Accused money launderers left a path of bankrupt factories

https://newsinteractive.post-gazette.com/ukraine-money-laundering/

by valkrieco • 5 years ago

268 116 5 years ago

bluetomcat3• 5 years ago

This is not an isolated case in the post-soviet space. The general pattern is - squeeze lots of money domestically via your privileged position of operating whole key sectors of the national economy and spend them comfortably abroad. Everything from banks through insurance companies through delivery companies to media groups is owned by people formerly involved with state security. It's an exclusive social network in which political decisions and private economic interests are tightly coordinated.

The worrying thing is that the West gave international legitimacy to these wealthy elites, while only pointing fingers at the endemic corruption in their countries.

pinkybanana2• 5 years ago

The worrying thing is that the West gave international legitimacy to these wealthy elites, while only pointing fingers at the endemic corruption in their countries.

Wouldn't it be quite difficult to prevent foreign money being laundered in some other country? I would guess verifying whether the money is legit coming from some weird foreign jurisdictions is probably quite difficult. The only way to work around that would probably reject all customers who are sending money from there.

bluetomcat3• 5 years ago

Those oligarchs are a tiny minority of the country population and their international financial endeavours are almost always tracked by Western intelligence agencies, but the pragmatic interest of the West is to welcome that money. They buy the most expensive real estate in London without even negotiating, send their kids to elite schools, buy their wifes jewellery at outrageous prices.

kjrose• 5 years ago

This. And the problem I've found is whenever anyone gets to a position that could legitimately deal with this issue, they become either compromised or they become involved themselves in the situation.

Basically there's another very rich black market that won't be stopped easily.

hourislate• 5 years ago

And the problem I've found is whenever anyone gets to a position that could legitimately deal with this issue, they become either compromised or they become involved themselves

In Post Soviet Countries challenging the Oligarchs is like asking for a death sentence. What is required is a Western effort to go after these Crooks helping the elected Government to implement a system that can be trusted.

murkt• 5 years ago

Everything from banks through insurance companies through delivery companies to media groups is owned by people formerly involved with state security.

Not the case with Kolomoisky, who was not involved with state security. Generally, Ukrainian oligarchs do not come from state security background.

kgeist• 5 years ago

Russian oligarchs generally don't come from state security background either. I don't where the OP got that from.

bitL• 5 years ago

Wasn't Kolomoisky one of the oligarchs that backed the overthrow of the previous pro-Russian government as well as financed the current president of Ukraine? I am wondering what went wrong for him with the US, was it just Trump in power instead of a more friendly politician?

bluetomcat3• 5 years ago

From a Bulgarian perspective what I’ve said holds true. The oligarchs themselves were often picked from prominent nomenklatura families and in spite of not having a background as state security officers, were largely kept responsible for their actions by them. The state security officers had all the information about trade routes, information about all state enterprises and their financial status, etc.

helge9210• 5 years ago

Generally, Ukrainian oligarchs do not come from state security background.

Kolomoyskyi is just a smart shark without security or criminal background, Akhmetov has criminal background (Donetsk region), Pinchuk is related to former President Kuchma (indirect Communist party background), Poroshenko has Communist party background, Firtash is a frontman for criminal organization (mastermind fled from Hungary to Moscow).

baybal22• 5 years ago

The worrying thing is that the West gave international legitimacy to these wealthy elites, while only pointing fingers at the endemic corruption in their countries.

The whole Western commitment to anticorruption is on display on Mayfair street in London.

ttul• 5 years ago

Oh, you mean the part of town where an apartment is so expensive that it is out of reach even to London bankers?

jollybean• 5 years ago

It's not just 'post Soviet' it's also 'current Rest of World'.

Business outside of 'established rich places' may often include huge sums for bribery and that money comes back in many ways, including 'very expensive real estate in NY / London' etc. and Dubai is becoming a major centre of such activity. [1]

The question is, how long can Dubai balance it's claims to legitimacy and integrity, while at the same time looking the other way? Will nascent powers like India and China even care? It's going to be an interesting next 50 years.

[1] https://www.transparency.org/en/news/the-united-arab-emirate...

nradov• 5 years ago

That's not so different from how the European noble families established their privileged positions centuries ago. It's just that they were military leaders rather than state security officers.

dv_dt• 5 years ago

The West gave legitimacy to this because it's own elites do the same thing with monopoly enterprises. Microsoft did it with OSs, Google with search, Telecoms expanding from wired phones, to wireless, now to entertainment media ownership, etc... Though perhaps the private equity companies come closest to the methods of operation described in the article.

