Ukraine's 'shadow government' investigated for money laundering

By bne IntelliNews October 9, 2015

Graham Stack in Kyiv -


Two core members of what has become known as Ukraine's 'shadow government' are reportedly under investigation in Europe for money laundering, while the VIP aviation business of a key confidante of President Petro Poroshenko may also make him vulnerable to international law enforcement action. 

"We essentially have a shadow government – a parallel government,” Mikheil Saakashvili, former president of Georgia turned governor of Ukraine's Odesa region, told a shocked crowd of international business people and politicians at the Yalta European Strategy conference in Kyiv on September 14. “In reality, the country is run by some parallel shadow system and this system is in a crisis,” he told his audience, who had flocked to Ukraine expecting to hear cheerleaders for the country's heroic reform effort.

Star investigative journalist-turned-MP Serhiy Leshchenko then did some digging, and came up with three key figures exercising shadowy power that goes far beyond their official remit: Boris Lozhkin, Poroshenko's chief of staff, Mykola Martynenko, deputy head of the parliamentary group of the Peope's Front party, and Ihor Kononenko, deputy head of the Bloc Petro Poroshenko parliamentary group. 

“I have heard these names dozens of times and after becoming an MP I have found much to confirm their massive influence,” he wrote in a groundbreaking cover article in leading journal Novoe Vremya on September 18.

Money-laundering suspicions

According to Leshchenko, at least two of the three are facing money-laundering investigations in the West. And all three have surprisingly close ties to Russia, given the current crisis between the two neighbours.

Leshchenko argues that Poroshenko's chief of staff, Boris Lozhkin, is at the core of the 'shadow government'. Lozhkin is Poroshenko's top power broker and spin doctor – and ironically the idea to  invite top international reformers such as Saakashvili to work in Ukraine was his brainchild. 

But Lozhkin's past as a pro-Russian print media tycoon may now be catching up with him, if Leschenko's information proves valid. Lozhkin made his fortune as owner of the Ukrainian franchises for Russia's leading tabloid titles, such as Konsolmskaya Pravda – Ukraine's best-selling paper with a print run of 230,000. In 2013, only weeks before pro-EU demonstrations kicked off in Kyiv against the regime of then president Viktor Yanukoyvch, Lozhkin sold his entire holding to a corrupt Yanukovych crony, the notorious 'Wizard of Gas' Serhiy Kurchenko

Lozhkin cashed at least €160mn for his media holding – the size of a loan Kurchenko got from a state bank to fund the overpriced acquisition. The collateral for the loan is now worth a fraction of the loan value. Meanwhile Lozhkin was decorated in 2013 by Russia's State Federation Council for his outstanding contribution to Russia-Ukraine business relations.

Now as Austria launches a sweeping asset retrieval effort on behalf of Ukraine, including recovery of money allegedly stolen by Kurchenko, Lozhkin may get caught in the net. Leshchenko argues that Lozhkin is now under investigation in Austria for money laundering after accepting Kurchenko's tainted funds. Austrian News Agency (ANA) reported Lozhkin's involvement on September 24, citing a spokesman for the country’s anti-corruption prosecution office. "Neither Ukraine nor Austrian law enforcement agencies have asked me for information on investigations regarding myself," Lozhkin told ANA in reply.

“In public, Boris Lozhkin stays mum over the criminal investigation in Austria,” Leshchenko tells bne IntelliNews. “But offstage there is a hive of activity: Lozhkin's lawyer dealing with the sale to Kurchenko of UMH [Lozhkin's media holding] and the deputy head of the presidential administration are now both in Vienna. They are trying to put out the fire while it is still on the roof, before the whole house catches fire.”

Leshchenko says Lozhkin has confirmed the money-laundering investigation to him in a private conversation. The presidential secretariat did not reply to a bne IntelliNews request for clarification. 

Atomic decay

Lozhkin is not the only core member of Ukraine's 'shadow government' reportedly facing a money-laundering investigation in Europe, says Leshchenko. Swiss authorities are investigating Prime Minister Arseny Yatsenyuk's chief fixer, Mykola Martnynenko, deputy head of the parliamentary group of Yatsenyuk's party People's Front, on suspicion of taking a $30mn bribe from a Russian state-owned company, according to multiple reports. 

Martynenko started out as a businessman supplying Ukraine's colossal, crumbling and corrupt nuclear power sector in the 1990s, before moving into politics. He has now headed the parliamentary energy and nuclear power committee for over 10 years, irrespective of frequently changing prime ministers and presidents. He is regarded as the unofficial 'watcher' over the sector that supplies Ukraine with over half of its electric power, as well a fundraiser and sponsor of the PM's People's Front.

