Smuggling suspicions and organized crime cast shadow over Ukraine's defence industry

By bne IntelliNews November 18, 2014

Graham Stack in Kyiv -


The shadow of organized crime hangs over Ukraine's defence industry. bne investigations trace links between gangs and the defence sector that stretch back over 20 years of arms smuggling to places like Iran and North Korea.

Ukraine's military prosecutors and the SBU security service in early November searched the houses and offices of former and current heads of the state arms exporter Ukrspetseksport, and seized documents from a number of state defence firms, pointing to a crackdown on the traditionally murky defence sector by Ukraine's new reform-minded authorities.  

The moves follow an October raid by the SBU – backed up by an elite SWAT unit – on the head office of Ukraine's state arms holding Ukroboroprom. The crackdown sparked hopes that Ukraine may be finally getting serious about pushing organised crime out of its arms industry, although there is no confirmed information as to what investigators are looking for.

The latest shock to Ukraine's defence sector came in 2013, when UN investigators named a Ukrainian aviation executive in connection with the illegal attempted transfer in 2009 of around $16m worth of rockets, rocket-propelled grenades and man-portable air-defense systems from North Korea to Iran – even though both countries are under an international arms embargo.

The attempted transfer grabbed world attention in December 2009 when Thai authorities seized an Ilyushin-76 plane numbered 4L-AWA at Bangkok airport, and found it stuffed with the North Korean arms bound for Iran apparently via Ukraine – the first cargo of North Korean weapons to have been seized under sanctions. Then the paper chase began: according to its documents, the plane was owned by a little-known Georgian operator Air West Georgia, leased by a New Zealand shell company, SP Trading, and chartered by a Hong Kong firm.

But investigators quickly traced the plane back to its previous owner from Kazakhstan, Aleksandr Zykov, whose local firm East Wing allegedly supplied the crew, with Air West Georgia and the Hong Kong charter both smoke screens. Zykov had a past history linking him to sanctions busting arms transfers.

That left only the New Zealand shell company SP Trading to account for. And in 2013 the UN investigation produced a surprise, by alleging that an unknown Ukrainian, Yury Lunov, had masterminded the transport together with Zykov.

But while Zykov's role as provider of the plane seems clear, what was Lunov's? The trail leads to a small office in Kyiv: A fax number provided for SP Trading in the cargo documents matches the number provided in Ukraine's company register for an obscure local firm called GST Ukraine, which Lunov also told a UN panel was his place of work.

A guest of GST

GST Ukraine is registered at Frunze Street 19-21 in Kyiv's Podil district. Embarrassingly for Ukraine, the address is the seat of the country's State Service for Export Control – the very state body that controls the export and import of military technologies. The address – a former Soviet government department building – also houses the state-owned Ukrainian Cargo Airways, the country's largest freight carrier, and state-owned Ukraine Scientific Research Institute for Aviation Technology. Thus it forms a trinity of air transport, dual-use technologies and export controls, around which a whole swathe of smaller, often private companies such as GST Ukraine have sprouted up.

GST Ukraine's current office lies behind an unmarked door in an adjacent building, which also houses the very hush-hush Ukraine Scientific Research Institute for Aviation Technology (UkrNIIAT). bne found GST Ukraine's director, Vyacheslav Kaplunenko, at his workplace in a cluttered one-room office. According to the state company register, Kaplunenko has run the company since its founding in 2004, with Yury Lunov's son Boris a co-owner.

Responding to bne questions, Kaplunenko calls GST Ukraine an "air freight" business. When asked what projects they were currently working on, Kaplunenko complains that, “there is no work at the moment. Due to the war in the country, we just sit and read the news. When will it all end?”

Kaplunenko claims Yury Lunov – named by the UN in connection with the 2009 North-Korea to Iran arms deal – no longer works at GST Ukraine, adding that Lunov handled the aviation side of the business, while he only ran the commercial side. Kaplunenko also says he knows of no investigation into his company.

Kaplunenko insists GST Ukraine has no business relationship with the State Export Controls Committee, UkrNIIAT, Ukrainian Cargo Airways or any other state organisations. “The only relationship we have is purely commercial, being that we rent the office from UkrNIIAT,” Kaplunenko says, adding it was a “coincidence” that GST Ukraine was in the same line of business as its landlord and larger neighbours. UkrNIIAT, contacted later by telephone, also denied that GST Ukraine was connected, saying they rent office space to a number of firms.

