Graham Stack in Kyiv -

With crucial parliamentary elections looming in Ukraine, the election race is heating up - for fugitives from justice as much as for fighters for democracy. For all the razzmattaz and rhetoric, the October 28 elections to the Rada remain as much about who will enjoy the exorbitant privilege of immunity from criminal prosecution.

Parliamentary immunity remains in Ukraine a last bulwark of political freedom. In the 21-year history of independent Ukraine, a grand total of five members of parliament (MP) have had their immunity lifted, one of whom was the notorious case of corrupt former 1990s prime minister Pavlo Lazarenko, currently the inmate of a Californian jail on major money-laundering charges.

While parliamentary immunity protects opposition to the government - having surrendered their seats in parliament on joining the previous government, former prime minister Yulia Tymoshenko and former interior minister Yury Lutsenko were banged up almost as soon as they lost power in 2010 on what are widely seen as politically motivated charges - it also serves as a license to commit crimes. In 2009, the situation got so out of hand that the then head of the Security Service of Ukraine (SBU) publicly denounced three MPs as "criminals" and pled for them to be stripped of immunity. Parliament, needless to say, ignored his pleas.

In 2012, Ukraine's Rada is again ignoring the SBU's calls to strip an MP of his parliamentary immunity over allegedly serious acts of fraud. "Member of Parliament Oleksandr Shepelev is suspected of involvement in the theft of UAH220m ($27m) from Rodovid Bank. He is also possibly involved in the theft of UAH315.3uah ($39m) of National Bank of Ukraine refinancing funds in March-May 2009," the head of the SBU's investigative department, Ivan Derevyanko, told journalists on April 2.

In statements to the press, Shepelev, a member of the Rada's finance committee and frequent commentator to the press on economy and banking issues, denied he had anything to do with the schemes. Shepelev accused SBU officials in detail of having tried and failed to extract bribes from him, and taking punitive action as a result.

The SBU then upped the ante. According to an SBU statement on April 10, "in the evening after he had been interrogated, one of the witnesses [in the Shepelev case] was found dead in his office, and an investigation has been opened into premeditated murder." In addition, according to the SBU, in 2011 another witness in the case fell to his death from a window, and a third survived a shooting.

Despite this catalogue of crimes alleged by the SBU against a sitting MP, the Rada has not even discussed lifting Shepelev's immunity so that he can be questioned.

Sitting pretty

Shepelev may not be the only MP involved in an affair that is one of Ukraine's largest financial frauds, according to bne enquiries. The SBU allege that 40-year-old Shepelev acted together with his business partner, 36-year-old banker Pavlo Borulko. Borulko is additionally alleged to have stolen another UAH620m ($76m) from the Guaranteed Deposit Fund, which runs the national deposit insurance scheme for individual small deposit holders. To do this, he used three small regional banks he controlled, which were liquidated in 2009. According to the SBU, Borulko smurfed funds he borrowed from the banks into small deposits held by thousands of fictive individuals at his different banks - and when the banks were liquidated he duly cashed the payments from the Guaranteed Deposit Fund.

According to bne enquiries, along with Borulko's three banks the SBU are investigating a fourth bank involved in the same fraud scheme, Dnipropetrovsk's Dialogbank, liquidated in 2011. In early 2010, the bank was readmitted to the deposit insurance scheme, within weeks new owners appeared, temporary administration was withdrawn, and within six months $120m of apparently fictive individual deposits had appeared on its books.

Who was behind the alleged fraud at Dialogbank? Court records show that in early 2010 five small firms took out loans totaling around $20m from Dialogbank and transferred them to fund the bank's acquisition. The loans were collateralised by property of a Donetsk company, Favorit 2002, owned by an MP from Donetsk of the governing Party of Regions, Nurulislam Arkallaev. The owner on paper of the company that bought Dialogbank, Spetstroiprojekt-2007, is a certain Anatoly Aksyonov, CEO of Arkallaev's development company Voskhod. According to company records, one of the founding members of Voskhod in 2000 was the wife of MP Shepelev, Galina.

Both MPs were contacted at their Rada offices, but were absent. Borulko's previous schemes used fraudulent collateral agreements to secure loans from banks, while it is unclear whether the same occurred with Dialogbank.

Old guard vs young guns?

Illustrating how impregnable parliamentary immunity is taken for granted, rather than asking who is protecting Shepelev from prosecution, pundits are asking what is behind the SBU's pursuit of well-connected figures such as Shepelov and Borulko - the latter an adviser to Viktor Yanukovych when the current president was prime minister in 2007.

The Kyiv rumour mill smells a move by old-guard oligarchs against an upstart group of youngish Donetsk bankers, of which Borulko and Shepelev would appear to be senior figures.

According to this theory, a conflict is brewing between the young upstarts headed by National bank of Ukraine head Serhiy Arbuzov and Finance Minister Oleksandr Kolobov, and government grandees such as First Deputy PM Valery Khoroshkovsky, who controls the country's largest TV channel Inter and who was head of the SBU when the investigation started, but was moved from the post two months after the SBU issued an arrest warrant for Borulko in November 2011.

Under the patronage of President Viktor Yanukovych's younger son Oleksandr, Arbuzov and Kolobov have filled positions in state-owned banks, the tax service and state treasury with their 40-something peers from Donetsk, effectively removing control of state finances from the hands of the oligarch grandees such as Khoroshkovsky.

Sonya Koshkina, editor of Levyi Bereg, says that Arbuzov and Kolobov during a late September visit to the US posed as "young reformers with a clear if undisclosed reform plan", according to their US interlocutors, and even acted "like people who have no doubt they will soon be at the very heights of power and don't have any hesitation to say this. Soon meaning after the October 28 elections."

Arbuzov and Kolobov have close historic links to the disgraced Borulko dating back to the late 1990s in Donetsk banks, where Arbuzov and Borulko were young colleagues at the same bank in the small Donetsk town of Konstantinovka, and then after 2003 at state-owned savings bank Oschadbank, where Kolobov was Borulko's boss in the treasury department. Borulko's prosecution, goes the theory, would discredit Ukraine's two top finance officials and slow their meteoric rise.

According to Koshkina, Borulko was also left exposed when his relative, former general prosecutor Oleksandr Medvedko, was removed from his powerful post in 2010. Sergei Garmash, chief editor of Donetsk independent news resource Ostro, agrees. "Borulko was part of this group of Donetsk bankers (around Arbuzov and Oleksandr Yanukovych) until around 2005, but simply grew too criminal and was excluded," he says, adding that this looks more like "a purging of the ranks."

Borulko has since fled the country for Belarus, which is now dragging its heels on an extradition request from Ukraine. But his Belarus exile did not discourage him from trying to gain some of that precious parliamentary immunity: Borulko successfully registered his candidacy to run as a member of the marginal Cossack Ukrainian Party for a single-member constituency seat in the October 28 elections - though in a rare show of democratic sanity in the the country his candidacy was struck down by a court.

For his part, Oleksandr Shepelev has been thrown out of the governing Party of Regions parliamentary group, but is campaigning as an independent for a new seat in a single-member constituency in the Vinnitsiya region. But his chances of winning are seen as slim - so a date with justice or with exile could be looming.