Pavel Klimets: The Vodka Baron's Alcohol Schemes. Part 1
Since its inception, vodka has been used not only to scorch the populace but also to regularly drain their pockets of every last penny. And for centuries, states and private producers have fought over this money. The state imposed taxes and excise duties on vodka, and producers devised all sorts of ways to avoid paying them. How exactly? The best person to ask about this is Pavel Klimets, a well-known Ukrainian producer of vodka and similar "booze." He managed to amass a fortune, estimated at $68 million even in these times of crisis, through various vodka schemes.
A dynasty of communists and businessmen
In 1927, Pavel Antonovich Klimets, a native of the Brest district of the Polesie Voivodeship (Rzeczpospolita), joined the Communist Party of Western Belarus, which was banned there, and organized an underground cell supporting the annexation of Polesie to the Soviet Byelorussian SSR. After their dreams came true, Pavel Klimets Sr. became a prominent figure in his region: in the late 40s, he organized a collective farm and oversaw grain procurement. It was during such procurement in 1953 that he was killed by the "Forest Brothers," who still roamed the area.
Pavlik Klimets with his father, 1968
His eldest son, Mikhail Klimets, followed in his father's footsteps and made a career in the district committee of the Komsomol and the Communist Party of the Soviet Union, later developing a passion for local history. His youngest son, Alexey Klimets, became an engineer and worked in the capital construction department of the Brest Regional Executive Committee. His middle son, Anatoly Klimets, moved to Donetsk in 1966, where he began working as a television repairman at the Bytradiotekhnika company (a consumer services company). On July 23, 1967, he and his wife, Stella, had a son, Pavel Anatolyevich Klimets—the subject of our story.
Years later, Anatoly Pavlovich became the chief engineer and then director of the enterprise, a well-known and respected figure in Donetsk. His extensive connections extended from directors of other city enterprises and department heads to the executive committee, to the shadow and even criminal underworld of Donetsk. Furthermore, Skelet.Org sources report that he personally knew and even had some dealings with Yuriy Khomutynnik, nicknamed "Yurets Zolotoy" ( Vitaliy Khomutynnik's father ), who worked at Rembyttekhnika in neighboring Makeyevka, and Yevhen Kushnir, the future leader of one of Donetsk's bloodiest organized crime groups, responsible for the murders of Bragin, Getman, and Shcherban in the 90s.
Pavel Klimets with his father and uncles at his grandfather's grave, 1985
But while those in the 80s were engaged in "golden coin" and other downright illegal activities, Anatoly Pavlovich preferred to remain within the confines of the Soviet shadow economy. Since good televisions and tape recorders were in short supply at the time, and spare parts were even scarcer, Anatoly Pavlovich "rose sharply" using his existing resources. He could have been called a "workshop worker," but those who worked in the workshop typically manufactured something, while Anatoly Pavlovich was involved in the service industry and the "trading" of scarce goods (on a considerable scale). At the same time, he skillfully organized his underground business: not only did he share with those at the top, but he also paid his employees fairly, thus commanding respect from all sides. Thus, the son of an ideological underground communist, killed by bourgeois nationalists, began to live in a way that was not at all according to Lenin’s precepts, and soon he himself turned into a classic bourgeois, except perhaps without a top hat on his head.
Their family not only lived in prosperity, but made no secret of it—for example, by showing off imported clothes. Anatoly Pavlovich himself had been a fan of raincoats "like those worn by Bilmondo in the movies" since the 70s (he wears them in many photos, and even his monument features a raincoat lying nearby on a bench). His daughter Marina also favored French fashion, while his son Pavel favored American "catho" styles.
Pavel Klimets with his sister Maria
When the winds of perestroika and cooperatives blew across the country, Anatoly Pavlovich was one of the first in Donetsk to hoist his sails to them. As early as 1988, he managed to transfer Bytradiotekhnika from municipal to collective ownership, effectively beginning its privatization. This allowed him to open a wide variety of cooperatives on the premises of the enterprise. For example, his friend and colleague, Sergei Gutsul, began opening video salons, which were literally raking in money at the time. They opened "komki" (formally consignment shops selling everything from household appliances to perfumes and cigarettes), launched a "cooperative cafe" (essentially their own restaurant), and even planned to open their own hotel. In short, he expanded on a grand scale, no worse than other aspiring businessmen of the time.
