A vic­tory in war on cor­rup­tion


The heat­ing sea­son usu­ally starts in mid-Oc­to­ber. This year was no ex­cep­tion. Most house­holds in Ukraine are con­sumers of cen­tral­ized heat­ing pro­duced in large power plants and smaller boiler sta­tions.

How­ever, two towns not far from west­ern Ukraine's Lviv — Novyi Rozdil and Novoy­a­vorivsk, with com­bined pop­u­la­tions of 60,000 peo­ple — fi­nally en­joyed heat only in mid-Novem­ber. The rea­son for the de­lay: Re­sis­tance of the lo­cal old guard to keep­ing con­trol over two ther­mal power plants seized in the course of a crim­i­nal in­ves­ti­ga­tion by the Na­tional Anti-Cor­rup­tion Bu­reau of Ukraine, known as NABU.

Bro­ken re­sis­tance

Af­ter strug­gling with cold weather and cor­rup­tion for a month, the re­sis­tance was bro­ken and the heat came on, proof that the anti-cor­rup­tion re­forms un­der way are de­liv­er­ing re­sults de­spite the ob­sta­cles.

Af­ter the two new agen­cies of NABU and the Spe­cial­ized An­tiCor­rup­tion Pros­e­cu­tor's Of­fice (SAPO) were set up in 2015 to tackle high-pro­file cor­rup­tion, it be­came clear that a new anti-cor­rup­tion court is needed to de­liver jus­tice. It is also cru­cial to en­sure that pros­e­cuted cor­rupt of­fi­cials can no longer ben­e­fit from the pro­ceeds of their crimes.

Ear­lier, the years be­tween the seizure of as­sets and their fi­nal con­fis­ca­tion, the as­sets were not prop­erly main­tained. They lost value and didn't gen­er­ate in­come for the state bud­get. More­over, in­ves­ti­ga­tors lacked di­rect ac­cess to rel­e­vant data­bases while trac­ing as­sets took a lot of time and re­sources.

In an at­tempt to solve the prob­lem, the Na­tional Agency for the De­tec­tion, Trac­ing and Man­age­ment of As­sets De­rived from Cor­rup­tion and Other Crimes (ARMA) was launched in 2016.

It was es­tab­lished in line with Ukraine’s com­mit­ments to the Euro­pean Union within a visa lib­er­al­iza­tion ac­tion plan and based on Euro­pean mod­els of sim­i­lar agen­cies. ARMA func­tions as an as­set re­cov­ery of­fice in the mean­ing of the EU di­rec­tives and be­came fully op­er­a­tional in Oc­to­ber 2017.

The agency has two main func­tions: as­set trac­ing and as­set man­age­ment. Within the first func­tion, at the re­quest of pre-trial in­ves­ti­ga­tion agen­cies, ARMA traces as­sets in Ukraine and abroad with the idea of seiz­ing them as pro­ceeds or in­stru­ments of crime. The ac­tual seizure is con­ducted by in­ves­tiga­tive agen­cies via court war­rants.

Within the as­sets man­age­ment func­tion, ARMA eval­u­ates seized as­sets, se­lect­ing third par­ties with proper ex­per­tise to man­age them so as to re­tain their value un­til there is fi­nal con­fis­ca­tion or­der or waiver of the as­sets seizure war­rant.

Over its year of ex­is­tence, ARMA was mostly manag­ing com­par­a­tively easy as­sets, like the prop­erty of ex-Pres­i­dent Vik­tor Yanukovych’s crony Olek­sandr Kly­menko, which in­cluded apart­ments, of­fice and park­ing spa­ces, cars or money on seized bank ac­counts. Last month the agency man­aged to as­sume con­trol and find a tem­po­rary man­ager for the top-level Parkovy Busi­ness Cen­ter (as­so­ci­ated with Yanukovych’s el­der son Olek­sandr).

Not all as­sets spec­i­fied in a court

Gas theft

de­ci­sion can be ac­cepted by ARMA’s man­age­ment: some­times cor­rupt of­fi­cials get courts to can­cel the seizure of prop­erty or as­sets phys­i­cally can­not be found.

How­ever, if some­thing much big­ger is at stake — like ther­mal power plants which can­not sim­ply go miss­ing — and courts sur­pris­ingly re­ject­ing at­tempts to can­cel seizure war­rants, the "old guards" are be­com­ing more creative in ap­ply­ing tools to keep con­trol of their as­sets. It's not news that the en­ergy sec­tor in Ukraine used to be highly cor­rupt. One of the schemes largely mis­used was based on dif­fer­ent gas prices for groups of con­sumers, specif­i­cally house­holds and busi­nesses.

Ac­cord­ing to a NABU/SAPO in­ves­ti­ga­tion, of­fi­cials of two com­pa­nies — En­er­gia-Novyi Rozdil Ltd and En­er­gia Novoy­a­vorivsk Ltd. were mak­ing cor­rupt for­tunes in run­ning two ther­mal power plants in the west­ern Ukrainian towns of Novoy­a­vorivsk and Novyi Rozdil. They par­tic­i­pated in the mis­ap­pro­pri­a­tion of 300 mil­lion cu­bic me­ters of nat­u­ral gas in 2013–2015. The gas was sup­plied by the state-owned Naftogaz mo­nop­oly at dis­counted prices for house­holds. But in­stead the firms were us­ing it for their own com­mer­cial pur­poses. They made big money while rob­bing the state of Hr 1.4 bil­lion — or more than $50 mil­lion.