According to political scientist André Haertel, associate professor at the Kyiv-Mohyla Academy, Martynenko is, with the protection of president and prime minister, expanding his personal influence over the broad network of state energy companies. "While Martynenko in Switzerland is already under investigation for taking millions [of francs] worth of bribes, he is also suspected of deploying corrupt schemes to relieve state companies of millions of dollars,” says Haertel. 

Swiss journalists report that authorities suspect Skoda JS, a Czech nuclear engineering company owned indirectly by Kremlin-run Gazprombank, of having paid as much as $30mn in bribes to Martynenko's Swiss bank account in 2013, to win a contract for the upkeep of Ukrainian nuclear reactors.

Swiss prosecutors have confirmed that they opened a bribery case against Martynenko in 2013. Martynenko acknowledges as much, but says the case is fabricated by “lies concocted in the imagination of oligarchs”, in a message posted on Facebook.

Army buddy shoots up the ranks

Ihor Kononenko, deputy head and unofficial chief whip for the president's Petro Poroshenko Bloc, is another key member of the 'shadow government', according to Leshchenko's analysis, and the closest to Poroshenko himself.

Kononenko has known the president since the two performed army service together in the 1980s. Kononenko then partnered Poroshenko and Oleh Gladkovsky, now first deputy secretary of the National Security and Defence Council, in setting up the industrial holding Ukrprominvest (UPI), which included the once mighty automotive concern Bogdan Motors among its divisions.

In August 2014, Kononenko took on a new role: as the unofficial organisational force behind the creation of Poroshenko's eponymous party, only two months before parliamentary elections in October 2014. With Kononenko at the helm, the party has grown rapidly into a well-funded political machine, which took just under a third of the seats in parliament in the elections, and which has largely maintained its standing in the polls, despite harsh government austerity measures. 

In a recent interview with bne IntelliNews, Lviv Mayor Andriy Sadovyi accused both Bloc Petro Poroshenko and the People's Front of selling seats in parliament. The pro-reform president of the European Business Association, Tomas Fiala, had previously named the sum of $3mn-5mn per seat taken by the parties. “We have a lot of questions for Tomas Fiala to answer,” Kononenko countered on Facebook on September 23.

While other members of the alleged shadow cabinet such as Martynenko and Lozhkin were already well-known figures in politics, media and business, Kononenko was a dark horse at the outset just over one year ago. But since then, he has shown significant pulling power over the purse strings and media across the whole spectrum of the Ukrainian establishment. 

Secret flights, frequent fliers

One clue as to the origins of Kononenko's sway over the rich and powerful could come from his secret business as provider of VIP business jet services to Ukraine's gilded elite, according to documents seen by bne IntelliNews.

Kononenko's UPI industrial holding secretly runs Ukraine's leading executive jet business for VIPs, flying top dogs around Ukraine, Europe and the world, according to the documents. Besides Poroshenko himself, the VIP jet business has catered to a swathe of Ukraine's top businessmen and politicians, including many high-ranking officials in the ousted administration of the former president Yanukovych.

At least one of the Cessna aircraft provided to clients was owned directly by UPI together with Raiffeisen Leasing, according to the documents, and registered in Austria as OE-GBY.

The lessee was a local Viennese firm, JB Park GmbH, run by Dmytro Lytvynets, who is also director of Bogdan GmbH, an Austrian affiliate of Bogdan Corporation, the automotive subsidiary of Ukrprominvest.

The documents name as contact person for JB Park a certain Daria Tsaregorodtseva, whose email address uses the historic Ukrprominvest domain, Tsaregorodtseva is also listed as representative for a British Virgin Islands shell company, Intraco Management Limited, through which many business expenses for the secret VIP airline get paid. In Ukraine Tsaregorodtseva is listed as owner and director of Business Airlines, which receives payments for the VIP flights, according to the documents; Business Airlines also used to be shareholder in an UPI subsidiary in Kyiv, Bogdan Electrotrans, according to Ukraine's company register. Intraco itself owns real estate in Kyiv linked to Bogdan Motors, underlining that the elite aviation business is a division of Kononenko, Poroshenko and Gladkovsky's UPI.

Tellingly, some Intraco payment documents name Dariya Kononenko, the daughter of Ihor Kononenko, as originator of payments, identified by her UPI email, indicating that the Kononenko family were directly involved in running the business jet operation. 


According to the documents, UPI-linked structures may own or have long-term lease arrangements for as many as 10 planes, operated mainly by Austrian and Ukrainian firms. Despite the size of the business, it has no official website or brand name, suggesting clients were acquired through personal contacts and word of mouth.

The VIP jet service flies oligarchs and top officials around Ukraine, Europe, and the world, with flights as far as India and the Seychelles, according to the documents seen by bne IntelliNews. A round trip within Ukraine costs upwards of $7,000, while it costs $150,000 for the round trip to the Seychelles.

