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Is Ukraine becoming a kleptocracy? Commercial assets are being seized by the state

Hard times (Photo by Ukrainian Presidency / Handout/Anadolu Agency via Getty Images)

Hard times (Photo by Ukrainian Presidency / Handout/Anadolu Agency via Getty Images)


November 15, 2024   4 mins

Tanks. Howitzers. Missiles. Since Russia’s invasion of Ukraine, the West has delivered a mountain of aid to the beleaguered Kyiv government. The Pentagon alone is estimated to have sent over £50 billion in military support, even as tiny Luxembourg managed to organise bullets and bulletproof vests. That bounty is echoed at the civilian level too, from Albanian ambulances to Belgian sleeping bags to Irish pickup trucks. All told, some 41 countries have committed something to the Zelensky government, which by March 2024 encompassed over $380 billion.

Yet amid this bonanza, Volodymyr Zelensky faces a looming threat: the prospect of paying out millions of pounds in damages to companies and individuals who argue their assets were illegally nationalised by the Ukrainian government. More than that, opposition lawmakers worry that, unless corruption is addressed, the money of generous Western donors risks being syphoned off and diverted by officials.

Even before the war began, in February 2022, corruption had long been a problem in Ukraine. Yet the situation has arguably worsened since then: earlier this year, to give one example, evidence emerged of a $40 million corruption scheme involving the purchase of arms by the military. Funds earmarked to buy weapons were allegedly stolen by officials and company executives, with some of the proceeds transferred to foreign accounts. Not least given the importance of foreign aid to Ukraine, procurement fraud is a sensitive issue: wartime profiteering could present an obstacle for future funding by the USA and EU.

Yet these accusations pale next to the seizure of commercial assets by the state. At least 17 Ukrainian companies and 1,611 citizens have been sanctioned by Zelensky’s administration, after the Kyiv government invoked special military laws allowing it to take control of private firms. The fear among Ukrainian businesspeople is that this is being carried out as a ploy to nationalise their assets without compensation.

“Nobody is safe,” says Julia Kiryanova, CEO of Smart Holdings, an investment conglomerate, which has been targeted and subjected to police raids and seizure of assets. Kiryanova claims sanctions are being used to force fire sales of profitable banks and firms, which will then be exploited by politically connected Ukrainian businessmen to enrich themselves. Certainly, the alleged redistribution of corporate assets — under the guise of sanctions, and absent the rule of law — is eerily reminiscent of the notorious privatisation of state assets in Russia in the Nineties.

Nor are Ukrainians the only ones to suffer here. As UnHerd can reveal, last month Zelensky received a letter from a Dutch finance company, accusing him of violating international law and claiming it had lost its vast investment in Ukraine’s biggest bank. The letter, a request for arbitration by a Dutch financial company called EMIS Finance BV, suggests the Zelensky government breached a bilateral investment agreement. The treaty supposedly protects Dutch investors in Ukraine — but in 2023, the Kyiv government nationalised Sense Bank without offering any compensation.

In particular, EMIS Finance claims it lost £420 million in non-performing loans to ABH Ukraine Ltd, the majority shareholder of Sense Bank. Thanks to these indirect investments, EMIS Finance argues it has the status of a protected investor.

A spokesperson for the Ukrainian Ministry of Justice confirmed the government had received EMIS Finance’s letter about commencing proceedings. “In accordance with the standard practice of the Ministry of Justice,” a spokesperson said, “we do not comment on pending or potential legal matters which may affect the interests of Ukraine.”

The state takeover of Sense Bank can be traced back to October 2022, when the Ukrainian parliament passed legislation allowing the government to nationalise insolvent banks. But that left a hitch: Sense Bank was solvent. Even the National Bank of Ukraine (NBU) admitted as much, stating that despite losses and outflows, the institution was healthy. As Katerina Rozhkov, the chairperson of the NBU noted in January 2023, there were “no factors” that threatened the bank’s solvency.

