Archive for the ‘Doing business in Ukraine’ Category

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Good business, bad politics. Tigipko

January 2, 2017

Having written about Viktor Pinchuk in the previous entry, this post concentrates on another Dnipro Clan oligarch and long time acquaintance, Sergei Tigipko, who has been spending money recently.

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Mr Tigipko it has to be said is an interesting soul whose business activities are somewhat difficult to keep an all-seeing eye upon.

Perhaps he is fated to be that way, for ever since birth Mr Tigipko has not been what he appears to be.  Mr Tigipko was actually born on 13th February 1960 – officially, but in fact he was born in the early hours of 14th February.  Due to a bureaucratic mix up between medical night shift and morning shift workers the wrong date was officially recorded.  It is claimed, similar to Queen Elizabeth II, he therefore has two birthdays, an official one and a real one.

Fair enough – surely all oligarchs can afford to have two birthdays.

In the late 1970’s the family moved from Moldova to Odessa and Mr Tigipko then headed to Dnepropetrovsk and the Metallurgy Institute where (perhaps with the help of a well placed step-father) he became a member of the Komsomol Committee.  In true Marxist-Leninist adherence he busied himself with organising discos and supplying the evils of western decadence – Pepsi.  It appears that a disco-loving Ihor Kolomoisky was a regular and that they became good friends.

(As an aside Mr Tigipko, or more precisely Mrs Tigipko, retain their interest in Odessa in an act philanthropy annually organising and sponsoring the Odessa International Film Festival – which is actually a very good event.)

Indeed Mr Tigipko has had good fortune in meeting business acquaintances, whilst suffering an equally poor fortune in the world of politics.

A few years of questionable military service and teaching intervene before Mr Tigipko lands the role of chief of psyops/reflexive control when he became the Second Secretary of the (Communist) party and Komsomol committees in Dnipro.  Propaganda and agitation commonly being the role of the Second Secretary – a role he was destined to fail at with the date being 1989 and the implosion of the Soviet system only 2 years away.

Nevertheless, having already forged a friendship with Ihor Kolomoisky, it is within the regional Komsomol committee he also meets Olexandr Turchynov (the current head of the Ukrainian national security apparatus and once upon a time, an ardent Tymoshenko ally).

When the Soviet nonsense all eventually crashed, Mr Tigipko had become First Secretary and in charge of the regional Komsomol cash box.  He was also by then known to Gennady Tymoshenko who was head of ideological manipulation for the Kirov District.  Gennady is the father of Alexander Tymoshenko – the unfortunate husband of Yulia.  Indeed it is rumoured that Mr Tigipko played a role in funding Ms Tymoshenko’s video empire back in the day – presumably with Komsomol cash.  Controlling that cash, he also came to the attention of Dnepro Regional Council Chairman, the infamous Pavel Lazerenko.  He had also made direct acquaintance with (soon to be President) Leonid Kuchma and Viktor Pinchuk.

A reader can now literally see the Dnipro Clan forming.

As the Komsomol system was collapsing Mr Tigipko was swiftly given a senior position within Dnipro Bank – no doubt moving to the position along with the Komsomol regional cash.  (There is no reason to believe that events in Dnipro would be any different than those elsewhere in Ukraine at the time when it comes to moving regional Komsomol cash).

Within a year the bank owners were far from getting along well and Mr Tigipko set up PrivatBank with Ihor Kolomoisky, Gennady Bogolyubov, the late Leonid Miloslavsky and Alexie Martynov.  From 1992 – 97 Mr Tigipko was Chairman of the Board of PrivatBank – although what share holding he had will probably never been known.  What is known is that the initial shareholding was not equal.  How much Komsomol/Dnipro Bank cash was used in the creation of Privat is somewhat unclear – and will undoubtedly remain that way.

Meanwhile Mr Kuchma became President Kuchma and Pavel Lazarenko became Prime Minister – leading to a split within the Dnipro Clan and President Kuchma using Mr Tigipko to keep an eye on the out-sized and out of control criminal appetites of Pavel Lazarenko.  He becomes Vice Prime Minister for Economic Reforms in order to carry out that task.

(This move obviously ruffled feathers and PrivatBank came under scrutiny for laundering money via its Riga branch.  Some things don’t change.)

Whilst in post, Mr Tigipko acted as “roof” for the French cement company Lafarge who then had a few issues with assets in Ukraine.  As Bernadette Chirac (wife of Jacques) then sat on the Lafarge board it is perhaps no surprise that Mr Tigipko was awarded French honours personally by Mrs Chirac in 1997.

By 2000 Mr Tigipko wisely quit as the conflict of interests of those around him in the Kuchma government were in all probability intractable at best and very bad for the health at worst.

By 2001 whatever shares in Privat he had were sold for a figure unknown, and he set up on his own with the TAS brand containing banking, insurance, and numerous other interests held under the usual Cypriot holding company  – which today is a beast of many tentacles – and is in fact the reason for this entry.  (Indeed Mr Tigipko sold one of his banks to Swedbank pre 2008 crisis for $735 million via TAS Overseas Investments (Cyprus)).

