Army. Friends. Dough. Part 1
Two years ago we have published an investigation titled “Friends in Armor”, where we told how in 2015-2016 state defense enterprises funneled around UAH 100 million to shell companies, paying for spare vehicle parts of unknown quality and origin. We were able to identify the “operational managers” of that scheme, who turned out to be a small-scale businessman and an ex-employee of the SC UkrOboronProm. However, we understood that two young men “out of nowhere” just were not able to operate a scheme like this without any help and protection.
It took us 2 years to unravel the knot of state defense budget embezzlement completely. Now we can finally provide the full picture of those events. How contraband was smuggled and laundered. How much the spare parts actually cost and how much the state factories overpaid for them. How the organizers arranged for contracts through clandestine deals, threats, bribes and kickbacks, and lobbying. How they forged documents and cashed out the money gotten from the factories through special cash-out centers.
What roles the officials of the defense sector have played, from factory CEOs to SC UkrOboronProm’s leadership, to the National Security and Defense Council.
Part 1. The Boys.
In which the son of the deputy head of NSDC and Poroshenko’s closest friend embezzles at least UAH 250 million of the UkrOboronProm State Defense Concern. How many times have the state factories paid exorbitant prices for Russian contraband? How big were the bribes and kickbacks that his group was distributing among the defense officials? Find out below.
The year 2014. Russia starts the war in Donbas. Ukrainian military vehicles require urgent modernization and overhaul. They are repaired by the factories of the State Concern Ukroboronprom. The factories require spare parts to do that.
At the beginning of the war, Ukraine faced a dire shortage of Russian components. They are required to repair both old Soviet vehicles and newer ones, which were nevertheless created with Russian parts in mind. Defense officials emphasized that they are taking a course toward swift import substitution.
Roman Romanov, who was the head of UkrOboronProm at the time, reiterated in every interview of his that “A priori, since 2014 all cooperation with the Russian Federation was stopped”.
This statement was supported by statistics. At the beginning of the war, Ukraine was producing only a half of the components and armament for its vehicles, 10% was being imported from Western countries, while 35% was being imported from Russia. Already at the end of 2014, the Ukroboronprom proudly announced that they were making 70% themselves and buying 30% from the West. No Russia in sight.
While the CEO of the State Defense Concern was telling tales about the magical renaissance of the Ukrainian defense industry complex, the state-owned factories of that exact Concern were buying tons of Russian vehicle parts, which were smuggled from Russia.
But the contraband is not the real problem. Because there was a dire need in those parts. The main problem was certain intermediaries. They straddled the market and inflated the prices several times. And the State Concern was keen to overpay. Because it was getting bribes and kickbacks.
The Optymumspetsdetal (hereinafter – Optyma) company was that kind of an intermediary, it was under the control of the group of Ihor Hladkovskyi, Vitaliy Zhukov, and Andriy Rohoza.
In Spring 2015, a new company called Optyma entered the procurement market of supply for the Ukroboronprom’s tank factories. The firm saw quick success, and transformed into one of the main suppliers, and received around UAH 100 million from state factories in several years. This was calculated by our team back in 2017 after analyzing the company’s financial reports.
Optyma was never a manufacturer of the parts. The documents said it was allegedly buying them from intermediaries, who were buying them from other intermediaries, and so forth, down a rabbit hole at the bottom of which were short-lived shell companies. The latter was used to cash out the defense plants’ money. They didn’t manufacture any parts, of course, but the main part is — they weren’t buying them elsewhere either. These companies were created with the sole purpose to sell smuggled parts to Optyma on paper. Then, the Optyma shipped them to the Concern. Sometimes, another company called Renal was used as an intermediary.
The money went back from the state factories, reached the shell firms, and then got withdrawn as cash, which was used to buy new smuggled parts. A classic scheme, which was used to supply the Ukroboronprom’s factories with Russian parts for years. We’ve established these connections last year after looking through the contracts of these companies.
For a while, we couldn’t understand the secret of the Optymumspetsdetal’s success with Ukroboronprom’s procurement contracts. The former was created a long time before that, it was called just Optymum, it only existed on paper and it didn’t have any connection to the defense sector.