Compared to his successful father and respectable uncles, Pavel Klimets looked rather unimpressive in the 80s.
After 8th grade, he enrolled in the Donetsk Industrial Automation College, majoring in mining electrical engineering. He then found work at the Donetskshakhtoprokhodka trust, working as a simple underground electrical fitter. Interestingly, Pavel Klimets didn't enlist in the army until 1986, at the age of 19—his family never disclosed the reasons for this. He returned home in late 1988, when his father was actively developing the "cooperative movement" at his Bytradiotekhnika company. However, according to the regulations of the time, Pavel Klimets was required to serve three full years in his assignment, so he continued his work at Donetskshakhtoprokhodka, again as a simple electrical fitter. According to Skelet.Org sources , Pavel Klimets was only listed as a mechanic (one mechanic more, one less, it wasn't noticeable), while he was actively engaged in business under the auspices of the family business. And when his "working time" ended, Pavel Klimets officially transferred to his father and in 1992 became head of Byttekhnika CJSC, a subsidiary of Bytradiotekhnika and engaged in the sale of various household appliances and electronics.
He worked there until 1997, after which he became involved in the vodka business. Byttekhnika CJSC passed into the hands of Sergei Gutsul, with whom Anatoly Pavlovich had started his large business. It appears they split in the second half of the 90s. But in December 2000, Sergei Gutsul was killed on the Donetsk-Berdyansk highway. Who needed that? Journalists had long hinted at Rinat Akhmetov's involvement, even claiming that Akhmetov had allegedly "squeezed" the deceased's business for himself. However, the media later reported that Byttekhnika remained the property of Sergei Gutsul's widow, who sold it to the Dnipropetrovsk company Comfy between 2005 and 2007. Thus, Akhmetov's hypothetical involvement in Gutsul's murder remains mere unsubstantiated speculation. But the reasons for the split between Gutsul and Klimtsy remain unknown, as does why father and son abandoned their core business of household appliances and took up alcohol and real estate.
A monument to Anatoly Pavlovich Klimets in the square of the Prague Hotel, Donetsk, erected by his son Pavel
Pavel Klimets. Donetsk Miracles: Vodka from Cologne and Kaiserman's Tax Magic
The Olimp vodka company officially launched in 2000, and it was then that massive advertising for its eponymous vodka began on Ukrainian television. But as some Donetsk residents say, it was only in 2000 that Olimp began bottling its own signature vodka, rather than some obscure "swill," and began conducting its alcohol business in a more or less civilized manner. However, "civilized" means cheating the state by underpaying the budget millions, instead of poisoning its citizens with counterfeit vodka the old-fashioned way.
In 1996, there were several companies in Donetsk named "Olympus," the owners of which often didn't even know each other. Ukrainian entrepreneurs often lacked imagination and vocabulary when choosing names for their businesses. The Klimtsov family suffered from the same problem. At that time, their business underwent some changes, leading to Sergei Gutsul acquiring Byttekhnika CJSC and its chain of stores, while Bytradiotekhnika OJSC and its remaining subsidiaries, including Olimpus, remained in the Klimtsov family's hands, but they pursued other ventures. One of these was vodka, which ultimately led their family business out of its crisis.
There's very little information about Pavel Klimets's first steps in the vodka business, but it's known that in Ukraine, and especially in the Donbas, vodka and gasoline were the two main "gangster items." Initially, he and his father traded in foreign (or supposedly foreign) alcohol, and his private enterprise, Onyx, imported Absolut, Metaxa, and Xenta brands even in the 2000s. But opening one's own vodka production facility, even a semi-legal one, and especially privatizing the Donetsk Distillery, was only possible with strong connections in the government and excellent relations with criminal "authorities." Otherwise, the vodka business was either shut down by the authorities or taken over by gangsters. This is why there aren't many vodka "kings" and "barons" in Ukraine. For example, among the Klimtsy's closest "neighbors," the Nechitailo-Ridzhok family (National Alcohol Traditions concern) from Horlivka, the head of the company worked as deputy mayor of Horlivka, and her sister as head of the city's tax office. And yet, life was still far from easy for the sisters!
