US company fails to fulfill defense contract and must reimburse more than €17 million to Ukraine - FT
A small gun shop in a shopping center in southern Arizona received an unexpected order in 2022: $1 billion worth of ammunition for Ukraine.
This is reported by the Financial Times, Censor.NET reports.
Details of the case
The secret contract came from a Ukrainian arms agency and covered an arsenal of missiles and shells that was so large that on paper its value exceeded Estonia's annual defense budget at the time.
The publication notes that OTL had neither export experience, nor large warehouses, nor experience in accepting orders of a national scale. Ukraine provided €17 million in advance, but never received a single round from the company's then 30-year-old owner.
What did the US court decide?
The federal judge ruled that OTL must return the entire amount, including interest and legal fees, which is more than €20 million.
"The ruling is the first legal consequence of one of the strangest arms procurement attempts during the war in Ukraine, providing a rare glimpse into the chaotic world of battlefield logistics, where urgent demand meets uncertain supply," the author writes.
Contract details
The FT reviewed a contract dated June 2022, which provided for the supply of large quantities of ammunition:
- 10 million 23 mm shells for anti-aircraft artillery;
- 56 thousand missiles for Grad MLRS;
- 24 thousand mortar shells;
- a huge stockpile of other Soviet-era ammunition.
At the time of the contract, OTL's office had only a temporary sign and a few online reviews from local customers praising its "very reasonable prices."
The agreement, "Contract Pr-05," was signed between OTL and Progress, a Ukrainian arms dealer.
"Progress refused to answer questions from the FT about why it decided to transfer millions to a little-known gun shop in Arizona," the author writes.
What is known about OTL
It was registered in July 2020 by Tanner Cook, then 28 years old. In May 2020, according to arbitration documents, Cook and OTL approached Progress with a proposal to supply ammunition from Serbia.
According to the publication, Progress was represented in the agreement with OTL by Kyiv lawyer Mykola Karanko. However, OTL later claimed in the arbitration that Karanko was actually working for the Ukrainian Ministry of Defense, not the company, and that he had asked OTL to make payments to unnamed "third parties" to keep the contract valid. This remained unexplained during the trial. Karanko declined to comment.
A month after the parties met, they signed a $1 billion contract. By November, Progress had transferred €17 million to OTL's account. But in December, OTL sent a letter to Progress apologizing for not sending the ammunition. This was explained by delays in payments from Ukraine. The arbitrators later rejected this explanation.
"Karanko had previously helped broker an arms deal with Iraq that ended in a civil case in Texas in 2009, in which he was accused of interfering with the arms deal by attempting to bribe Iraqi officials. Karanko and his co-defendant were found guilty and ordered to pay multimillion-dollar compensation," the FT article says.
OTL also reported difficulties in obtaining export licenses. In one of the letters, the company noted that the delay was due to "issues related to export licenses in the country of origin of our products." Serbia, one of the two European countries that has not imposed sanctions on Russia, refused to directly arm Ukraine. OTL later claimed that Serbian authorities had blocked the delivery for "political reasons."
The Vienna court ruled that OTL also did not have the necessary U.S. export licenses at the time of the agreement. In early 2024, the arbitrators ruled in favor of Progress and ordered OTL to return €17 million plus penalties. OTL refused, so Ukraine went to a US court to enforce the decision.
Last month, Arizona federal judge Rosemary Marquez upheld the arbitration award, concluding that OTL "failed to deliver the goods as contracted" and "failed to provide a defense."
Since then, OTL has ceased all visible activity at its Tucson address and did not respond to requests for comment.
