Army! Friends! Dough! Part 3: Altitudes and Kickbacks
Last week, we published the first and second parts of the investigation. We told about the three eager young men who have organized a scheme in order to embezzle at least UAH 250 million of the State Concern Ukroboronprom’s money.
One of the "Boys", as we call them, was Ihor Hladkovskyi, the 22-year-old son of deputy head of NSDC Oleh Hladkovskyi. Among the other conspirators, we have named Hladkovkskyi the Dad and Pavlo Bukin, who currently heads the entire Ukroboronprom.
After we published the investigation, it was Hladkovskyi and Bukin who gave interviews. Hladkovskyi the Dad denied his involvement in the fraud. Bukin was surprised that his name was mentioned in the investigation because during the described events he was "just" the head of one of the Concern's enterprises — SE UkrSpetsEksport. According to Bukin, the enterprise didn't have any common business with the Boys.
Bukin even called Vitaliy Zhukov a “nouveau riche who went too far”. “I didn’t even let him close to the organization of any shipments in the company's [Ukrspetseksport - Ed.] or the Concern’s interests.”
Both Bukin and Hladkovskyi Senior should have waited for the publication of this part before making these statements.
Part 2. High Atitude
AN-26, the most famous Soviet military transport aircraft. The planes are still used by some of the post-Soviet militaries. The planes are still being repaired in Kyiv, at the Ukroboronprom’s plant “Factory 410 TsA”. For example, the plant repairs the planes of the National Guard of Kazakhstan.
Last year, President Petro Poroshenko visited the factory and gave a very long speech there: “I was glad to hear pleasant feedback from our colleagues from India, our colleagues from Bangladesh, our colleagues from Kazakhstan. Ukraine and her aircraft building enterprises remain to be very privileged partners for our foreign friends.”
However, there are things which are kept hidden from "foreign friends". One of them is how much the "local friends" are making on these contracts.
Despite the ANs being repaired by the "410 Factory", the required parts were procured by that same Ukrspetseksport, which was headed by Pavlo Bukin at the time. In August 2016, the Ukrspetseksport signed a supply contract with the Ukrainian firm TOV "AN Servis" for the spare parts. The ProZorro procurement system has the report for that contract. In short: UAH 14.38 million are paid for unidentified “special property”.
According to the AN Servis financial reports, the Ukrspetseksport did pay the company the abovementioned amount. They paid it for 6 instruments, altimeters. They bought 3 different models, 2 of each, evidently, for 2 planes. The altimeters were the RV-5MD1, VEM-72FG, and VMF-50, all made in Russia.
The instruments were indeed brought to Ukraine. According to the customs, this happened in January 2017, 6 months after the contract was signed. The AN Servis cleared the altimeters at the customs, their declared price didn’t differ much from the price in the contract, being UAH 11,85 million. The instruments were brought from the UAE. To avoid disclosing the military nature of the shipment, the firm that sent them (Double Power FZE) exported them as “parts for civilian helicopters”. The Double Power FZE firm bought it from another UAE firm, which, respectively, had bought it directly from a Russian shell firm. According to the international customs database Import Genius, the real application of the shipment was being obscured starting with Moscow and up until it was cleared in Kyiv.
In Spring 2017, the Concern proudly announced that Ukraine has successfully fulfilled the Kazakh contract, turned the AN-26 planes in, and in full quantity of 2 planes.
Here's an important point: to avoid the accusations of "severing supply channels for parts" we made public neither the sender of the parts, nor the first recipient shell firm in the Emirates, and neither have we published the smugglers' data in the previous episodes. However, we must note that the information about this shipment can be found in international customs databases, and it is entirely verified with documents. We will focus our attention on price inflation.
That is, everything looked more than decent, both price and document-wise. But it wasn’t.
The first thing you must know about this procurement is that the Ukrspetseksport overpaid SEVEN times for the altimeters.
Same as it was in the case with the contraband armored vehicle parts, the Russian origin of the instruments isn’t the problem about the altimeters. These sensors are crucial, and there’s no alternative, so we can only be glad that there are some crafty people who can supply the Ukroboronprom with the required parts. However. Let’s retrace the altimeters’ steps, with prices.
In Ukraine, the Ukroboronprom Concern bought the altimeters from AN Servis for UAH 14,38 million, while the AN Servis declared the price at the customs to be UAH 11,85 million. Seems like not that much of a difference, an honest share for a distributor? However, the UAH 12 million price was declared at the customs just so that the UAH 14 million price in the contract would raise any questions. In fact, what came to Kyiv costing UAH 12 million, was sent from the Emirates being 5 times cheaper.
