The latest corruption scandal in Ukraine has broken at an extremely inopportune time. As it has turned out, while a number of Ukrainian officials are demanding increased arms supplies and new financial aid packages from the Western partners, others are busy embezzling them to increase their own wealth in foreign accounts.
A brief summary of the scandal is provided below:
The Ukrainian Ministry of Defence signed a contract for the purchase of a wholesale batch of artillery shells with a little-known company called Lviv Arsenal on 11 November 2022. The then Defence Minister Oleksii Reznikov authorized an advance payment under the contract – almost 100% of the contract amount. The Defence Ministry then transferred the full amount stipulated in the contract to the company’s accounts: Lviv Arsenal received nearly 1.5 billion hryvnias (about US$38 million) for the supply of a large batch of 120-mm and 82-mm mortar rounds. Deliveries were supposed to begin in December 2022 and be fully completed by the end of February 2023, but, as of the end of July, the Ministry of Defence had not received a single mine under the prepaid contract.
The founder of Lviv Arsenal is Yurii Zbitniev who became one of the youngest members of the Verkhovna Rada of the Ukrainian SSR (Ukraine’s Parliament) in 1990.
On 26 January, the Northern Commercial Court of Appeal upheld the decision of the first instance court to recover nearly 1.5 billion hryvnias in favor of the Ministry of Defence from the Lviv Arsenal, which failed to fulfil a contract to supply shells to the Ukrainian Armed Forces.
According to the investigation, Lviv Arsenal management transferred part of the money to the balance sheet of a foreign commercial entity that was supposed to deliver the ammunition to Ukraine. However, the company did not send a single artillery shell to Ukraine, and transferred the funds to the accounts of another affiliated company in the Balkans. The rest of the amount remained on the Lviv Arsenal accounts in a Kyiv bank. The Ukrainian authorities was able to trace the embezzlement scheme and identified all persons involved in the fraud. The stolen funds have been seized, and the question of how to return them to the Ukrainian budget is being discussed.
The investigation revealed that five officials and company representatives were involved in the offences. They were formally charged under articles of the Criminal Code of Ukraine, including misappropriation and embezzlement or seizure of property through abuse of office committed by an organized group. The former and current heads of the Department of Military and Technical Policy, Development of Armaments and Military Equipment of the Ministry of Defense of Ukraine, Lviv Arsenal’s CEO and commercial director, and their accomplice, a representative of a foreign commercial firm, were served with suspicion notices. One of the men was detained by the intelligence service when he attempted to flee Ukraine.
As is clear from the details above, the basic scheme for committing corruption has not changed much. Public procurement, a ministry, a company, a former member of the Ukrainian Parliament, and a foreign bank account – this is all that is needed to move Ukraine back down a couple of places on the world corruption rating.
This latest scandal shows that the Ukrainian leadership in Kyiv is unable to stop corruption, which is only fueled by the influx of billions of euros and dollars into Ukraine. Corrupt officials can be replaced, perpetrators can be jailed, but the situation remains unchanged.
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