The fi­nal ben­e­fi­cial own­ers of both com­pa­nies are mem­bers of par­lia­ment Yaroslav and Bo­hdan Dub­nevych from the 135-mem­ber block of Pres­i­dent Petro Poroshenko.

The first no­tices of sus­pi­cion and de­ten­tions by NABU took place in Jan­uary 2018.

The com­pa­nies’ man­age­ment was sub­se­quently dis­missed.

How­ever, new peo­ple ap­pointed were also close to the Dub­nevych brothers. Ac­cord­ing to NABU, the gas theft scheme went on.

In or­der to stop the theft, both ther­mal en­ergy plants were seized by court or­der at the re­quest of NABU and trans­ferred to ARMA for man­age­ment in Au­gust. The in­ves­ti­ga­tion dis­cov­ered that th­ese plants were in­stru­ments for com­mit­ting crime by their of­fi­cials. In Septem­ber, ARMA se­lected a new man­ager for the power plant, pri­vate com­pany Garant En­ergo M.

But ARMA ac­tu­ally faced phys­i­cal re­sis­tance and re­luc­tance of the for­mer man­agers to al­low an in­de­pen­dent com­pany to run power plants. Both ARMA and a new manag­ing com­pany took all steps nec­es­sary not only to pre­serve the as­sets and their value, but also to pro­vide ser­vices, specif­i­cally to gen­er­ate heat en­ergy.

The manag­ing com­pany ob­tained nec­es­sary pro­duc­tion li­censes, con­cluded agree­ments with Naftogaz for un­ob­structed sup­ply of gas, made ar­range­ments for sup­ply of heat to house­holds and state bud­get in­sti­tu­tions in towns. The Cab­i­net of Min­is­ters even adopted a spe­cial reg­u­la­tion to al­low Naftogaz to sign a gas sup­ply agree­ment with the third-party man­agers of seized power plants.

But the old man­age­ment did not give up: they filed law­suits to get the seizures can­celled. Court hear­ings were held ev­ery week. Si­mul­ta­ne­ously, they en­sured that power plants’ work was blocked: tech­ni­cal doc­u­ments dis­ap­peared and es­sen­tial equip­ment was taken.

The em­ploy­ees, who had to re­sign from the own­ers’ com­pa­nies and get hired by the new man­ager, were in­cited to sab­o­tage. All th­ese things were ac­com­pa­nied by a defama­tion cam­paign: nu­mer­ous pub­li­ca­tions ap­peared in lo­cal and re­gional me­dia blam­ing ARMA and NABU for freez­ing peo­ple in their homes.

The tip­ping point came when var­i­ous pub­lic au­thor­i­ties — NABU, SAPO, ARMA and the cab­i­net — co­or­di­nated their ef­forts with the lo­cal ones — Lviv Oblast State Ad­min­is­tra­tion and the towns’ may­ors.

Me­dia and civil so­ci­ety, specif­i­cally the Anti-Cor­rup­tion Ac­tion Cen­ter and Trans­parency In­ter­na­tional Ukraine, pushed up the is­sue on the na­tional agenda. Sub­sti­tutes for the stolen equip­ment were found.

A num­ber of meet­ings were held by ARMA and the new man­ager to con­vince em­ploy­ees to go back to work and start heat­ing up their homes and those of their neigh­bors. Fi­nally it worked. The em­ploy­ees re­turned and the heat went on.

Im­por­tant lessons

Two big lessons here: The old guard will not give up their milk­ing cows eas­ily and im­punity — the lack of court ver­dicts in crim­i­nal cases — will en­cour­age the cor­rupt peo­ple to keep fight­ing by all means.

But an­other les­son is a more hope­ful one: Small tan­gi­ble vic­to­ries are pos­si­ble in Ukraine in trans­parency and ac­count­abil­ity. Stop­ping a scheme that stole Hr 1.4 bil­lion, or $50 mil­lion, is not a small vic­tory.

And it shows that ARMA is ma­tur­ing in manag­ing toxic and prob­lem­atic as­sets. With the es­tab­lish­ment of a gen­uine anti-cor­rup­tion court next year, the chances are that ARMA will get more work — and hope­fully more suc­cess sto­ries.

Daria Kale­niuk is the ex­ec­u­tive di­rec­tor of the Anti-Cor­rup­tion Ac­tion Cen­ter in Kyiv and Olena Halushka is the in­ter­na­tional re­la­tions man­ager of the or­ga­ni­za­tion.

For­tunes of war Mem­bers of the Vet­eran Brother­hood, a char­ity as­so­ci­a­tion of Ukrainian com­bat­ants of Rus­sia's war in the Don­bas, dis­play some of the non-func­tional and used weapons cap­tured from Rus­sian-spon­sored mil­i­tants on Dec. 6, 2018. Dur­ing the ex­po­si­tion ded­i­cated to Ukraine's Armed Forces Day near the Kyiv City State Ad­min­is­tra­tion build­ing, the vet­eran ac­tivists were also treat­ing passersby to tea and sand­wiches made on an im­pro­vised "field kitchen" in the Khreshchatyk Street. (Volodymyr Petrov)

Law­mak­ers Yaroslav Dub­nevych (L), An­driy Kit (C), and Bo­hdan Dub­nevych, mem­bers of the 135-mem­ber Petro Poroshenko Bloc fac­tion, pose for a photo dur­ing the Vyshy­vanka Day in par­lia­ment on May 17, 2018, in Kyiv. The Dub­nevych brothers are im­pli­cated in a case in­ves­ti­gated by the Na­tional Anti-Cor­rup­tion Bu­reau, where their en­ergy firms were al­legedly buy­ing gas from state at un­fairly low prices. (UNIAN)

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