“Burst Bubble” or “Confiscation of the Century” by Prosecutor General Lutsenko

What is wrong with 1.5 billion USD of the “Yanukovych’s money” being returned to the state budget

Ukrayinska Pravdaand the Anti-corruption Action Center obtained the text of the classified court decision from Al Jazeera television channel, the very decision allowing to confiscate the record for Ukraine 1.5 billion USD from the Yanukovych associates.

The reason we are publishing this document is that it highlights the role of the closest associates of President Petro Poroshenko in financial schemes of the former authorities.

None of them has been brought to justice. Neither have those organizing the criminal schemes, in particular Yanukovych’s associates.

All the lawyers that the authors of the article consulted with when working on the material, were unanimous: social significance of the aforementioned court decision outweighs the fact that the document was classified by the Prosecutor General Yuriy Lutsenko himself, by the way, who also happens to be old political ally of President Poroshenko.

Together, the authors have come to the conclusion that the document contains no information which can be legally classified as the state secret. Therefore, publication of the real court decision poses no threat to the national interests of the state.

To the contrary — the decision must be published. In the course of its analysis it was revealed that there are grounds to believe that the document was specifically classified in order to enable some persons featuring in it to avoid justice in the future.

Additionally, publication of the decision will enable unbiased evaluation of professionalism of the Prosecutor General, investigators and top officials of the country, who made a farce out of one of the most crucial criminal cases in the history of Ukraine.

Crimes without criminals?

The whole story of returning the arrested billions of Yanukovych had been dragging for three years.

In just a few months following the Revolution of Dignity there came first reports of blocking the accounts of the ex-president’s regime officials. Later, in autumn of 2014, the State Financial Monitoring Service worked out that the total of the blocked assets is 1.42 billion USD.

Many times since the authorities have been promising that the money would be returned to the state budget and it would “work for Ukrainian citizens”.

In 2016, the estimated income from the special confiscation was included into the special fund of the state budget. However, notwithstanding the promises, the assets remained in the “Oshchadbank” accounts as “arrested funds” for quite a while.

Up until the moment when Kramatorsk City Court, loyal towards the Military Prosecutor’s Office, made the momentous decision allowing to transfer the money to the state budget.

It was during the press conference with Prosecutor General Yuriy Lutsenko in April 2017 that the court decision became known to the public. The Prosecutor said that the arrested funds of the Yanukovych associates “have returned in full to the Ukrainian people”.

However, as the content of the said court decision has been classified as “state secret”, it has not been clear until now where the arrested money comes from – how exactly it had been stolen, who it belonged to, who were the actual doers of the crimes, who was actually brought to justice.

The court decision on special confiscation was classified on purpose, using the national interests as an excuse, thus violating numerous judicial procedures.

Pages are plenty, sense is scarce

The secret document that the authors of the article obtained consists of about 100 pages. It describes activity of the “Yanukovych’s criminal organization” and its “subdivision” – the so-called “group of companies SEPEK”, which, according to the investigation, was managed by Serhiy Kurchenko, under the guise of financial corporation.

“SEPEK” created shell companies for tax evasion and money laundering. They operated in “Arena City” in Kyiv, “Moscow City” in Moscow, also in Kharkiv and Donetsk.

The “junior oligarch” Serhiy Kurchenko himself
The “junior oligarch” Serhiy Kurchenko himself

Some eight schemes for the state money embezzlement in fuel and energy as well as in bank spheres, realized by “SEPEK” are described in the court decision.

