Ukrspirt
How to make money on illegal alcohol
The State Property Fund reported another "major victory" in the ongoing privatization of the alcohol industry. The fund boasted of a "price record" at the auction for another distillery.
The sell-off of distilleries is accompanied by high-profile scandals due to the privatization advocates' penchant for cheap PR. While official data shows a decline in production, the volume of "shadow" alcohol sales is growing exponentially. At the same time, the schemes of semi-criminal organizations and other "shady characters" are gaining ground in the industry.
In the first part of the investigation Vesti.ua This article explains how privatization is creating "unaccounted for infrastructure" in the industry and who is eyeing the pool of "shadow aces" in Ukrainian distilling. In the second part, we'll explore how Oleksiy Chebotarev, a small-time criminal from the Yanukovych era, retained influence over Ukrspirt.
"Fake" records amid high-profile scandals
On March 12, the State Property Fund announced the completion of the auction for the sale of the Mishkovetsky distillery in the Ternopil region for a record 181 million hryvnia.
Initially, the asset was valued at just 7,2 million hryvnias, and the triumphant "record-breaking" euphoria seems somewhat far-fetched. Moreover, officials should have learned from the previous "embarrassment." The last "successful" report about the record-breaking sale of the Vynyakivskyi distillery in Poltava Oblast ended in a media shambles. The winner of the sale refused to pay 234 million hryvnias, and at the re-auction, the final price of the "record-breaking distillery" fell by half, to 101 million hryvnias.
Another "unfortunate incident" occurred during the purchase of the Marilivka distillery. The sale of this asset was also touted by the State Property Fund and Ukrspirt as another "record-breaking milestone" and a successful privatization. In February, the Kyiv Commercial Court upheld the claim of the Moldovan company Zernoff, which had sued the State Property Fund and refused to pay for the plant it had won at auction.
In the text of the lawsuit, the company cites significant discrepancies between the property declared in the lot and its actual presence. The Fund, for its part, denies the fraudulent nature of the "vanished" plant equipment. They believe the investor is simply trying to recoup the security deposit for participating in the auction.
It's impossible to say for sure whether Moldova's largest alcohol producer (which certainly has a far from squeaky-clean reputation) is being scammed. The court will settle this dispute. Vesti.ua previously reported that serious questions arise regarding the technical audit and inventory procedures. Furthermore, we discovered that the distilleries' asset valuation was handled by a consulting company implicated in a criminal case involving the embezzlement of Ukraine's State Reserve.
In our investigation into the privatization of the alcohol industry, we traced the pattern of a "schematic cabal" among the main buyers of distilleries. These so-called investors are often, in fact, no-name companies and shell firms with dubious financial histories and opaque ownership structures. Therefore, the scandal involving the very first company to join the privatization process from the outside is quite symptomatic.
The alcohol mathematics of the State Fiscal Service and the "historical achievements" of Bleskun
We've previously written repeatedly about how the State Fiscal Service is failing to respond to the growing shadow trade in alcohol. It's worth noting that the appointment Vadim Melnik The head of the fiscal service has noticeably increased its activity in the fight against counterfeit alcohol.
In early February, the State Fiscal Service launched Operation "Alcohol," and in just a month of active operations, tax officials seized 226 tons of alcohol and 134 tons of liquor. In March, the service intensified its efforts, increasing the volume of counterfeit "hauls" exponentially. Furthermore, law enforcement began shutting down the production facilities of illegal producers.
For example, on March 7, during searches at an illegal alcohol production facility in the Rivne region, the State Fiscal Service discovered and seized over 60 liters of alcohol worth over 12 million hryvnias. The illegal facility's capacity was 20 liters of alcohol per day.
This is a more than good start, and I really hope that this is not a banal “exemplary” activity designed to please (or a purge of “competing” counterfeit producers as part of the next stage of the redistribution of the alcohol market).
The tax authorities' busy schedule of events reflects the alarming potential for production volumes in the shadow sector of the alcohol industry. Although Ukrspirt traditionally exudes optimism, it's not backed by compelling data.
Following the 2020 results, the company's CEO, Sergei Bleskun, cheerfully reported a production "victory." Last year, Ukrspirt increased production volumes for the first time in 10 years and boasted strong financial performance.
But when looking at the graph drawn by Ukrspirt itself, the claim of a "historic maximum" in tax revenues doesn't seem so impressive. After all, production growth was only 5,3%. This can be easily explained by the increased demand for alcohol for disinfectant production due to the coronavirus pandemic. According to Bleskun, the demonopolization of the market has had a positive effect, and factories that received individual licenses to produce alcohol have already "secured their place in the market."