If business has been good, politics has not been.

Politically Mr Tigipko did not fare well under Viktor Yushenko and Yulia Tymoshenko.  Having chosen the Kuchma side of the Dnipro Clan split, thus backing Yanukovych in 2004/5 elections, that clearly did not sit well with the new “Orange” president, nor a Prime Minister that chose the Lazarenko side of the Dnipro Clan split.

Further when Yanukovych eventually became president in 2010, despite initially welcoming him into the fold, he very clearly and publicly shafted by Mr Tigipko politically.

Lo, tax avoidance aside, it clearly pays in a business sense to hold your assets offshore and in a different legal jurisdiction in a predatory political environment like Ukraine.  It is simply far easier to defend and retain your assets.

Under the current president Mr Tigipko has kept his head down making no discernible political moves and very few business moves.

However, in the past few months Mr Tigipko appears to be going on a spending spree domestically.  Having recently bought another insurance company and rolled it into his TAS insurance entities, it appears he is now entering the hotel business too.

Not only is he entering the hotel business his seems to be doing getting good deals.  For a mere $10 million Mr Tigipko has bought the Radisson Hotel in Kyiv from the Russian owners who for a long time have desperate to sell.

Now a reader may think that the hotel business in Ukraine is not one where returns will be swift – and they’d be right too.  There are no swift returns with anything to do with hotels in Ukraine.  That said, the price paid for this asset being so low, it is possible he will see a 7 year ROI.

However, it may also be that Mr Tigipko has some insider knowledge regarding the return of licensed gambling in Ukraine and any amended parameters regarding what premises can host casinos – and which can’t.   It may well be that the absolute nonsense proposed a year ago for the return of gambling has now had a more sensible eye cast upon it – or is about to have a more sensible eye take a look.

If so, then the Radisson in Kyiv would have additional potential – and a far swifter ROI.  As Mr Tigipko has a knack for good business and poor politics, then who would be surprised if that will ultimately prove to be the case?

More generally, does Mr Tigipko now think that the bottom has now been reached and that the small economic bounce is likely to continue in an upward trend, so now is the time to buy?

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Odessa Port Side shuts down

December 30, 2016

Having twice failed to privatise the Odessa Port Side plant during 2016, and with debts mounting to creditors such as Naftogaz, the decision has been taken to temporarily, or perhaps better stated indefinitely, close the plant down with effect from 30th December.

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Valery Gorbatko, the plant Director since 1986 has resigned – which for any eventual buyer or State operational reshuffle/efficiency/transparency policy for the plant is no bad thing.  Accepting that resignation promptly would be a wise move.

From now the cost to the State will be dramatically reduced to those of maintenance and salaries – minor costs in comparison to running the plant with a (currently) low global demand for product and high gas demands to produce it.

It remains an open question as to when or even if a buyer (or long term leaser) will be found for Odessa Port Side.

Some 2017 national budgetary discipline implemented before 2016 has ended?

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Privat nationalisation and political weight loss

December 19, 2016

Ukraine has eventually taken the decision to nationalise Ihor Kolomoisky’s (and others) Privat Bank.

In some ways it is a surprise that the will to do so was actually found, despite that for more than 2 years everybody and anybody with any knowledge of Privat Bank has hardly been shy in opining that it presented serious risk to the Ukrainian economy and had it not been systemically vital to the Ukrainian banking system it would otherwise have been closed.

To a man/woman, of those spoken to one to one by the blog, be they politicians, economists, diplomats or international bankers, all recognised that the Privat problem had to be addressed and that nationalising it was the better of the options available – if the will could be found to do so.

Lo it has come to pass that 100% of Privat shares are now owned by the State.

How grubby the deal struck between Ihor Kolomoisky and The State is, remains unknown.  For a man like Ihor Kolomoisky to “voluntarily”  “sell” his shares to the State in what has been a significant political and financial lever over the State for him for many years with no gains to him pushes the boundaries of belief.  With the ability to simply put the Ukrainian banking sector into melt down, there is presumably a quid pro quo no matter how small yet favourable that may be in return for the “voluntary” handing over of all shares.

So be it.

Questions will undoubtedly be asked regarding the large amount of PrivatBank loans to its owners (Mr Kolomoisky and friends), other companies with the same owners, and to those associated with the owners, that have consistently been taken out with no intention of repaying them.

What is the exact cash figure these nefarious loans amount to?  What are the chances of those loans now being serviced and eventually repaid by those that took them and who are extremely skilled at historically saddling the State with their debts?

On balance, should a reader accept that those loans will probably not be repaid, thus in assuming these non-performing loans (debts) in however many $ billion they amount to, is that still a price worth paying to insure that PrivatBank can no longer collapse the entire Ukrainian banking system?

Even if agreements have been reached to now begin to repay these loans, the question is then over what period of time (in the unlikely event they will be repaid in full and in the spirit of any agreements made)?

The question presented is therefore one of short term (debt assumption leading probable loses when loans are not repaid) verses the medium/longer term view of what price is put upon insuring the entire national banking system will not collapse due to Prvat?

Financial issues aside, there is of course politics to consider.

