Graham Stack in Kyiv -
Since this article was first published on May 4, bne IntelliNews has received a statement from Ukrinbank dated May 6, claiming our article is "part of a campaign aimed at discrediting the bank." In particular, the bank claims that "the bank closed the respective branches three years ago on request of the National Bank of Ukraine". "This information was provided to the journalist, however he did not use it in the article," the Ukrinbank statement claims.
In fact, the only mail received from Ukrinbank previously was on April 20 (two weeks before publication of the article) promising to provide answers to our questions. No further answer was forthcoming despite repeated phone calls made to Ukrinbank.
Its argument that the data for over 50 Ukrinbank branches in Kyiv alone that have the same addresses as currency exchange booths operated by Absolute Finance is three years out of date is not substantiated. By cross-checking today the state register of companies entry for Ukrinbank against the location of Absolute Finance booths shows clearly that it is the current addresses of Ukrinbank branches as listed in the state register that coincide with the current addresses of Absolute Finance booths. These addresses have changed frequently over three years, and the Ukrinbank data has been consistently updated accordingly.
Why would the bank update its list of branches if it has disposed of them three years ago, and why would it update them according to the changing location of Absolute Finance booths if it has no connection to Absolute Finance? The bank has consistently failed to provide any answer to these questions.
Foreign currency-exchange booths are a feature of any Kyiv street scene, and when the currency collapsed at the start of 2015 they became a focal point of the nation's distress as Ukrainians rushed to buy dollars and rescue their savings. But who actually controls Kyiv's ubiquitous exchange booths? A bne IntelliNews investigation reveals an all-too-typical nexus between political elites, state companies and private business – something the new government has vowed to stamp out.
As Ukraine's hryvnia plummeted past UAH30 to the dollar in early 2015, down from UAH8 just a year before, citizens of Kyiv ran to moneychangers to rescue the value of their hryvnia cash, only to make an interesting discovery – as many as an estimated 80% of Kyiv's ubiquitous exchange booths appeared to be run by one firm, Absolute Finance.
“All kiosks with the yellow boards [displaying the day's exchange rates] seem to belong to this one same Absolute Finance,” noticed Artem Chapai at The Insider.
Political commentator Oleksandr Aronets on Facebook asked the next logical question: “And what exactly is Absolute Finance, and why does it own practically all exchange booths in Kyiv?”
bne Intellinews tracked down the forces behind Absolute Finance, which also operates thousands of exchange booths across Ukraine. But instead of finding 'Absolute Finance', we found a lot of politics: direct ties both to the prime minister's party as well as to a major state company.
People's Front of Absolute Finance
In January, as the depreciation of the hryvnia spiralled out of control, the National Bank of Ukraine (NBU) threatened to shut down exchange operators such as Absolute Finance. Crucially, such “non-bank financial companies” are not tightly bound by exchange rates established by the central bank, allowing them to out-compete banks on the cash forex market. Neither are they integrated with the NBU's financial monitoring systems.
In response to the NBU's threat, Absolute Finance and other operators held a press conference in January, marking the first public appearance of the mysterious company. And a day before the press conference, an Absolute Finance website went live, but contained next to no real information on the company, and was quickly taken down again.
A certain Pavlo Kushnirenko represented Absolute Finance at the press conference, with the website registered by an Oleksandr Kushnirenko, according to its registration data. Kushnirenko argued at the conference that closing down the non-bank exchange operators would trigger an explosion of the forex black market.
According to Ukraine's publicly accessible company register, Absolute Finance is controlled by the Brodovsky family, from the Volyn region in West Ukraine, in the persons of Oksana Brodovska and her daughter, Ilona. Oksana Brodovska was also deputy CEO of the company in 2013, according to company paperwork seen by bne IntelliNews. Oksana's husband, Valentin Brodovsky, a precious stones dealer and former politician belonging to ex-prime minister Yulia Tymoshenko's Batkyvschina party, was the main shareholder until 2013.
Notably, after new parliamentary transparency rules disclosed MPs' assistants, it was revealed in March that both Kushnirenko, the Absolute Finance representative, and Oksana Brodovska, the co-owner and deputy manager, were parliamentary assistants to Ruslan Lukyanchuk, an MP in the prime minister's People's Front party.
People's Front was co-founded by Prime Minister Arseny Yatsenyuk, National Security and Defense Council head Oleksandr Turchinov and Interior Minister Arsen Avakov in the run-up to the parliamentary elections held in October, at which it took the largest share of the total vote.