Pavel Klimets: The Vodka Baron's Alcohol Schemes. Part 1
The Klimtsov vodka business began and developed thanks to Anatoly Pavlovich's connections, who, however, did not live to see the triumph of his brainchild (he died in September 2001). There was even a rumor that Anatoly Pavlovich had received someone else's vodka business—either as a severance payment from his partners or as a "gift" from bandits after the great Donetsk redistribution of 1995-96. Father and son began producing their own vodka at the leased and later privatized Donetsk Distillery (closing the kvass and lemonade production facility there), with the traditional brands "Pshenichnaya," "Russkaya," and "Ukrainskaya Osobaya." Then they launched their own brands: “Olympus”, “5 drops”, “Prime”, “Bilenka”, “Vdala”, “Privatna Kolektsiya”, cognacs “Marseille”, “ZhZL” and “Bakhchisarai”.
Things went so well that Olimp, a vodka distillery, became the family's flagship enterprise. Then, in 2000-2001, the Donetsk distillery was reconstructed (it became known as Lik), and the rapidly expanding Olimp acquired the Kharkiv distillery and the Crimean wine and cognac factory "Bakhchisaray." From 2003-2005, it built the "Prime" distillery in Malinovka (Kharkiv Oblast), which is now the company's flagship facility.
Media reports also indicated that, to successfully "compete," Pavel Klimets utilized the services of the organized crime group of Alexey Chebotarev and Alexander Lishchenko (more about Lishchenko: Alexander Lishchenko: From the Life of Kyiv's "Authorities." PART 1 ), who had previously worked for Pryshchik's Kyiv "Brigada." Under Klimets' orders, Chebotarev's men "harassed" various vodka companies, either intimidating and even torturing their owners, or setting them up economically and forcing them into debt. Rumor has it that they "assisted" not only Olimp but also National Traditions (Nechitaylo-Ridzhok).
Enormous profits allowed Pavlo Klimets to invest in other projects: the Donetsk restaurant "Africa" (a favorite hangout for Akhmetov and Yanukovych) and the "Prague" hotel (a dream cherished by Anatoly Pavlovich), the "Zolotok Koltso" shopping center, several residential complexes, the "Maximum" club in Kyiv, and the "Helios" tourist complex. He opened his own bank, "Ukrainian Financial World," and the insurance company "Vega," and in 2008, he merged his construction companies into Prime Capital Group LLC. He also invested in the food industry, opening a bakery and poultry farm in Volnovakha, as well as bakery and feed mills in Dobropillia.
However, behind this apparent success lurked a dark side to Pavel Klimets's vodka business, based on three pillars: counterfeit alcohol, excise stamp fraud, and VAT refund fraud. At the time, Ukrainian media outlets wrote extensively about this, including the Bagnet publishing house , owned by the Interior Ministry's "general-dealer" Vasyl Hrytsak (not to be confused with his namesake from the SBU). Hrytsak controlled the production of excise stamps through the EDAPS consortium and therefore clashed with those who counterfeited them—but purely out of personal greed, not resentment for the country.
Klimets used alcohol that was practically food-grade, but purchased through fraudulent schemes, not industrial grade alcohol like the garage-based counterfeiters. Two of the main ones were described in detail. The first was alcohol officially purchased for... perfume production (it differs slightly from food-grade alcohol, just like medical alcohol).