The last time the nationalisation of Privat was mentioned by the blog in September, the politics were “Tymoshenko orientated”.  Mrs Tymoshenko is not in favour of the nationalisation of Privat as it doesn’t really work to her advantage.

Ms Tymoshenko aside, broader questions need now be asked about how the nationalisation of Privat changes the political and/or oligarch power dynamics with a major Kolomoisky lever now surrendered.

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Mr Kolomoisky can no longer use Privat as a personal piggy bank.  How does it change his ability to buy parliamentary votes for hire and/or buy entire political parties?  Will it effect any future voting outcomes?  To mitigate, will key voting personnel previously simply bought, now start to appear in Kolomoisky business structures instead for the purpose of leverage over their vote?

In short, just how much political weight loss has been incurred by Mr Kolomoisky – if any?

Without the “ace up the sleeve” of a persistent ability to cause national banking melt down, how does that effect the Kolomoisky position when negotiating how next to screw the State?

How will the rest of the oligarchy class react?  Will they make peace with the State or solidify around a common cause yet further in screwing it over?

How will this effect a poor presidential poll rating if he is perceived to have engineered the right thing for the country, or alternatively is perceived as having used his position to weaken yet another oligarch to his own advantage?  The two are not mutually exclusive, but that is how it will be presented.

Can Mr Kolomoisky now be certain that in what appears prima facie to be a weakened position, he will now not be called to account for innumerable scams and schemes over the years?  Was a de facto arrangement made that in effect grants amnesty via a promise of non-prosecution as part of the deal?  Are there other “compensatory” arrangements reached that will filter into the system over time that will be beneficial to Mr Kolomoisky’s other interests?

The repercussions of this nationalisation financially are on balance likely to be beneficial for Ukraine and the least worst option that could have been taken.  As long as Privat is managed prudently henceforth over the medium term this act is the most sensible option available.  In the long term, it would be wise to eventually return Privat to the private sector – once its systemic and internal risks have been mitigated against.

What is far less clear are the political and oligarchy/power behind the curtain repercussions.  It may be some time before those become fully evident.

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Pfeifer & Langen buy Mriya sugar mills – Ukraine

December 2, 2016

Less than 2 months ago an entry appeared regarding the exceptionally murky, decidedly criminal, and mysterious yet unknown top level protection being afforded by those with incredible clout to the investment disaster/horror story surrounding Mriya Agro Holdings in Ukraine.

An on-going and unresolved nightmare of which those at the very top have made no efforts to resolve – despite the situation going from bad to worse and the ugly image the situation projects.  Having re-read the above link, it really is an investment horror show.

Nevertheless, it appears that Germany’s Pfeifer & Langen have bought (or are imminently to do so)  the sugar mills of Mriya Agro from Prominvestbank that took control of these particular assets as collateral for past and defaulted loans.

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To be fair, Pfiefer & Langen are no strangers to Ukraine.  They have been active in the country for a decade via their subsidiary Radekhiv Sugar Ltd.  (Indeed they are active in sugar in half a dozen or more European nations.)

Clearly Pfeifer & Langen will have done their due diligence and therefore feel confident that they will be able to protect their asset – unlike the numerous well known international investors who now own Mriya and look on forlornly as the remains of that agricultural empire are slowly but surely stolen from under their noses piece by piece by previous owner structures with no resulting action by the Ukrainian political elite or law enforcement structures.

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Banking of interest (not with interest) Odessa

November 16, 2016

Much is written regarding the banking system in Ukraine.  Normally relating to the on-going clean-up of the nefarious Ukrainian banking sector by the NBU, or relating to the alleged nefarious actions of the NBU itself.

It therefore catches the eye when a small provincial bank in Odessa is to be bought by an Austrian investment banker with a curriculum vitae that clearly infers connections within the elite strata of Vienna.

The bank in question is called Investbank which certainly does not have much high street recognition in Odessa despite being a bank of Odessa.  Indeed, it is not a “high street bank”.

The Austrian purchaser, or at least soon to be majority shareholder, is Uwe Christian Eshner.  The current owners being Alexander and Tamara Nezvinsky, Nick and Igor Teplitz, and Sergei Yablonsky.

Unsurprisingly, for a provincial bank with no high street recognition, in the national ranking by size of assets, the bank falls within the smallest 25%.

That it was available for purchase is not exactly a secret.  Some years ago it could have been bought for $100 million or so.  No doubt the purchase price will be substantially less considering the dramatic change of circumstances Ukraine has found itself subject to.

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Clearly Mr Eshner is purchasing the majority share to own a fully licensed banking vehicle in Ukraine – though why Investbank when there are perhaps better deals to be struck with the NBU over insolvent licensed entities is perhaps a question some readers will ponder.

Austrian banks and bankers certainly have a “reputation” within Ukraine and among the Ukrainian elite and organised criminal class for being “helpful” when it comes to moving money out of Ukraine (and laundering it).  Who among of the very elite of Yanukovych/”Family” did not have Austrian bank accounts and expensive property in Vienna?

