Ukrainian companies report unfounded repressions throughout Russia’s battle on Ukraine
A report by Alexander Stern, Analyst and Journalist (*)
August 2024
In July 2024, house owners and high managers of Ukrainian enterprises gathered once more at a roundtable in Kyiv to declare that not a single high-profile case of corruption strain on enterprise, monitored by the general public motion “Manifesto 42,” has been transferred to court docket with an indictment.
Officers proceed to make use of prison proceedings to extort bribes and property
“Manifesto 42” is a non-governmental public motion of Ukrainian businessmen created in June 2023 to guard their enterprises towards the arbitrariness of officers, judges, and particular providers. The identify refers to Article 42 of the Structure of Ukraine about the fitting to entrepreneurial exercise.
Manifesto 42
The consolidated protest of distinguished representatives of Ukrainian enterprise emerged within the spring of 2023 in response to the actions of sure authorities representatives.
In November 2022, a number of giant enterprises have been forcibly taken from their house owners, together with shareholders with out dominant affect (minority shareholders).
Probably the most important and worthwhile corporations amongst them are “Ukrnafta” and “Ukrtatnafta.” Nonetheless, smaller corporations and medium-sized companies are additionally beneath strain.
Ukrnafta is the principle oil and gasoline producing firm in Ukraine, producing 86% of oil, 28% of gasoline condensate and 16% of gasoline (from fossil hydrocarbons).
On the identical time, the producer of rubber merchandise and tactical first assist kits for the military, Kievguma, which can’t be thought of a pacesetter by way of enterprise measurement, additionally encountered issues with legislation enforcement businesses.
The Safety Service of Ukraine (SSU) performed a sequence of searches within the firm’s workplaces, arrested administration leaders and publicly accused the corporate of supplying first assist kits to the enemy – Russia.
It is a typical cost when trying to take over a enterprise, because it appeals to public opinion. The final director of Kievguma, Andrii Ostrogrud, who joined the Manifesto 42 motion, answered that rivals provided him to divide the market with a purpose to keep away from wholesome competitors and when he refused, with the assistance of legislation enforcement officers, they started to destroy the repute of his firm.
In 2022-2023, Dmytro Firtash, a gasoline enterprise proprietor residing in Austria since 2014, whose extradition Washington has been looking for for a few years, was disadvantaged of his belongings in Ukraine.
His gasoline distribution corporations have been nationalised: company rights have been confiscated on the request of the State Bureau of Investigation (SBI), and the enterprises themselves have been transferred to the administration of the state Asset Restoration and Administration Company (ARMA).
The Excessive Anti-Corruption Court docket of Ukraine (HACC), thought of probably the most neutral establishment and just lately created to deal with corruption instances, lifted the arrest on the corporate’s shares.
Nonetheless, Firtash didn’t regain his property. His belongings have been transferred beneath the management of the state firm “Naftogaz.”
Dmytro Firtash
For the reason that starting of 2023, troubling processes for companies have continued and expanded
Information about searches and prison instances towards well-known businessmen have develop into frequent, with many left bewildered by the claims made towards them.
Oleksandr Kosovan, the founding father of the IT firm MacPaw, whose applications are put in on one out of each 5 Mac computer systems, invested over 25 million euros in a recreation centre for his firm’s workers and confronted searches attributable to unauthorised shoreline growth on the plot the place the wellness advanced is being constructed.
The Bureau of Financial Safety (BES), an company created on account of reforms to exchange the tax police, initiated a case towards the corporate “M-Kino,” which owns the “Multiplex” cinema chain, for tax evasion.
A sudden raid by the SSU and Nationwide Police on the workplace of the developer ImproveIT Options nearly disrupted the corporate’s mission for an necessary U.S. consumer. Investigators got here beneath the pretext of a case involving the “creation and distribution of pornography,” seizing 5 laptops. Six days later, the tools was returned with none rationalization.
These are only a few examples of the massive variety of incidents that occurred with Ukrainian enterprise on the finish of 2022 – starting of 2023. The 2 most high-profile occasions within the spring of 2023 involved the activation of very outdated prison instances to attain doubtful objectives.