Not to be dissuaded, the Kyiv government promptly changed the law, last May passing new legislation allowing banks to be declared insolvent if some of its shareholders were sanctioned. In the case of Sense Bank, three of its indirect shareholders had indeed faced sanctions from both the UK and Ukraine, with the latter imposed by a body called the National Security and Defence Council. That, in turn, meant the bank could be declared insolvent, despite the state of its accounts and the positive noises from regulators.

“Not to be dissuaded, the Kyiv government promptly changed the law.”

A month later, on 5 June 2023, President Zelensky duly signed a bill authorising the sale of 100% of Sense Bank’s stock to the Ukrainian Ministry of Finance — with no compensation for shareholders. It was now officially owned by the state, and a few days later the Economic Security Bureau seized hundreds of assets belonging to Sense Bank, encompassing everything from shopping centres to apartment blocks. A new CEO and board of directors were swiftly installed too, with the transformed Sense Bank due to be reprivitised next year. The IMF, for its part, is currently choosing an internationally recognised financial advisor to prepare the bank for sale.

Not that the alleged victims here are quietly accepting their fate. Beyond EMIS Finance’s letter to Zelensky, ABH Holdings, the Luxembourg-registered former owner of Sense Bank, has filed a $1 billion lawsuit against Ukraine in the international arbitration court. Based on the bilateral investment treaty between Ukraine and Luxembourg, ABH Holdings seeks compensation for what a spokesperson calls the “illegal expropriation of Sense Bank by the authorities through enforced nationalisation done in an arbitrary, disproportionate, and discriminatory manner. By combining methods of corporate raiding and war profiteering, the Ukrainian authorities have unlawfully taken the bank from its rightful owners”.

Once the case is heard in court, Zelensky’s role will likely become clearer. The president, after all, is also head of the very National Security and Defence Council that enacted sanctions against key Sense Bank shareholders. Zelensky also nominated the National Bank of Ukraine’s governor, who strongly supported the nationalisation of Sense Bank and rejected a proposal to sell the institution to independent non-sanctioned investors.

This lawsuit is progressing, but the Ukrainian government is anxious for the court hearings to be held in secret, and for the evidence to remain confidential. ABH Holdings rejected this suggestion, insisting that Ukraine abides by the international arbitration rules stating that “confidentiality is neither agreed nor envisaged”.

In the meantime, the EMIS lawsuit against Ukraine is proceeding — nor do experts expect the legal cases against illegal nationalisation to end there. “This conflict has one primary consequence,” argues Baiju Vasani, a UK barrister who specialises in Ukrainian investor state cases. “It increases the number of arbitration cases against Ukraine brought under international investment treaties for breaching international law. I expect these cases to pile up in the next few years, as foreign nationals and companies seek billions of pounds in damages for their stolen property.”

Together with the latest news from across the Atlantic — with Donald Trump potentially poised to cut off aid to Kyiv and even impose a peace treaty on the country — the next few months could be rocky indeed for President Zelensky. For the moment, though, Sense Bank belongs to his government.


Mark Hollingsworth is a freelance journalist and author. He is the author of Londongrad – From Russia with Cash, the Inside Story of the Oligarchs and his most recent book is Agents of Influence – How the KGB Subverted Western Democracies.

markhollings41

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Brett H
Brett H
24 days ago

Well, we’ll, well.

Tony Taylor
Tony Taylor
24 days ago

It probably will. Among the former Soviet states kleptocracy is a cherished ambition.

Jim Veenbaas
Jim Veenbaas
24 days ago

Unbelievable. And why have I not heard of this until now? Is any of this being covered in the regime media?

Lancashire Lad
Lancashire Lad
23 days ago
Reply to  Jim Veenbaas

I suspect it’s a way of ‘preparing us’ for how things will turn out in the very near future.

Michael Clarke
Michael Clarke
23 days ago
Reply to  Jim Veenbaas

Are you kidding me? Ukraine has been a by-word for corruption fir quite some time. Even the Western MSM has felt compelled to hint at it occasionally.

Jürg Gassmann
Jürg Gassmann
22 days ago
Reply to  Michael Clarke

Quite. Ukraine has consistently been on Transparency International and other watchdogs’ lists of most corrupt countries in Europe, and before the narrative was changed, corruption and rule of law were two of the greatest obstacles to an EU membership (ignoring the political problems of agricultural subsidies).