Mr Eshner of course will not be unaware of such things.  His Bloomberg profile boasts a history that began to “build up and develop extensive contacts to Central Eastern European countries” in the early 1990s.  Thus even if not partaking in, nor facilitating any nefarious activities, it is beyond belief that during the mad 1990’s when Mr Eshner began his banking expedition into the eastern-European nations he will have been unaware of what what brazenly going on in both Austrian and CEE banking.

(Indeed, a reader may ponder whether the infamous Udo Proksch was in any way related to one of the favoured Yanukovych Austrian bankers Reinhard Proksch.)

As a healthy level of cynicism is a requirement for living in Odessa, there are some questions that arise that may be without foundation – or not.

 

Considering the amount of elite “Ukrainian interest” past and present in Austria, who if anybody is behind Mr Eshner?

By extension, whose money is buying this banking vehicle?

What is this banking vehicle to be used for by Mr Eshner?

Is it to become a front for “interests” behind a respectable face?

Is it a bank where transactions will now be, or should be placed on a “watch list” if not by the NBU, then by the international policemen and spooks?

Did this banking purchase raise the same raised (interested) eyebrow with international policemen and spooks as it did the blog?

Why are the blog flags raised over this when there is nothing prima facie untoward?

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Who is Vadim Novinsky? (To answer a reader’s question)

November 4, 2016

Following yesterday’s entry relating to the coincidences – or not – of current wriggling within the Opposition Block, a question has been asked by a reader about the importance of Vadim Novinsky in the Ukrainian arena.

There has been a lot written about him in Ukrainian and Russian, but little in English, so a brief glossary follows.  (He is perhaps best known to the English speaking reader for his recent Guardian piece – or at least a piece that was published naming him as the author even though he wasn’t)

Before doing so however, as stated in the link above to yesterday’s entry, Mr Novinsky did indeed leave Ukraine today for Greece for a visit to Mount Athos, apparently spending time in the company of some senior Orthodox clergy.  Also, the request by the Prosecutor General to lift the parliamentary immunity of Mr Novinsky has indeed arrived at the Verkhovna Rada and has been passed to the Procedural Committee of the Verkhovna Rada by Speaker Paruby.

The relevant committee will mull the Prosecutor General’s request next week.

Vadim Novinsky

Vadim Novinsky

So to the question of how important is Vadim Novinsky within the Ukrainian arena?  (Aside from being a leading and very wealthy Opposition Block parliamentary personality and extremely conservative member of the Russian Orthodoxy.)

Vadim Novinsky is a Russian “businessman” who was granted Ukrainian citizenship in 2012 by former-President Yanukovych.  Despite calls for that citizenship to be revoked due to Mr Novinsky’s very pro-Russian stance (and alleged pro-Kremlin actions), thus far President Poroshenko has refused to do so.  It remains to be seen whether that position will change in the future.

Mr Novinsky is perhaps best known in Ukraine as a junior partner of Rinat Akhmetov via shares in Mr Akhmetov’s MetInvest.  The deal in 2006/7 involved Mr Akhmetov assuming control of a plethora of Mr Novinsky’s mining and metallurgical companies held under the umbrella of Mr Novinsky’s infamous Smart Group (and latterly Smart Holdings), in exchange for a junior share in MetInvest.  (To be blunt neither Smart Group nor Smart Holdings have anything approaching a good business reputation – consistently in the orbit of numerous scandals.)

The outcome of the MetInvest 2006/7 deal was that this gave Mr Novinsky “access all areas” within the Ukrainian political elite – which he clearly wanted.  (The benefits for Mr Akhmetov will not be dealt with in this entry.)

It is necessary however to briefly describe how Mr Novinsky first managed to acquire the ability to own numerous mining and metallurgy assets in both Russia and Ukraine, why he came to Ukraine buying such assets during the 1990s/2000s when all assets worth holding were subject to bloody wars between the Donetsk and Dnipropetrovsk clans.

Ukraine at this time was not a place for the faint hearted making acquisitions without a significant influential “roof” (guarantor) that could insure property rights in the absence of a predictable rule of law.

Without going into the minutiae of his early business career in Russia, it is sufficient to note that very early on he managed to secure the patronage of Russian oligarch Alisher Usmanov, influential Russian politician Viktor Chernomyrdin, and alleged Tambov mafia gang associate Andrei Klyamko.  The later Mr Klyamko for several decades has been a consistent business partner of Mr Novinsky – a formal business divorce occurring in March 2014 in the immediate aftermath of “The Revolution of Dignity”.

A reader would probably understand that official business divorce to be little more than a facade dictated by circumstances at the time to mitigate volatile public perception.  (Indeed it is rumoured by reliable sources that Mr Novinsky’s name originally appeared in the Spanish Tambov mafia investigations – until Kremlin intervention managed to have his name removed before reports were published.)

Quite how such planets aligned for an engineering management systems graduate from Leningrad who came to Ukraine with Lukoil a reader is left to ponder.