In April final yr, the Pechersk Court docket of Kyiv seized the company rights of the gasoline manufacturing firm “Ukrnaftoburinnya” as materials proof in a case that was initiated nearly 10 years in the past. 5 days later, these rights have been transferred to the administration of ARMA, successfully taking the corporate away from its house owners and forcibly nationalising it.
One other prison case, additionally initiated 10 years in the past round land privatisation, led to searches on the residence of Igor Mazepa, the founding father of the funding firm Concorde Capital, who’s in style amongst enterprise circles and journalists. Mazepa referred to as on the enterprise neighborhood to organise self-protection towards the arbitrariness of officers and judges. He was supported by different entrepreneurs, resulting in the creation of “Manifesto 42.”
Ihor Mazepa in Pechersk Court docket of Kyiv
Mazepa’s initiative and that of his like-minded supporters led to a public dialogue of the state of affairs. Articles appeared within the press, the place journalists sought solutions to why the variety of enterprise complaints about repression had elevated a number of instances.
One of the in-depth investigations was printed in Might 2023 within the Ukrainian Forbes beneath the eloquent title “Taxes, the ever present Tatarov, the Russian hint. Businessmen complain that safety forces are rising strain. There are no less than 5 causes for this and just one piece of recommendation.”
The article is the primary to formulate a proof and to call an official who is taken into account the “basic producer” of strain on enterprise.
“4 interlocutors from the monetary, financial and anti-corruption committees of the Verkhovna Rada, in addition to the OP (Workplace of the President), imagine that the strain on enterprise is straight or not directly associated to the truth that nearly all legislation enforcement businesses got here beneath the affect of the President’s Workplace, particularly the deputy head of the OP, Oleh Tatarov.
Oleh Tatarov, Deputy Head of the Workplace of the President of Ukraine
“For the reason that instances of the Revolution of Dignity, there was no occasion the place all legislation enforcement businesses have been beneath the management of 1 individual,” says one interlocutor within the Verkhovna Rada, asking to not be named on this article.
“It’s tough to oppose such an individual.”
One other interlocutor notes that this example has led to the destruction of the system of checks and balances, saying that “Beforehand, there was competitors between legislation enforcement businesses, and so they have been afraid of one another.”
“A businessman may complain in regards to the SSU to the police. Now there’s nobody to complain to – they’re all in the identical harness.”
The publication garnered enormous resonance and led to a gathering between enterprise representatives and the President in June 2023
The enterprise neighborhood hoped for the dismissal of Tatarov or no less than his removing from positions of affect.
Nonetheless, as an alternative, in July 2023, Tatarov started collaborating in a coordination platform for resolving problematic points between enterprise and legislation enforcement businesses, signalling the retention of his dominant function.
On January 19, 2024, the initiator of the “Manifesto 42” motion, Mazepa, was arrested and not using a court docket determination on his method to the Davos Discussion board.
The arrest was carried out by workers of the State Bureau of Investigation (SBI) and the Nationwide Police – legislation enforcement businesses over which Tatarov has important affect.
Why are Ukrainian companies afraid of Tatarov?
Deputy head of the Workplace of the President (OP) Oleh Tatarov is disliked by enterprise, anti-corruption activists and the press, since he personifies the corrupt pro-Russian authorities that Ukrainians removed throughout the Revolution of Dignity in 2014.
The democratic rebellion in Ukraine was an anti-Russian, pro-European motion triggered by the refusal of the authorities, led by the chief of the Get together of Areas, President Viktor Yanukovych, to signal an Affiliation Settlement with the EU. Russia was towards this settlement.
On the finish of November 2013, the police beat protesting college students. This sparked a nationwide rebellion, leading to Yanukovych fleeing to Russia and the election victory of pro-European politicians in Ukraine.
From 2011 to 2014, Tatarov was the deputy head of the investigative division of the Ministry of Inside Affairs and publicly justified the actions of the authorities and police. Later, as a lawyer, he defended cops concerned within the shootings of demonstrators.