CryptoPunk• 5 years ago

>Everything from banks through insurance companies through delivery companies to media groups is owned by people formerly involved with state security.

Carry over from the massive corruption created from handing control over the entire population to the state bureaucracy, in the name of creating a non-exploitive communist economy.

cs702• 5 years ago

Greatly informative piece about shady characters laundering money in the US at a pretty large scale by investing in, or outright buying, struggling US businesses such as steel mills.

Managers and employees think they're getting a lifeline. In reality they're getting a new owner who cares very little about the long-term health of the operation and the safety and well-being of its employees.

The new owner will use financial engineering to extract as much cash as possible while cutting capital expenditures as much as possible. Eventually, the business will have no choice but to file for bankruptcy. Along the way, all cash paid out of the business will have been legitimized.

Employees and towns suffer the consequences. Ugly and sad.

pinkybanana2• 5 years ago

I would guess that if you are laundering money, launderer would happily spend extra money on safety and other issues to prevent getting too much attention. Here the case sounds like if the laundering oligarch hadn't been stingy on those things he wouldn't have gotten caught.

dazc• 5 years ago

Maybe this is happening already and we don't know because some other oligarch is not being stingy?

Welcome to London.

extropy• 5 years ago

Or the money was spent in buying the factory and what happens after is just extraction.

Speculation being that investments in economy are perceived as a very good thing and the origin of the money is not checked that tightly.

toast0• 5 years ago

So, if they're from a former soviet republic, we call they shady characters and the process money laundering; if they're from the US, we call them private capital and the process leveraged buyout.

vmception2• 5 years ago

That’s why they set up the British Virgin Islands private equity fund

Because it is indistinguishable

UK territories (or whatever you want to call them) don't have the geopolitical baggage that larger economic unions do, so they are good intermediaries with laws that are more relevant for business in the 21st century

TaylorAlexander2• 5 years ago

Yes and Russian billionaires are “oligarchs” while American billionaires are “businessmen”.

https://fair.org/home/russia-has-oligarchs-the-us-has-busine...

tehodler• 5 years ago

Hostile takeover > leveraged buyout > private equity. They keep changing the name once people catch on to what a dirty business it is.

raincom4• 5 years ago

Very true. One launders money when the money is dirty. Money laundering requires placement of "raw cash", which is dirty. In this particular cash, the source of money is NOT "raw cash". Sure, Ihor took loans with the intention of not paying it back. This money is a product of corruption--not "dirty" though.

Imagine someone buying a new BMW M5 car on finance. Later, this guy claims that his car got stolen, gets a check from the Insurance company. Further, he uses this money as a down payment to buy a home in Texas. Do we call this "laundering"? I don't think so, since this money is traceable; neither placement, nor layering is involved. Yes, he schemed with his buddies to have his new car stolen, taken to Mexico. He can be prosecuted for his involvement in the theft, not for "money laundering".

refurb• 5 years ago

Right, because PE launders money.

unishark• 5 years ago

Money laundering means the money was illegally obtained. In this case it was allegedly stolen from a bank. It doesn't matter who steals or launders it for the definition.

juskrey• 5 years ago

To begin with, investment money were stolen from the largest Ukrainian bank via fake loans and investments. Hence the laundering. But instead of fake car wash sessions there were "for show" acquisitions: invest own money, quickly siphone them out of the business, sometimes but not necessarily making profit if lucky.

alfl• 5 years ago

Canada has a huge money laundering problem (source: my company makes anti money laundering tech).

Interesting how the article shows how this translates to destruction of capital assets and, eventually, people. That’s not necessarily clear otherwise.

spurdoman77• 5 years ago

Probably all wealthy countries are big destinations for dirty money. Wouldnt make sense to bring dirty money to poor country because there it would attract more attention.

hellbannedguy2• 5 years ago

I don't know about Canadian laws, but in the United States we let foreigners buy real estate with a phone call, or email.

So basically we let foreigners buy our land.

They can't live in the house/building, but they control the people whom do.

We make it difficult for hard working Americans to buy a home, but let foreigners scoop it up with funny money?

This has bothered me for years. Especially when it's not easy for Americans to buy foreign land.

