On April 28, Ukrainian Prosecutor General Yuriy Lutsenko reported recovering $1.5 billion stolen by ex-President Viktor Yanukovych. With estimates of Yanukovych-era theft running as high as $40 billion during his rule from 2010–2014, the amount — while significant — represents less than 5 percent of the grand-scale financial corruption that took place.
The beneficiary of the recovered funds, Lutsenko proclaimed, would be the state budget. “I’m sure that this money that was stolen by Yanukovych’s mob has to be used in a way that the army and the people of Ukraine can feel it,” he said.
President Petro Poroshenko echoed the sentiment. “This does increase the possibilities of the state budget and Ukraine to renew justice and invest this money in the Ukrainian army, strengthen the state’s defense capabilities and restore social justice by targeting these funds to protect the most vulnerable groups of the population,” he said.
In reality, however, a large part of the recovered loot was spent on a direct budget donation to agricultural barons — the rich friends of Poroshenko, who himself is practically a billionaire.
Another big part of the “Yanukovych money” is going to regional projects, timed to prepare the electoral ground for the parliamentary and presidential vote in 2019, when Poroshenko is expected to seek re-election.
Less than a third of the recovered $1.5 billion will be spent on the defense sector.
Special fund
There is a special fund within the budget of Ukraine aimed at strengthening defense and security. Its main source of income is confiscated proceeds of corruption.
In 2015 and 2016 the special fund received very little — Hr 100,000 in 2015 and Hr 165,000 in 2016 — or about $10,350 today.
The money was far short of the planned Hr 1.5 billion for 2015 and Hr 7.7 billion for 2016 — or nearly $360 million.
Finally, the special fund received nearly Hr 30 billlion (nearly $1.2 billion) from confiscated Yanukovych’s assets. This sum is less than the $1.5 billion announced by Lutsenko. The state treasury did not receive the whole amount; some $200 million from the confiscated amount are in the form of unpaid bonds.
In April, the Cabinet of Ministers approved a fecree that defined how to use the confiscated proceeds.
Accordingly, only 26 percent had to be spent on army and strengthening the defense sector. Most of the money (52 percent) was directed to regional development or support of agricultural producers (22 percent).
Until July, the government had the legal right to spend only Hr 11.5 billion of the recovered amount. In July, parliament changed the budget, which raised the amount of allowed spending to Hr 22.5 billion and prescribed a list of priorities.
Hr 9 billion went for strengthening security and defense, with half going to the Defense Ministry and significant amounts going to the National Police (Hr 980 million), National Guard (Hr 900 million), Ministry of Interior (Hr 500 million), State Border Guard (Hr 700 million). For defense purposes lesser amounts will also go to the Security Service of Ukraine, the State Bodyguard Agency, the State Agency on Special Communications, the Economy Ministry and the State Emergency Service.
Hr. 7.7 billion went for road projects. Another Hr 4 billion went to local governments for the development of a medical system in rural areas while subsidies to local governments for development amount to Hr 2.5 billion.
The State Fund on Regional Development was also a winner, getting Hr 2 billion while nearly Hr 1 billion went to local budgets for infrastructure projects.
Also noteworthy is Hr 3.4 billion set aside for the agricultural ministry to subsidize food producers. An examination shows that the funds didn’t go to small farmers. Instead, the empires of Yuriy Kosiuk and Oleh Bakhmatiuk benefited.
The distribution depends on the amount of value-added tax paid by the agrarians, with preferences for poultry breeders.
In 2017, under pressure from the International Monetary Fund, Ukraine abolished lower VAT rates for highly profitable agricultural business.rd The state budget was losing at least $200 million annually because of this special tax regime.
However, instead of tax benefits, in January system of direct budget support was devised. Essentially the state was telling the big agroholdings: “You have to pay VAT like everyone else, but don’t worry, we will reimburse you this with direct budget donations depending on the amount of VAT paid by you.”
Most of the subsidies that went to agricultural businesses from January to June were received by two big holdings: Myronivskiy Hliboproduct owned by Kosiuk (Hr 809 million) and Ukrlandfarming owned by Bakhmatiuk (Hr 142 million) — 42 and 14 percent of the total, respectively.
Kosiuk, who in 2015 was the deputy head of the Presidential Administration, is in no need of subsidies with his mansion, yachts and a small plane.
Bakhmatiuk owes billions of hryvnias to the nation’s taxpayers, as well as depositors of two of his bankrupt banks, Financial Initiative and VAB. This heightens the absurdity of the state giving him money since many depositors have lost the possibility of being repaid.
The National Bank of Ukraine tried to make Bakhmatiuk pay debts through court but did not succeed.
The Deposit Guarantee Fund is also not in favor of suing the businessman: the fund did not file any civil lawsuit against the agrarian. As of July 2015, the Deposit Guarantee Fund had the right to file such lawsuits against the owners of bankrupt banks, who can be required to repay losses with property and assets.
Much of the money earmarked to the regions is likely to dissolve into the Poroshenko re-election campaign.
At the least, it will be hard to follow how money gets spent for “social justice,” road construction or rural medicine. The earmarked funds appear to be a clean source of dirty cash to feed the Poroshenko network and those favored by the president for election to parliament in 2019.
And finally, the confiscation of this amount is very suspect.
The court decision is not public, in violation of Ukrainian law and international standards.
It is not known even who and from whom and how this $1.5 billion were stolen.
Any evidence or proof is classified as a state secret by Lutsenko.
The illegal level of secrecy provides a solid case for appeal against the confiscation to the European Court of Human Rights.
This could lead to a ruling in which Ukrainians will not only have to return this sum to the Yanukovych family after the confiscated money is already spent in dubious ways. So, Ukrainian taxpayers will be fleeced twice — firstly by returning money to the people who stole it in the first place, and secondly by paying to enrich rich businesspeople close to Poroshenko.
Corruption and impunity are seldomly so clearly defined.
Daria Kaleniuk and Tetiana Shevchuk work for the Anti-Corruption Action Centre, one of Ukraine’s leading watchdogs, in Kyiv.