Tatarov (left) and the top of the Ministry of Inside Affairs throughout the Yanukovych period, Vitaliy Zakharchenko (middle) in December 2013
He established his community of brokers even earlier than actor Volodymyr Zelensky gained the presidential elections in 2019. Journalists discovered details about 59 individuals who defended their scientific dissertations with Tatarov’s participation between 2014 and 2020, when he was not but working for the federal government. Amongst them have been judges, cops, and prosecutors thought of loyal to him.
Tatarov’s character was a discordant ingredient with the programmatic theses of the brand new president, who shortly after his election signed a legislation on enterprise safety, promised to deliver Ukraine into the TOP-10 of the World Financial institution’s ease of doing enterprise rating inside 3-4 years, and declared that “the State is a service company creating situations for enterprise.”
Presumably, in 2020, the younger, inexperienced, and romantically inclined authorities crew wanted a communicator with the outdated a part of the official legislation enforcement and judicial system from which they might not rapidly eliminate. The selection fell on Tatarov. Subsequently he used the transformation of energy brought on by Russia’s invasion to strengthen his positions.
Just lately, Reuters printed a serious article on how, after his election, Zelensky tried to introduce probably the most liberal order in Ukraine, and now he’s a president beneath the constraints of democracy brought on by martial legislation.
Most of Forbes’ interlocutors, near the Presidential Workplace and the financial wing of the federal government, affirm that Zelensky, deeply engaged in diplomacy and the state of affairs on the entrance line, has no time and vitality for the financial system and enterprise issues.
Tatarov demonstrated his rising affect two months after the battle started
In April 2022, the prison case initiated towards him in 2020 by the Nationwide Anti-Corruption Bureau of Ukraine (NABU), an impartial physique created after the Revolution of Dignity, was closed.
NABU solely managed to arrest Artem Shylo, who till just lately headed the SSU division for investigating instances towards companies. Anti-corruption activists name him Tatarov’s primary trusted individual and the curator of ARMA, the place nationalised belongings are transferred for administration.
It is usually price mentioning the battle between Tatarov and NABU. The profitable work of this anti-corruption physique is among the most necessary necessities of Ukraine’s Western companions. Nonetheless, as Tatarov has acknowledged, “NABU shouldn’t be a Ukrainian story.”
Oleksii Sukhachov, Director of the State Bureau of Investigation (SBI)
Tatarov’s orbit contains the top of the SBI (State Bureau of Investigation of Ukraine), Oleksiy Sukhachov. Their connection is so shut and particular that it extends past official issues – Sukhachov, together with Tatarov and 4 different members of the choice committee for the top of the SBI, even co-authored and reviewed books.
It’s doable that Tatarov additionally had a hand within the profession of the present head of the SSU, Vasyl Maliuk. After Maliuk was dismissed from his place as the primary deputy head of the SBU and head of the anti-corruption division in 2021, Tatarov facilitated his appointment as deputy minister of inner affairs.
One other ally of Tatarov is Rostyslav Shurma, the deputy head of the OP overseeing the financial bloc. These two are the one former members of Yanukovych’s infamous Get together of Areas amongst all the workers of the Presidential Workplace.
The connection between Tatarov and Shurma was just lately solidified by a court docket determination. In March 2024, Decide Svitlana Shaputko of the Pechersk Court docket, who defended her dissertation with Tatarov’s assist in 2018, dismissed the case towards Shurma for violating battle of curiosity prevention necessities, as accused by the Nationwide Company on Corruption Prevention.
They appeared collectively on the enterprise assembly in July 2023, crushing the hopes of “Manifesto 42” contributors to convey the necessity for personnel modifications to the President.
Their relationship is doubtlessly very harmful for enterprise.
Tatarov has the leverage to organise the unlawful seizure of personal property by means of the courts and apply strain from the safety providers. Shurma coordinates the appointment of state-controlled managers to positions managing confiscated belongings.
Shurma’s want to see his protégé lead the biggest oil manufacturing and refining holding, consisting of “Ukrnafta” and “Ukrtatnafta,” might have led to the dramatic penalties for shareholders unjustifiably disadvantaged of property rights and, extra importantly, to break to the state’s pursuits.