However, at some point in time the company “woke up”. It got a new name, address, and most importantly — a new owner and CEO, Volodymyr Volokhach. He was an ordinary 34-year-old Kyiv resident, who was living with his mother in an old Khrushchevka, and he didn’t look like your average tank industry tycoon at all.
Volokhach was a nominal owner, but he worked with the people who organized the Optyma scheme. In 2017, we found who the organizers were. This picture shows Volokhach standing timidly to the side, while his boss stands in the middle with a tank shaped cake. He is one of the real masterminds of the plot, Andriy Rohoza.
Rohoza was already a rather famous person in the defense industry at the time. He was making money on shady procurement contracts for the Kyiv Tank Factory.
Through Rohoza, we managed to find Vitaliy Zhukov, another participant of this fraud. They have been officially connected since 2014 when they co-founded the TOV “Beltorhukrayina” company. Zhukov turned out to be an Ukroboronprom ex-employee. He started working there in 2012 when he was 23 years old. He became the Director General’s assistant from the start. In 2014, Zhukov quit working in the public sector and became a partner of Rohoza’s.
Despite quitting the Concern, Zhukov must have retained a lot of connection inside the Ukroboronprom, and it seems that he was the one to organize the shipments for the factories. In Spring 2017, we managed to record Zhukov’s meeting with Oleksiy Babich, the ex-CEO of Zhytomyr Tank Factory, who had paid Optyma around UAH 50 million a short while before that. Then, the always talkative Babich responded to our question telling that they discussed shipments to another enterprise of the State Concern, where he was transferred after the Zhytomyr Factory. According to the official, Zhukov did not represent Optyma at the meeting, but… the president’s factory “Leninska Kuznia” instead. We understood then, that Zhukov’s connections reach much further than some factories and that the circle of masterminds couldn’t possibly end with Zhukov and Rohoza. Thus, we continued investigating the Optyma fraud.
After we published our first investigation, our sources from different enterprises and factories of the State Defence Concern Ukroboronprom mentioned Hladkovskyi’s name, off-camera, of course. However, for a long time, the involvement of the President’s closest friend in this story could be traced only by hearsay and unconnected facts.
Our team has been collecting these gossips and facts for almost 2 years. For example, the visitors’ book of the Zhytomyr Tank Factory has the following entry: in Summer 2016, Rohoza and Zhukov paid the factory another visit, but they weren’t alone. Ihor Hladkovskyi was with them. However, isolated entries like this didn’t allow to figure out why he came there, what was his relationship with the Zhukov-Rohoza team, and what kind of connection it had to their defense business.
Finally, in Fall 2018, our team received a letter which tied together hundreds of isolated facts and bits of information we already knew in an astounding story of corruption in the defense industry. The letter was sent from a disposable e-mail address, it had a link to an archive containing the fraudsters’ correspondence. It had names, dates, amounts of bribes and kickbacks. The anonymous letter and hacked accounts didn’t look credible to us at first. However. Firstly, the number of letters was crazy. It’s impossible to fake this much data, especially with backdating: the letters weren’t just about business, the participants of the scheme exchanged everything from copies of papers to family photos. Secondly, the correspondence was in line with the facts we already knew. We spent another 6 months to verify the rest. We identified the parties. We compared the letters with real contracts of defense factories. We exposed the supply chains of spare parts. We found family ties, movables, and immovables… Until we were sure the veracity of the contents, which was corroborated by other sources.
The correspondence showed us that Optyma was a project curated by three people, not two. The third participant was indeed Ihor Hladkovskyi, the eldest son of Oleh Hladkovskyi, first deputy head of NSCD, a close friend and business partner of President Petro Poroshenko.
We don’t know when and how the Boys came to know each other. However, the correspondence clearly shows that in 2016, Junior and Zhukov were already friends, while Junior, Zhukov, and Rohoza were business partners. The former is easy to see by looking at e.g. their common photos taken during summer vacation. The pictures show Zhukov and Hladkovskyi with their wives, chilling at year another foreign resort.
Their partnership is also evident from the letters. As of 2016, the son of the deputy head of NSDC was a third, equal participant of the scheme. He always talked about the supply business as of a common one. Ihor invested in buying contraband parts on a share basis with Rohoza and Zhukov. Even more, the correspondence shows how the CEOS of state enterprises and the Ukroboronprom as a whole were bent to the schemers’ will by mentioning Ihor’s last name.
