Embezzlement of $39 million: Defence Ministry officials and Lviv Arsenal managers exposed – photo

Photo: Security Service of Ukraine

A former and a current head of a department in Ukraine’s Defence Ministry, two directors of the Lviv Arsenal firm, and a representative of an international firm have been served with notices of suspicion in the case of embezzlement of nearly 1.5 billion hryvnias (approximately US$39 million) allocated to the purchase of artillery shells.

Source: Office of the Prosecutor General; Security Service of Ukraine; Ministry of Defence of Ukraine; Ukrainska Pravda sources

Details: Ukraine’s Security Service said that the five men were served notices of suspicion under Art. 191.5 of the Criminal Code of Ukraine (misappropriation, embezzlement or seizure of property through abuse of office committed by an organised group).

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The former and current heads of the Department of Military and Technical Policy, Development of Armaments and Military Equipment of the Ministry of Defence, Lviv Arsenal’s CEO and commercial director, and their accomplice, a representative of a foreign commercial firm, were served with suspicion notices.

Ukraine’s Security Service detained one of the men when he attempted to flee Ukraine; he is currently in custody. Preventive measures for the others are currently being discussed.

The men face up to 12 years in prison with confiscation of property.

Ukrainska Pravda sources in law enforcement said the men served with suspicion notices were Oleksandr Liiev, the former head of the Department of Military and Technical Policy, Development of Armaments and Military Equipment; Toomas Nakhur, the current head of the department; and Yurii Zbitniev, Lviv Arsenal founder and CEO.

The Ministry of Defence said that Ukraine’s National Police and Security Service served the suspicion notices with the Defence Ministry’s assistance, and that the Office of the Prosecutor General was providing procedural oversight.

According to the investigation, the defence ministry officials signed a contract for the purchase of a wholesale batch of artillery shells with Lviv Arsenal, an arms supplier, in August 2022. The Defence Ministry then transferred the full amount stipulated in the contract to the company’s accounts.

Upon receipt of the funds, Lviv Arsenal management transferred part of the money to the balance sheet of a foreign commercial entity that was supposed to deliver the ammunition to Ukraine. However, the company did not send a single artillery shell to Ukraine, and transferred the funds to the accounts of another affiliated company in the Balkans. The rest of the amount remained on the Lviv Arsenal accounts in a Kyiv bank.

Ukraine’s Security Service was able to trace the embezzlement scheme and identified all persons involved in the fraud. The stolen funds have been seized, and the question of how to return them to the Ukrainian budget is being discussed.

Previously: On 26 January, the Northern Commercial Court of Appeal upheld the decision of the first instance court to recover 1.5 billion hryvnias in favour of the Ministry of Defence from Yurii Zbitniev’s Lviv Arsenal, which failed to fulfil a contract to supply shells to the Ukrainian Armed Forces.

Background:

• Earlier, Ukrainska Pravda reported that Lviv Arsenal received 1.4 billion hryvnias (about US$38 million) from the Ministry of Defence for the supply of a large batch of 120-mm and 82-mm mortar rounds, but the company is long overdue on the contract and had not handed over a single mine to the Armed Forces.
• Yurii Zbitniev is the founder of Lviv Arsenal; he became one of the youngest members of the Verkhovna Rada of the Ukrainian SSR in 1990. He also took part in the creation of the Social-Democratic Party of Ukraine, but later left it.
• It was reported that the Ministry of Defence signed a contract with a little-known company called Lviv Arsenal on 11 November 2022. A few days later, the then Defence Minister Oleksii Reznikov authorised an advance payment under the contract – almost 100% of the contract amount.
• Deliveries were supposed to begin in December 2022 and be fully completed by the end of February 2023, but, as Ukrainska Pravda reported, as of the end of July, the Ministry of Defence had not received a single mine under the prepaid contract.

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