In May, billionaire Victor Pinchuk took his fellow Ukrainian billionaires, Gennadiy Bogolyubov and Igor Kolomoisky, to the High Court of Justice of England and Wales for allegedly swindling him out of the ownership and profits of the ferroalloy plant KZhRK (Krivorozhsky Zheleznorudny Kombinat).
The enterprise at the heart of the dispute consists of an iron ore enrichment plant and iron ore mines located in and near the southeastern Ukrainian industrial city of Kryvyi Rih. It has been a profitable enterprise, producing iron-ore ingots for Ukraine’s steel industry, the money-spinning sector of the country’s economy.
Pinchuk claimed he had paid $143 million for KZhRK and accused the defendants of forcibly seizing it on March 3, 2005: “Individuals believed to have been acting on the instructions of the defendants forcibly entered the premises of KZhRK” and took control of the plant. “Since that time, the defendants have exercised management control over KZhRK to the exclusion of the claimant.”
Pinchuk also brought Ukraine’s top billionaire, Renat Akhmetov, into the dispute. He claimed that the defendants had no right to sell some of the KZhRK shares to Akhmetov.
In September, in their counter-submissions to the High Court, the two defendants rejected Pinchuk’s claim that they owe him compensation for KZhRK. They claimed that he had no legal rights under Ukraine’s laws to the plant or its profits. Kolomoisky added that, as Pinchuk has no legitimate claim to KZhRK, the shares could be sold to Akhmetov or anyone else.
The two defendants defended their representatives taking over KZhRK as the seizure was carried out with a court order.
The two defendants didn’t deny that in 2004 Pinchuk had paid them $143 million. They asserted the money was not to buy KZhRK as the claimant attests, but their share of profits from Nikopol, “the largest ferroalloys producer in Europe.” The defendants stated that Pinchuk, Nikipol’s majority shareowner, owed them $400 million from plant’s profits, as they were its minority shareowners.
The defendants in their submission accused Pinchuk of obtaining the control or ownership of state enterprises at less than their market value because of nepotism, i.e. because he was ex-President Leonid Kuchma’s son-in-law. They cite Nikopol and Kryvorizhstal (Ukraine’s largest integrated steel company), as examples of state properties sold to Pinchuk at below market value.
They assert that in 1999, Pinchuk received the state’s 50 percent + 1 shares in Nikopol to manage, not because of his experience in operating a ferroalloy plant, but because of his relationship with the president’s daughter since 1997. Furthermore, the defendants state that “shortly after the claimant [Pinchuk] married the president’s daughter,” he was able to purchase the majority share at below the market price.
They make the damning accusation that Pinchuk took for himself $100 million from Ukrnafta (the largest company involved in extracting oil and gas in Ukraine with the majority shares initially owned by Naftogaz Ukraine). As minority owners of Ukrnafta, the defendants had set aside $100 million of Ukrnafta to fund Kuchma’s re-election in 2004. After Kuchma decided not to run for president, they accuse Pinchuk of not returning the money to them and keeping it for himself.
The High Court has not yet set a date for the trial, assuming the protagonists do not settle out of court. The appointed English judge will have to decide if Pinchuk was entitled to the shares and profits form KZhRK, as well as nepotism, corporate raiding, inside dealing, illegal election donations and many other criminal aspects of capitalism in Ukraine. This might prove to be beyond the understanding of even an English high court judge.
In his submission to the High Court, the defendant Kolomoisky wrote: “The regime of President Kuchma was characterised by corruption, nepotism and ties to organised crime.”
It would be of great interest to the public, how Kolomoisky characterizes President Viktor Yanukovych’s regime?
Jaroslav Koshiw is the author of “Abuse of Power: Corruption in the Office of the President,” published by Artemia Press 2013 (ISBN 978-09543764-1-3). He is a former editor of