(Supposedly the government asks about the origin of the wealth before the sale now, but in my county (Marin County) it looks fishy. I have neighbors who don't speak a lick of english, but are living in mansions. My gripe isn't cultural. I just have doubts on the origin of the cash they buy houses/land/buildings with.)

hippich• 5 years ago

Isn't there like 30% immediate tax that is required to be withheld by the agent and then later buyer is responsible to file a return to attempt to get that money back? I am sure some do, but for the rest - it looks like it is a price paid to the USA for the privilege of owning real estate there.

lotsofpulp2• 5 years ago

If you’re buying land in the US with a phone call or email, you are probably dealing with sufficient money to acquire an EB-5 Visa, so they can live in the US.

Although, they did just increase investment amounts to $1.8M (and $900k for economically disadvantaged areas) from $1M/$500k, so the bar did get higher.

https://www.uscis.gov/working-in-the-united-states/permanent...

astrange3• 5 years ago

If you live in Marin homes aren't expensive because of foreigners. It's because Marin is full of ravenous NIMBYs who haven't allowed any homes to be built since 1970.

Especially "foreigners are buying homes to leave them vacant" is not a real thing - that does nothing except lose them money.

motohagiography• 5 years ago

The missing simple description in the article is:

Launderers with tainted money buy struggling businesses that have large assets as collateral for loans, and then walk away with the loan. It leaves the bank holding the asset to be sold off.

From the launderer's value at risk perspective, $10m in dirty money is worth probably $5m or less clean, because if you taxed that $10m and did all the fees, and then there is the risk of being caught for the crime that generated it, 50% free and clear seems pretty good.

The more I learn about the investment business, the more I think it's like crime without the violence. The money laundering problem in Canada is most obvious by the oversupply of certain retail businesses, but there are other scams I see on investment prospectuses more often than seems normal. The two problems I think is a lot of the launderers are politically connected, so there is no scrutiny, and even if leadership did something, it would only be to put even more of a burden on law abiding businesses.

Imo, complex laws and regulations only affect the people who follow them, and they reward corruption.

pupdogg• 5 years ago

Great read! Aside from software development, I run a metal fabrication shop where we purchase and process approx. 20k lbs of steel and aluminum (monthly). Having been in the industry for the past 10 years, I’ve always referred to all metal suppliers as folks that deal with “funny money”. There’s no transparency in pricing whatsoever. You can’t easily lookup or guesstimate metals prices without having core subject matter expertise that come with experience. It might as well be called an undercover hedge fund market with killer profits!

zafka• 5 years ago

Are you getting better prices on feedstock as automobile production slows?

selimthegrim3• 5 years ago

Matt Levine's jokes about the aluminum merry-go-round suddenly acquire another dimension.

55555• 5 years ago

Isn't the markup for a certain product basically it's weight times the spot market price of the metal with an added constant markup depending on how much more complex it is than a lump of ore? I have no idea what I'm talking about but am interested.. Please elaborate!

dwater• 5 years ago

The metal market I go to generally uses prices per pound for the basic shapes of different metal types, and the system lists pounds per piece. But this information isn’t readily available, it’s only after your purchase when you get an invoice that you can see what the cost is. Otherwise you have to stand at the counter and ask how much each different piece is.

hellbannedguy2• 5 years ago

Could you elaborate a bit more? I've always been interested in the buying/selling of metal.

robk• 5 years ago

Metalshub is working on this

bullen2• 5 years ago

Is it only me or is Cyprus and Ukraine in the wrong spot on the map about a quarter down? Nitpicking but Cyprus is not in China and Ukraine is not Mongolia.

atdrummond• 5 years ago

Can you share a picture? The map is fine on mine.

bullen2• 5 years ago

Ok, that explains it... I'm on 5:4 screen... they made it for widescreen! :D

rory• 5 years ago

I see an animation where they start in the right place, but then the focus countries zoom in, while the world map remains the same, putting them in Asia. The should probably have faded out the world map when zooming in.

throwaway98797• 5 years ago

This is hard to follow.

Were the factories profitable? If not seems like the money benifited the employees. Looks like the front line employees got hurt and the community but every other employee made off with dirty money.

skybrian5• 5 years ago

The factories (and businesses) are used as collateral to get loans from banks. The banks are getting defrauded when the company goes bankrupt and the loan isn’t repaid. The injured workers are collateral damage.

