A brief history of corruption in Ukraine: the Yanukovych era

A poor boy from Donbas breaks bad. Part 4 in a series.

A brief history of corruption in Ukraine: the Yanukovych era

Katya Gorchinskaya

On June 9, 2005, Paul Manafort wrote a memo to an important client, Ukraine’s reportedly richest man Rinat Akhmetov.

Manafort, the American political consultant who would one day manage Donald Trump’s presidential campaign, had conducted extensive polling in Ukraine after the 2004 Orange Revolution, a popular uprising that had prevented Viktor Yanukovych – a politician closely linked by Ukrainian media to Akhmetov – from becoming the country’s president. The catalyst for the upheaval was presidential balloting that had been rigged in Yanukovych’s favor.

Manafort’s memo assessed the post-revolutionary options for Yanukovych and his backers.

“The ability of Yanukovych to help lead a campaign against the current administration will not only fail, it will never gain any traction. Additionally, it carries the potential to destroy the Party of Regions,” Manafort concluded in documents that were later made public by a federal court in the United States.

The documents go on to show that Manafort recommended Yanukovych be replaced as the party leader immediately. Like many at the time, Manafort considered Yanukovych done as a politician.

But Yanukovych, it turned out, was far from done. He made an astounding comeback with the help of Manafort and lots of money, winning the presidency in a fair election in 2010.

And as soon as he got his hands on the reins of power, he spurred official corruption to new levels while maintaining a magisterial lifestyle, according to official documents.

Allegations of galloping graft that characterized Yanukovych’s administration ultimately contributed to its demise. People rose up again in 2014, an event now known as the Euromaidan Revolution, prompting Yanukovych to flee the country. These days, while he maintains an isolated existence in Russia, Ukraine continues to struggle to overcome the legacy of his rule.

Yanukovych’s makeover

Yanukovych’s public persona underwent a radical transformation in the years between the rigged 2004 presidential elections and his run in 2010. Manafort’s role in the transformation is well documented, thanks to filings connected with his trial in U.S. federal court in Alexandria, Virginia. That trial resulted in a conviction in 2018 on fraud and other charges in part related to his activities in Ukraine. Manafort reportedly made some $60 million in the country, helping Yanukovych and his Party of the Regions, in its various incarnations, over the span of a decade.

Manafort, the record shows, proved nimble at making a political pivot. Just half a year after making a recommendation to ditch Yanukovych as a leader, Manafort prepared talking points for the Party of Regions congress. At that congress, one of the speakers, Taras Chornovil, praised Yanukovych and laid out the main narrative of his ongoing transformation. It’s a narrative of “struggle, self-formation and great achievements” of a person who “had to go through the hardest school of life.”

Part of that was true – Yanukovych came from very humble beginnings. A native of Yenakiieve, a mining town in the Donetsk region, he was twice convicted for theft in his youth, but his criminal record was later expunged.

Manafort maximized Yanukovych’s strengths, and minimized his weaknesses, including his rough edges as an orator. To compensate for this shortcoming, Manafort devised campaigns in which television advertising did most of the speaking for the candidate.

After assuming the presidency, Yanukovych seemed to embrace a time-tested approach of using Ukraine’s notoriously corrupt judicial system to consolidate his political authority. He quickly moved to prosecute his main political rival, Yulia Tymoshenko, his most serious challenger in the 2010 election. Yanukovych used the corruption issue as a political cudgel: Tymoshenko ended up being convicted of abuse of power and embezzlement in connection with a gas supply agreement with Russia in 2009, receiving a seven-year prison term and a $188-million fine. The case was widely viewed by international watchdogs as politically motivated. In 2013, the European Court for Human Rights ruled that her arrest and conviction were “arbitrary and unlawful.”

Svyatoslav Piskun, a former member of the Party of Regions who served as Ukraine’s general prosecutor, remembers that Yanukovych was obsessed with putting Tymoshenko away: “He had one problem: how to jail Tymoshenko.” She ended up not being released from prison until after the Euromaidan Revolution ousted Yanukovych in early 2014.

The Family

Starting in 2010, Yanukovych is alleged to have started consolidating various business interests under the umbrella of a single, tight group of individuals closely associated with him. This group was often referred to as “The Family.”

Some of its alleged members held senior government posts, including First Deputy Prime Minister Serhiy Arbuzov, Minister for Taxes and Revenues Oleksandr Klymenko, Interior Minister Vitaliy Zakharchenko and Energy Minister Eduard Stavitsky.

Many of these associates had personal connections to Yanukovych’s elder son Oleksandr, who was at the center of the Family. Before his father’s presidency, Oleksandr Yanukovych worked as a dentist, but by 2013 he had assembled an array of business interests and had accumulated an estimated personal fortune of $133 million.

