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.
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
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.
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)