Considering the extremely volatile and bloody warfare between the political and business clans of Donetsk and Dnepropetrovsk during the 1990’s/2000s, it is perhaps fair to speculate that Mr Novinsky’s entry into Ukrainian assets at that time (and many were physically within the Dnepro/Donbas geography) occurred via the friendship/association of then President Kuchma with Viktor Chernomyrdin.  That is not to infer that President Kuchma had any special relationship with Mr Novinsky other than by extension to that from Mr Chernomyrdin.

President Yushenko who followed however, perhaps can be viewed as far more accessible following Mr Novinsky’s arrival as a junior partner at MetInvest – and this access was further enabled by Mr Novinsky funding a few “pet projects” of President Yushenko.  (Disclosure – it was at about this time Mr Novinsky started rubbing shoulders with acquaintances of this blog – both Ukrainian and foreign.)

The rise to power of President Yanukovych naturally suited Mr Novinsky’s ideology far more than did President Yushenko’s.  Mr Novinsky already close to “The Family” due to business arrangements with Mr Akhmetov quickly went into business with Alexander Yanukovych with several ventures.  It is during this period that the alleged offences of unlawful imprisonment of a member of the Orthodox clergy occurred for which he is now under investigation.  It is also stated that aside from the alleged crime, the goal was to change the leadership of the Orthodoxy in Ukraine and in this he (apparently) played a robust role.

Since then Mr Novinsky has continued his support of the Russian Orthodox Church and the Ukrainian Moscow Patriarchy zealously whilst allegedly simultaneously continuing to exert pressure (and it is also alleged threats) toward the Kyiv Patriarchy.  Indeed, it is no secret that Mr Novinsky was significant in the organisation and financing of what was widely perceived as a Kremlin influence operation during a “peace march” by the Moscow Patriarchy for the celebrations for the baptism of Vladymyr in July.

More locally for Odessa, he is also supposed to be part/”supportive” of the “Odessa Network” of politicians (and a few businessmen) with what are for many constituents particularly questionable definitions of patriotism.

Considering his nationality of birth, circumstances surrounding the evolution of his business career and the 3 wise men that nurtured it from the Russian oligarchy, political and mafia classes, Mr Novinsky is unquestionably trusted far more by The Kremlin, and the wider Russian political, business, religious and organsied criminal classes than the usual suspects such as Messrs Medvedchuk and Firtash – despite their robust connections.

A cynical reader, as well as a few counterintelligence bods, will by now perhaps be questioning the true role of Mr Novinsky, and whether Mr Novinsky is an independent actor with agency – or something else operating for “others”?  Was he in fact propelled into Ukraine quite deliberately so swiftly after it became independent with the long game task of getting access to the body of whomever is president of the day, whilst simultaneously gaining control of GDP and employment percentages within the Ukrainian economy – or has he (willingly or otherwise) simply been co-opted by The Kremlin along the way due to his access to whomever is president and his personal control over Ukrainian GDP and employment percentages – or has he simply volunteered those services, acting as an asset for The Kremlin, considering his ideological alignment?

Although it is possible to continue, the question relating to the importance of Mr Novinsky in the Ukrainian arena has probably been answered sufficiently well for a reader to draw their own conclusions.

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E-declarations Ukraine – The cash issue

October 29, 2016

The end of October sees the deadline for tens of thousands of Ukrainian politicians, civil servants and other assorted holders of high public office to submit their e-declaration returns relating to their wealth (and as previously inferred, perhaps in far too much detail available to all and sundry – transparency is not necessarily the same thing as unrestricted public accessibility).

On the whole it is nevertheless a law behind which there is the right spirit of transparency and accountability despite its shortcomings (as expected with any Ukrainian law, it is not perfect), and of vital importance is the criminal liability carried with regard to deliberately misleading and/or recklessly erroneous statements.  (No reader would expect any serious attempt at diligently completing such an e-declaration without criminal responsibility when considering those required to complete it.)

To be fair, with little over 24 hours to go (at the time of writing) before the mandatory submission date expires, there are no major surprises forthcoming from the declarations submitted.  There are some very rich people running and managing the country.  It would be needlessly shallow to pretend to be shocked by the accumulated wealth of either politicians or leading civil servants, or heads of State Owned Enterprises.

Indeed some would appear poorer than “collective wisdom” rated their wealth to be – albeit there are certainly areas within the declarations that can be massaged upward or downward as those completing such declarations see fit.

Whatever the case, and regardless of the systems legislative short-comings, the as yet unproven ability to provide evidence for prosecutions, or alternatively to allow for the legalisation of questionable assets, there is notably a lot of physical cash (in numerous currencies) outside of the banking system held by almost every individual required to make e-declarations.

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It has to be acknowledged that the vast majority of Ukrainians, be they billionaires, millionaires, the average Joe, or paupers, historically have very little faith in the domestic banking system.  It also has to be acknowledged Ukraine remains very much a cash economy – much of it grey/black in nature.  The net result is a very large percentage of the population, what ever the scale of their fiscal wealth, physically hold, and physically hide, their cash rather than use the banks or have it officially recognised somewhere in the system as being held.

It is somewhat pointless in trying to guess where some very large sums of cash have come from, whether a reader chooses to believe it has accumulated over time or is the result of a big “under the radar” transaction.  To be blunt, it is perhaps Utopian to think that NABU will have the time, energy, or finances to investigate all but the most questionable.

