How $1.8 Billion in Aid to Ukraine Was Funneled to International Finance

Thanks to the investigative work of the Ukrainian anti-corruption watchdog group Nashi Groshi (Our Money), the process by which $1.8 billion “was smoothly maneuvered offshore” to unnamed accounts in Belize, the British Virgin Islands and “other outposts of the international financial galaxy” is plainly visible, writes Andrew Cockburn at The Harper’s blog.

“The scheme, as revealed in a series of court judgments of the Economic Court of the Dnipropetrovsk region monitored and reported by Nashi Groshi,” Cockburn explains, “worked like this”:

Forty-two Ukrainian firms owned by fifty-four offshore entities registered in Caribbean, American, and Cypriot jurisdictions and linked to or affiliated with the Privat group of companies, took out loans from PrivatBank in Ukraine to the value of $1.8 billion. The firms then ordered goods from six foreign “supplier” companies, three of which were incorporated in the United Kingdom, two in the British Virgin Islands, one in the Caribbean statelet of St. Kitts & Nevis. Payment for the orders—$1.8 billion—was shortly afterwards prepaid into the vendors’ accounts, which were, coincidentally, in the Cyprus branch of PrivatBank. Once the money was sent, the Ukrainian importing companies arranged with PrivatBank Ukraine that their loans be guaranteed by the goods on order.

But the foreign suppliers invariably reported that they could not fulfill the order after all, thus breaking the contracts, but without any effort to return the money. Finally, the Ukrainian companies filed suit, always in the Dnipropetrovsk Economic Court, demanding that that foreign supplier return the prepayment and also that the guarantee to PrivatBank be cancelled. In forty-two out of forty-two such cases the court issued the identical judgment: the advance payment should be returned to the Ukrainian company, but the loan agreement should remain in force.

As a result, the loan of the Ukrainian company remained guaranteed by the undelivered goods, while the chances of returning the advance payments from foreign companies remain remote. “Basically this transaction of $1.8 bill[ion] abroad with the help of fake contracts was simply an asset siphoning [operation] and a violation of currency legislation in general,” explained Lesya Ivanovna, an investigator with Nashi Groshi in an email to me. “The whole lawsuit story was only needed to make it look like the bank itself is not involved in the scheme . . . officially it looks like PrivatBank now owns the products, though in reality [they] will never be delivered.” …

Despite this brazen raid on Ukraine’s dwindling assets, no one in authority seemed to care very much. Ivanovna’s group joined with an anticorruption NGO, Anti-Corruption Action Center (ANTAC), in a request to the Ukrainian General Prosecutor Office to open a criminal proceeding, but with no result. ANTAC’s legal director, Antonina Volkotrub, tells me that there is currently no official investigation of the transactions, though her group has sued the prosecutor to start a criminal investigation.

Read more here.

— Posted by Alexander Reed Kelly.