(in)Security Service of Ukraine puts pressure on business for its own benefit – Investigation

What is the Security Service of Ukraine busy with? This elementary, at first sight, question has two answers. The institution calls itself the state special-purpose law enforcement agency ensuring state security. However, some citizens have different opinion.  

Representatives of several dozens of companies which NV interviewed during the preparation of this article, stated that they suffered from actions of the state agency. According to them, the latter, while establishing peculiar relations with business, uses the full range of its professional instruments, including searches, criminal proceedings and sanctions. As a result, businessmen incur millions in losses, and the Security Service of Ukraine with its huge mandate turns into a simple racketeer and enrichment instrument for some of its high-level officials, say the managers of the suffered companies.

“The problem is very serious, – proves the tendency Algirdas Šemeta, the Head of the Business Ombudsman Office. – “Security Service of Ukraine has to deal with state security but not to pressure business”. Šemeta shows the numbers: his office has received dozens of complaints against the Security Service of Ukraine throughout the year, and the number has been growing lately.

It’s very often that special service pressures business in order to get money, – for example, to extort a bribe, say the experts. Among those who are being pressured, – TPT Oil Retail company, seller of certificates and smart-cards for gasoline at gas stations. Security Service of Ukraine suspected TPT Oil Retail in financing the so called Donetsk People’s Republic. The company was seemingly acting as a converting center and transferring up to 2 million UAH daily, with part of it being transferred to support terrorists.

On 11 May the office of the company was searched, as a result of which officers of the Security Service of Ukraine seized gas certificates for the amount of 760 thousand UAH. “And it was very soon that I received a call from WOG gas station saying that the certificates were used”, – says Inna Koval, the director of TPT Oil Retail. She asked for a video recording in order to see who used the certificates seized during the search and recognized the security service officer who conducted the search.

“Then some persons started approaching me saying that I had to pay them, – says Koval. Through acquaintances they offered to pay them 5 thousand USD to solve the problem”.

NV addressed the Security Service of Ukraine to clarify the story but they refused to comment on the TPT Oil Retail case.

National security service stays the only completely unreformed enforcement agency and that really needs to be. This is known not only in Ukraine but in Europe as well. It was not only the President Petro Poroshenko who said about the necessity of systemic changes but also the Head of the EU Delegation to Ukraine Hugues Mingarelli, according to whom “this reform is extremely important and needs to be introduced as soon as possible”. However, this issue is being constantly postponed.

Medvedchuk and Co

On a hot morning of August 4th in the building of the Supreme Administrative Court on Moskovska str. in the center of Kyiv there was a hearing on a lawsuit filed by Lakmar company dealing with chemicals production against the President of Ukraine. President Poroshenko in response to the submission of the Security Service of Ukraine of October 2016 included Lakmar to the sanctions list in connection with its subversive activities against Ukraine in favor of Russia. Accusations of terrorism or support of subversive activities are common in such cases – that’s what helps justify actions of the Security Service of Ukraine against commercial companies.

Lakmar believes the accusations are unjustified. The company uses the facilities of Zaporizhzhya State Plant Kremniypolymer for producing ethyl silicates from Chinese and European raw materials, and also sells finished varnishes and paints to such Ukrainian industrial giants as Zorya Mashproekt, Motor Sich and Antonov. All owners of Lakmar are Ukrainians.

“Business has been stopped since Autumn”, – complaints Maryna Sytnyk, the director of the company. – Along with this, they demand that we pay all taxes starting from the time when sanctions were imposed”.

The court has had the Lakmar case in consideration since March, however, never really started the trial. The lawyer of the Security Service of Ukraine who acts as a third party in the trial, says that the reasons for imposing sanctions are state secret, therefore she cannot provide arguments in court. And without understanding the reasons for including Lakmar into the sanctions list the court cannot take any decision.