For most, the legalisation of these large cash sums, whatever its provenance, will be the result.  If so, perhaps having legalised it, these large sums may then enter the banking system for there is no longer a requirement to hide it.

Indeed, a reader may consider that a soldier fighting the war in the east, expected to defend the nation and perhaps die doing so for about $300 per month, notwithstanding the organised crime groups, may seek to relieve some of those making public declarations of such large cash holdings outside the banking system.  Personal security firms may now see a further uplift in business not only around dwellings of the affluent public office holders, but also around family members – for kidnapping and ransom would appear to become an increased possibility.

As previously inferred, if the bodged introduction of the e-declaration system does prove to prevent prosecutions then the entire event may prove to be the biggest, albeit one-off, government sponsored (and internationally backed) money laundering operation in memory.  Something akin to an unspoken “drawing a line in the sand”, ergo forgiving and legalising many past misdeeds but clearly laying down that henceforth there will be far less room for accommodation of such nefarious and criminal shenanigans.

Such an outcome is certainly not ideal, but is arguably better that continuing with the existing status quo where internally and externally of Ukraine it is expected that some major figures will be jailed for corruption – and yet thus far none have been.  Many readers are used to the wheels of justice turning slowly – yet the anti-corruption wheels of justice in Ukraine are clearly approaching glacial.

All of that said, just because a lot of cash is held by an individual far beyond their official salary (and other declared incomes), it does not mean it was (all) acquired through the dirty deeds – those dirty deeds have to be proven to have occurred.

For example, when the buying and selling of houses and cars historically has occurred in cash (in $ six figures frequently) – and that can still occur despite legislation that now seeks to makes such high value asset purchases electronic transactions – it is still necessary to prove not only that the cash isn’t the result of a land/house/asset sale in 2003 and the proceeds were retained in cash because the recipient didn’t trust the banking system then, and doesn’t trust the banking system now, but also to prove they are the proceeds of a criminal act.

It is a matter of what can be proven – and not a matter of what is perceived or asserted.

Looking forward, if Mr/Mrs X declares $500,000 in cash for this e-declaration period, and $750,000 in cash at a subsequently required declaration what is to be done – if anything?

As money in the bank and other hard assets will become increasingly less difficult (albeit still not easy) to trace, it follows therefore that one significant question going forward is how to account for the large amounts cash in hand (quite literally) when it comes to those individuals holding public office if the giving and/or receiving of bribes, or the otherwise facilitation of corruption via cash, is to be managed far more effectively?

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The neverending Mriya/Dream (or nightmare) – Ukraine

October 10, 2016

This entry has bumped its way up the “should write a few lines about that” list due to further deterioration of the situation as of yesterday when yet more assets were illegally stripped from the Mriya Agro Holding entity that has become something of an international nightmare for the Ukrainian authorities – despite Mriya meaning “Dream” in Ukrainian.

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Where to start this nefarious tale, and which names on the periphery to include or exclude is somewhat subjective.  What happens next is far from clear either.  Whatever the case, there will be many readers left with the perception that the authorities grip upon the rule of law, even with this high profile case involving numerous foreign investors, is more than a little questionable despite innumerable historical and very recent assurances by the authorities to pay special attention to the rights and circumstances surrounding those committing to FDI into Ukraine.

Perhaps most aggravating (aside from an absence of rule of law enforcement) is the fact that this incident is in agriculture – a sector that the Ukrainian authorities view as a leading economic sector to drive and sustain economic growth.

First however, a little historical glossary is required to bring a reader to the present day.

Sometime around 1992/1993 from within the leaderless and lawless rubble of post-Soviet Ukraine Mriya Agro Holdings was created by Ivan and Klaudia Guta.  It went on to become a major agricultural holding in Ukraine – among the top 5 in terms of land under management.

The Guta family, Ivan, Klaudia, Andrei and Mykola remained 80% majority share holders even after a successful IPO on the Frankfurt Stock Exchange in 2008.

Investors such as BNP Paribas SA, Credit Agricole SA and UniCredit SpA, while bondholders include Argentem Creek Partners, CarVal Investors, DuPont Capital Management, Pioneer Investment Management and T. Rowe Price Group Inc piled in, the World Bank and EBRD provided loans for expansion.  Why not?  Mriya Agro was reporting wonderful annual results ($660 million per annum) and reportedly had a truly enormous 320,000 hectares of land under management.

Quite where the due diligence was in all of this is unclear, for Mriya Agro Holdings had within its set up a number of obvious shell companies.  There is nothing wrong with shell companies per se as far as doing business in Ukraine is concerned.  Whilst they may be synonymous with tax evasion and dodgy dealings they also provide Ukrainians with multiple jurisdictions beyond the ruinously corrupted court system that can insure property rights are far from inviolable.

What reader would have left multi-million/billion dollar businesses at the mercy of a thoroughly corrupted Ukrainian judicial system where rights for such entities historically have been temporary in the hands of a suitably selected judge?  Off-shoring is akin to insurance therefore.