Aside from confirming the involvement of Hladkovskyi Jr., the correspondence archive also allowed to see the bigger picture of the roles and shares of the fraudsters, as well as to take a look at the way their business was organized in reality, not on paper. The most important thing it allowed us to do is to calculate the amount the state factories overpaid the boys for shipments, and how these overpayments got transformed into kickbacks that ended up in the pockets of State Concern’s officials.
But judging by the letters, he didn’t do ordinary work. He was resolving issues on the level of the Concern and his dad. Everyday stuff was given to Zhukov and Rohoza. Physically, the logistics were the domain of Rohoza, as the junior partner. He went to the border, talked with smugglers and other intermediaries, who sold the goods in the internal market. The purchase geography was mostly tied to Russia. It mentions Moscow, St. Petersburg, Chelyabinsk, Belgorod. We didn’t manage to figure out the people who were selling parts to the Boys. Most of the suppliers were mentioned under their codenames: Gena, Belarus, Cheburashka, etc.
One of the key problems about the smuggled used parts was their quality, which the Boys didn’t care to check. They just brought everything to the factories. Sometimes it was basically scrap metal. 1,5 years ago we published a memo of the Kyiv Tank Factory incoming control, which said that not only did they supply unserviceable parts, the parts were from a wrong vehicle, which leads us to think that the Boys weren’t that well versed in what they were selling.
More recent letters tell us that the same Kyiv Tank Factory complained about leaking APC gearboxes, and wheel reduction drives with loose nuts.
It’s worth noting that the factory didn’t accept trash, demanding to replace or repair it instead. And it patiently waited for the replacement or repair. Because even despite supply delays and the low quality, it’s not that easy to refuse to work with the Boys.
There was another source of the Boys’ goods. A bad one. Worse than contraband. Among the letters to the suppliers, we’ve found one where they agreed to resell parts stolen from the Ukrainian army back to the Ukrainian defense enterprises. In February 2017, Zhukov got these 2 pictures: there was a list of parts, their quantity, and a handwritten price. This list was sent to Zhukov by a person who we have identified to be an employee of the Defense Ministry, head of 637th Military Representative’s Office Dmytro Trachuk.
The Military Representative’s office of the Ministry of Defense is a separate branch which oversees the repairs and modernization of armament. Trachuk himself explained to us that the office cannot officially trade in anything, because anything taken from the army’s vehicles belongs to the army.
“After the repairs are completed, it all belongs to the Defense Ministry. It had to be put in storage by the enterprise, the Zhytomyr Tank Factory, in this case, it had to be put into storage. Thus, this is the property of the Ministry of Defense.
Can the Office sell any spare parts?
No, we cannot sell anything. We don’t even have an accounting office. We’re exclusively an oversight agency, that’s all.”
However, in the letters, Zhukov has been sending lists of parts he required for several weeks. Trachuk was providing the prices. In dollars. When we asked if, by any coincidence, Trachuk had a separate, own part selling business that is not connected to the Defense Ministry, Trachuk clearly stated that he didn’t have one. However, he didn’t manage to explain why did they exchange price lists with Zhukov. His correspondence with Zhukov is evidence that the “exclusively oversight” Trachuk wasn’t really against reselling the “unscrapped” parts.
Both smuggled and army parts were illegal. To sell them to the state Concern, they had to be whitewashed first, their origin hidden. The money from the Concern had to be cashed out. Both problems were solved by cash-out centers. They laundered both the parts and the money. Zhukov was in charge of the workflow. Zhukov’s correspondence with accountants and cash-out specialists shows everything step-by-step: how he controlled the money transaction from the factories, arranged cash-out operations, and carried around plastic and sports bags full of money.
Aside from cashing out, Zhukov organized the work with client state factories. Well, more like imitated it. In theory, a factory had to hold something like a closed procurement procedure. I had to notify the suppliers that they need “this kind of parts, do you have any and for how much would you sell it”, gather all offers, analyze the prices and choose the best supplier. In reality, thanks to his connections in the Concern, Zhukov had access to the most valuable thing, information. He knew in advance about the production schedule and the factories’ needs. He only had to negotiate the price with the leadership. Then the factory would send requests only to the group’s firms to imitate competition. E.g. like this:
This is a photo from the work computer of Yuriy Shyganov, a procurement officer of the Zhytomyr Tank Factory. He was analyzing the prices of 2 firms which were competitors formally, but in fact, both were Zhukov’s shell firms.