Assistant to an MP may not seem a particularly significant position, but the MP in question, Ruslan Lukyanchuk, is regarded as the longstanding right-hand man of security council head Turchinov – and treasurer for Turchinov's political projects. Turchinov in turn is regarded as the 'grey cardinal' and organisational force behind Tymoshenko's Batkyvschina party, from its founding in 2000 until he quit Tymoshenko's party in September to set up People's Front.
Lukyanchuk was himself a parliamentary aide to Turchinov in 2001-2005, when Turchinov was in opposition to then president Leonid Kuchma. His role in the opposition made Lukyanchuk the target of political repression. In 2001, he spent eight months in jail after the tax police charged him with money laundering, as part of Kuchma's programme of political repression against Batkyvschina. The charges were later voided.
As late as December 2013, police, apparently acting on the orders of then president Viktor Yanukovych, raided Batkyvschina headquarters as well as neighbouring offices, where businesses registered under the names of Lukyanchuk's parliamentary aides provided IT, media and consulting infrastructure for Batkyvschina.
In Ukraine, political parties are “parties of notables”, established around prominent individuals. When in September last year Turchinov left Tymoshenko to set up People's Front, Lukyanchuk and his team of aides and their infrastructure followed him – and were joined by Absolute Finance's Brodovska and Kushnirenko.
Does this suggest Absolute Finance plays a role in People's Front funding? “The main duty of parliamentary assistants in Ukraine is the legal and economic analysts of existing legislation... and assistance in the preparation of requests and appeals,” Luyanchuk told bne IntelliNews. “I am not aware of any funding of the party People's Front from any legal person, including Absolute Finance.”
Kushnirenko told bne IntelliNews: “I am no longer a representative of Absolute Finance and have no information about what its relations were or are, and what their character is.” Absolute Finance co-owner and manager Brodovska did not respond to attempts to contact her.
Address of Ukrinbank branches 5 and 35
Who is behind Absolute Finance?
The connection of a major money-changing business to the prime minister's party during times of devaluation in itself raises questions, since no political party wants to be seen as profiting from the currency collapse. But the story of Absolute Finance raises further questions.
According to a tax case brought against Absolute Finance in 2014, the company sold $74mn worth of currency to the population in 2013, a year of exchange rate stability. But Absolute Finance’s offices at its registered address are a disappointment, says an insider source, consisting only of four rooms in a building that houses some other organisations linked to the Brodovsky family. According to paperwork seen by bne IntelliNews for Absolute Finance, the central office on paper employed only 13 full-time staff in 2013. This suggests the real centre of Absolute Finance’s operations lies elsewhere.
But where? Apart from the four rooms at the official address of registration, there are no details of any Absolute Finance central office in Kyiv. Vendors are none the wiser. “There is simply no central office as such,” a number of the vendors assured bne IntelliNews.
The only contact information provided to the public is a telephone number in the event of complaint about the booths. For Kyiv this number is 044-277-5239. Yet the number reveals more than was intended. According to a source in Ukraine's tax office, the same telephone number is listed with the agency for four different Kyiv branches of the same bank: Ukraine Innovation Bank, or Ukrinbank. Ukraine's company register does not provide telephone numbers in its listings for company branches, meaning it was not possible to receive official confirmation of the information.
“Ukraine Innovation Bank?” a bne Intellinews reporter asks, calling the Absolute Finance number. “Yes,” answers a woman's voice. “I have a complaint about the work of one of your exchange booths. Which one? Absolute Finance booth on Krasnoarmeisk.” “Okay, and what is the problem…” came the answer.
Another internal telephone number for Absolute Finance, 044-288-2830, seen by bne IntelliNews in the pages of a training manual for Absolute Finance employees, is listed for more branches of Ukrinbank, according to the source in the tax service. A woman answering the phone told bne IntelliNews that this was the central office of Absolute Finance, but refused to answer questions.
Is Ukrinbank the secret backer of Absolute Finance? Ukraine's company register shows that in 2011-2013 Ukrinbank opened up 60 new branches in Kyiv – 20 alone on one day – despite the bank having a minimal retail business. Over half of these branches are congregated in Kyiv's bustling downtown area.
The Ukrinbank website itself only details 10 existing branches in Kyiv, three of them in car dealerships, together with the central office. A little legwork indicates that the 60 registered Ukrinbank branches exist only on paper, except for the handful of branches listed on the website. But the addresses of registered Ukrinbank branches checked by bne IntelliNews exactly match the location of Absolute Finance exchange booths, suggesting that Ukrinbank is indeed the power behind Absolute Finance.