Suffice to say that the entirety of the Guta family were shareholders in (at least) 5 off-shore companies, including HF Asset Management Limited which owned the 80% of Mriya and which was subsequently wound up in December 2014 when the company CFO was the infamous Alexander Cherniavsky (see below).

The summer of 2014 found Ukraine with empty cupboards following the Yanukovych regime grand theft, a war with Russia, and the inevitable crash of the Ukrainian currency.  Mriya Agro Holding could no longer service its $ denominated bonds.  (The total debt portfolio across more than 20 lenders exceeded $1.2 billion.)

By December 2014 it was clear to shareholders of the 20% of Mriya not owned by the Guta family, and also Mriya’s lenders that the Agro Holding was being systematically asset stripped with assets being illegitimately re-registered (often back dated) to other companies, whilst other assets were being stolen, hidden and/or sold off with the proceeds disappearing.  A process requiring dodgy lawyers and “black notaries”.

The Guta family and the senior management left Ukraine swiftly when awkward questions began to be asked.

The remaining international shareholders were then faced with acting swiftly not only to deal with the international creditors, but also to prevent the continuing illicit stripping of Mriya Agro Holding.

It swiftly became clear that the accounts of Mriya audited by Ernst & Young (Kyiv office) were hardly a true reflection of Mriya Agro Holdings.  Aside from the ubiquitous VAT scams associated with agriculture in Ukraine, the asset stripping, fraud, accounts manipulation and cash skimming swiftly became apparent.

Indeed the 320,000 hectares of land reportedly under management turned out to be 220,000 – prior to further nefarious reductions.  In short $ hundreds of millions have been misappropriated

The minority shareholders won control over Mryia Agro Holding in the courts, struck deals the creditors, installed new management and began proceedings in Ukraine (and other jurisdictions), leading to former senior employees being declared wanted.  (Indeed Mykola Guta the former CEO had an Interpol Red Notice raised against him, currently sitting under house arrest in Switzerland.)  Legal process is underway to reclaim about 60,000 hectares of land bought with stolen cash from Mriya under the names of other companies.

Mryia Agro Holding today operates with about 180,000 hectares of agricultural land under management with a storage capacity of about 600kt.  It is now profitable, remains one of Ukraine’s largest agro-holdings, is servicing its restructured debts, has an operating capital of over $40 million, and should head to another IPO sometime around 2018 – 2020.

Bravo the much criticised legal system and law enforcement institutions of Ukraine?

Not exactly.

There have been recent “raider” attacks involving companies in one way or another related to the old Mriya management – FID Global Ltd, Global Health FID, FID Global LLC, Dream Leasing, OOO Bud M Haulage, OOO Bud M ATP, Global Feed Ltd etc.

Over the past month the following has occurred – 21st September 2016, the Kyiv Appeal Court lifted a freezing order on 142 units of agricultural equipment worth around $3 million that was illegally removed from the company by the previous management of Mriya when they defaulted on their debt obligations in August 2014.

The Appeal Court’s decision overturned the freezing order imposed by the Pechersk District Court on  July 6th 2016 as part of the main criminal case against Mriya’s previous management and owners.  That freezing order had returned the equipment to Mriya under its current management.

On October 4th, the former management began removing the equipment from a Mriya storage site and did once again on 10th October 2016 (prompting this “should write about one day” entry).

In response to the Appeal Court’s decision, the Special Anti-Corruption Prosecutor’s Office (SAPO) has prepared a request for a fresh freezing order. However, bureaucratic inaction by NABU is preventing SAPO’s request from going to court since NABU has (so far) not registered the fact that it is leading an investigation of/within the main criminal case against the former owners and management of Mriya.

The fact that SAPO and NABU are now involved can only mean that those individuals that fall within their legislative remit are involved.  The Category A and B public figures – the political class, judiciary, senior civil servants and SOE executives.  (The $ value of criminality certainly demands an investigation by an organisation perceived as having integrity.)

Nevertheless few such within that elite class would have the influence over the Appeal Court regarding such a highly visible on-going case with international complainants acting within a very sensitive economic sector for Ukraine.

Somebody with very serious clout is behind the above mentioned rulings less than one week ago – but who?  Undoubtedly the door to the Presidential Administration will be getting kicked down (once again) by numerous diplomats connected to the nations of shareholders and creditors – and rightly so.  Thus somebody who considers themselves “untouchable” by the Presidential Administration seems most likely to be behind the ordering of the Appeal Court decision.

Is there anybody in the Mriya Agro Holdings history capable of wielding such influence on such a sensitive case?  Do any such figures stand out from the others as having previously displayed the “right experience”?

From its inception in 1992/3, along the way the Mriya Holding certainly came into contact with numerous infamous names renowned for their less than stringent adherence to matters relating to the law.

For example, during 2003/4 it was associated with Yuri Karmazin who was something of a celebrity lawyer/parliamentarian at the time associated with questionable activities – among which land regularly featured.

Mriya’s association with Mr Karmazin seemingly came via Elena Berezhnaya, an “enabler of privatisation” granted numerous permanent and surprising legal abilities having done the “legal” for Party of Regions head office in Luhansk during post-Kuchma/pre-Orange 2004/5 elections.