But belying such words, Kaplunenko's office is full of files suggesting he works directly for Ukraine's state defence sector, many labelled, for instance, “Ukrspetseksport” and “Yuzhmashavia” – the former the state arms trader, the latter an aviation company owned by Ukraine's producer of intercontinental ballistic missiles, Yuzhmash. "Folders are folders, they don't say what's inside," Kaplunenko shrugs. The wall of Kaplunenko's office displays a poster detailing munitions and packaging sizes. "It’s a souvenir," he explains.

The Kazakh operator linked to the plane seized in Bangkok in 2009, East Wing, was originally named GST Aero, a close match to GST Ukraine. UN experts in 2013 wrote that GST Ukraine is “an entity that the Panel has reason to believe is related to [Kazakh operator] Zykov.” Apart from the 2009 case, UN experts have linked Zykov's GST Aero/East Wing to deliveries of arms, ammunition and vehicles to Somalia in 2006, Chad in 2007 and to Darfur rebels in 2008.

Moreover, the GST Ukraine fax number matches both that of the New Zealand shell company SP Trading as well as that of Air West Georgia, which the UN calls a "ghost operator."

Kaplunenko denies that his company has any relationship to Air West Georgia. But one folder on Kaplunenko's shelf bore the registration number of a single plane, an Antonov 12B, registration number 4L-BKN. Aviation databases show this plane to be a sister to the 4L-AWA plane seized in Bangkok – also operated on paper operated by Air West Georgia, but currently in storage near Kyiv.

Kaplunenko hems and haws when queried about the plane, and then decides it is time for your correspondent to leave his office, haranguing the guard on the way out for having admitted a “CIA spy” to the premises.

Blast from the past

GST Ukraine was set up in 2004 at Frunze 19-21, but this was not Lunov and Kaplunenko's first acquaintance with the address: records show that both men in the 1990s were shareholders in another company at the same address run by Lunov called Antonov Aerotrack-Aviaservice, the subsidiary of a major cargo flyer at the time called Antonov Aerotrack Aviation. “You've done your homework,” Kaplunenko acknowledges.

Despite being wound up in 2001, Aerotrack Limited at the Frunze 19-21 address was listed as consignee on the waybill for the 2009 4L-AWA flight.

In the 1990s, the CIA accused Antonov Aerotrack of having flown Scud missile launcher parts from North Korea to Iran via Kyiv, in 1995. "That was a long time ago and I know nothing about it," said Kaplyunenko.

Antonov Aerotrack was a partly state-owned company that has ties with leading Ukrainian aviation and defence producers such as legendary plane producer Antonov, and Progress turbine builder from Zaporizhzhya.

But besides the links to the state, Antonov Aerotrack also had links to alleged organised crime structures: Ukraine's company register shows that a significant stake in the business was held by a notorious Viennese company, Nordex GmbH, run by Grigory Loutchansky, a legendary figure from the 1990s. "The CIA reported that it [Nordex] deals in various schemes from illegal arms trading to money laundering for the Russian mob," the US embassy in Kyiv wrote in a Crime Digest circular from April 1999.

Although based in Vienna, and often associated in the media with Russia, Nordex had strong Ukrainian links: Loutchansky's partner in Nordex was Israeli-Ukrainian oligarch Vadim Rabinovich, according to Rabinovich's own testimony in an authorised biography. GST Ukraine's Kaplyunenko said that his company had no connection to Nordex or Rabinovich.

In 1996, CIA sources told Time magazine that in 1995 Nordex had flown Scud missile launcher parts from North Korea to Iran, using a Ukrainian-registered Antonov Aerotrack plane, via Kyiv. CIA sources were also quoted as saying said that Nordex had transferred nuclear materials to Iran in 1993-94.

Loutchansky admitted having visited North Korea and owning the plane, but said he had nothing to do with the cargo, because the plane was leased at the time to a Bulgarian firm. Rabinovich, when asked about the incident in his biography, added that Nordex was at the time no longer owner of the plane at the time, having sold it to Aerotrack.

Rabinovich, in an early 2014 interview with Russia's radio station Ekho Moskvy, made light of past allegations of arms trading, such as in 2001 having sold 300 tanks to the Taliban via Pakistan. "At that time, for the first time ever, the Ukrainian state stood up for me: the head of the National Security Council declared that we simply didn’t have that many tanks," Rabinovich said. He also reminisced: "I once left my hotel in Jerusalem holding a paper with the headline 'Rabinovich sold arms to Iran.' A local saw the headline, my picture and me, and said: 'Congratulations!'" His advice to journalists? "Write what you want about me, but get my name right."