In a telephone call, an Ukrinbank spokesperson acknowledged the connection. “What you called 'non-existing branches' are in fact our exchange booths,” she said. But she denied any knowledge of Absolute Finance. “I have never heard of such a connection,” she said, before hanging up. The bank failed to respond in writing to bne IntelliNews’ questions before deadline.
bne IntelliNews has established that scores of further Absolute Finance outlets in Kyiv correspond to branches listed for a tiny Odesa bank, Finrostbank, that was put under temporary administration in July 2014 and is currently being liquidated. The bank's insolvency has apparently not disrupted Absolute Finance operations, suggesting the 'branches' have been transferred to another as-yet unidentified auxiliary bank.
The National Bank of Ukraine confirmed to bne IntelliNews that operators of exchange booths must supply the central bank with a list of addresses of all booths. According to Absolute Finance documentation seen by bne IntelliNews, the NBU is the only entity entitled to inspect the modus operandi of the exchange booths.
The Absolute Finance staff themselves seem completely in the dark about the Ukrinbank connection. “No, I've even never heard of such a bank,” says Vadim, declining to give a last name. “Call this number if you have any questions about the company,” he says, pointing to the tell-tale telephone number.
Like a Matryoshka doll, if Absolute Finance appears mysteriously wrapped up with Ukrinbank, then both Absolute Finance and Ukrinbank seem in turn to be mysteriously involved with a much larger state entity.
As stated, according to a source in the tax service, the Absolute Finance telephone number is listed for four Ukrinbank branches – but of these only one branch actually exists: Branch No. 10. According to the bank's website, Branch No. 10 currently exists at Gorkogo Street 51, although with a different telephone number provided. Here there is a real bricks-and-mortar bank branch, and much more besides.
Ukrinbank Branch No. 10 at Gorkogo 51 is literally embedded in the hulking headquarters of Automobile Roads of Ukraine, the state company which is Ukraine's national road maintenance and construction firm. The company is solely responsible for all of Ukraine's 170,000 kilometres of tarmac – seven times the circumference of the earth – which devours billions of budget and international lender funds each year in a battle against the elements, and against corruption.
Ukrinbank Branch No. 12, as listed on the website, likewise shares an address with the Automobile Roads of Ukraine’s sister company, the state-owned Ukrdiprodor, which handles road construction planning.
Ukrinbank thus appears to have scores of secret branches that are in reality exchange booths, run by what is on paper an entirely unrelated company, while two of its few real branches are embedded in state companies.
According to its disclosures as a public company, Automobile Roads of Ukraine has held its accounts at Ukrinbank since 2011. Given the middling size of the bank and its lack of retail operations, the Automobile Roads of Ukraine accounts are likely to comprise a major part of its business.
Ukraine's State Agency for Roads owns 100% of the joint stock company Automobile Roads of Ukraine and inhabits the same office complex, while also owning the Ukrdiprodor planning company.
The state agency sidestepped bne IntelliNews questions about its relations to Ukrinbank by exploiting a topographical quirk: The office complex is on the intersection of Gorkogo and Fizkultury streets with separate entries for the state agency and the state company . "[Our] address is at Fizkultury 3, whereas the nearest Ukrinbank branch is at Gorkogo 51," first deputy head Evhen Barakh wrote to bne Intellinews.
Thus behind the ubiquitous Absolute Finance exchange booths ultimately stands a wall of public money. The sums involved are staggering. The State Agency for Roads is set to receive UAH3.4bn ($122mn) in budgetary funding in 2015, while claiming this is only a fraction of the funds that it needs.
Moreover, the State Agency for Roads owes over $2bn to foreign lenders guaranteed by the government, mostly to international development lenders such as the European Bank of Reconstruction and Development, European Investment Bank, and International Bank of Reconstruction and Development. The debt is part of Ukraine's sovereign debt that is currently the subject of fraught negotiations between Ukraine and its creditors.
While the connections are compelling in the Absolute Finance matryoshka, it remains unclear who is in overall charge today. Considering the scheme was set up under the administration of now ousted president Yanukovych, it has apparently found patrons under the new authorities.
Yatsenyuk appointed new managers at the State Agency for Roads after assuming office in February 2014. In early September, Yatsenyuk announced he, Turchinov and Avakov would launch their own political party to contest the parliamentary elections on October 26 – and only weeks after its creation, the party took first place in the national vote.
According to investigative journalist-turned-MP Serhiy Leschenko, the overall cost of the parliamentary elections for the parties may have been as much as $1bn. Lacking any provision for state funding of election campaigns, political parties' need to raise their own financing has traditionally allowed oligarchs and organised crime to subvert parliament to their cause.
Leschenko has proposed legislation on state funding for political parties – a successful model applied throughout the EU – but he tells bne IntelliNews that the initiative was blocked by Prime Minister Yatsenyuk due to a lack of funds in the budget. “But the reason we have no money in the budget is precisely because of the way our parties are funded,” Leschenko argues.
Ukrinbank branch 10
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