They include the following:

  1. Liquefied gas“. Illegal taking over196 billion UAH worth of the liquefied gas ofUkrGasVydobuvannya” state-owned public JSC andUkrNaftaPrivate JSC.
  2. Illegal takeover of 449 million UAH of theNaftogazfunds.
  3. Illegal acquisition of the National Bank of Ukraine funds, 787 million UAH in total, provided as the stabilizing loan forReal BankPrivate JSC, owned by Mr.
  4. Illegal acquisition of theBrokbusinessbankfunds, 836 million UAH in total, via unlawful interbank crediting of the aforementionedReal Bank”.
  5. Illegal acquisition of theBrokbusinessbankfunds, 1.4 billion UAH in total, via crediting of the shell companies.
  6. Illegal acquisition of theUkrgasbankmonetary funds, 499 million UAH in total, through making the sale agreement to purchase and sell bonds of the State Mortgage Institution.
  7. Illegal acquisition of the Agrarian Fundmoney, over 2 billion UAH in total, through agreements of purchase and sale of the government bonds of Ukraine with Ukrgasbankand direct repurchase agreement with the National Bank of Ukraine.
  8. The Boyko oil rigs. Illegal acquisition ofNaftogaz of UkrainePJSC funds, 4.966 billion UAH in total.

There is not a single verdict to any of these schemes masterminds.  There are just two verdicts that we know of – the ones for Oleksandr Katsuba and Arkadii Kashkin. The former in “Boyko oil rigs” case made a plea deal and agreed to testify. His testimony, however useful, did not lead to Yuriy Boyko being served the note of suspicion.

All in all, through these schemes the “criminal group” acquired over 13 billion UAH in total. What the court decision omits is how exactly the funds were accumulated, who was the actual doer or mastermind of all these schemes, what was the financial operations chain for each of the schemes.

Instead, the document contains detailed description of just one stage of legalization process of the dirty money.

For instance, according to the court decision, the money was laundered through roughly 400 Ukrainian and foreign companies created for this purpose.

The court decision implies that the criminals were using registration papers, seals and client-banking system to transfer money from the Ukrainian companies to the firms controlled by them located in Cyprus, Panama and Belize.

In the end, the money “settled” in the accounts of the 10 offshores: Foxtron networks limited, Katiema enterprises limited, Loricom holding limited, Wonderbliss LTD, Quickpace LTD, Sabulong trading LTD, Kviten solution limited, Baleingate finance ltd, Akemi management LTD, Opalcore LTD.

According to the court decision, during November-December of 2013, these offshore firms transferred the money to “Oshchadbank” accounts and then proceeded to purchase government bonds – securities issued by the state in order to attract funds inside the country.

A person purchasing the government bonds becomes de facto creditor of the state, simultaneously obtaining high-quality asset, which collects interest and can be sold to other persons.

Herein lies one sensitive detail: the offshore companies purchased government bonds through financial company ICU. That much is stated in the court decision.

Laundering or business?

Why is this detail so crucial? ICU was founded by Valeriya Gontaryeva, head of the National Bank of Ukraine (NBU), who sold her share of the company to the partners in June of 2014, and Makar Paseniuk, commonly known as the “Poroshenko’s financier”.

One more thing – in its time ICU accompanied the process of turning “Roshen” (the President’s confectionery) over to the blind trust.

MPs from the Poroshenko’s Block name Mr. Paseniuk as one of the best-informed people about Poroshenko’s business. Former head of the Odesa Oblast State Administration, Mikheil Saakashvili also spoke about the investment banker being very close to the President.

Makar Paseniuk, “Poroshenko’s financier” HUBS.UA
Makar Paseniuk, “Poroshenko’s financier”

“His investment banker Makar Paseniuk and his business partners Ihor Kononenko, Oleh Hladkovskyi and Oleksandr Hranovskyi are in administration practically 24/7. In the wartime, at that. At some point I thought those people were living there”, – said Saakashvili in his interview to the Ukrayinska Pravda.

After the revolution, the company ICU became known outside business circles. Its representatives were appointed to the key positions in the government: Dmytro Vovk headed the NEURC, Volodymyr Demchyshyn got the office of the Minister of Energy, and Valeriya Gontaryeva headed the National Bank of Ukraine.

Beside delegating its representatives to top positions the company also started featuring in numerous scandals, linked to financial schemes of the Yanukovych times.

“Ekonomichna Pravda” wrote earlier that ICU was suspected of participation in withdrawing money from the state banks for the former president’s inner circle.

