They’re back.
Information technology companies say the Ukrainian authorities are once more launching searches of their offices, seizing data and equipment, and harming their businesses - despite representatives of the sector and the government seemingly having hashed out a solution to the problem in September.
Ukrainian law enforcement earlier said the searches are required because they suspect some IT companies have been involved in financing terrorism in eastern Ukraine. IT companies hit back with threats to quit Ukraine, saying the police had been rude and unprofessional, and that there were no sufficient grounds for the searches.
Once some IT companies said they were leaving Ukraine, the authorities began to pay some attention to the problem.
Economy Minister Aivaras Abromavicius held talks with representatives of the IT businesses in Ukraine on Sept. 24, and as a result, several decisions to resolve the problems were taken, and a memorandum on cooperation between law enforcement and IT business was penned.
But the authorities continued conducting searches of IT companies in October.
In one incident on Oct. 20, the State Fiscal Service searched the offices of M IT Company, a Ukrainian games software company working under the Lucky Labs brand. The service’s officials said they were hunting for any links between Lucky Labs and Forex-Trend, a broker firm headquartered in Dnipropetrovsk and registered in New Zealand that went bankrupt last year. Forex-Trend is suspected of both tax evasion and running a financial pyramid scheme in 2013-2014.
According to the Security Service of Ukraine, or SBU, officers had previously raided the offices of Forex-Trend and found documents showing that some of the money the broker had taken from its clients had wound up being sent to fund armed groups in eastern Ukraine. The SBU, in a report on its website, also said that Forex-Trend managers had used accounts belonging to the Night Wolves, a Russian biker club led by Alexander Zaldostanov aka “The Surgeon,” to convert funds into cash.
But the State Fiscal Service, having found nothing to connect Lucky Labs to Forex-Trend, then went to another of Lucky Labs’ offices and confiscated more than 100 pieces of computer equipment, according to Oleksandr Ivanov, the company’s legal consultant.
State Fiscal Service Head Roman Nasirov said at a press conference on Oct. 28 that court rulings had been issued for all the searches.
“All the searches were conducted in line with Ukrainian law, the relevant court permits were received, and the most of the issues concern fraudulent transactions carried out in 2013-2014,” he said.
Lucky Labs representatives refused to comment on the case to the Kyiv Post, other than to deny having any link to Forex-Trend.
Another firm that had its offices searched in October is IT Finance, which provides e-commerce payment system services under the 24nonStop brand. The firm was searched on Oct. 27 by the SBU, which said the company was illegally operating payment terminals in Luhansk and Donetsk.
“The payment system’s dealers have undergone registration with the so-called Ministry of Income and Fees (in parts of Luhansk and Donetsk oblasts not under government control), and pay taxes to the terrorists’ budgets. According to our intelligence, these dealers also gave unofficial financial support to representatives of the militants’ authorities on a monthly basis,” the SBU said in a statement posted on its official website on Oct. 29.
But 24nonStop director Oleg Tsymbal denied the charges. “We don’t do any business in those oblasts, and there are no transactions there,” Tsymbal told the Kyiv Post. “Once the NBU forbade working in eastern Ukraine (on Aug. 6, 2014), we cut all connections with our dealers there.”
Servers were confiscated from IT Finance’s main office in Kyiv, even though the company had offered to provide the SBU with copies of all data it required, Tsymbal said.
“But the seven men from the SBU didn’t want to check anything. They just seized our server,” he said.
“Our company is Ukrainian. There is a Ukrainian flag in the design of our website and terminals. What do you think would happen to a terminal with such a flag on its screen in the DPR?” he said, referring to the part of Ukraine’s Donetsk Oblast where Russian-backed armed groups have seized control from the local authorities.
SBU spokeswoman Olena Hitlianska said the SBU would not comment on individual cases, but that the service always acted within the limits of the law.
Meanwhile, the authorities appear to be sending mixed signals. Deputy Head of Presidential Administration Dmytro Shymkiv, who used to work as a director general of Microsoft Ukraine, said law enforcements’ actions were completely illegal. “Carrying out searches of IT firms is a crime against the country,” Shymkiv said at a meeting with representatives of Ukrainian IT business on Sept. 21.
“The incidents with seizures of servers are getting worse. How is it possible for a server to be seized in the 21st century? It’s silly. It harms the country. Moreover, if someone wanted to conceal something, he’d hide it in the clouds (i.e. in Internet-based data centers).”
Deputy Head of Presidential Administration Dmytro Shymkiv (R) talks to representatives of Ukrainian IT industry during Fireside Chat moderated by Denis Dovgopoly, the managing partner at the GrowthUP Group, on Oct. 21 in Kyiv.
But Shymkiv, during a meeting with IT sector representatives on Oct. 21, also said the authorities could launch investigations into companies even on the basis of anonymous tip-offs that such companies might be involved in financing terrorism in eastern Ukraine, or in tax evasion or smuggling.
Nevertheless, none of the investigations have resulted in any charges being pressed so far. On the contrary, some of the firms that were searched have already won cases against the law enforcement agencies, while others are waiting for their cases to come before the courts.
For instance, Divan.TV, an IT firm that provides interactive television services, was searched on Sept. 17 and had its servers seized. It subsequently went to court, and won its case on Oct. 6. However, the company is still waiting for its equipment to be returned. Another company, StipHost, took the SBU to court for abuse of power and attempted bribery. The company also won its case, but still hasn’t recovered the 134 servers and two computers the SBU seized from it.
Apart from Divan.TV and StipHost, at least three other IT companies were searched by the authorities in September: the Ukrainian branch of IT outsourcing company Luxoft in Dnipropetrovsk, the Kharkiv office of software development company NIX Solutions (an affiliate of the Mac security software company Intego), and the Internet provider Bershnet in Vinnytsa.
Kyiv Post staff writer Denys Krasnikov can be reached at [email protected]. The Kyiv Post’s IT coverage is sponsored by Looksery, Ciklum, Steltec Capital and SoftServe. The content is independent of the donors.