However, in some cases the Security Service of Ukraine acts on a larger scale, paralyzing not just the activity of separate companies but the whole spheres. In particular, the LPG market, a cheaper alternative motor fuel than gasoline. In November 2016 energy customs service stopped lines of LPG tanks from Russia and Belarus based on requirement of the Security Service of Ukraine to check the whole volume on presence of “poisonous and potent substances” as well as the serviceability of wheel pairs of tanks. In March of this year the Ministry of Economy pursuant to the requirement of the Security Service of Ukraine prohibited 16 big Ukrainian companies and 8 non-resident firms to import LPG. The Security Service of Ukraine did not stop at checking the fuel, it accused the company in tax dodging, laundering money to off-shores and financing of terrorism.

In the end tanks were let through – after a public pressure and a direct appeal of market participants to the Prime-Minister Volodymyr Groysman who ordered the Vice-Prime-Minister Stepan Kubiv to lift the sanctions. The prohibition to buy Russian LPG stayed. But not for all. The Security Service of Ukraine left a couple of exclusions from the rule: LPG can be bought from Rosneft only by Glusco and Creative Trading companies owned by the Israeli businessman Nisan Moiseev. It’s worth mentioning that such preferences exist also in Russia.

Pressed the gas: Viktor Zhuravliov, the CFO and shareholder of UkrGasPetroleum, is convinced that the great redistribution of LPG market is connected with business appetites of the well-known politician Viktor Medvedchuk.

Moiseev himself is connected with the famous Ukrainian politician Viktor Medvedchuk who is the godfather to Russian President Volodymir Putin, say market participants. “These companies (Glusko and Creative) for sure belong to Medvedchuk”, – says Viktor Zhuravliov, the CFO and the shareholder of the company UkrGasPetroleum.

“The task of Medvedchuk is to clear the market”, – says also Serhiy Mykhailyk from Poltava traiding company SBG-Plus.

At the same time, share of Glusco and Creative on the Ukrainian LPG market grew from 1% in 2016 to 38% today. The price on LPG is growing because of the monopoly position of these companies, states Mykhailyk. “The market has a deficit of resources”, – he adds.

Along with this, it was already in Summer of 2016 that Moiseev imported 400 thousand tons of LPG and when Ukrainian traiders addressed him with a request to sell part of the resource he rejected. “Guys, I don’t take decisions on this”, – Zhuravliov repeats his words.

Moiseev and Medvedchuk have really warm relations: journalists of “Schemy” program managed to make a video of how they, having landed in Kyiv in one plane, gave a warm farewell to each other.

Both the LPG traders and the representatives of some other companies that suffered from actions of Security Service of Ukraine say that all key decisions regarding pressuring businesses takes Pavlo Demchyna, the head of the anti-corruption unit of the Security Service of Ukraine. He, according to the information of the Anti-Corruption Action Center is the trustee of People’s Deputy from Petro Poroshenko Block Olexander Granovskiy who developed the system of presidential control over the law enforcement branch.

“Then some persons started approaching me saying that I had to pay them. Through acquaintances they offered to pay them 5 thousand USD to solve the problem”, – Inna Koval, Director of TPT Oil Retail

“Following all actions that Demchyna undertakes, we can make a conclusion that he executes the order of Granosvskiy and of another People’s Deputy – Ihor Kononenko – who is close to the President”, – says Vitaliy Shabunin, head of the Anti-Corruption Action Center.

High-level sources in the National Anti-Corruption Bureau anonymously informed the NV that collection of evidence against Demchyna is coming to its final stage and soon the establishment is going to initiate against him a case on illegal enrichment as a result of pressuring business. Mass media also possesses data proving his huge assets: journalists of the investigative project Slidstvo.Info found a big mansion in the suburbs of Kyiv that belongs to Demchyna – a huge two-storied house in Petropavlivka-Borschagivka district in Kyiv that, according to journalists’ data, can cost around 10 million UAH. Even though Demchyna himself stated that it’s not him but his civil wife who owns a house and he only rarely spends a night there.

