Ukraine Arms Industry Fraud

Ukraine’s Anti-Corruption Agency Alleges Fraud in Arms Industry

Ukraine’s embattled anti-corruption commission has been investigating wrongdoing in the state-run defense production enterprise, a consortium of around 130 companies with close ties to the country’s president, according to documents and interviews.

The country’s National Anti-Corruption Bureau, an independent law-enforcement agency formed at the behest of the United States and European Union, and partly trained by the FBI, was targeted by a government campaign earlier this month intended to wipe out its independence. While the bureau survived, its investigations into UkrOboronProm, a sprawling concern with 80,000 employees, could put it back in the crosshairs.

These latest allegations come amid a decision by U.S. President Donald Trump’s administration to allow the export of lethal equipment to Ukraine, which is fighting Russia-backed separatists in the eastern Donbas region of the country. The State Department on Wednesday confirmed that it approved a commercial sale of sniper rifles and associated equipment to Ukraine.

Yet even as Ukraine obtains Western military equipment, its own defense industry remains mired in corruption.

A 2017 report written by the anti-corruption bureau, and provided to Foreign Policy, alleges that officials at UkrOboronProm siphoned off funds from a $39 million contract to supply parts for Antonov AN-32 aircraft to the Iraqi defense ministry.

UkrOboronProm, which has been trying to make inroads into the Western arms market, is often singled out as a prominent example of corruption that hurts Ukraine’s relationship with its most important supporters, and critics blame it for harming Ukrainian soldiers fighting Russian-backed forces in the east.

The documents show that the anti-corruption bureau was looking into two executives at UkrSpecExport, the concern’s export arm, and an Indian citizen living in Ukraine’s capital, Kiev, who allegedly transferred around $6 million to the bank account of a company, called Paramount General Trading, in the United Arab Emirates. The UAE-based company was supposed to acquire the spare parts, however, an investigation found that the company did not supply anything, and the parts were furnished from existing UkrOboronProm stock.

The bureau concludes the “bank accounts were used … by UkrSpecExport officials for acts of corruption in connection with laundering of criminally obtained money.”

Efforts to to reach the individuals implicated in the fraud allegations were unsuccessful. Questions relayed through UkrOboronProm’s press office went unanswered.

The anti-corruption bureau’s report states that detectives discovered some of the money from Paramount General Trading’s account was transferred to various other companies and bank accounts. For instance, a $140,000 payment was made to a Wells Fargo bank account belonging to a company called Aragon International Petroleum, whose beneficial owner was the daughter of one of the UkrSpecExport executives, according to the documents.

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