The very same classified court decision implies that ICU was servicing significant cash flows resulting from realization of the aforementioned schemes by the “criminal group”.

According to the document, 8 out of 10 of the previously mentioned offshore companies made contracts for the broker services with ICU. The company, in its turn, bought government bonds for the companies associated with Kurchenko paying with money stolen from state companies.

The contracts were made at about the same time, some even on the same day. The court and investigation call all the broker contracts involving ICU a sham. Apparently implying that the foreign companies were shell companies.

According to the investigation, all their documents, seals and facsimiles of directors’ signatures were kept in a centralized manner in the offices of “the criminal group SEPEK”.

According to some MPs associated with President Poroshenko, it was because of company ICU involvement in the said operation that investigation of the “Yanukovych’s money” withdrawal was being dragged out.

ICU themselves previously said that they saw nothing illegal in operations like that. It was at the time when their involvement in such agreements was just an unverified rumour.

The company’s stance is to be expected. That is, they are “just brokers”, following the client’s orders, reports are being sent to the State Financial Monitoring Service, in compliance with the law.

As for Valeriya Gontaryeva, when heading the NBU, made a public statement on the topic, which can be found on the site of the National Bank of Ukraine.

Actually, in layman’s terms, brokering of ICU can be explained as follows: imagine a group of people robbing a bank and left the crime scene in a car along with the driver. The driver himself did not participate in the actual robbery.

So, should he be prosecuted for the bank robbery?

In order to clarify this, the driver has to be questioned and then it would be determined whether he gave a ride to this particular group intentionally, being aware of their actions. This issue is an analogy with brokering.

As for the case at hand, it is quite unlikely that the ICU part in the aforementioned scheme was ever investigated.

The court decision contains no information whatsoever on remuneration of the company. Even though it probably came from the dirty money. If that is the case, then this remuneration, having the criminal origins, should also be confiscated.

Furthermore, if the Prosecutor General’s office had decided to confiscate 1.2 billion in a different way, not like they did it, then the prosecution would have to conduct urgent investigation concerning ICU company. The thing is, when applying the special confiscation, neither court, nor prosecutor took it upon themselves to prove the illegal origin of the money and investigating the role of the rest of the accomplices, which is a sine qua non.

It would mean searches in ICU offices, seizing of all transaction documentation, email, technical equipment, also questioning of all persons who made deals with offshores and had negotiations with their representatives, revealing IPs of the offshores and broker acting in the interest of such persons. All persons involved in government bond purchasing for the Yanukovych offshore companies must be called in for questioning.

Whether the Prosecutor General’s office investigated ICU in this manner is unknown. Whereas circumstances, described in the court decision, suggest that ICU, namely its management, which had made a decision to service the offshore operations, were accomplices to dirty money laundering.

However, investment bankers are far from being the only guilty party. Many top officials of other companies, mostly public ones, were involved in money laundering crimes through securities of “the SEPEK group”, it was their assistance that aided in moving such large sums out of the country. Yet, the court decision says nothing about bringing them to justice.

Instead, the second real verdict after the one for Katsuba-junior got a person who sold their passport details for 400 USD and agreed to become dummy director for one of the numerous companies that Serhiy Kurchenko was the front owner of.

Dummy director for Lutsenko

Kramatorsk City Court approved the plea deal between the military prosecutor of the ATO forces Kostiantyn Kulyk and Arkadii Kashkin, who plead guilty, in its decision.

This secret witness name was mentioned as far back as 2015 in the Kurchenko case. At that time Kashkin also made a plea bargain and plead guilty confessing his role in shell entrepreneurship in Kurchenko’s group of companies. He was fined 51 thousand UAH. As he had no money, though, his punishment was community service.

The crimes Kashkin was tried for in 2015 fully coincide with actions described in the court decision of 2017.

In particular, both verdicts state that Mr. Kashkin handed over his passport and identification code number to be used in registration of the company “GazUkraina-2020” in his name.