Cars that officers of the Security Service of Ukraine use also show their huge but non-transparent income. Journalists of “Schemy” program managed to video record the cars that are being used by officers of the Department for Protection of Economy of the Security Service of Ukraine. At the parking lot near the Department one can see the officers who drive such cars like Volkswagen Touareg worth $60 thousand, Toyota Land Cruiser worth $70 thousand and BMW 5 series worth $50 thousand. Along with this, declarations of officers of Security Service of Ukraine are classified.

However, the journalists could identify that a costly Volkswagen Touareg is driven by Dmytro Bezzubenko, one of the deputy heads of Department. Another officer uses Toyota Land Cruiser, registered on his mother whose annual income is 18 times less that the price of this car.

In response to the video story of “Schemy” program the Security Service of Ukraine conducted an inspection of these officers and made a conclusion that there are no facts proving their illegal enrichment. Natalya Sedletska, the head of the “Schemy” project, adds that the Security Service of Ukraine constantly threatens journalists of the program to bring criminal charges if their videos are published. In addition to that, unknown people break into the accounts of journalists in the social media and wire tap their phones. “I think this is done with the only goal – threaten, make us understand that we are being watched”, – says Sedletska.

Without cognac and sausage

It is not only gas that is within the range of interests of the Security Service of Ukraine but also the cognac. Particularly worth mentioning is the story with cognac spirits, victims of which became the biggest Ukrainian manufacturers of cognac – Tavria, Odessa Cognac Plant and the Pivdenna Vinokurnia. Thus, in November 2016 Demchyna initiated a case upon the fact that Ukrainian manufacturers import cognac made of foreign ingredients having poisonous substances. Before that, all importers of cognac spirits received a positive conclusion from the specialized laboratory of the State Fiscal Service.

Under the suspicion were even elite cognac spirits, imported from France, tells the representative of one of the companies that asked to stay anonymous. “Everything is being done for a purpose” – she believes. – From the side of the Security Service of Ukraine there is an interest to solve the issue in a corrupt way”.

Power of the word: Natalya Sedletska, the head of the «Schemy» project, tells that after her team conducted an investigation of the Security Service of Ukraine, journalists started receiving threats to bring criminal charges.
Power of the word: Natalya Sedletska, the head of the “Schemy” project, tells that after her team conducted an investigation of the Security Service of Ukraine, journalists started receiving threats to bring criminal charges.

“We don’t understand the grounds for such actions – blocking imports – and believe that this is being done upon request of certain persons whose aim is to receive money reward to stop putting pressure on enterprises”, – believes Petro Gromov, member of a Supervisory Board of the House of vintage cognacs Tavria. And that’s together with the fact that tanks with cognac spirits that were stopped last year are still staying at the border.

In the exact same way in April of last year Kyiv Regional Customs Office blocked supplies of additives for wurst and sausages. They were being imported by Matimex Ukraine that entered the Ukrainian market 19 years ago and was buying them from its parent company Matimex in Austria.

However, officers of the Security Service of Ukraine found prohibited drug substances in additives to sausages of Matimex. According to the experts, these substances were really there, but this is not a crime as in the microscopic doses they can be found in nuts and prunes included to the additives.

Who is guilty? Representatives of the companies that became victims of the Security Service of Ukraine believe that the person guilty of this is Pavlo Demchyna, the head of the anti-corruption unit of the law enforcement agency.
Who is guilty? Representatives of the companies that became victims of the Security Service of Ukraine believe that the person guilty of this is Pavlo Demchyna, the head of the anti-corruption unit of the law enforcement agency.