The Family’s business interests spread far and wide, from oil and gas to prime real estate in the capital. Land for these real estate projects was often annexed from public parks and green zones, and even a public school in one case. According to media reports, armies of lawyers, phony firms and complex networks of offshore companies were used to service this business empire.

One person in this group stood out: Serhiy Kurchenko. He was 28 in 2013, when the Family’s business practices started coming under scrutiny from investigative journalists. After Yanukovych gained power, Kurchenko became known as a wunderkind financial genius.

He later was referred to as “Yanukovych’s wallet.”

Kurchenko had an array of fictitious firms registered in flats in Kharkiv and Simferopol, whose residents had no idea they were company directors. They were linked, through financial transactions, to numerous offshore firms that churned millions of dollars for Kurchenko’s corporations.

By 2013, he was worth an estimated $400 million. Much of his wealth was acquired through opaque connections with state companies, especially in various segments of the oil-and-gas sector. For example, soon after Yanukovych came to power in 2010, an entity controlled by Kurchenko, VETEK, cornered Ukraine’s liquefied gas market, buying up the entire output that had previously been sold to bidders through an auction, and then reselling it at a substantial profit.

In 2014, after his escape from Ukraine along with Yanukovych and other members of the Family, Ukraine’s Security Service (SBU) accused Kurchenko and his associates of various crimes connected to energy trading, including price gouging of state-controlled entities, fictitious supply deals to state firms and the embezzlement of state funds. Criminal proceedings into these accusations continue in Ukraine.

The SBU also alleged that Kurchenko diverted at least $1 billion from state coffers for his personal benefit. Later, he reportedly tried to move a lot of his assets to Russia, according to documents recovered by journalists. Ukrainian courts have frozen much of those assets. Overall, the Family amassed about $12 billion in wealth, estimates Anders Aslund, a prominent Swedish-American economist who specializes in the former Soviet Union.

The Family’s business operations were far-reaching and eventually encroached on sectors traditionally dominated by Ukraine’s other entrepreneurial power brokers. In most cases, either the oligarchs went along with the Family’s plans, or they risked getting muscled out of business altogether. And, to add insult to the financial injury, some of the nation’s rich and powerful were cajoled into making payments that were tantamount to royal tribute to the Yanukovych administration, in the form of “voluntary” contributions to state funds, or paying exorbitant fees to presidentially connected organizations. When Yanukovych fled Ukraine, evidence documenting these contributions was found in his residence.

A prominent example of such a shakedown involved Yanukovych’s hunting club, Kedr (Cedar), which occupied 100 hectares (250 acres) of protected forest located a short drive from Kyiv. The membership fee skyrocketed to $75,000 per year in 2013, a six-fold increase in under five years. The club had 28 members including former presidents Leonid Kravchuk and Leonid Kuchma, entrepreneurs Vadim Novinsky, Viktor Pinchuk and Oleksandr Yaroslavsky, as well as ministers, governors and a former chief prosecutor. The club’s total budget that year was $4.55 million, according to records recovered after Yanukovych fled the country.

A royal-like lifestyle                                                   

Hunting was just one of Yanukovych’s secret pleasures. He maintained a lifestyle like no other Ukrainian president before or after. Over the years, Yanukovych spent much of his time at an opulent estate, commonly referred to as Mezhyhirya, named after its location about 25 kilometers north of Kyiv.

Spread over 140 hectares of landscaped gardens with artificial lakes, the estate featured every conceivable luxury; spas and gyms, a tennis court, a golf course, a party ship, a helipad, a collection of retro cars and modern yachts, a state-of-the-art lab for testing food, greenhouses for growing it, and even a zoo and dog-breeding facility.

The estate was shrouded in secrecy, with prison-like security and a five-meter fence surrounding its perimeter. As documented in a trove of papers recovered following the Euromaidan Revolution, no expense was spared in Mezhyhirya’s construction. When decorative woodwork was commissioned for the billiards room of the main house, typically referred to as Honka, the bill amounted to $2.2 million. Wooden elements elsewhere in the house cost $3.7 million. Tens of thousands of dollars were spent on bathroom accessories, making them so over-the-top that the common reference became “the golden toilets.” The estate was later transformed into a museum, run by volunteers, that bears witness to Yanukovych’s profligacy.

The vassals are rising

Yanukovych and his associates went to considerable lengths to keep extravagances out of the public view. Intimidation tactics were routinely employed to keep the press at bay; censorship (including self-censorship) was common. In 2012-13, the Institute for Mass Information and the Independent Media Trade Union characterized Yanukovych, Prime Minister Mykola Azarov and Interior Minister Zakharchenko as enemies of a free press.