In reality, Bleskun secures a place in the market for the "alcohol mafia," which is controlled by a number of criminals. According to a Vesti.ua source in the State Fiscal Service, the head of Ukrspirt serves as an arbitrator, overseeing the appointment of those favorable to the shadowy moguls.
How it works?
For example, according to our sources, at the Chudnivsky branch of the Zhytomyr Distillery, with a nominal daily production capacity of 20000 liters, no more than 10000-15000 liters are declared. The difference (unaccounted-for alcohol, or "Form 2") is used to produce vodka tax-free. Similar schemes operate at the Zernensky Distillery State Enterprise, the Kholminsky Distillery State Enterprise, the Zhytomyr Distillery State Enterprise, the Chernihiv Distillery State Enterprise, the Oktyabrsky Distillery State Enterprise, as well as at the Marilivske, Kozlivske, Kovalivske, and Novoborovitske Municipal Production Facilities of the Ukrspirt State Enterprise.
The 2020 figures provide a clear signal that the "shadow" market continues to grow. Last year, vodka production volume decreased by 6,7% to 44,5 million liters (in terms of pure alcohol), while alcohol consumption and production increased by 36%.
The era of shadow lawlessness
Our sources among alcoholic beverage producers confirm that tax authorities have only scratched the surface of the growing counterfeit alcohol and spirits industry.
A Vesti.ua source, who previously worked for a division of Ukrspirt and now ensures "supply security" in the shadow alcohol production sector, spoke on condition of anonymity and said that counterfeit production "during overtime" increased significantly in the second half of 2020.
"All key market players were preparing for the transition process, with the start of privatization. The State Property Fund has already sold nearly two dozen enterprises, but while all the red tape and final payments are being made to the cashier for the purchased plants, Ukrspirt continues to operate the facilities. While the auctions are ongoing and the internet is trumpeting privatization, criminals, in cahoots with legal producers, have added a fourth and fifth shift to the "third shift," doubling the amount of bottling of "illegal" alcohol. In fact, the situation is already ending this summer, the period under which private owners are supposed to maintain the company's operations and not lay off its employees. By the time they sell everything and the buyers "accept it on their balance sheets," the period of restrictions will have passed. And all this time, the state is paying salaries, taxes, water, and electricity bills at the "idle" facility. It's profitable, so why not work hard before going freelance?"
From the "shadow" pool, we were told, groups associated with Lyudmila Rusalina, the owner of the company "Petrus," and Alexey Chebotarev have recently become more active. Despite the change of power in 2014, several of our sources at the State Fiscal Service and Ukrspirt say Chebotarev has retained influence in this area.
However, Vesti.ua is preparing a separate investigation into Oleksiy Chebotarev's influence on Ukrspirt. For now, we'll focus on Rusalina's structures.
We previously reported on the seizures by fiscal authorities of particularly large quantities of counterfeit alcohol from Ms. Rusalina's company. Reporting on the 134 tons of alcohol seized in February, mentioned above, State Fiscal Service Head Vadim Melnik emphasized that most of the counterfeit alcohol was produced under the brand names "Prime," "Lyubotin," "Alexandria," and "Zlatogor." Thus, despite the fact that Rusalina's companies and other "moonshiners" have repeatedly and significantly "disgraced" themselves in the production and distribution of illegal alcohol, their response appears to have been to increase the volume of illegal sales.
Criminal and semi-criminal structures, like the Georgian mafia, well known to people in Rusalina, are well aware of the essence of the ongoing "demonopolization reform" and the potential benefits of "market liberalization."
After the acquisition of the distilleries is finalized and they are transferred under the full control of private entities, key players in the spirits and alcohol markets will operate de facto in a "sterile" environment free from regulatory oversight.
"If there's no state monopoly, then anything goes. Everyone understands this perfectly well. After privatization, the 'shadow' market will become the dominant one, and product prices will skyrocket. No one will control anything anymore, and the state won't even have the capacity to control anything. With the entire industry's economic activity 'packaged' into a single state-owned concern, it's practically impossible to sit down and calculate it with a pencil and a notepad. And what can we say when it's all plundered by 'private farms'? Try calculating what's produced there and how much each businessman owns behind a high fence," the editorial source concluded.
We will continue to monitor the topic of alcohol privatization and key events in this process, as well as report on the beneficiaries and rising "bigwigs" of the alcohol business in the context of ultra-liberalization policies. We will attempt to answer the question of who supports the "alcohol mafia" in government by appointing individuals like Bleskun and Lushchai to high-ranking positions. We will also investigate who is responsible for the budget shortfalls from alcohol schemes. We will also inform the competent authorities of the results of our investigation so that tax authorities can conduct audits of the individuals involved in our investigation.
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