If they got away with it then it would just look like a normal bankruptcy. Extracting the money already happened with more or less legitimate-looking business expenses.

thaumasiotes• 5 years ago

The factories (and businesses) are used as collateral to get loans from banks. The banks are getting defrauded when the company goes bankrupt and the loan isn’t repaid.

Defrauded? This is the entire concept of collateral.

crusty5• 5 years ago

I would love to see dollar values or ratios and the timing on this type of scheme.

If they pay $80 million in "cash" for a steel plant and then turn around and ask a legitimate bank for a loan with the plant as collateral, how much can they realistically get for the loan? Any amount is going to be a lot and the lender is assuming that risk, so one would think that due diligence would consider the unique depreciation that could occur in an asset that requires massive maintenance inputs to maintain sustainable operability and hold it's capital value, and that they would build in some contractual mechanism to monitor the value of the asset and enforce it's upkeep.

Even a car dealerships does this with leased vehicles to ensure that the value of the car they get back at the end of the lease matches their projections closely enough that they can sell it off again.

raincom4• 5 years ago

The scheme Ihor Kolomoisky perpetrated is very popular in the third world countries. In India, for instance, many politicians and industrialists take loans worth hundreds of millions of dollars from the public banks for their supposed projects, then funnel the loan funds to their personal coffers. Years down the line, these public banks add these unpaid loans as "non performing assets". The same public banks are very reluctant to lend money to the average guy.

marcinzm• 5 years ago

Those probably aren't loans, they're semi-hidden bribes.

skybrian5• 5 years ago

It sounds more like a scheme to defraud banks.

An actual business with a factory is going to look like pretty good collateral to a bank making a loan, but the bank loses money on the loan when the company goes bankrupt. It’s not in the bank’s interest to do this. But bank employees could’ve been bribed, sure.

So this sounds like a form of “long firm fraud” or maybe “control fraud.” For more about it, I recommend reading Lying for Money: How Legendary Frauds Reveal the Workings of Our World.

(Not that I’m an expert; I just read a book.)

failwhaleshark• 5 years ago

It's essentially embezzlement with complicity.

wolfretcrap2• 5 years ago

Today you don't need banks to make money as politician.

Modern scheme in India:

1. Get citizens excited about new infra projects using tons of advertisements, and propoganda YouTube channels

2. Open a tender for the project

3. Pass on the bids to your favourable "company"

4. Now this favourable company puts in the winning bid and wins

5. Favourable company sends money to the political party through electoral bond

6. favourable company which is now a contractor on infra projects is forced to accept subcontractors who are usually acting as fronts and belong to family members of the politicians. These subcontracting firms either outsource the real work or they get into brand/asset building with public money.

This scheme works really well as they are skeaming off 20% of the project budget through various contractor companies and general public has no way to figure out anything.

seibelj• 5 years ago

This is another reason why I like cryptocurrency, specifically bitcoin. These shenanigans are enabled at the core through the ability to print money via a central bank. The central bank is corrupt, they give money effectively straight to those connected, who use the new money to buy foreign assets as well as extremely complex schemes to loot their country. With a universal money unit that cannot be corrupted, you eliminate a lot of this nonsense.

yowlingcat• 5 years ago

I don't think BTC doesn't make the messy people problems any easier. That doesn't mean it's without value -- I do think there is some incompressible utility to having a globally decentralized "universal money unit" as you say. But that's no shortcut to curing socioeconomic corruption.

crusty5• 5 years ago

I wish there were more details on the kind of money they were able to pull out of this scheme. All of the dollar values in the article refer to the amounts stolen in Ukraine, moved through she'll companies, and used to purchase properties and businesses.

Traditionally, we hear about money laundering involving low-overhead, cash-oriented businesses where money can be injected and extracted by falsifying volume.

But these were large capital purchases into an industry in destress with numerous facets of regulatory exposure, from the industry's risk to the environment and the high potential safety risks for workers to the special status of the industry to national security - it invites scrutiny of lots of alphabet agencies, especially if your scheme involves ignoring all of their requirements to juice profits.

This leads me to believe the "masterminds" only ever saw it as a short-term play, so back to my original bewilderment, how much were they able to extract in just several years compared to the large upfront costs? And were they skimming so much from neglect that it wouldn't have been worth it just to run these as legitimate, sustainable businesses?