John Galt
John Galt
24 days ago

Zelensky and the Ukrainians are, in their minds at least, fighting existential threat to their country. They don’t care about economics right now beyond how to produce weapons and armor and get it to the front lines.

I believe it was Helmuth Von Moltke the Elder that said “Economics have never stopped a war in progress.” The people having their assets seized can complain all they want, but the calculus from the siezers perspective is they sieze goods now and maybe later have to deal with the consequences later, or suffer a slow agonizing death now. It’s not much of an equation, it’s the reality of total war, something that has been absent from the western consciousness for a long time now.

As for corruption it’s inevitable, the first and primary duty of the state is to ensure the rule of law, even when well resourced and in peace time many governments struggle to do so perfectly, it turns out when all the efforts of the state are dedicated towards the struggle for survival the concern for pursuing justice takes a back seat.

I think the corruption is bad and should be ferreted out but it was also inevitable to believe other wise is foolish. If we are speaking from just a real politik perspective the more Russians the Ukrainans kill and the more havoc they deal on the structure of the Russian state the better for the Western Powers.

Brett H
Brett H
24 days ago
Reply to  John Galt

the more Russians the Ukrainans kill and the more havoc they deal on the structure of the Russian state the better for the Western Powers.
Why is that?

Chris Van Schoor
Chris Van Schoor
23 days ago
Reply to  John Galt

The conflict in the east of Ukraine is nowhere near an “existential threat”, or “total war”! If it was, Kiev would be a glazed parking lot by now. Instead it is a bustling, cosmopolitan city, little affected by the “war”. War has not even been declared (as far as I am aware). The limited armed action is aimed solely at relieving Russian-speaking residents (separatists) of eastern Ukraine of the “existential threat” to their livelihoods at the hands of Kiev since 2014, and at ensuring Ukraine remains a neutral State.
As for dreams of weakening Russia, well, that is all it is: a dream.

Anna Bramwell
Anna Bramwell
23 days ago
Reply to  John Galt

Very moving. But is their survival really dependent on stealing the billions in financial aid given each year? Does hyper inflation,large scale nationalisation and serious mismanagement really help to win the war? Before its partial nationalisation, Ukraine was the 4th largest arms manuufacturer in the world. Ukraine cant buy arms,the normal procedure in war time, because they are utterly bankrupt.

William Amos
William Amos
23 days ago
Reply to  John Galt

Helmut von Moltke is an interesting name to conjure with in the context.
He speaks, arguably, for the experiment in lawless Prussian militarism which culminated in Hitlerism and to which in fact Putin is often called the heir.
it was a system of governance which was eventually defeated, utterly and comprehensively, by the Anglo-American rule-of-law societies in 1918 and 1945. Chiefly, in the first instance, by economic blockade, I might add.
As far as existential threats go, Britain faced a crisis quite as acute as Germany did in 1916 (or Ukraine now for that matter) but in the famous case Attorney-General v De Keyser’s Royal Hotel Ltd it was decided categorically that the royal prerogative does not entitle the Crown to take possession of a subject’s land or buildings for administrative purposes connected with the defence of the realm without paying compensation.
This built on the Defence Act of 1842 and the Bill of Rights of 1688 which was also carried over into the United States as the The Third Amendment of the United States Bill of Rights.
The Rule of Law is one of the principles we are said to be supporting in the Ukraine. I am always disturbed to see how quickly the proponents of the ‘Good and Evil’ paradigm begin to make allowance for the criminal failings of our allies. I remember it all too well in Iraq.

J Bryant
J Bryant
23 days ago
Reply to  William Amos

Interesting history lesson.

D Walsh
D Walsh
23 days ago
Reply to  J Bryant

He forgot of course it was mainly the Red Army that defeated Hitler
Rule of law is a great concept, be nice if two tier Keir believed in it

jane baker
jane baker
23 days ago
Reply to  William Amos

Rule of law? Both WW1+2 had undercurrents we don’t get told about. It’s in the paperwork in the archives but no one’s ENCOURAGED to retrieve it and research it. Our belief in the standard simple narrative is more convenient.

jane baker
jane baker
23 days ago
Reply to  John Galt

All Ukranians are deeply dishonest.