The documents shown above are the customs declaration and a certificate of the UAE-based Double Power FZE company. Both documents set the shipment's price at $90,000. That was less than UAH 2,5 million at the time. We could suggest that the price was lowered in the UAE, for example, to avoid paying customs fees. But that doesn't make sense. The Sharjah city the altimeters went through is a free trade zone. Zero customs taxes. No need to lower anything.
We dug deeper. The Import Genius international customs database says that the goods left Moscow under a price of a bit less than $90,000. This means that actually, the altimeters cost 7 times less than the State Concern has gracefully paid Hladkovskyi Junior and his group.
The other thing you have to know about this procurement is that the Ukrspetseksport wasn’t a victim of cunning villains. Bukin knew perfectly well that the altimeters didn’t cost as much as the Ukrspetseksport paid for them.
Below is a fragment of his negotiations with Zhukov. Today, Bukin denies having anything to do with Zhukov and having any relationship with the Boys' business as such, and he says that he "didn't even let the "nouveau riche who went too far" close to the Ukrspetseksport's procurement. Firstly, Zhukov and Bukin had been friends, they even planned to go for a family vacation in France together. Secondly, in Summer 2016, Bukin personally ordered the shipment from Zhukov, and he knew the price was going to be inflated.
So, Bukin, the then head of Ukrspetseksport, and now promoted to the position of director general of the entire Concern didn't panic like "oh god, we're going to fail an international contract, SOS". He just approaches to the Boys with an offer "there's money, let's implement". And they did it, as you already know, with a 7x success rate.
The third thing you have to know about this shipment is that it wasn’t Zhukov alone who got overpaid, it was Zhukov-Hladkovskyi’s group, moreover, the Boys gave a share of the embezzled money was given to Hladkovskyi the Dad.
The Bukin-headed Ukrspetseksport signed the deal with the AN Servis on 26 August 2016. In less than a week, the Ukrspetseksport gave the firm an advance payment, and an unusually large at that, 80% of the overall amount. According to the firm’s financial reports, on 31 August 2016 it started getting transfers, and in a week it received UAH 11,501,799. After the altimeters were delivered, that is, after the contract was fulfilled, the firm was paid the rest, UAH 2,875,450.
Judging by the fraudsters’ correspondence, most of the money, the 80% advance payment, was cashed out and divvied up even before the actual shipment arrived. This is evident from Zhukov’s messages to Ihor Hladkovskyi and Bukin.
The group's ledger looked like this. Notice that the amounts Ukrspetseksport transferred to AN Service are identical, which left no doubt that it's about the altimeter fraud. Zhukov got the "calculations" from another participant of the altimeter scheme. From Stanislav Khosh, another ex-employee of the Concern, ex-deputy director of UkrInMash company.
The figures, the veracity of the official part of which is corroborated by the data of the Russian, UAE, and Ukrainian customs, as well as by the financial reports of the Ukrainian companies involved, tell that the State Concern has paid $580,000 for goods worth $85,000. 7 times the price.
Let’s add the real delivery expenses. The altimeters could’ve been shipped to Ukraine for $120,000. Thus, we can honestly say that it was a 5x overpayment including the purchase and delivery.
Let’s estimate the income of the scheme organizers. Out of $460,000 of overpayment, the group spent $160,000 to organize the fraud, the expenses included cashing out, using transit shell firms, and paying the customs fee for the higher declared price. Pure income was $300,000.
Now, let's talk about the distribution of benefits. The pink paper above was sent by Zhukov to Hladkovskyi Junior. It tells how the advance payment for the altimeters was divvied up. Zhukov also described the shares there.
“10 for Pasha” [diminutive form of the name Pavlo - Transl.] is, evidently, about the $10,000 kickback for Pavlo Bukin. Firstly, that’s how Zhukov and Ihor were calling the head of UkrSpetsEksport between themselves. Secondly, there is no other Pasha in the scheme. To be honest, a $10,000 share for a head of an enterprise which was used to embezzle UAH 14 million… is pitiful. Especially considering the overall amount of $300,000 embezzled, and the shares of other participants.
Pay special attention to the “30 to O. V.”. O.V. is Oleh Volodymyrovych. That’s Hladkovskyi Senior. He was referred to as “O.V.” in the messages of his son, Zhukov, and the heads of defense enterprises. He is the Deputy Secretary of the National Security and Defence Council, the President’s “overseer” of the defense sector, and he got $30,000. This is just a share of the advance payment for the altimeters. Unfortunately, we don’t know how they divided the rest.
Also, the correspondence shows that the Boys didn’t give only give Hladkovskyi the Dad the money for the altimeters. The story about the aircraft instruments is just a drop in the bucket. One contract. And the Boys had dozens. As we’ve told in the first part of our investigation, they funneled UAH 250 million of defense factories’ money through 3 of their shell firm just for the armored vehicle parts. Judging by Ihor Hladkovskyi’s talks with Zhukov, his dad had a share there as well.