I wonder if the had just maintained these steel facilities and avoided the safety and environmental problems, and made it into Trump's presidency intact, would they have just been able to sell them off high on the back of Trump's protectionist, domestic steel revival rhetoric and made a killing and be sitting pretty today, given that all the legal pressure on them for this is from the US and they seem to have already been given a pass for stealing $5.5 billion in Ukraine from Ukraine.

crusty5• 5 years ago

Other comments point to the scheme using the asset purchased with stolen money as collateral for a loan that the bank is left with in a much depreciated state. That would make the ongoing extraction of profits is irrelevant. My alternate set of questions about this loan fraud scheme are in a different comment. Ha.

And I don't really get how that "launders" the money trail. The only point at which the transfers of funds seem murky is when they go through the she'll companies in the BVI.

This feels like the makings of a great article that some editor said, "write up what you have, we're just going to publish it and move you onto something else." There are just so many things unexplained or unexplored.

exogeny• 5 years ago

This is somewhat unrelated to the story, but I am happy and proud of the Post-Gazette for digging into this. The PG is my hometown newspaper -- although I haven't lived in Pittsburgh for fifteen years, it's still home -- and they like most newspapers have been absolutely gutted by layoffs and piss-poor management. You might recall a controversy a few years ago about their firing of the political cartoonist because he refused to be pro-Trump as the owners wished.

Local news is critical for reasons I hope I don't need to explain here, as are investigative departments that dig in deep and uncover things like this. The PG (IIRC) got a Pulitzer for their work on the Penn State/Jerry Sandusky scandal some years back and it makes me proud to see them still doings like this, the Block family be damned.

jtsuken2• 5 years ago

This specific article is terribly written, however. I've spend over 5min trying to get the gist of the story. Which seems to be: A business owner with a background in oil and metals asked the bank he owned to fund levereged-buy-outs of rundown US steel factories, some of which had accidents, some of which later shut down. DOJ and the prosecutors in Ukraine investigate if the schemes used in the process of take-over could be fraudulent.

selimthegrim3• 5 years ago

This story has been covered many times, the unique bit is interviewing the steelworkers.

ed25519FUUU2• 5 years ago

So is Ukraine basically the playground where all of the worlds corrupt elite steal millions?

I recall a certain person being hesitant to send US tax dollars there because of corruption concerns.

crusty5• 5 years ago

"I recall a certain person being hesitant to send US tax dollars there because of corruption concerns."

I think you meant IIRC, but the C is the problem. That certain person had no problem with corruption in Ukraine, it was just that he needed some of it's corruption to act in his favor first.

And the jump from the article to "So is Ukraine basically the playground where all of the worlds corrupt elite steal millions?" Is a little (not a little) broad. It's a former Soviet bloc state and this is pretty much table-stakes corruption for those.

bumbada• 5 years ago

I had a girlfriend that was from Ukraine and visited the country in summer.

Ukraine has probably the most fertile soil in the world. Like Egypt it has fed Europe and then Russia for a long time.

It is also one of the most corrupt countries in the world, like Russia and China.

Most Westerners just can not imagine what corruption is at those levels. For decades the grain was put into trains and half the grain had "disappeared" in destiny. This happens at all levels.

Nobody goes there to help the country. Like lots of countries in Africa the big guys (Russia or EU, or USA) go there to plunder the country. It is too rich and too strategic.

It is also the playground for big countries to fight. Instead of fighting WWIII and fucking the entire world with radioactive waste, the big guys play on playgrounds like Ukraine their power games.

The US does not want Europe to dismantle NATO after it is not necessary anymore where Europe can arm itself. It also does not want Europe and Asia to integrate further because that means the end of USA hegemony in the world.

Also the military industrial complex in the US needs a reason to exist. If threats do not exist, they will create them in order to survive or "their money" will be redirected to things like social welfare. Americans need to feel unsafe all the time so they agree to pay for new weapons in new taxes.

UE wants to expand to get the wealth of Ukraine resources and Russia does not want to lose them.

That is very bad for Ukraine. The people that can, like my ex girlfriend, just leave the country.

astrange3• 5 years ago

Americans need to feel unsafe all the time so they agree to pay for new weapons in new taxes.

When is the last time this happened?

neonate• 5 years ago

https://archive.is/Iq3zy

hamandcheese• 5 years ago

How is one able to buy the factories using dirty money in the first place?

Accused money launderers left a path of bankrupt factories

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