Frequent fliers on board the UPI executive jets include top Ukrainian executives such as Igor Litovchenko, head of Ukraine's leading mobile phone provider Kyivstar; Leonid Chernovetsky, the eccentric former mayor of Kyiv, together with wife and five children; banker Vasily Khmelnitsky; land baron Yury Kosyuk; automobile magnate Tariel Vasadze; and tycoon brothers Hrihory and Ihor Surkis and Oleksandr and Serhiy Buryak; as well as metals and mining magnate Vadim Novitsky. 

The impressive list of Ukraine's rich shows how the jet service networked the Kononenko family with Ukraine's oligarchs.

Foreign VIPs have also used the bespoke aviation: Flamboyant Russian pop star Philip Kirkorov is a frequent client, as is controversial Armenian arms broker Davit Galstyan, whom the UN alleges supplied arms via Ukraine from the Balkans to Libyan rebels in 2011. Payment documents show that Galstyan's arms company Mosston Engineering paid €270,000 to Intraco as late as June 2015. 

Asked to comment, Kononenko told bne IntelliNews by email: "I am not a beneficial owner or director of the companies mentioned in your query. [The] origin of documents... is not known for me. In my opinion they [sic] are signs of tampering."

Cash-rich cronies

Remarkably, despite the huge cost of the VIP service, many clients, and all government officials flying on the jets, paid in cash for their flights – sometimes handing over the money once on board the plane, according to the documents.

Illustrating the scope of Kononenko's political connections, UPI's jet service did extensive business with luxury-loving officials in the pro-Russian Yanukovych administration, who all paid in cash for their flights. Many of these clients are now under international sanctions and targeted by asset retrieval measures.

The records detail flights for Andriy Kluev and Nestor Shufrich, the hardliner head and deputy head, respectively, of Ukraine's national security and defence council under Yanukovych, who together paid a total of $115,000 in cash in 2011-2013. 'Mr Azarov' – either former prime minister Mykola Azarov or his son; 'Mr Katsyba', one of the Katsuba family formerly powerful in the gas sector; Serhiy Arbuzov, former head of National Bank of Ukraine and former first deputy prime minister; and former energy minister Eduard Stavitsky all flew with the Kononenko-linked VIP jet service, handing over in cash a total of nearly $200,000 for their flights. 

All of these clients except the Katsubas fled Ukraine after the fall of Yanukovych. The documents do not show if the Yankovych cronies left Ukraine on board the UPI-linked planes, but there are some open source clues: One Gulfstream private jet recorded at the time to have

list of private jet charters in Ukraine was posted to Twitter on February 20, 2014 – the day many Yanukovych cronies tried to flee the country after the massacre of anti-Yanukovych protestors on Maidan, according to Radio Liberty. The list does not specify the exact airplanes used.

Spy in the sky

One notable high-ranking frequent flyer had already left Ukraine on a UPI plane: controversial former Ukrainian defence minister and defence industry boss, Dymytro Salamatin. Salamatin, who apparently retained Russian citizenship while serving as Ukrainian defence minister, is widely suspected of having spied for the Kremlin during his tenure in office 2010-2012, laying the groundwork for Russia's subsequent seizure of Crimea and incursion into East Ukraine in 2014. 

Salamatin served alongside Poroshenko in Ukraine's government in 2012, during which time Salamatin enjoyed VIP flights to Moscow, as well as to Qatar, Delhi and India, paying a total of $149,000 in cash for the flights. It was also in 2012 that Salamatin's ministry awarded Poroshenko's shipyard Leninska Kuznya a contract for construction of the first two gunboats of a series of nine for Ukraine's navy, as bne IntelliNews reported. 

After parliamentary elections in late November 2012, both men left the cabinet, ending their collegial relations. Thereafter their fates diverged sharply: Poroshenko started preparations for a bid for the presidency – which turned out successful in May 2014 under the most unexpected of circumstances. 

In contrast, following his dismissal from the cabinet, Salamatin immediately moved back to Russia, where he remains. His final UPI-organised Moscow-Domodedov trip on December 29, 2012, cost UAH124,700 – around $15,000 at the time – which Salamatin as usual paid in cash, according to the documents. He could not be reached for comment.

At least one former high-ranking Ukrainian official now believes that Kononenko's links to the secret cash-rich VIP jet business could threaten him with an international investigation for money laundering – putting him in the same boat as Lozhkin and Martynenko. 

“The mentioned company [Intraco Management] is part of Ukrprominvest Group, Kyiv Ukraine. Several financial operations are held monthly amounting from €100,000 to €300,000... The documents attached indicate money laundering,” the former head of Ukraine's security service Valentyn Nalivaichenko informed the Financial Activity Task Force in a letter in August. Nalivaichenko claims Poroshenko dismissed him in July after he started investigating the company and other offshore entities connected to the presidential party.



Dmytro Salamatin paid UAH 124,700 ($15000) on January 3 2013 for a VIP Moscow flight on December 29.

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