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Is President Poroshenko linked to a dodgy $500m deal?

Is President Poroshenko linked to a dodgy $500m deal?
From Al Jazeera - February 8, 2018

It was a remarkable deal by any measure. An oligarch who had come from nowhere, aged just 28, had raised half a billion dollars to buy the media group that had earlier investigated him.

Serhiy Kurchenko, the "gas wizard of Ukraine", had been named publicly for the first time only a year before. Now, he was able to seize the magazine that had investigated him, Forbes Ukraine. Staff resigned en masse. No longer would they write about his irregular business practices.

That's what he thought. But Kurchenko could not have known that within months he would flee to Russia, where he would have to watch his prized purchase picked apart by prosecutors intent on seizing his assets and proving they were stolen.

To make matters worse, Forbes in the United States launched legal action to get its title back. It remains tight-lipped about its executive's embarrassing approval of the 2013 deal and his advisory role.

For the sellers of United Media Holdings (UMH), the cash could not have come at a better time. Boris Lozhkin, who had set out as a journalist in the eastern Ukrainian city of Kharkiv in the 1990s, now counted himself among the country's richest and most powerful men. He walked away with hundreds of millions from the sale.

His business partner and friend, the billionaire "chocolate king", Petro Poroshenko, would go on to become president of Ukraine in June 2014 and make Lozhkin his chief of staff and later, his chief economic adviser.

Dirty money

But the sale of UMH was tainted by dirty money and its residue will still not wash away.

First came the EuroMaidan revolution, which swept away the then president, Viktor Yanukovych, amid evidence that he and his clan had siphoned billions from the Ukrainian treasury. Then came an intensive drive to pick apart their offshore web of financial holdings. Soon, it became clear that Serhiy Kurchenko sat at the heart of a "criminal enterprise" that had helped him accumulate major oil and gas holdings and eventually a media empire.

Then in 2015, it was reported that Austrian officials were investigating a $130m transaction related to the UMH sale from a Latvian account to Lozhkin's company Integrity Holdings ltd on suspicion of money laundering. Fortunately for Lozhkin, they had dropped the case by 2016, saying they had seen no evidence to suggest the money had an illicit origin.

But new information obtained by Al Jazeera's Investigative Unit suggests the money paid was dirty, because it came from a loan secured using stolen money. Campaigners are now calling for deeper investigation in both Ukraine and Austria.

"Ukrainian prosecutors should have strong evidence of the illicit origin of the funds paid by Kurchenko for UMH back in October 2013," said Daria Kaleniuk of Ukraine's Anti-Corruption Action Centre (ANTAC).

They should and in fact they do.

We now know that in order to pay Lozhkin and his partners, Kurchenko secured a loan of $160m from a state bank using what prosecutors have established are stolen assets as security for the loan.

A document released by Al Jazeera last month as part of a wider investigation shows Kurchenko offered the state Import Export Bank of Ukraine security of $50m held in three Cyprus shell companies as well as property belonging to the company he was poised to acquire.

A previously secret Ukrainian court order, released by Al Jazeera in January, shows that the $50m and the three Cyprus companies were part of a wider network of companies dedicated to the embezzlement and laundering of $1.5bn on behalf of the former Yanukovich government.

In December last year, a Kiev court seized the corporate rights of UMH. One of the arguments prosecutors used was that the $160m loan agreement showed "signs of laundering the proceeds of crime."

"Why is there no confiscation of funds from those who - if we are to believe to public court records - received dirty money from Kurchenko for UMH back in 2013?" asks Kaleniuk.

She sees an answer to her own question. "The Prosecutor General of Ukraine will never run against business and political interests of Petro Poroshenko."

Corruption 'a priority'

Ukraine, which is ranked 131 out of 176 nations in Transparency International's Corruption Perception Index, began receiving a $17bn loan from the International Monetary Fund to help it get back on its feet.

The money came with strict conditions that the government build strong institutions that will fight corruption.

With Western support, Poroshenko created a national anti-corruption bureau and appointed a dedicated anti-corruption prosecutor. It was meant to be the beginning of a new era, in which the "oligarchy"rule by a fabulously rich fewwould be taken apart.

That did not happen. The bureau and its allies have faced attacks and have been foiled in their efforts to jail the oligarchs. Poroshenko has stopped short of setting up a specialised anti-corruption court, preferring to rely on the old judges.

In Davos in January, he told an audience that the move remained his priority.

"This is required not for the World Bank, not for the IMF, not for the foreign partners. This is required for me and for Ukraine," he said, adding that this was his "principled position."

Campaigners are not convinced. A recent editorial in the Kyiv Post described Poroshenko as "the king of the corrupt and kleptocratic oligarchy" and "a persecutor of his political foes and anti-corruption activists."

Media empire

Lozhkin grew UMH from a solitary celebrity magazine in Kharkiv into a vast conglomerate controlling numerous newspapers, websites, radio stations and TV channels. It published famous magazines including Vogue and Forbes and employed around 4,000 people.

By 2013, Poroshenko owned a magazine and several other media outlets within it, as well as just under three percent of UMH. He claims he offloaded his various media assets before the deal's announcement in June 2013. However, company documentation suggests that while Poroshenko may have given up his magazines and radio stations, he held onto his UMH shares until the day of the sale in October.

Documents held at the Cyprus company register indicate that he accumulated his shares during 2011 via an offshore company based in the British Virgin Islands (BVI).

He paid around $5m for just under three percent of the company. There is no record that the shares were sold until the day the company finally changed hands in October 2013. So, unless he divested himself of the BVI company beforehand, at the point of sale, Poroshenko stood to receive $15m, tripling his initial investment.

On top of that, journalists have questioned whether the president paid the appropriate tax on the deal, given that it was executed in offshore tax havens, via companies based in the British Virgin Islands.

Multilayered companies and oligarchs

Poroshenko

Criminal enterprise

Austrian investigation

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