In a phone conversation with us, Shyganov kept saying that the security department thoroughly checked the suppliers and the factory couldn’t have held the contest between several companies of the same people. “If, say, there are several companies, the security finds that they belong to the same person, they wouldn’t have let that through.” But they did. We checked – the transaction did take place. 2 weeks after the fake competition, the factory paid those exact UAH 800,000 (VAT included, not mentioned in the table) to Optyma, for that exact quantity of those exact parts.
What’s interesting is that Shyganov assured us that Optyma and Rental are different suppliers. But he was the one to send Zhukov a fake analysis spreadsheet with this remark.
In human language, it means “drop a couple more firms here to make it less telling”.
However, Zhukov’s abilities weren’t limitless. Not every issue could be solved through old friends from the middle tier. Problems of a higher magnitude were solved by another member of the star trio. Yes, we’re going back to Hladkovskyi. His main function was pulling the strings.
Ihor Hladkovskyi’s role in the group was special. On the one hand, he was the most influential participants of the scheme. On the other hand, he didn’t even have to do much to exert his influence. Everyone around him hurried to please him on their own accord by the virtue of Ihor’s last name.
As we’ve mentioned above, Junior’s main function was pulling the strings. And Hladkovskyi Junior’s main string to pull was, of course, Hladkovskyi Senior. Zhukov was constantly asking the son to sort something out with his father’s help. E.g. to get into contact with some Concern official, or to organize a personal meeting with a factory CEO who had a friendly disposition toward the Boys. The son, who makes money on shipments of contraband, even decides which issues his father, the deputy head of NSDC, brings up during the Council’s sessions.
In the letters, Rohoza defines Junior’s role as follows: “Ihor does the settlements and signing”. This means to provide a contract and payment. Indeed. Firstly, Zhukov regularly asks Ihor to force directors of state defense factories to make orders.
Hladkovskyi Junior also deals with payment issues. In Fall 2016, several of the cash-out centers used by the group to launder money got the attention of the Tax Service. Optyma, the Boys’ central firm, was also deemed suspicious. The factories get torrents or letters from the State Fiscal Service, and the CEOs get invited for interrogations. This made the Concern’s security department freeze the payments the group was going to get from the Zhytomyr Tank Factory. Zhukov instantly wrote Ihor. Hladkovskyi’s son had to solve the issue on the level of deputy heads of the state Defense Concern.
The Concern passed the payments through. Now the factory was stalling, but that was even easier to solve. Zhukov asked Junior to go hard on the Tank Factory’s director. “ Zhytomyr owes 11,630, they’ve had everything coordinated and let through for 5,7 a month ago, ask Sveta to get Babich to enter the rest of the money in the register for payment.”
The next day, despite the Tax Service’s investigation, the Boys’ firm received UAH 7 million from the factory. Then they transferred the entire sum to a cash-out center.
In total, the group has made tens, hundreds of millions of hryvnias throughout 3 years, from 2015 until 2017. Optyma got more than UAH 90 million from three tank factories (Kyiv paid UAH 12 million, Kharkiv paid 32 million, Zhytomyr — 49 million). The second shell firm Renal got another 85 million from 5 tank factories (Kyiv – UAH 42 million, Kharkiv – 38 million, Zhytomyr – 4 million, Lviv – 1 million, Mykolaiv – 0,02 million).
The President’s defense factory, which was called “Leninska Kuznia” back then, but has been since decommunized into “Kuznia na Rybalskomu”. The Boys had a special standing with the President’s factory. According to our information, the Hladkovskyi-Zhukov-Rohoza group were using it as an ordinary shell firm, the same way they were using Optyma and Renal.
Overall, another UAH 70 million from the Kyiv Tank Factory were passed through the “Kuznia” (and then to Optyma or Renal).
