Sumykhimprom
"Ask not what your country has done for you, ask what you can do for your country." This famous saying by US President John Fitzgerald Kennedy can serve as a good motto for ordinary citizens, to whom it was originally addressed. For civil servants, however, this is a matter of course in a democratic country. After all, the essence of public service is for officials to defend the interests of the country and the people, whose representatives they are, first and foremost. Unfortunately, however, as experience shows, in Ukraine, civil servants do not always follow the former American president's life principle.
On the last day of September, the Supreme Commercial Court of Ukraine heard the bankruptcy case of the chemical giant Sumykhimprom. This case is a striking example of how the inaction of officials from authorized bodies allowed one of the largest state-owned enterprises in the chemical industry to go bankrupt. And this was done to benefit the business interests of individuals close to former President Viktor Yanukovych.
A giant bankrupt
To better understand the essence of what transpired at the Supreme Commercial Court hearing, it's worth taking a brief historical look. By 2010, many valuable assets of Ukraine's chemical industry (Krymsky Titan, Irshansk Mining and Processing Plant, and Vilnohirsk Mining and Metallurgical Combine) were concentrated in a single set of hands—those of the fugitive president's closest associates, Dmytro Firtash, and his partner, former head of the Presidential Administration Serhiy Levochkin. Sumykhimprom was a key link in the chain, control over which would have allowed the aforementioned individuals to effectively close the cycle of production and distribution of chemical products. The problem was that Sumykhimprom was state-owned. But, as experience has shown, in Ukrainian realities, this problem is solvable.
In 2010, Igor Lazakovich was appointed Chairman of the Board of Sumykhimprom, having previously served for four years as Deputy Chairman of the Board of Crimean Titan. With the new manager's arrival, the company's affairs began to deteriorate. Less than two years later, the chemical giant was formally declared bankrupt (despite a significant increase in revenue, the company had sharply increased its debts). Moreover, by a "strange coincidence," the majority of the debts were concentrated in the Group DF companies of Dmitry Firtash and Sergey Levochkin.
The bankruptcy scheme is well known. One of the schemes involved selling products to Group DF companies at prices below cost, resulting in debt at Sumykhimprom. Practically all raw materials and other products for production were purchased, conversely, at inflated prices, again from companies within the Firtash-Levochkin group.
As a result of these actions, Sumykhimprom, through the efforts of I. Lazakovich, was declared bankrupt. Bankruptcy proceedings were initiated in early 2012 in Sumy. It's worth noting that prosecutors at the time saw no malicious intent in the bankruptcy and proceeded with the case. Roman Marchenko, also rightly considered a protégé of D. Firtash and S. Levochkin, was appointed as the executor of the property.
This is not without reason, in part because under the new manager, revenues from product sales continued to bypass the state budget. Specifically, in March 2012, a batch of mineral fertilizers was sold to Sintez Resurs LLC (also affiliated with Firtash and Levochkin), with the sale price being 2 million hryvnias below the production cost. Incidentally, it was through Sintez Resurs LLC, founded by an unknown Cypriot offshore company, that Sumykhimprom products were sold in Ukraine after Lazakovych took control. It is noteworthy that this fact, as well as the 135 million hryvnias in losses the country suffered as a result of similar schemes, was later established by the Sumy Oblast Prosecutor's Office.
While the chemical plant continued to operate and generate profit, the legal groundwork for its transfer to private ownership was being laid. The formation of a creditors' committee began. The key position here was that of a representative of Naftogaz's subsidiary, Gaz Ukrainy, which was one of Sumykhimprom's major creditors. This position allowed Firtash and Levochkin's companies to include entities affiliated with their business empire on the committee: Industrial Investments Management Company LLC, Nadra Bank, Sintez Resource LLC, Krymsky Titan, and Ostchem International GmbH. In other words, five of the six seats on Sumykhimprom's creditors' committee were occupied by representatives of companies controlled by Firtash and Levochkin. Other major creditors, including the state-owned Ukreximbank, to whom Sumykhimprom owed over a billion hryvnias, were left out.
In October 2012, the Sumy Regional Commercial Court instituted reorganization proceedings at the company. Oddly enough, the person who had brought the company to this point, Igor Lazakovich, was appointed as the reorganization manager of Sumykhimprom, while Roman Marchenko remained the property manager. Since then, the company's financial situation, quite predictably, has not improved at all. Indeed, it couldn't have, even in theory, as the reorganization plan has yet to be approved. At the request of Lazakovich and Marchenko, and contrary to the provisions of the relevant law, the courts of Sumy and Kharkiv extended the deadline for drafting the reorganization plan.
