Sanctions spark growing business fears in Ukraine – POLITICO

Jamie Dettmer is Opinion Writer at POLITICO Europe.

When asked if she felt safe, Smart Holding CEO Julia Kiryanova – the head of one of Ukraine’s largest investment conglomerates – paused and then said firmly: ” No one is safe.”

For months now, Kiryanova has been fighting to save Smart Holding from what appears to be a corporate raid – a raid which she says involves senior Ukrainian government officials and aims to force the company to agree to a fire sale. . There is a danger in resisting “because when the law is not there, anyone can be persecuted for no reason”, she said.

Kiryanova believes Russia’s war on Ukraine is being used by powerful and politically connected players in Ukraine to enrich themselves by extorting, looting and weakening business rivals – as well as an opportunity to redistribute company assets , in part for the purpose of stripping the old elite of wealth to fashion a new one. And all of this is done with little respect for the rule of law.

“New oligarchs will soon appear,” she said.

Kiryanova and other corporate executives say the “reorganization” has seen some companies – including Smart Holding – face questionable criminal charges, or be added to Ukraine’s list of companies sanctioned by Ukraine’s Security Service ( SBU) for very vague national security reasons.

Parimatch – one of the world’s leading sports betting companies – was recently added to this list of sanctioned companies, but has yet to receive a formal explanation as to why. Informally, executives were informed that Russian links to companies providing administrative services to the company had been discovered. Other times they have been told that they have been sanctioned for tax irregularities, even though tax offenses are not grounds for inclusion on the sanctions list.

But the moves against Ukraine’s most successful companies are raising eyebrows — not just in Kyiv — and risk deterring foreign investors, adding to behind-the-scenes concerns about the country’s seemingly endemic and intractable corruption problem, which has dogged it for decades. Last year, some European Union countries, including Germany, even delayed the distribution of financial aid to Ukraine due to liability concerns that the money could be diverted to corruption schemes.

Today, Smart Holding is one of Ukraine’s largest investment groups, focusing on metals, mining, oil, gas, agriculture, retail, shipbuilding and real estate. He also has a 23% stake in Metinvest, another major mining and metallurgical group, which owns the Azovstal Iron and Steel Works in Mariupol. The steelworks was destroyed during the long siege of the city.

According to Kiryanova, Smart Holding ceased operations in Russia after 2014.

Founded in 2006 by Vadym Novynskyi, a former Ukrainian oligarch and lawmaker who is now a full-time priest in the Moscow-linked Ukrainian Orthodox Church, the company has stalled since the government sanctioned him for allegedly helping the Russia. Novynskyi publicly condemned the Russian invasion, but he also strongly criticized the granting of autocephaly to the Independent Orthodox Church of Ukraine, warning of the risk of civil war. And the SBU has not publicly detailed how it is supposed to have helped Moscow.

According to Kiryanova, however, Novynskyi’s activities should not be relevant to Smart Holding. He hasn’t been involved in running the business since 2013, and last year he parted ways. He receives no income from the business and will never be able to regain ownership, she said.

Kiryanova also said that when Novynskyi was sanctioned last November, Smart Holding was unofficially told by SBU interlocutors that “sanctions against him were just a way to pressure the Orthodox Church of Ukraine to that it would merge with the Orthodox Church of Ukraine, and that the staff sanctions against Novynskyi did not extend to Smart Holding, yet rumors persisted that the company would be targeted.

Then, last month, the Justice Ministry rewrote the company’s entry in the Ukrainian Register of Legal Entities, which lists the beneficial owners. The administrators were struck off the register and Novynskyi was reintroduced as the ultimate beneficiary – under whose authority and what law remains unclear.

Informally, the company was told authorities believed Novynskyi was still the beneficial owner, but no evidence was provided. Authorities also said a criminal case was being opened against the directors suspected of being Russian agents.

“This was followed by a series of police raids at our headquarters and at our subsidiaries,” Kiryanova explained. Ukraine’s security services seized $96 million in assets, as well as the deeds of 40 companies and 30 natural gas wells. “The property of pro-Russian oligarch Vadym Novynskyi, involved in aiding the aggressor country, has been seized,” the SBU said in a statement. Smart Holding has donated over $20 million to war-related humanitarian causes.

Yet hours before the raids, the company was approached with an offer to buy out its natural gas interests by foreign investors – British and American – who have no track record in the energy sector. They said they would not encounter any problems, because “they would be able to solve all the problems with the Ukrainian President’s office”. The offer – a third of what the companies are worth – was declined. The company has had to lay off 3,000 employees so far, and it now fears that Metinvest – which has around 60,000 employees and is majority owned by Ukraine’s richest person, Rinat Akhmetov – could be next.

“I believe that the seizure of the company’s assets, forcing it to shut down some of its key operations, has caused significant damage to Ukraine and its economy. This damages the country’s reputation, is tragic for thousands of employees and their families and is completely unjustified from a state security perspective,” Kiryanova said. Smart Holding has flooded senior Ukrainian officials, including Ukrainian President’s chief of staff Andrii Yermak, for explanations, but emails and letters go unanswered.

“From what we can see, there is no official investigation underway. We are not asked any questions, they have not filed anything in court. So far, the only formal communication we’ve had was during the raids. It’s amazing,” she added.

Meanwhile Maxym Liashko, the co-CEO of Parimatch, is equally puzzled as to why his company has been targeted. Founded in 1994 in Kiev and now based in Cyprus, the company operates under licenses issued by local regulators in Ukraine, Central Asia, Africa, the Indian subcontinent, the United Kingdom – and, until recently , Russia and Belarus, but immediately pulled out of those markets when Ukraine was invaded, ending franchise deals and losing millions of dollars.

Picking up on rumors in government circles that the betting market in Ukraine would be purged of any ties to Russia, Parimatch bombarded the authorities with letters and emails emphasizing its Ukrainian ownership and pointing out that it was no longer present on the Russian market, even commissioning a report from a major US law firm, which was read by POLITICO, to attest to this fact. Parimatch has so far donated more than $40 million to war-related humanitarian causes.

Nevertheless, in March, he was sanctioned. “There has been no formal communication, no explanation, and other government agencies are saying they can’t help because it’s in the hands of the SBU and they have no jurisdiction over it. “, Liashko said, exasperated. “Some officials refer to a letter from the SBU” explaining the reasons for the sanction, but “they won’t share it with us because it’s secret. It’s transparency,” he added.

POLITICO asked the SBU for comment on both cases but received no response.

Ironically, the suspension of Parimatch’s operating license and freezing of its assets – including winnings due to successful players – benefited rival Russian operators, according to Mikhailo Makaruk of InformNapalm, a volunteer investigative initiative. “The Parimatch squeeze is destroying the legal betting market, pushing gambling underground. And Ukrainians are still betting online, but Russian companies are winning,” he said.

Makaruk fears an internal trade war is being waged in Ukraine, affecting everything from agribusiness to the country’s highly respected IT sector – and he’s not alone. As one business executive told POLITICO, “When the country and the people need unity the most, some of the most powerful use the cloud of war to rape corporations.”

Speaking on condition of anonymity for fear of reprisals, the executive added: “No previous administration has amassed so much power – essentially unlimited power – and because of the war it is untouchable in the eyes of the international community and the media”.

“Speaking publicly is difficult because I don’t want to say anything that might endanger the war effort, but sanctioning successful businesses shouldn’t be done to eliminate competitors or punish someone you don’t like,” did he declare.