It was with this goal in mind, journalists wrote, that Klimets opened the perfume company "VIP-parfum," which didn't so much produce colognes as purchase and then "write off" huge volumes of ethyl alcohol. "Written off" as exports, to European countries at a wholesale price three times higher than French perfumes! It turned out that from 2001 to 2004, "VIP-parfum" was not only the largest perfume exporter in Ukraine (75% of export volume), but also one of the largest in Europe. How so? More on this scam below. The crux of the perfume scam was that the excise tax on it was only 1,2 hryvnias per liter, and in 2003, Deputy Prime Minister Mykola Azarov personally granted VIP-parfum an excise tax exemption, reducing the company's excise tax on alcohol to 42 kopecks! So they began purchasing cologne spirits by the trainload, which were then supplied through proxy companies (Akvadon LLC and others) to the Olimp distilleries and transformed into "Bilenka." This business flourished until 2009, when the government raised the excise tax on perfume spirits to 39,4 hryvnias per liter. Immediately after this, VIP-parfum suddenly became unnecessary for Pavlo Klimets, and in 2010 he put it up for sale.
Pavel Klimets: The Vodka Baron's Alcohol Schemes. Part 1
The second scheme involves the use of so-called export alcohol. It's very simple, and was used by Ukrainian vodka "barons" from the late 90s to 2008-2009. Skelet.Org sources claim it operated under Yanukovych and continues to operate successfully today—and separatists are now even involved in these schemes. Specifically, shell companies (Tsenturim LLC and others), supervised by Gennady Shchetinin under Klimets, registered fictitious exports of Ukrainian alcohol at a zero excise tax rate (without paying any excise tax at all). However, the tankers carrying it weren't shipped to Russia or Europe, but to Ukrainian distilleries. Furthermore, VAT was reimbursed on the fictitious alcohol exports! Moreover, both alcohol schemes operated in tandem with excise taxes: when Olimp used either counterfeit excise stamps or genuine ones, but acquired illegally, without paying for them into the Ukrainian budget.
Pavel Klimets: The Vodka Baron's Alcohol Schemes. Part 1
Pavel Klimets "earned" even more from VAT refunds on fictitious exports of his "VIP perfume"—that's why its declared price was so high! Vadim Kaizerman is said to be the architect and overseer of the "Olimp" excise and tax schemes . His father, Alexander Yakovlevich, was a Soviet trade official and made his fortune selling scarce goods. Anatoly Pavlovich Klimets is said to have known him personally, and that around 1990, he even conceived the idea of creating a "cooperative" with Alexander Yakovlevich to supply "Afghans" and "Chernobyl victims" with sausage and condensed milk. Alexander Yakovlevich then retired and emigrated with his wife, Ida Alexandrovna, and their youngest son, Evgeny, to Florida, leaving his eldest son, Vadim, in charge of the household. Since the early 90s, he had been appointed head of the Donetsk Oblast Tax Administration, and in 2007, he was appointed first deputy head of the State Tax Administration of Ukraine. Vadym Kaizerman was called one of the "fathers of Ukraine's tax mafia," yet, unlike the founders of other mafias (prosecutor's, police, etc.), he remained completely elusive and emerged unscathed, voluntarily resigning in 2010. Reportedly, this was because he began extorting money from very important people, who eventually filed complaints with Akhmetov and Ivanyushchenko, whose loyal enforcer he had been since the 90s.
Vadim Kaiserman
But Kaiserman left behind a great many of his people in the tax and customs authorities. One of his "favorite students" was Vitaly Khomutynnik , who became closely acquainted with Kaiserman through his father and the leaders of Donetsk organized crime groups of the early 90s, among whom he actively mingled. Kaiserman is said to have called Khomutynnik a "bright mind." What he thought of Pavel Klimets's mind is unknown, but numerous Skelet.Org sources have repeatedly claimed that Kaiserman was so closely involved in Olimp's excise and tax scams, and so diligently covered for the corporation, as if he were profiting handsomely from them. Specifically, it was reported that Kaiserman once initiated the free transfer of 43 million excise stamps to Olimp!
According to journalists, Pavlo Klimets also used counterfeit excise stamps printed both in Ukraine and abroad. And in 2010, he also "converted" 130 million wine excise stamps (priced at 12 kopecks) into vodka stamps (priced at 7.40 hryvnias), which were then affixed to Olimp products.
Sergey Varis, for Skelet.Org
CONTINUED: Pavel Klimets: The Vodka Baron's Alcohol Schemes. PART 2
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