Click on on the diagram beneath to have the complete image in an enormous window
Tatarov’s community
The story of “Ukrnafta” and “Ukrnaftoburinnya” has develop into an emblem of lawlessness
Throughout the Davos Discussion board-2023, Shurma offered a proof for why the authorities seized shares from personal house owners of “Ukrnafta,” together with non-residents, in November 2022.
In line with him, it was as a result of firm’s administration refusing to produce petroleum merchandise to the Ukrainian military.
On the identical time, the previous chairman of the board of “Ukrnafta,” Oleh Hez, referred to as this data unreliable.
“Ukrnafta” is an oil manufacturing firm; it doesn’t produce petroleum merchandise however solely sells the extracted oil.
“Ukrnafta” has by no means had obligations to produce gas for the wants of the Armed Forces of Ukraine. Regardless of the dearth of obligations, because the Russian invasion, the then-management of “Ukrnafta” systematically offered help to army items and territorial defence items, refuelling army tools at “Ukrnafta” gasoline stations totally free.
The previous head of the supervisory board of “Ukrnafta,” Mykola Havrylenko, was frankly stunned by this interpretation.
“All I can say is that I’m unaware of any unmet obligations for the availability of petroleum merchandise by ‘Ukrnafta.’ If such points ever arose, they’d have been introduced up in conferences, and if not – I’ve no different data. What volumes are being mentioned, and at what instances… That is information to me,” he commented on the problem for the media.
The time period “nationalisation” utilized by Shurma within the context of “Ukrnafta” sounds incorrect, as till November 2022, the controlling stake (51%) was already owned by the Ukrainian state by means of NJSC “Naftogaz of Ukraine.”
Nothing prevented the state, as the principle shareholder, from altering the corporate’s administration or deciding to direct all revenues to assist the Armed Forces of Ukraine.
As an alternative, beneath the slogans of the necessity to “punish” “Ukrnafta” for not supplying gas to the military, the Regulation of Ukraine “On the Switch, Pressured Alienation, or Exclusion of Property beneath the Authorized Regime of Martial or State of Emergency” was used, to permit the confiscation of property from residents and enterprises throughout wartime till its finish.
Subsequently, the belongings should be returned to the house owners, or if that is not possible, their market worth should be compensated.
In line with the provisions of this legislation, solely property needed for army wants could be confiscated. Nonetheless, on this case, it was not petroleum merchandise (which, as we recall, “Ukrnafta” didn’t produce) that have been confiscated, however 49% of the shares of “Ukrnafta” minority shareholders, signed by the Commander-in-Chief of the Armed Forces of Ukraine.
The seizure of personal international buyers’ shares allegedly for army wants seems unusual. On the identical time, a brand new director, Serhiy Koretsky, was appointed, absolutely managed and accountable to the Deputy Head of the Presidential Workplace, Shurma.
There have been no complaints in regards to the efficiency of the administration of “Ukrnafta,” which was unjustifiably dismissed in November 2022. Former Deputy Minister of Finance of Ukraine, Olena Makieieva, acknowledged in an interview, “The Supervisory Board exercised acceptable oversight of the board’s actions, the audit committee (beneath the Supervisory Board of ‘Ukrnafta’ – ed.) had no complaints in regards to the work of the top of the corporate and board members.”
One of many authors of the Ukrainian company legislation reform aimed toward converging with the perfect European practices, Serhiy Boytsun, declared in March 2023 that the brand new Supervisory Board of “Ukrnafta” was illegitimate because it was fashioned in violation of the legislation on joint-stock corporations.
Foto- Ukrnafta’s Head Workplace
This additionally applies to the corporate’s appointed head, Koretsky, as he was appointed by an illegitimate Supervisory Board.
Boytsun’s comment in regards to the high quality of company governance in “Ukrnafta” after the so-called “nationalisation” is noteworthy: “There could be no discuss of company governance requirements because the Supervisory Board consists solely of representatives of the shareholder (Ministry of Defence) and acts solely as silent signatories.”
High quality company governance in strategically necessary corporations is a mechanism that ought to steadiness pursuits in a civilised method.
It’s apparent that after November 2022, such a press release is not possible concerning “Ukrnafta.”