Without suspicion
After Yanukovych fled, the situation with Sumykhimprom became public knowledge and generated a media outcry. The State Property Fund, which had initially planned to privatize the enterprise this year, ultimately decided to keep Sumykhimprom under state ownership. A Public Working Group to address problematic issues in Ukraine's titanium industry was also created. Its members appealed to the prime minister and heads of law enforcement agencies, asking them to investigate the flagrant violations of the law that had led to Sumykhimprom's bankruptcy. However, returning the chemical giant to state control proved no easy task. Individual officials began to oppose this, advocating for the interests of Dmytro Firtash and Sergey Levochkin instead of the state.
In May 2014, the Sumy Oblast Prosecutor's Office opened criminal proceedings against officials of PJSC Sumykhimprom for selling products at prices below cost in order to obtain illegal profits (the case described above). The investigation sent a request to the State Property Fund to investigate the damage to state interests. The Ministry of Justice ordered the regional justice department in Sumy Oblast to prepare conclusions regarding the illegal bankruptcy of the company.
Remarkably, the criminal investigation still has no suspects. However, by that time, Roman Marchenko was already the property manager, and transactions involving such a sum would certainly have been approved by him. Furthermore, finding someone responsible for a crime involving a legally executed document—a contract—is not a difficult task, as all contracts are certified with signatures and seals.
It's also difficult to understand why the State Property Fund failed to recognize that the actions of Sumykhimprom officials had caused damage to the state. This is especially true given that the Sumy Oblast Prosecutor's Office had already established this fact.
There's also a strange lack of understanding of the situation on the part of justice authorities. For example, the Sumy Oblast Justice Department was tasked with conducting an analysis of the bankruptcy fraud. Several months later, this analysis is still pending. The reason is surprising: Lazakovich and Marchenko failed to provide the Justice Department with the necessary documents. It's odd that the Justice Department expects financial statements from the individuals who actually committed the crime. It would be naive, to say the least, to believe that the latter would actually come forward and essentially surrender. Another good question, unfortunately, remains unanswered: why, given all of the above, isn't the Ministry of Justice considering revoking Marchenko's insolvency practitioner license?
The Public Working Group's appeal to the Prosecutor General of Ukraine was simply forwarded through the bureaucratic chain to the Investigative Department of the Sumy Oblast Department of Internal Affairs with the note "for review and use during the investigation." Simply put, the Prosecutor General's Office decided not to open a criminal case on the bankruptcy case. All evidence in this case was folded into the case file on the sale of products at reduced prices (the one in which the suspects still have not been identified). This is despite the fact that, according to the Criminal Procedure Code, a prosecutor who receives a report of a crime is obligated to open a criminal case and only then refer it to the appropriate authority for pre-trial investigation.
Unpretentious
Returning to the proceedings in the Supreme Commercial Court, it's worth noting that the position of the representative of Gaz Ukrainy, which, like Sumykhimprom, is a state-owned enterprise (more precisely, the state owns over 99% of Sumykhimprom's shares), although "neutral," once again played into the hands of private individuals. Specifically, he did not object to the demands of companies controlled by Group DF.
Even more interesting was the fact that, when considering the cassation appeals of companies not included in the creditors' committee (including Ukreximbank, which suffered losses as a result of Lazakovych's refusal to fulfill its loan obligations), representatives of the Prosecutor General's Office and the Cabinet of Ministers opposed upholding these appeals, effectively turning a blind eye to the state-owned enterprise's debt to the state-owned bank. Judges of the Supreme Commercial Court were also surprised by this position and even questioned whether this position was personal or determined by the Prosecutor General and the Cabinet of Ministers. The government representatives failed to provide a coherent answer to these questions.
A public working group on titanium industry issues has prepared a statement to the Ministry of Internal Affairs, requesting that the criminal case be transferred from Sumy to the Main Investigative Department of the Ministry of Internal Affairs for greater effectiveness. However, without coordinated action by all government agencies and a clear understanding by all civil servants of whose interests they serve, and that personal and public interests cannot intersect in their official capacity, this case risks being consigned to dusty archives. And without a change in management and executives at Ukraine's largest chemical company and their prosecution for their actions, Sumykhimprom risks joining the sad list of bankrupt enterprises, liquidated and sold for pennies to private owners. In either case, the country will suffer losses that are unlikely to be recouped.
The country's elite
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