this remote control scheme,” sums up Mr. Chumak. “All politicians are businessmen in this way or another. The entire Ukrainian society is built on the patron-client model of relations between business and government. Everyone is linked to virtually everyone through schemes of this kind. For example, one of President Yanukovych’s sons has a bank which is in turn linked to other financial institutions and companies. There you have links that you will never be able to trace just like that.”
In the past six months the president's name has often been mentioned in the context of deals on the country's financial market. In particular, Oleksandr Yanukovych was reported to have purchased 100% of stock of the All-Ukrianian Development Bank (VBR) through Donsnabtara Ltd. which he controls. The acquisition cost UAH 110 million according to official data. When the bank changed hands, Valentyna Arbuzova, the mother of NBU Chief Serhii Arbuzov, was appointed its director. Mr. Arbuzov headed the Ukrainian Business Bank before Mr. Yanukovych came to power. Unofficial sources point out that this bank is also controlled by President Yanukovych’s elder son, while noting that Mr. Arbuzov is considered to be the Yanukovych family's personal cashier. Indirect proof of this is found in the fact that when Mezhyhiria and Sukholuchia were transferred from the state into private hands, most financial transactions went through the Ukrainian Business Bank, and a number of commercial organizations mentioned in this investigation have accounts there. Moreover, Andrii Fedoruk, whom we mentioned in passing above, was on its board of supervisors until April 2007. Oleksandr Yanukovych is also reported to be friends with former Donetsk police chief Vitalii Zakharchenko whom the president appointed head of the State Tax Administration in December 2010.
If these conjectures are true, the fate of Ukrainian capitalists may now be in the hands of the Yanukovych family. Has Ukraine turned into the business project of one family?
Just about everyone in Ukraine is battling corruption today: all the law enforcement agencies together with the activists, officials and MPs. Sometimes, though, such a large number of anti-corruption folks can get in the way