In July last year Security Service of Ukraine conducted searches in the house of Ivan Grod, the CEO of Matimex Ukraine. At that time, in order to support him, the Ambassador of Austria to Ukraine Ms. Hermine Poppeler came to the place where the search was being conducted and requested to be let into the building. Law enforcement officers rejected and she stood there for several hours until they let her in. According to the information of NV, representatives of the Security Service of Ukraine demanded 100 thousand USD as a one-time payment and 3 thousand USD from each transport to renew the right to import products for sausages.

In October 2016 Security Service of Ukraine had to close the case of Matimex on “narcotic substances” in sausages. This was preceded by a number of circumstances. In August 2016 the Prime-Minister Volodymir Groysman gathered Ambassadors of Ukraine to foreign countries in order to discuss the issue of attracting foreign investments to Ukrainian economy. It was at that time when Alexander Scherba, the Ambassador of Ukraine to Austria, told him about the situation with Matimex. Business-ombudsman Shemeta from whom we heard about this case, also personally met the Prosecutor General Yuriy Lutsenko and asked to influence the situation.

A wonderful story: Inna Koval, the director of TPT Oil Retail, tells how officers of Security Service of Ukraine seized in her office certificates worth 760 thousand UAH during the search and immediately filled up their gas tanks.

A story with propaganda

Ukrainian programmers have their own story with the Security Service of Ukraine. Upon the initiative of the security service companies Skyline Soft and ABBYY Ukraine were included to the Presidential list of sanctions for their allegedly Russian origin.

Along with this, Skyline Soft, being the operator of distribution of accounting program 1С, does not have Russian shareholders. The owner of the company – investment group Baring – is being owned by a legal entity registered in Cyprus. This is a normal way of structuring ownership being used by many Ukrainian companies.

“Security Service of Ukraine saw all this and did not pay attention to our structure of ownership”, – says the head of the company Vadym Mazur. And even if the Security Service of Ukraine tried to stop the usage of 1C product that was indeed developed in Russia, it didn’t work. Besides Skyline Soft, there are around 500 companies that sell the program in Ukraine but they did not end up in the sanctions list.

ABBYY in its turn develops software for text recognition. With its help, for example, one can make a photo of a business card and the program on a smartphone will include the information from it into the contacts list.

ABBYY Plc owner is a Cyprus company founded by a Japanese legal entity PFU and a Swedish investment fund Mint Capital. Other 40% of shares belong to the family of David Jan. He is really a Russian citizen, however, he resides in the USA and is in the process of receiving American citizenship. The company is run by managers from Sweden and Netherlands.

“I think this is being done with the only goal – threaten, let us know that we are being watched.” – Natalia Sedletska, Head of the Schemy project

“Rhetoric of speakers regarding sanctions is simple: we, as they say, propagate anti-Ukrainian ideas, finance terrorism and conduct cyber attacks, – complaints Vitaliy Tyshenko, the head of Ukrainian subsidiary company ABBYY. – However, I don’t understand what do we propagate with our products of text recognition? We don’t pay anything to Russia, and almost all our data is kept on servers in the USA and meet the world regulatory provisions”.

As a result, ABBYY completely stopped its operations on Ukrainian market. And before that, its Ukrainian branch also provided services to Eastern European countries bringing millions of Euros of income into the country, but even this sphere of work has been stopped.

NV tried to receive explanations from the establishment regarding all cases of pressure imposed by the Security Service of Ukraine on businesses described in the article. However, there was no result.

At the same time, the fact that the Security Service of Ukraine abuses its mandate is being recognized even by the international experts and try to help Ukraine in this. Ferdinand Koenig, Public Relations Officer at the EU Advisory Mission to Ukraine, says that there is already plan of how to reform the Security Service of Ukraine.

“Together with NATO we elaborated the concept in order to make the Security Service of Ukraine a service that will only collect data related to the security of the country and limit its mandate in conducting pre-trial investigations”, – says Koenig. The Security Service of Ukraine absolutely cannot persecute business, he stressed.

Ivan Verstiuk, Novoe Vremya, published on 12 August, 2017

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