“You don’t have to be an insider to know that there’s now guide management,” Boytsun asserted. From the angle of company legislation, in his opinion, the choice to grab “Ukrnafta” shares from minority shareholders is deeply flawed.
Underneath full state management, “Ukrnafta” grew to become the topic of corruption and administration scandals. As an alternative of offering free gas to the Armed Forces of Ukraine (the premise for making use of the “army legislation”), the brand new firm administration sued its curator, the Ministry of Protection, to expedite the receipt of more cash.
In violation of Cupboard of Ministers Decision No. 178 of 02.03.2022, in response to which operations for the availability of petroleum merchandise to the military, Nationwide Guard, and different safety constructions throughout the battle are topic to a zero VAT charge, “Ukrnafta” included a 7% VAT charge within the contract, after which, after its change, 20%.
By this manipulation, it acquired a further 350 million UAH (7.8 million euros).
To drive the Ministry of Protection to pay much more cash, the corporate went to court docket. This outraged a member of the Ukrainian parliament, the primary deputy head of the parliamentary vitality committee, Oleksiy Kucherenko, who despatched a parliamentary inquiry to the Prosecutor Common of Ukraine.
The state of affairs is even worse on the oil and gasoline firm “Ukrnaftoburinnya” (UNB). This was the second-largest gasoline producer in Ukraine amongst personal corporations. Now it has stopped working altogether, despite the fact that Ukraine urgently wants its personal vitality assets and funds revenues from taxes throughout the battle.
Within the spring of 2023, the corporate was taken away from personal house owners for no obvious purpose and transferred beneath the management of Koretsky. The explanation for the confiscation was a prison case associated to a licence to develop the Sakhalin discipline within the Kharkov area, the place Russian troops try to interrupt by means of.
Over the course of some days in April 2023, the Pechersky Court docket of Kyiv issued three court docket choices. The corporate’s shares, seized as proof in a prison case, have been transferred to ARMA, which, in flip, transferred them to the administration of Ukrnafta. This determination was made by decide Vita Bortnitskaya, who as soon as defended her dissertation with the assistance of Tatarov.
To legalise the actions of transferring “Ukrnaftoburinnya” beneath the administration of “Ukrnafta,” it was needed to acquire a doc from the Antimonopoly Committee of Ukraine (AMCU) stating that such a merger didn’t lead to market monopolisation.
This doc was obtained, however with obvious indicators of procedural and authorized violations. Sooner or later, it may develop into the topic of a prison or anti-corruption case.
Nonetheless, even these makes an attempt at falsification proved pointless. What was supposedly being prevented by transferring the corporate to state administration nonetheless occurred.
The problematic licence, which was the rationale for seizing “Ukrnaftoburinnya” from its house owners, was annulled by the court docket. The corporate halted manufacturing at Sakhalinsk, at a time when Ukraine critically lacks vitality assets.
Foto – Oil manufacturing in Ukraine
Deputy Kucherenko requested the ARMA administration why, many months after the licence was revoked on November 28, 2023, the gasoline manufacturing firm’s work had not resumed.
He additionally requested Koretsky whether or not the state supervisor of Ukrnaftoburinni, Oleg Malchik, was current on the court docket listening to on November 28, 2023. He additional questioned the truth that as an alternative of attending the court docket listening to in regards to the destiny of his firm, Malchik went overseas, although Ukrainian males aged 18 to 60 are prohibited from freely leaving the nation throughout the battle.
The primary thriller is why ARMA, along with “Ukrnafta,” from August to November 2023, earlier than the court docket’s determination to revoke the licence, didn’t enchantment to the Cupboard of Ministers and the state geological service to withdraw the state regulator’s lawsuit?
Maybe the true objective of the nationalisation of “Ukrnaftoburinnya” was to not save the enterprise however to destroy it, in order that some firm near officers may revenue from the sphere’s improvement?
The climax of absurdity from the angle of state pursuits is the seizure of regional gasoline distribution corporations from businessman Firtash into state possession.
The fee stage for gasoline by the inhabitants in Ukraine was already fairly low earlier than the full-scale battle.