It was an era when mass media outlets – especially television, but also newspapers – were used as weapons in struggles over control of the Ukrainian economy. Accordingly, Family members often sought to buy media outlets that they viewed as nettlesome. Such was the case in 2013, when Kurchenko bought Forbes and its publisher, the Ukrainian Media Holding, in a deal worth a reported $340 million. Around the same time, Arbuzov, the deputy prime minister, set up a TV channel at government expense and took over the newspaper Kapital.

In the media sphere, the Family had competition. Powerful oligarchs had media empires of their own. Each outlet tended to reflect the political and economic positions of its respective owner, and often framed the news in ways that were designed to advance each owners’ interests. Instead of serving as watchdogs, many outlets acted as lobbying organizations. The ownership structures of many outlets were themselves opaque. The true beneficial owners tended to hide behind a façade of proxies and offshore entities. Clarity in media ownership would not come until the adoption of transparency legislation in 2015.

No matter how hard it tried, the Yanukovych administration couldn’t completely muzzle the press. Reports about his Mezhyhirya estate eventually appeared in Ukrayinska Pravda, an independent news website that many politicians at the time described as a must-read.

Allegations about Kurchenko’s business deals were also aired in Ukraine’s version of Forbes magazine when it was still published by an independent media holding company. Investigative reporters and specialized anti-corruption watchdog groups, many of them supported by grants from Western donors or international networks, gained prominence, and thus became a nuisance for the administration.

The work of these grassroots investigators provided much of the foundation for corruption-related criminal probes in Euromaidan’s aftermath. They also exerted considerable influence over the establishment of new institutions to fight graft. Some eventually became members of the new parliament or joined the reformist government.

Yanukovych’s ouster

The catalyst for the Yanukovych administration’s downfall was Ukraine’s stop-and-start efforts to sign an association agreement with the European Union. By late 2013, a majority of the population backed a draft agreement. But the pact to draw Ukraine closer to the EU placed Yanukovych in a tough situation. The treaty would open the way for substantial EU economic assistance and other perks, such as visa-free travel to Europe for Ukrainian citizens. But it would also mandate compliance with transparency and accountability provisions that gave Yanukovych and his associates reason to pause. In addition, Russia, the Ukrainian president’s main foreign patron, was steadfastly against seeing Ukraine take even the tiniest step toward Europe.

The EU association agreement was scheduled to be finalized in late November 2013, but in order to proceed, Brussels conditioned that Tymoshenko be released from Ukrainian custody. While the Yanukovych administration released other perceived political enemies to satisfy EU concerns, it could not, or would not engineer Tymoshenko’s release. Multiple parliamentary motions on November 21, 2013, to set Tymoshenko free were defeated.

At the same time, the government announced a suspension in the association agreement approval process, and instead proposed the formation of a tri-partite body including Ukraine, the EU and Russia to address relevant trade and development issues. Russian pressure, it later became evident, had played a role in prompting Yanukovych to back away from the EU pact.

The about-face produced an immediate popular backlash. What became known as the Euromaidan movement erupted.

Subsequent missteps by Yanukovych and his associates perhaps hastened the Family’s collapse. Ironically, the man that Yanukovych put in charge in March 2013 of Ukraine’s association agreement negotiating team, Andriy Klyuyev, allegedly made one of the most pivotal errors in judgement. Klyuyev at the time was also serving as secretary of the National Security and Defense Council.

Klyuyev had the reputation of being an oligarch, and, together with his brother, he controlled assets in multiple sectors, including a lucrative new field, green energy. In 2013, Focus magazine estimated the brothers were worth $618 million.

The Klyuyev brothers launched a solar energy empire under the umbrella of their Austrian holding, Activ Solar. It included power plants, production of semiconductors and other key components for the industry. It was also allegedly the lynchpin of a scheme of heavy subsidies for green energy that Yanukovych’s government approved, essentially creating a new system for the distribution of public funds to the president’s favorites.

On November 30, Klyuyev allegedly authorized a crackdown in which club-wielding riot police dispersed Euromaidan demonstrators. Resorting to violence backfired, bringing hundreds of thousands into Kyiv’s streets.

Ultimately, after almost three months, and the deaths of over a hundred protesters, Yanukovych’s administration collapsed, and he along with other Family members fled to Russia or Russian-controlled territory.

Among those living under Russian protection from Ukrainian indictments is Klyuyev. In 2018, he participated in a news conference in Moscow. And during that event, he, along with other disgraced former power brokers, vowed that they would return to Ukraine to “resurrect” the country. Over two years after that news conference, they hadn’t made good on their pledge. In early 2019, Yanukovych, who remains in Russia, was convicted on treason charges in absentia and given a 13-year prison sentence.