Dash Riprock
Dash Riprock
23 days ago

The country is in an existential war. The examples cited are small vs the aid given. Most western military dollars mostly go to their own defence companies. Ukraine isn’t perfect. There is reasonable transparency and redress it seems from this article, which will probably grow.
It’s fine, of course, to discuss these issues, but the title? When has war not been accompanied by some degree of profiteering?

Brett H
Brett H
23 days ago
Reply to  Dash Riprock

Commercial assets being seized is a little different from “some degree of profiteering”.

Dash Riprock
Dash Riprock
23 days ago
Reply to  Brett H

The question is why they were seized, which presumably will become clear. It seems unlikely that Ukrainian govt actors wouldn’t be aware of scrutiny and recourse over such measures.

Alex Lekas
Alex Lekas
23 days ago
Reply to  Dash Riprock

The examples cited are small vs the aid given. ——–> So how much theft is okay before it starts being an issue?

Dash Riprock
Dash Riprock
21 days ago
Reply to  Alex Lekas

Not the point. The entire article asks whether Ukraine has become a ‘kleptocracy’, and as evidence cites relatively minor theft and embezzlement vs the volume and value of aid given. Everyone knows about Ukraine’s corruption problems before the war, which was one reason it wasn’t near NATO membership. There have been significant counter-corruption movements in politics for well over a decade. Context and balance are important.
The ‘kleptocracy’ theme mirrors the ‘Nazi’ theme, which has dropped back to a large extent, but took the FR roots of the Azov battalion and similar small elements in politics/the military and tried to characterise the country and regime off these. The FR gained 3% of the vote in the last Ukrainian elections before the war.
The ‘stealing’ and ‘nazi’ angles have often been used to undermine the case for supporting Ukraine, which is really (1) to keep its people free of Russian control (2) discourage Russia from wider ambition to preserve longer term security for Europe.

Alex Lekas
Alex Lekas
23 days ago

Ukraine already is a kleptocracy, what is this ‘becoming’ nonsense? It has always been a corrupt place and that did not change under Zelenskyy. War has simply been an impetus for more of that; armed conflict is and has been big business for a long, long time.
I see a couple of justifications for this theft with the claim of “an existential war” being afoot. That is not true. Russia has no desire to take over and manage Ukraine. This war has been lost. It has been lost for a long time. The end result will be a loss of some land where ethnic Russians live and Ukraine’s commitment to neutrality. That was the case in the spring of 2022 when talks were lined up but the US dispatched Boris Johnson to stop them.

Christopher Elletson
Christopher Elletson
23 days ago

Becoming?

Jürg Gassmann
Jürg Gassmann
23 days ago

I’m shocked. SHOCKED!

Jürg Gassmann
Jürg Gassmann
23 days ago

The sad truth is that the only prospect of salvation for Ukraine is if Russia occupies Ukraine, repudiates all the agreements with BlackRock etc., and re-establishes rest-Ukraine on a new footing shorn of all the debt to inimical institutions.

0 0
0 0
23 days ago

Anecdotal but interesting. Just returned from a mult-week trip to Croatia. One of our guides in and around Split was commenting on how many wealthy Ukrainians had been arriving into the country and particularly into Split. He said to look at all the expensive cars driving around and check the license plates and the drivers. I started watching for them and most of the really expensive ones were sporting Ukranian plates and 20-something occupants. Interesting.

J Bryant
J Bryant
23 days ago
Reply to  0 0

20-something occupants
I thought there was mandatory conscription for male Ukrainians in that age group.

Insufferable American
Insufferable American
23 days ago
Reply to  J Bryant

Corruption around mobilization is so severe that Ukraine’s Prosecutor General Andriy Kostin was forced to resign after it was discovered dozens of other officials had avoided conscription by falsely claiming disability status.

jane baker
jane baker
23 days ago
Reply to  J Bryant

No. They all buy Exemption certificates. Watch you tube Pavlo from Ukraine.