Ms Berezhnaya’s daughter, Irina, miraculously found a role within the Verkhovna Rada in 2002 as an “assistant adviser to Yuri Karmazin and headed the Verkhovna Rada Sub-Committee for Synchronisation of Legislation in Ukraine.

While Elena Berezhnaya stayed in Luhansk and built a dubious but exceptionally profitable legal practice, her daughter Irena became something of a star within the Verkhovna Rada.  That stardom was not founded upon her legal qualifications or wily understanding of legislature, but rather that she was the first to bring cleavage to the VR coliseum, the first to bring tits to the theatre of the absurd, the first to bring admirably presented bare bosom to the most elite and feckless business club of Ukraine.

Irina Berezhnaya

Irina Berezhnaya

In short, womanliness was first displayed through fashionable “working apparel” within the corridors and halls of the Verkhovna Rada by Irina Berezhnaya, where conservative female dress code had otherwise prevailed.

To be honest, even as a “leg man”, the 2002 (onward) daily fun-pillow displays Irena presented to parliamentarians certainly caught the eye.  However, neither association with the then power of Mr Karmazin, nor Irena’s rather splendid boobs were her only attractions.  She was also associated with a very dubious notary service (black notary service) called Astra-Service.

By 2004 the illicit practices of this dubious (black) notary service had acquired clients such as VAB Bank, Ukrsotsbank and Mriya Agro Holdings.  To be blunt, such a notary service is rather useful when it comes to acquiring agricultural land rights by hook or by crook.

In 2006 Mr Karmazin lost his parliamentary position and was duly traded in by Irena Berezhnaya for one of Ukraine’s most infamous characters, Boris Fouksman.

Mr Fouksman is long (and strongly) rumoured to have made a fortune smuggling antiques and icons out of the USSR prior to its collapse, for having been involved in gun-running and having close Russian mafia connections – notwithstanding significant influence within Party of Regions at the time.

It therefore follows that the buxom Ms Berezhnaya became a Party of Regions Deputy within the Verkhovna Rada in 2007 under such patronage (collecting numerous honours and awards along the way both within Ukraine and an Honorary Professorship from the International University of Economics Vienna), until 2014 and the aftermath of the Yanukovych regime flight whereby she lost her parliamentary mandate.

It is rumoured that the daughter of Irena Berezhnaya is fathered by Boris Fouksman – though this has not been confirmed or denied.  The godfather of the child is known – the almost universally despised Nester Shufrych.

During her parliamentary period Ms Berezhnaya became “known” for supporting “raids” on corporate entities – for example Tochmash and Sinbias Pharma among several that had dealings with VAB Bank (behind which sat Boris Fouksman).  VAB Bank being one of the first VIP clients of Ms Berezhnaya’s (black) notary service Astra-Service along with Mriya Agro Holding.

Since losing her Deputy’s immunity, she has, perhaps unsurprisingly, having facilitated so much nefarious activity within the elites, not been subjected to any repercussions as far as the rule of law is concerned.  No doubt “insurance policies” of historical transactions exist should she fall under the eye of the law.

She is however, hardly powerful enough to have caused the latest Appeal Court judgement.

What seems most prominent in the history of Mriya Agro Holdings prior to its unsavory revelations of 2014 is the very short term appointment of the infamous Alexander Cherniavsky as CFO between September to December 2014 – the time when Mriya Agro Holdings then defaulted on $1.2 billion of bonds and land and assets where illegally re-registered in alternative company names.

Mr Chernaivsky is associated with Rinat Akhmetov, Sergei Liovochkin and Artem Ershov and in particular to the dodgy dealings surrounding the purchasing of Ukrtelecom many years ago.

A reader may possibly perceive that Mr Chernaivsky was deliberately installed for a specific (and nefarious) purpose considering such a short tenure as CFO and what occurred during that time.  Questions perhaps regarding Mriya’s interaction with Rinat Akhmetov’s FUIB bank may be asked?  (Rumours also circulate regarding Alpha Bank involvement.)

Is Mr Akhmetov the “untouchable”?  If a reader believes that the occupied Donbas will return to Ukrainian control, then it will surely be stewarded by Rinat Akhmentov as the biggest employer in that region.

That said, the vast majority of illicit money channels from scams and schemes did not flee with the Yanukovych regime.  The names of the end recipients simply changed.  Some of those surrounding President Poroshenko have hardly displayed morality or integrity since he came to power.  It is well within the realms of possibility (maybe even probability) that for a large enough fee, the desired Appeal Court decision would be reached upon their nod despite serious and numerous negative implications for the Ukrainian State.

Whether a Ukrainian journalist will attempt to find out the puppeteer behind the Appeal Court ruling, or ascertain exactly who among the ruling elite is playing “roof” for the Guta family and their on-going schemes remains to be seen.  Perhaps in the next few days a name will become apparent.

In the meantime international shareholders and investors continue to get shafted in Ukraine despite favourable court rulings and the instigation of criminal proceedings, whilst criminal proceedings and court rulings thus far have put nobody in jail almost 2 years after they were instigated.

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