Following the sharp decline in revenue after the full-scale invasion, it fell to a particularly low stage. Underneath the personal proprietor (Firtash), the losses have been borne by him, however after nationalisation, they grew to become a further burden on the state funds of Ukraine, which had a deficit of 18.6% of GDP in 2022 and 20.6% of GDP in 2023.
The funds deficit for 2024 is deliberate at 1.57 trillion UAH, however on July 15, the top of the parliamentary funds committee, Roksolana Pidlasa, introduced that th funds nonetheless lacked 0.4-0.5 trillion UAH this yr. Right now, the unpaid gasoline payments of impoverished Ukrainians are being lined by the state funds as an alternative of billionaire Firtash.
It’s possible that the initiators of the seizure of his gasoline distribution corporations have been guided by private enrichment – schemes for gasoline misappropriation and theft are in style – moderately than by state pursuits.
Will Ukraine be capable to increase billions for its reconstruction if it can not assure property rights to buyers?
The July assertion by the contributors of “Manifesto 42” exudes pessimism. Almost 2.5 years after Russia’s assault on Ukraine, Ukrainian companies don’t complain in regards to the hardships of battle and the extreme destruction of the vitality system that complicates their work.
They ask the authorities to not violate their constitutional rights to enterprise and to not seize their property beneath the pretext of wartime wants.
Ukraine is desperately and heroically resisting Russian aggression. Every Russian missile strike results in extreme destruction and casualties in varied cities throughout the nation.
The destruction of the central kids’s hospital within the capital, Kyiv, the place Ukrainian kids have been being saved from most cancers and different extreme ailments, shocked the world. In a couple of hours, Ukrainian companies raised tens of tens of millions of euros to rebuild the clinic.
Not a single businessman who legally works in Ukraine, who financially and technically helps the military in countering Russian aggression, and who complains in regards to the inconveniences related to logistics points, the partial occupation of Ukrainian territories and the mobilisation of the male inhabitants, could be fully positive that he is not going to face unfounded claims from corrupt judicial and legislation enforcement businesses and won’t lose its enterprise based mostly on unfounded future accusations.
Tatarov Stays a Very Intimidating Determine
Investigative journalists and anti-corruption activists who constantly criticise Tatarov and declare that his actions delay Ukraine’s accession to NATO and the EU face prison fees.
This risk extends even to those that have mobilised into the ranks of the Armed Forces of Ukraine (AFU), as was acknowledged by Daria Kaleniuk, Government Director of the Anti-Corruption Motion Centre, within the corridors of the dialogue “A Decade of Transformation: Rule of Regulation and Anti-Corruption in Ukraine with EU Help.”
She referred particularly to the well-known activist Vitaliy Shabunin.
In line with estimates by the UN, World Financial institution, and European Fee, rebuilding Ukraine after the battle’s destruction would require 480 billion euros over the subsequent 10 years.
On the “Reconstruction of Ukraine 2024” convention in Berlin in June 2024, Ukrainian authorities introduced quite a few initiatives vying for personal investments from international buyers. Nonetheless, the dangers of funding and property loss weren’t addressed.
The enterprise world stays observant and cautious
Co-owner of the IT firm Genesis, Volodymyr Mnogoletniy, acknowledged in an interview with Forbes that within the two years of battle, he had not seen a single main international investor prepared to spend money on Ukraine.
The first buyers and job creators within the nation are Ukrainian enterprises, that are being oppressed by high-ranking officers.
Presently, insurance coverage is just out there towards losses brought on by the battle. Nonetheless, there isn’t any insurance coverage towards property seizures by officers who have been members of Yanukovych’s pro-Russian occasion, and now, throughout the battle, have acquired limitless energy by occupying key management positions within the Workplace of Zelensky, a president who most likely doesn’t even suspect the vital character of the state of affairs that his inside circle has created.
(*) Alexander Stern
Analyst and journalist, born in 1973. He graduated from Riga Technical College in 1995. Till 2016, he labored as an analyst at ABLV Financial institution, one of many largest personal banks within the Baltic States, headquartered in Riga (Latvia) with consultant workplaces overseas from 1993 to 2018. Afterwards, he labored in France as a contract investigation journalist. Advisor on enterprise mergers and acquisitions.
Sources click on HERE.