The only difference is the level of awareness and conscious complicity of the “key witness” Mr. Kashkin in sham transactions and financial schemes involving billions of “SEPEK”

His verdict of 2015 states that Kashkin “was aware that he has no moral or business qualities and financial possibilities it takes to become an entrepreneur, that, as founder of the company (“GazUkraina-2020” – the Ukrayinska Pravda) and an officer, he would not be involved in activities of the company or its management, and his role would be solely to cover for illegal activities”.


The verdict of 2017 adds that Mr. Kashkin also received monthly remuneration of 2000 USD for participation in criminal organization and laundering its dirty money”.

Throughout the text of the court decision of 2017 one can see accounts of how hundreds of millions USD were moved out of Ukraine onto the offshores to later be reinvested in the government bonds by the members of the “Kurchenko group” together with … Kashkin.

Whereas, in court decision of March 16, 2017, which is in public access, concerning another individual featuring in the case, it is emphasized that Kashkin showed awareness and refused to be involved in laundering dirty money through bonds purchase, and his signatures on bank documents in a row of sham transactions had been forged.

Therefore, we have at least two court decisions that refute Mr. Kashkin’s involvement in money laundering for Yanukovych and Kurchenko. According to the documents, his role in the schemes was that of a dummy individual, nothing more.

Why would Kashkin be tried for it again in 2017? The only explanation is that the Prosecutor General’s Office needed to get a court decision on a crime of money laundering. That is the kind of offence, which makes possible special confiscation of the arrested billions.

The prosecution had neither any other way to confiscate that money, nor more substantial evidence collected by the Prosecutor General’s Office in a three-year investigation.

What strikes even more, the prosecutors were not able to find a decent witness for the case, but contented themselves with a de facto homeless man that simply sold his passport data.

As far as in 2014, one of the authors of this article met Arkadii Kashkin in the Prosecutor General’s Office. The author testified on Kurchenko’s case to prosecutor Kostiantyn Kulyk, telling, among other things, about dummy directors of SEPEK group of companies.

Kulyk has been handling Kurchenko’s case since 2014
Kulyk has been handling Kurchenko’s case since 2014

At some point one of the investigators reported on the arrest of the dummy director named Arkadii Kaskhin and offered to have a talk with him.

“He cannot afford even shoes, we feed him pizza, but his signature is on the documents of the companies with the turnover of billions”, — an investigator told the reporter of the Ukrayinska Pravda

Kashkin appeared to be a man in his forties, who poorly understood the business questions and Kurchenko’s group structure and on the whole did not look like a person able to make important decisions.

He was telling the Ukrayinska Pravda reporter that he had been signing all the documents for a small fee of 300 USD per month, and that he was ready to enter a guilty plea.

In autumn 2014, Borys Timonkin, former Head of the Supervisory Board of “Brokbusinessbank”, described role of Kashkin and other dummy directors in his interview toEkonomichna Pravda like this: “All directors of Kurchenko’s companies were just dummy signers. What do you mean – a key figure, f*ck, bullsh*t”.

After us the deluge!

On the one hand, this poorly directed process allowed returning the money to the country. On the other  dozens of criminals, involved in the money withdrawal, were not punished.

Another important issue is the risks to the state budget.  7 out of 10 offshore companies, whose money and government bonds were confiscated, appeal against those decision in the courts. It quite possible that in future European jurisdiction courts may decide that Ukraine must return the money to the offshore companies accounts.

This scenario is indirectly evidenced by the fact that after the money was arrested the agreements were being made on transmission of the offshore companies, that were formal owners of “Yanukovych’s money”.

Taking into account the interests of the oligarchs involved in the offshore companies transmission agreements, e.g. Pavlo Fuks and Oleksandr Onyschenko, the scenario looks quite possible.

Oleksandr Moiseienko, Dmytro Dienkov, Sevgil Musayeva, “Ukrayinska Pravda

Daria Kaleniuk, Tata Peklun, Anti-corruption Action Centre

Original text by Ukrayinska Pravda – http://www.pravda.com.ua/articles/2018/01/10/7167931/

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