The Ukrainian parliament has launched an inquiry into the deals of a few hundred allegedly fraudulent grain traders, said to be exploiting a scheme for tax evasion and money laundering.
On Dec. 10, the temporary investigative commission of the Verkhovna Rada questioned the head of Ukrainian customs and the acting head of its Odesa branch.
Kyiv Post interviewed several participants from that meeting as well as the operators of the grain market and discovered a Russian connection, including a link to an infamous “grey zone” in the Russian-occupied Donbas in eastern Ukraine.
Photo: Odessa Journal
Tax avoidance schemes
“The scheme is stupid and simple, let me draw it for you,” says lawmaker and commission member Yaroslav Zhelezniak, unlocking his tablet.
According to Zhelezniak, the commission recently discovered a massive case of alleged fraud and money laundering on the grain market. Numerous shell companies were understood to be taking part in tax avoidance schemes and changing records in their books, thus hiding revenues from the tax office and disappearing from its radar.
“They changed the names of the companies that sold the grain while the cargo was already in the open sea,” Zhelezniak told Kyiv Post. “The income in hard currency was not getting back to the country.”
According to him, 3,000 companies submitted their customs declarations; among them were hundreds of suspicious entities.
At least half of the suspicious companies, according to the lawmaker, “sailed away with the grain.”
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Customs officials did not properly address the inquiry of the Economic Security Bureau (ESBU) to undertake checks on the suspicious companies.
“Of all 510 suspects, only 118 were questioned by customs. It's money laundering where the customs officers are the accomplices,” claims Zhelezniak.
In early January, during a surprise raid, 30 warrants for searches in the Odesa customs office were issued by the ESBU and the Security Agency of Ukraine (SBU).
The searches took place in the offices of Ukrainian Customs, including its Odesa branch, at the customs posts of three main regional seaports and several customs officers' private apartments.
“It was mainly an operation conducted by the ESBU and its chief, Vadym Melnyk. The boys from the [SBU] were mainly doing minor administrative jobs,” — a senior officer of the SBU, who was not authorized to talk to the press, told Kyiv Post.
One of those questioned by the parliamentary commission was a top officer of Ukrainian customs in Odesa — Mykhailo Myroshnichenko.
Mykhailo Miroshnychenko.
Customs officer with a reputation
“I don’t think the dude is afraid of anything, Zhelezniak says. “It looked like: ‘Well, we’re customs. We can do whatever we want,’” he adds.
“This is what the investigators from the ESBU told me: ‘All our contacts on the professional level within the customs office are simply telling us to go to hell.’”
Odesa's Myroshnichenko had been questioned previously. In November 2020, his house was searched by the State Bureau of Investigation (SBI) on suspicion of smuggling.
At the same time, the SBI searched the home of the director of the anti-smuggling department of the SBU, and former adviser to the head of the State Fiscal Service.
According to Suspilne media, in 2016, the public organization Anti-Corruption Forum of Lviv Region sent a statement to the National Anti-corruption Bureau of Ukraine (NABU) claiming that the property status of Miroshnichenko had not increased in alignment with declared earnings.
Miroshnichenko was the deputy chief of Lviv Customs at the time.
He was not available for comment in time for this publication.
“He is on vacation,” an officer at Odesa customs told Kyiv Post. “He will be back at work on Monday.”
Photo: Odessa Journal
Inquiry into multitude of corruption schemes
In late November 2022, a group of Ukrainian lawmakers announced a massive leak of alleged schemes in Odesa port connected to the grain market and international trading. These included revelations about Ukrainian property sold to the Russians and a corruption scheme involving bribes for traders to access the grain corridor.
However, the press conference was cancelled, and no public statements were made.
One of the organizers of the press event, Kostyantyn Bondarev told Kyiv Post that no comments that could potentially harm the reputation of the grain initiative would be issued to the press.
At about the same time, the newly formed ESBU started its operations.
This newly discovered tax avoidance scheme is the first significant investigation by this recently established investigative bureau.
“It is very political. Melnyk, head of the ESBU, wants to show western partners that he is as serious as NABU in addressing the flourishing corruption in Odesa,” says Olena Balaba, a journalist from Odesa with a special interest in local corruption issues.
Last November, a case concerning extortion was reported in the Odesa region allegedly involving the SBU, where the State Service of Ukraine on Food Safety and Consumer Protection involved.
Russian traces
According to several Kyiv Post sources among the grain traders, the scheme, investigated by the ESBU, is mainly focused on smaller grain traders that emerged on the market after the start of the full-scale Russian invasion.
“I suspect that the bigger international traders were not affected. It concerns a group of small enterprises. I haven't even heard of the slightest reaction to this scandal, which is very weird,” president of the Ukrainian grain association Mykola Gorbachov tells Kyiv Post. “If it is not a political struggle, we are talking about a completely new scam.”
According to Gorbachov, the pre-war grain export market was 90 percent controlled by the bigger international traders.
The tide changed during the biggest Ukrainian grain crisis of the century, which started following Russia’s full-scale invasion.
Thousands of small farmers started trading their grain internationally with the help of a few hundred brokers that appeared out of the blue, many of them being dummy corporations created overnight.
According to a few smaller traders, local farmers exploited a loophole in regulations which allowed them to use a black currency market where the exchange rate was much more favorable than the one for official banking transactions.
Zhelezniak claims that the companies involved in money laundering were also illegally exploiting thousands of acres of state-owned lands where the farmers were graining the crop without a license.
“For instance, you have land belonging to the agricultural academy or some state company. One example is a state horse breeding company that hasn’t bred horses for a long time. Yet it has tens of thousands of acres of agricultural land. We call this ‘the black grain,’” Zhelezniak tells Kyiv Post.
These cases became a part of the investigation focused on money laundering.
According to another source in the temporary investigative commission, one of the companies involved in illicit schemes is co-owned by a Russian citizen based in occupied Donetsk.
The profile of this company, details of which are in the possession of Kyiv Post, shows that it was active for more than ten years and was licensed to trade in fuel, ore, metals and industrial chemicals.
The website of the YouControl agency, which is in the public domain, has a warning message attached to the profile of this enterprise: “Counterparties of an entity located in the temporarily occupied territory have been deprived of the opportunity to conduct any transactions… This can lead to financial losses and business destabilization, as well as attract the attention of law enforcement agencies.”
Transactions involving money laundering in the Russian-occupied areas of Ukraine were common in 2015-2016, with numerous clashes between law enforcement agencies trying to take over these operations.
Back in 2015, some of these conflicts ended in gunfights or premeditated murders.
But is the his first time on record since the start of Russia’s full-scale war against Ukraine that the potential scams of the “grey zone” of Donbas have reappeared on the radar of investigative officials.
Kyiv Post sent an enquiry to the ESBU. At the time of writing, it has not provided any further details regarding the official investigation.
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