Thus, the Boys and their Daddy got UAH 250 million from Ukroboronprom. At least this much. That’s what we managed to calculate from the firms we know about. But we think that the real figure was way higher. Especially considering how Rohoza summed up the year 2016: “Fuck, 500 million just came through!”
ТАБЛИЧКА МНОЖЕННЯ. ПЕРЕПЛАТ і ВІДКАТІВ
Somewhere around this point in our narrative, many of you may want to ask what is the problem with the Boys establishing a supply chain for much-needed parts, of course, making money on it, as it should be in any kind of business. What difference do the names of the participants make? Let us explain both the problem and the difference.
The crime committed by the Boys and the defense Concern which “cooperated” with them is unabated profiteering on the army and the defense industry during a war. The Boys weren’t solving a problem, they leeched on it, inflating the prices. In their profiteering, they were joined by the defense officials who were getting kickbacks from the overpayments.
The correspondence shows Zhukov instructing a subordinate on which prices to put in a commercial offer for a factory. He asked to multiply some prices by 1,5, some by 2 and 2,5. Finally, we stumbled upon the result of this arithmetical operations. This is a spreadsheet of shipments for the Zhytomyr Tank Factory, a summary for 2016.
The difference between the price of purchase and sale to the factory is mostly 2-2,5, sometimes 3 times, and in two places it reaches 4 times. We verified it, the nomenclature, quantities, exact prices — it is a summary table of Zhytomyr Tank Factory for that year. The final figures are: $350,000 invested, $777,000 made. We’ve found overpayments of the same magnitude in Kharkiv, and that’s only what was in the correspondence.
The Boys made a nice amount of money using this scheme. The one to do the least, that was Junior, has earned the most. According to Rohoza’s letters to Zhukov sent at the end of 2016, Ihor had invested $150,000, got the money back, and got another $350,000 of pure income. Thus, the son of the first deputy head of NSDC used the scheme to get 200% of income.
However, Rohoza and Zhukov were quite well off too. We don’t have any data about their income, but it can be estimated by looking at their expenses. Firstly, they bought themselves some cool cars. Zhukov added a Mercedes GLS to his fleet two Mercedes: 500 and GL400. It’s worth around $100,000. Rohoza is a BMW fan. He already has a BMW 750 LI. He got a brand new 740 LD, also worth more than $100,000.
Their housing situation isn’t bad as well. Rohoza first rented a 150 sq.m. flat in a new building in the Obolon district, and then a 300 sq.m. house with a huge garden in an elite gated cottage community on the Dnipro river.
After a while, in Spring 2018, Zhukov got a 4-room flat in a fashionable new building in the center of Kyiv, in the “Andersen” business class apartment complex, where 1 sq. m. cost almost $1,500 at the time. It was a gift, on paper. It’s interesting that a day before that, another flat two floors below that was bought by Zhukov’s mother. Another 200 square meters. Around UAH 7 million. Zhukov’s mother has been running a travel agency for many years. Judging by the financial reports on the YouControl website, the firm’s income is quite good, but even if you combine all the money that was officially made in the last 10 years and suppose that she hasn’t spent a cent from that, it will still be not enough to afford 2 such flats.
The Boys didn’t only get to buy flats and cars that year. Zhukov, Rohoza, and other people discussed buying 14 hectares of land in Ivankovychi, some land in Hnidyn, they argued about a piece of property in the Podil district, and Zhukov also mentioned some 3 buildings for $90,000. Unfortunately, we didn’t manage to figure out the buildings in question and who they were registered for.
It’s important: we aren’t saying that business in the defense sector has to earn only enough to cover its expenses and don’t receive any income during a war, to become a charity. Everything has a price. It may increase based on its quality, speed, additional risks. But we’ve already said that. It was neither about speed nor quality. The factories sometimes got random scrap metal, and the shipments often fell behind on the schedule. And the main risk — smuggling — wasn’t their risk. They were just reselling the parts. They inflated the prices several times over. You can decide for yourself where to draw the line between business and robbing the defense industry. We think that the Hladkovskyi-Zhukov-Rohoza group has crossed it.
But the blame for the overpayment isn’t only the Boys’, who were chasing for super profits and a luxurious lifestyle. Defense officials wanted the same. They didn’t agree to overpay out of patriotism. They agreed because they were getting regular and generous kickbacks from the overpayments. Here’s a couple of examples.
