German Media Investigated How Poroshenko’s People Make Money on the Ukrainian Army

Translated by Ollie Richardson & Angelina Siard


Konrad Schuller, a columnist for the German newspaper Frankfurter Allgemeine Zeitung specialising on Poland and Ukraine, published an article devoted to corruption in the Ukrainian defense industry. “Vesti” publishes a reduced version of it.

The defense industry of Ukraine is being seized by a rapacious oligarchy. Where ever you look, corruption prospers. How does this shady apparatus work?

Recently the Ukrainian anti-corruption police arrested the Lieutenant-General Igor Pavlovsky for alleged corruption. This person isn’t some kind of apparatchik. After the pro-West Euromaidan revolution Pavlovsky, as the Deputy Minister of Defense, was already in the leadership of the Ukrainian army, in 2014.

The army, which at the time was a plundered scrap yard with tanks without diesel and trucks without tires, had to withstand the onslaught. And in this battle Pavlovsky made a name for himself as a commander. For personal bravery, he received the Order of Bogdan Khmelnytsky – the Ukrainian Order of Merit – by the order of the President Petro Poroshenko. But now he is in prison. The charge: he allowed the purchase of overpriced fuel in favor of a company that, according to deputies from the opposition, has noticeable traces to the circles around President Poroshenko – a multimillionaire with numerous interests.

Military economy as a new source of income

General Pavlovsky denies all charges. But irrespective of his guilt or innocence, his case sheds light on the second, dark side of the success of Ukrainian defense: the army, with its commander-in-chief Poroshenko, today not only defends the country against the enemy from the outside. It at the same time turned into a shelter for that internal enemy that the revolution indeed wanted to put an end to: the rapacious oligarchy, which exhausts Ukraine, despite all progress made since 2014.

Today, according to insiders, the defense industry is a “new Klondike”. The war, which at the moment has claimed more than 10,000 lives, opens up sources of income that Ukraine doesn’t know about yet, because the corruption swamp in the gas industry has largely dried up.

No transparency with weapons

The fact that corruption prospers like yeast in dough is explained by several features of defense in Ukraine.

Firstly, the industry is monopolistic. According to the former high-ranking official of the Ministry of the Economy, only one supplier is registered for almost all products – from the chassis of tanks to first-aid kits. It can inflate prices without the pressure of competition. Although import exists, what will be imported is decided exclusively by the dominant State conglomerate for weapons – Ukroboronprom, a giant with about 80,000 employees.

Such experts as Anatoly Pinchuk from the “Ukrainian Center for Foreign Economic Relations” suspect that this monopoly is systematically abused by businessmen – for example, when it involves questionable intermediaries in tax havens when importing military equipment. These intermediaries buy weapons and equipment abroad, and then sell them to troops at twice the price. Profit is raked in by those who have connections.

All of this can hardly be controlled because most of the purchases of weapons are confidential. The Nako organization, which oversees the Ukrainian arms market, together with Transparency International, reports on its website that 45% of purchases of weapons in Ukraine were classified, which is almost threefold more than in the United States.

Thus, a considerable part of the military economy is out of control. Therefore, Transparency International placed the Ukrainian defense sector, in an international scale from A to F, in group D – in the category “high risk of corruption”. Ukraine is together with India, Kenya, and Russia. Defense, says the Secretary General of Nako Elena Tregub, threatens to become “a new black hole of corruption”.

“Chop off the hands” of everyone

Oligarchs fulfil their interests through their people in parliament and the government. Practically all parties in Ukraine, first of all Poroshenko’s bloc, either were founded by multimillionaires or are financed by them. Therefore, the powerful people in the background have the means to control the relevant Ministries of Defence and the Economy by phone. Two former deputy chiefs of these departments – Ruslan Korch and Yury Gusev – confirmed to our newspaper that such calls were commonplace in their daily work.

President Poroshenko – a multimillionaire, the founder of his party, and the commander-in-chief of the Armed Forces – does everything to give the impression that he has nothing to do with this.

When General Pavlovsky was arrested, he swore “to chop off the hands” of anyone who robbed the army. But this is only one side. Poroshenko is also a businessman, therefore he personally warned that the bill, with the help of which a parliamentary majority wanted to increase transparency, could be also applied to the defense sector. He sent the bill back to parliament, and the secrecy of the weapons remained untouched.

Anyone who wants to know why the President so quickly pulled the shutters down should look at the structure of the personnel in the sphere of weapons. Poroshenko dominates everywhere. This sphere belongs to him, therefore he doesn’t want someone to look inside.

As the head of State he proposed the candidate for the Minister of Defence position – he is the commander-in-chief of the Armed Forces and the Chairman of the National Security and Defense Council. Together with friends he occupied heights in the sphere of weapons. In the Security Council the old business partner, the industrial magnate Oleg Gladkovsky, is the vice-chairman on purchases. A man who officially denies that he is “supervises” for the President – in gangster language this means “overseer” – in the defense sector.

On the other hand, someone named Roman Romanov, who worked for both of them earlier, heads the weapons colossus “Ukroboronprom”. He was a car dealer at Gladkovsky’s “Bogdan” car plant, and in 2014 he headed the electoral campaign headquarters of the President in the Kherson region. All of this collectively forms a structure of influence, which in the circle of experts is described as “Poroshenko’s vertical”.

170,000 cars, trucks, and special vehicles

So far there are is proof that Poroshenko directly participates in corruption machinations. However, it is relatively clear that certain conflicts of interests originate from his role of businessman.

For example, the President, together with the leading deputy of his parliamentary faction, owns the “Kuznya on Ribalsky” plant, which delivers gunboats to the Naval Forces of Ukraine. When one of the building berths again started working in July, the Ministry of Defence stated that during a ceremony, according to the good “traditions of the fleet”, a bottle of champagne was broken against the side of a ship. The bottle was broken by the singer Ruslana Lyzhichko – the winner of Eurovision 2004 and the laureate of the rank “people’s artist”. The Presidential Administration didn’t answer the question of our newspaper about his relation to the plant.

Such conflicts of interests can directly damage the soldiers at the front. This is evidenced by the case of the “Bogdan” car factory – a company that claims that it annually produces up to 170,000 cars, trucks, and special vehicles, including for the Armed Forces. Poroshenko was its co-owner, but in 2009 he sold his share to Oleg Gladkovsky – the same person who today, being the vice-chairman of the Security Council, claims that he isn’t a “supervisor”. Gladkovsky also didn’t answer the questions of Frankfurter Allgemeine Zeitung, but his press-secretary confirmed to the “Kyiv Post” newspaper that he doesn’t head the company, but it belongs to him completely.

Not only money, but also human lives

Just like with the President, it is impossible to prove that Gladkovsky abused his position. Nevertheless, Nako – the Ukrainian affiliate of Transparency International concerning arms – sharply criticises him. The Nako organization illustrates using the example of the “Bogdan” car factory how such connections can harm the troops in the east of Ukraine, where to this day soldiers perish daily.

For example, the Ministry of Defence recently ordered 100 rescue vehicles from “Bogdan”, although they, perhaps, aren’t suitable for such tasks. Their useful load of 1000 kilograms is too low, because the cabin weighs 600 kilograms by itself. Add equipment and from 6 to 7 people (one driver, one security guard, two paramedics, and two or three persons who received wounds), and it’s clear that the ordered rescue vehicle “will be constantly overloaded”. The result can be quick wear and “failures”.

In combat a conflict of interests can lead to death. Elena Tregub, the Secretary General of Nako, summed this up in two sentences: “Corruption in the defense sector costs not only money. It also costs human lives”.

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