Loose nukes

Underlining the Iran connection, GST Ukraine's apparent partner firm, Kazakh company GST Aero/East Wing, is also alleged to have smuggled nuclear-capable cruise missiles stolen from Ukraine's arsenals to Iran in 2001.  

Ukraine's SBU intelligence service announced in January 2005 that it had identified a gang that had stolen the missiles and smuggled them out in 2001. In a newspaper interview in 2005, the defence lawyer for the sole defendant – a certain Vladimir Evdokimov – mentioned that the cruise missiles had been flown to Iran in 2001 by GST Aero. The trial was held in secret.

While the SBU investigation remains under wraps, in 2004 Ukrainian MP Hrihory Omelchenko, himself a former police investigator, used his powers as head of Ukraine's parliamentary committee against organised crime to launch his own investigation, which bne was able to view in the archives of the Verkhovna Rada, the parliament.

Some offshore structures involved in the 2001 deal, according to Omelchenko's investigation, are still active today. For instance, according to Omelchenko's investigation, a Cyprus firm, Volgen Trading, financed post-sale visits by Ukrainian experts to service the cruise missiles in Iran.

According to the Cyprus company register, Volgen Trading was reactivated in October 2014 – and now features as director a man with the same name, Vladimir Evdokimov – as the defendant in the 2005 trial. A recent listing for Volgen Trading on social media describes the firm as involved in air cargo.

Ukraine's company register shows that at the time of the alleged Iran missile shipment in 2001, Volgen Trading was a shareholder in Orlan Beverages concern, founded by businessman and politician Yevhen Chervonenko. At the time Chervonenko headed Ukraine's agency for state reserves, in 2005 he headed the transport ministry, later becoming governor of Zaporizhzhya region, and from 2010 headed the aviation department at Ukraine's emergencies ministry. Chervonenko, widely regarded as an ally of Rabinovich, says he quit his business Orlan Beverages as early as 1997 on becoming an adviser to then president Leonid Kuchma. Volgen Trading ownership is hidden behind nominees, and phone numbers listed for the company did not work.

Mysterious Mr Salamatin

Rabinovich is still going strong 20 years on, running as an outsider in presidential elections in May 2014 and getting elected to parliament on October 26. The press service of his political party Centre said he is not available for comment before the opening of parliament at a still undetermined date. His known business interests focus on media.

Loutchansky in contrast has disappeared from public view and is believed to live in Israel. Loutchansky's name – and the memory of the now defunct Nordex – echoed in 2010-2012, however, due to the bizarre rise through Ukraine's defence establishment of a certain Dmitry Salamatin, who in 2010 out of the blue was named head of Ukraine's arms export Ukrspetseksport, and in 2011 became minister of defence.

Salamatin's origins were in Kazakhstan and Russia, and he is believed to have only received Ukrainian citizenship days before he entered Ukraine's parliament in 2006, remaining largely unknown until his shock 2010 appointment.

Salamatin swiftly consolidated Ukraine's sprawling defence producers and export firms, uniting them in a new holding structure called Ukroboronprom – which he then headed. Having done this in the space of a year, in 2011 then president Viktor Yanukovych made Salamatin defence minister. Then Yanukovych dropped him in December 2012, and Salamatin has never been heard of since in Ukraine.  "The day after he was fired, he flew back to Moscow, where his family had remained," says Oleksiy Melnik, defence expert at Kyiv's Razumkov Centre. 

Salamatin's activity as Ukraine's defence sector head may be the main focus of the ongoing investigation into Ukroboronprom. "His main interest was clearly the arms trade, and as defence minister he used Ukraine's military mostly as a marketing instrument to sell weapons systems, with an eye to his own benefit," says Melnik. "At the same time he was likely linked to Russian special services." Salamatin could not be reached for comment.

So who was he? Salamatin's qualification to head Ukraine's defence sector may have derived from his 1990s Nordex ties. In 1994 Nordex entered a consortium to manage giant Kazakh steel producer Karmet, together with a US company, according to Time in 1996. Loutchansky was backed in this by two partners: Kazakh mining minister at the time Albert Salamatin, and Russian deputy prime minister Oleg Soskovets, also of Kazakh origin. Albert Salamatin is Dmitry's father, while Oleg Soskovets is widely reported to be Salamatin's father-in-law. The Kazakh deal ultimately failed, because the US government blocked Nordex involvement, according to Time.

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