At the beginning of October 2016, the head of Zhytomyr Tank Factory Oleksiy Babich told Zhukov that the factory was ready to pay for the parts. “All payments approved, we’re paying tomorrow”. A day later, Zhukov and Babich exchanged some messages. About a kickback for Babich.
We managed to reach Babich by phone. He didn’t deny that Zhukov gave him money and he didn’t ask about the correspondence. He only reiterated several times that he didn’t remember and had to think about that. We’ll remind him. Then, in October 2016, the CEO of Zhytomyr Factory told Zhukov the directions to the place for a meeting and thanked him after that. Zhukov proceeded to call him a “partner”.
The Boys had “partners” like this in many of Ukroboronprom’s factories. For example, here’s another conversation with the still sitting CEO of Izium Instrument-Making Factory.
Sometimes, it got ridiculous. Mykhailo Tarnovskyi, assistant director of the Kharkiv Tank Factory, was getting the money right on his bank account.
In a phone call with us, Tarnovskyi confirmed that he knew Rohoza and that the latter sent him UAH 40,000, but allegedly not for working with the Optyma. He assured us that their relationship with Rohoza was purely professional, and the Rohoza had sent him the money for breaking his motorcycle. We are asked to believe that the kind guy Tarnovskyi had given his motorcycle to his NOT friend Rohoza, who is his business only partner? And that Rohoza is so rude, that he called a person whose motorcycle he had broke and whom he owed a lot of money a “chump” (and “pork”, “dishcloth”, and a “fucker”). We won’t, because Tarnovskyi lied to almost every our question.
For example, he told us he hadn’t talked to Rohoza on the organization of shipments of his Optyma firm to the Kharkiv Tank Factory because Tarnovskyi allegedly didn’t have the authority to do so. Actually, Tarnovskyi had personally sent Rohoza a request for certain parts with a memo “They have to be at the factory next week”, argued with him for several months only about the scopes, and warned the Boys of future inspections by the security department. Was he authorized to do that, I wonder?
Now, our favorite part. Here’s what Tarnovskyi told us about Zhukov and his competitor, another supplier:
-Do you know Mr. Zhukov, Vitaliy Zhukov?
– No, I heard about him but I don’t know who that is.
– Do you know the Simuzar company?
– No, I do not.
And here’s what he told that Zhukov he doesn’t know about that Simuzar he doesn’t know. “Hi! They’re making Hlushko pay Simuzar. Can you block the transaction? Let’s see who’s going to step in for it!… Simuzar needs money urgently, they’ve fucked up the VAT. Show them who’s the boss, you or the roaches :))
To sum up. The Concern allowed the Boys to funnel money out of defense factories by overpaying. Then the money went back to the same Concern’s officials as kickbacks. There would be no overpayments without kickbacks. Money saved on bribes could have been used to upgrade the factories and to finally begin the real, not make-believe, import substitution.
However, corruption didn’t end with the factories’ CEOs. In the next part of our investigation, we will go a level higher, to the current leadership of the Ukroboronprom and the National Security and Defence Council. We have something to tell both about their roles and their lives.
Junior’s father Oleh Hladkovskyi will, of course, say that he didn’t know anything about the schemes, the people, and the firms. For 3 hours we have followed him at an arms exhibition to hear him say that he didn’t know what Optyma was and who Zhukov is. To see the smile of the deputy head of NSDC when he… lies. We’re sure that the next part of our investigation will wipe that grin off his face.
Our request for comment from Oleh Hladkovskyi about his personal and his family’s involvement in the embezzlement of defense budget funds was answered by his press service with this: “First deputy secretary of the NSCD of Ukraine denies all accusations reported in the abovementioned document in light of the groundlessness of this information”. We want to note that the request did not contain any specific question, so we did not understand how Hladkovskyi can deny something he wasn’t even asked about.
The press service of Hyundai Motor Ukraine which we had asked to schedule a meeting with Ihor Hladkovskyi promised to ask if a comment would be possible but didn’t get in contact with us after that.
We didn’t manage to find Zhukov yet. Andriy Rohoza still denies his involvement in the Optymumspetsdetal company.
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