D Walsh
D Walsh
23 days ago
Reply to  J Bryant

No not yet, throwing the youngest men into the meat grinder will be the last roll of the dice

Alexander van de Staan
Alexander van de Staan
23 days ago

The Zelensky cabal makes Nigerian elites look like paragons of integrity and virtue.

jane baker
jane baker
23 days ago

It always was. With Flo Capps new pension plan sounds like we’re going that way too

jane baker
jane baker
23 days ago

Get him on Tax Evasion.

Alexander van de Staan
Alexander van de Staan
23 days ago

The Zelensky Cabal makes Nigerian elites look like paragons of integrity and virtue in comparison.

david lucas
david lucas
23 days ago

Hmmmm. A hick from Indiana named Axl Rose has more insight about war, the costs of war, and the need to avoid war than all the “smart set” that tells us we can’t have Matt Gaetz as Attorney General.

Look at your young men fighting
Look at your women crying
Look at your young men dying
The way they’ve always done before
Look at the hate we’re breeding
Look at the fear we’re feeding
Look at the lives we’re leading
The way we’ve always done before
My hands are tied
The billions shift from side to side
And the wars go on with brainwashed pride
For the love of God and our human rights
And all these things are swept aside
By bloody hands, time can’t deny
And are washed away by your genocide
And history hides the lies of our civil wars
D’you wear a black armband when they shot the man
Who said, “Peace could last forever”?
And in my first memories, they shot Kennedy
I went numb when I learned to see
So I never fell for Vietnam
We got the wall in D.C. to remind us all
That you can’t trust freedom when it’s not in your hands
When everybody’s fightin’ for their promised land and
I don’t need your civil war
It feeds the rich, while it buries the poor
You’re power-hungry, sellin’ soldiers in a human grocery store
Ain’t that fresh? 
I don’t need your civil war
Ooh, no, no, no, no, no, no
Look at the shoes you’re filling
Look at the blood we’re spilling
Look at the world we’re killing
The way we’ve always done before
Look in the doubt we’ve wallowed
Look at the leaders we’ve followed
Look at the lies we’ve swallowed
And I don’t want to hear no more
My hands are tied
For all I’ve seen has changed my mind
But still, the wars go on, as the years go by
With no love of God or human rights
And all these dreams are swept aside
By bloody hands of the hypnotized
Who carry the cross of homicide
And history bears the scars of our civil wars
I don’t need your civil war
It feeds the rich, while it buries the poor
You’re power-hungry, sellin’ soldiers in a human grocery store
Ain’t that fresh? 
I don’t need your civil war
No no no no no no no no no no no no
I don’t need your civil war
I don’t need your civil war
You’re power-hungry, sellin’ soldiers in a human grocery store
Ain’t that fresh? 
I don’t need your civil war
No no no no no no no no no no no no
I don’t need one more war
Ooh, I don’t need one more war
No no no, no whoa, no whoa
What’s so civil ’bout war anyway?

UnHerd Reader
UnHerd Reader
23 days ago

This is absolutely no surprise to anyone who has been following proceedings in Ukraine and Zelensky’s increasingly desperate behaviour. The proxy war meat grinder must continue at any cost.

Taras Ignashchenko
Taras Ignashchenko
23 days ago

Does the author of this article not bother mentioning that Sense Bank, the renamed Alfa Bank, and ABH Holdings’ beneficiaries are the sanctioned Russian oligarchs Fridman and Aven, who had asset freezes in the UK, EU, and US? Using this only case in the entire article and claiming that ABH Holdings represents Dutch investors is not very professional, to say the least.

John Overstreet
John Overstreet
22 days ago

ABH Holdings is not entitled to its property because of two minority shareholders?

I looked up these shareholders. The European Court of Justice made a ruling last spring according to Politico:
‘the court argued that while there might be “proximity between Petr Aven and Mikhail Fridman and [Russian President] Vladimir Putin,” there isn’t enough evidence to prove that the businessmen have supported the Kremlin’s war against Kyiv, or that they have “supported actions or policies” that undermine Ukraine.’

Michael Clarke
Michael Clarke
23 days ago

Becoming?

Michael Layman
Michael Layman
23 days ago

It appears nothing has changed in Ukraine.