Who cash in billions on smuggling and tax fraud in Ukraine

Author : 112 program Corruption League

Source : 112 Ukraine

Tax dodging, counterfeit products, and smuggling are the main pillars of the underground economy
22:02, 13 November 2018

Open source

Officially, Ukraine seems to be the poorest country in Europe. And besides “on the record economy,” we still have shadow one. A lot of goods are illegally imported into Ukraine, and without paying any taxes. A large-scale counterfeiting just flourishes in the country. Let us not forget about numerous conversion centers and funneling money to the offshores. Because of these illegal schemes, the state treasury annually loses billions of dollars. State Fiscal Service is Ukraine’s body to fight the shadow economy. This body combines customs and tax obligations. A fiscal service is a machine for making “black cash.” But who controls those illegal streams?

Tax fraud, counterfeit products, and smuggling are the main pillars of the underground economy. That is the money that does not go to the budget. According to various estimates, the shadow economy takes from 45 to 55%. That is, about half of Ukraine’s economy stays underground. That is about 50 billion dollars! And the lion's share of the black cache is a system of bribes and extortions, organized and controlled by the power itself.

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In February 2014, in the wake of the revolution, activists have actually beaten a confession out of the then Chop customs district director (Zakarpattia region). Oleksandr Kharchenko spilled the beans. It turned out that over the weekend, the customs officers get at least 200 thousand euros from the buses that transport Ukrainian illegal workers and parcels to Italy. And this is not the only channel of smuggling. Another 25 thousand dollars a day were received from the "illegal" batches of clothes. Suitcases with cash were passed to Kyiv. During Yanukovych’s times (Ukraine’s fourth president; removed from power in February 2014 as a result of the 2014 Maidan – Ed.), Communist Ihor Kaletnik was a real customs king of Ukraine. After the revolution, Kaletnik fled from Ukraine, but also further upsets his estates in the village of Klepcha not far from Kyiv. Until 2016, the mansion was rebuilt, it was constructed on the coast. Two cars were noticed in the yard. However, no one came to talk to the journalists. Kaletnik has one more thousand square meters residence, situated in the forests of Concha-Zaspa (elite region near Kyiv, where Poroshenko lives, - Ed.). Now Kaletnik is allegedly hiding in Russia.

Another fugitive who has been controlling the corruption schemes is Oleksandr Klymenko. He was called the taxman of the so-called Yanukovych’s Family, the close circle of the then president. In 2012, Klymenko headed the new Ministry of Revenue and Duties. This corrupt monster combined two super-influential structures: tax and customs. According to MP Viktor Chumak, cash from kickbacks was taken to the basement. Obviously, Klymenko took this money to build his own castle and a personal zoo with tigers and bears.

Oleksandr Klymenko

Helicopters and heavily armed security forces. This is how the military prosecutor's office and the Ministry of the Internal Affairs carried out the largest anti-corruption special operation in Ukraine. They attracted more than 2 thousand law enforcement officers, conducted 454 searches in 15 areas. Klymenko’s tax officials were detained and taken to Kyiv by helicopter. The tax authorities of Klymenko’s time were accused of financial frauds and laundering of budget funds in favor of the so-called Yanukovych’s Family.

Related: 2,500 corruption cases passed to court in 2018, - Prosecutor General

Tax sites, the so-called “fiscal pits,” are special schemes by which businessmen underestimate income and, as a result, pay fewer taxes.

"You have an enterprise, you work and you need to launder some amount of money (let us take some 100 thousand or a million). You throw it into the fiscal pit, and it disappears there, so you do not need to pay taxes. In other words, you evade paying taxes, so this is called the fiscal pit,” expert Olexandr Okhrimenko explains. Legally, the fiscal pit is an officially registered firm. An enterprise that wants to withdraw money orders goods or services from such a company, but in fact, the operations are done only on paper. Then, the money is withdrawn. But one cannot launder money without the authorities’ protection. Officials get a huge payoff.

This is how Klymenko’s scheme worked. According to the investigation, in 2011 – 2014, the state treasury did not receive 3,46 billion USD due to these frauds. First, the suspects were taken into custody. But now all the tax authorities are already free.

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After the Maidan revolution in 2014, under the pretext of fighting corruption, the odious Ministry of Revenue and Duties was renamed to the State Fiscal Service, but the corruptive schemes did not disappear. We have received some very interesting documents concerning the cost of private vodka companies for 2017-2018.

In particular, Zolotonosha Distillery bought from Targaryen company 610 tons of tangerines for 0,35 million USD. The company is registered in the industrial zone on the outskirts of Dnipro city. But Targaryen company has never been located there. That is, Targaryen LLC is a shell company, which exists only on paper. In addition, Zolotonosha plant bought from the Zakarpattia Food Company more than a half million packages of coffee for almost one million USD. This company exists, but its representatives refused to comment on the situation.

Related: Ukraine's main anti-corruption bodies are at loggerheads with each other

Another Klondike of shadow schemes and revenues is the customs department of Ukraine’s State Fiscal Service. For example, Verkhovna Rada adopted a law on the legalization of cars with European license plates, but for some reason, neither the authorities nor the owners of such cars themselves confess that the so-called Euro-cars can enter Ukraine if the customs officers get a bribe. Most of the cars with European license plates are imported from Poland. Western Ukrainian customs have the reputation of the most corrupted customs bodies. Enormous amounts of cigarettes and amber go to the West; household equipment and gadgets are illegally imported into Ukraine.

Now let us fast-forward to the south of Odesa region. This territory is situated between the sea, the Danube and the state borders. Cheap meat, alcohol, and cigarettes come from unrecognized Transnistria. Barrels of alcohol come from Moldova. Odesa is separated from Romania by the Danube, so the “dealers” carry fuel through barges.

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The most popular product here is cigarettes. Our “dealers” buy cigarettes from the underground warehouses of unrecognized Transnistria, the cost of one box (500 packs of cigarettes) is $ 50. On average, the capacity of one bus is at least 60 boxes.

In May 2015, Roman Nasirov was appointed the head of the fiscal service. And in March 2017, National Anti-Corruption Bureau (NABU) detectives came to Nasirov, accusing him of lobbying the interests of Ukrainian oligarch Olexandr Onishchenko. Nasirov had passports of three countries – Ukraine, Hungary, and the UK. Some of the illegal deferred payments were signed not only by himself but by his subordinates

Open source

Roman Nasirov and Myroslav Prodan

But the criminal case was frozen. Nasirov is now suing for his reappointment as fiscal service head and intends to run as a president.

Meanwhile, former Minister of Finance Olexandr Danilyuk assures that the criminal case against Nasirov and his subsequent dismissal were rather a result of the war between various political groups for control over Ukraine’s State Fiscal Service.

Just after Nasirov’s arrest in March 2017, Myroslav Prodan was appointed to lead the body.

"This is a henchman of Prime Minister Groysman; this is his long-term friend and partner," says MP Dmytro Dobrodomov.

Former deputy head of the State Fiscal Service, Likarchuk, convinces that immediately after becoming PM, Groysman began working on appointing Prodan the head of the fiscal service, and in 2016, Prodan was promoted and moved from Vinnytsia to Kyiv. Despite the scandal regarding Prodan’s illegal enrichment and shadow schemes, PM protected him.

According to the declaration, Myroslav Prodan does not have his own housing in Kyiv. He rents an apartment of 107 squares in one of Kyiv’s elite districts. The apartment belongs to his sister. She has bought this apartment in July 2016, that is, just when her brother moved to Kyiv.

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He declares no Kyiv housing in his documents. But in 2017, his compadre Maksym Pavytsky buys a 450 square meters mansion in a closed cottage town. Maksym Pavytsky, Valentyna Kohut, and several other people are considered to be Prodan’s sponsors.

“I have are enough materials to make sure that Mr. Prodan has made gross violations as the acting head of Ukraine’s Fiscal Service,” said Prosecutor General Yuriy Lutsenko.

The investigation believes that Mr. Prodan has benefited from some illegal schemes, while Pavytsky Pavitsky, Kohut, and other people laundered money and bought real estate for him.

According to the investigation materials, Prodan has acquired two buildings in the Turkish resort of Bodrum for 560 thousand dollars through fake persons. In August 2018, Ukraine’s court places a lien upon the property.

Related: Ukrainian MPs offered to buy off charges of corruption

Myroslav Prodan denies the purchase of estates on the elite sea coast.

Officially, the suspicion of sale has not yet been filed. In September 2018, he wrote a termination letter, however, he did not leave the fiscal service. Now Prodan works as deputy head of the large taxpayers’ office. And he has already announced his participation in the competition for the new head of the service.

Soon Ukraine Cabinet to announce the first ever contest for the post of head of the State Fiscal Service.

But the selection procedure still remains unknown. Under the guise of the competition, political clans might appoint the most convenient nominate henchmen, who, instead of fighting with corruption schemes, would head all these schemes.

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