Ukraine lost $1.2 billion in 2024 alone to fraud and mismanagement in defence procurement – NYT
In 2024 alone, Ukraine lost about $1.2 billion to fraud, waste and mismanagement in defence procurement.
This is according to The New York Times article "In Ukraine, Fraud and Waste Are Rewarded With More Weapons Contracts", Censor.NET reports.
Scandal involving the Pavlohrad Chemical Plant
The article describes, in particular, the Pavlohrad Chemical Plant’s supply of thousands of defective mortar rounds to the Ukrainian army.
"As Russian soldiers attacked trench lines in eastern Ukraine in 2024, Ukrainian artillery crews opened fire.But the rounds, instead of exploding near the advancing troops, flopped out of launch tubes or landed with quiet thumps, kicking up puffs of dust," the newspaper writes.
The plant’s director, Leonid Shyman, was subsequently arrested and charged with corruption.
Yet even after officials noticed that defective weapons were arriving, government audits obtained by the NYT show that Ukraine’s Defence Procurement Agency (DPA) continued to award new contracts to Shyman’s plant.
According to government audit reports and court documents obtained by the newspaper, seven of Ukraine’s ten largest military contractors received new orders despite ongoing criminal investigations into fraud, failures to fulfil previous agreements or the arrests of executives on corruption charges.
The NYT notes that Shyman was under investigation by anti-corruption agencies, including over allegations of embezzlement and fraud, when he won his first contract to supply mortar rounds. The government signed the $280 million deal while he was out on bail in a corruption case.
Auditors noted that the Pavlohrad Chemical Plant initially reported that it lacked the capacity to fulfil the order, but later changed the information about its production capabilities without explanation.
Government auditors found no evidence that anyone had attempted to verify whether the plant could fulfil the order.
When defective mortar rounds began arriving, auditors noted that the Defence Procurement Agency "failed to draw the appropriate conclusions". Instead, it awarded the plant even more orders, including a contract to supply almost all of the military’s 122 mm artillery shells in 2025.
"Confidential audits conducted by the State Audit Service and the Defence Ministry’s internal audit unit exposed a military procurement system plagued by mismanagement. The documents show that warning signs are ignored, while overcharging or failure to fulfil obligations rarely carries any consequences," the article states.
Auditors identified 18 companies that secured deals despite failing to fulfil previous agreements. Six of these companies had not fulfilled a single contract.
Internal government audits showed that in 2024 alone, Ukraine lost about $1.2 billion to fraud, waste and mismanagement in defence procurement.
In particular, auditors found that around $126 million was lost through lower bids being ignored and weapons being purchased at inflated prices.
In one case, companies remain in a legal dispute over the fate of at least $100 million paid in advance under a deal that fell through.
The audits by the State Audit Service and the Defence Ministry’s internal audit unit cover 2024 and 2025.
The most expensive intermediary for Turkish rockets
The article also describes how the Defence Procurement Agency selected the most expensive of three bids to supply artillery rockets manufactured in Turkey. The DPA launched the tender, worth hundreds of millions of dollars, to purchase rocket artillery ammunition in 2024.
Three companies responded. One said it could supply the rockets for the equivalent of around $4,200 each. The second asked for $4,600. The third quoted $5,100.
All the rockets were identical, manufactured at the same factory by the same company in Turkey. The only difference was the price.
The Turkish manufacturer Arca Defense offered the lowest price, indicating that a direct purchase from the factory was possible.
However, the contract went to the company that quoted the highest price – a subsidiary of Czechoslovak Group, a major Czech holding company.
"Instead of purchasing directly, the government chose to pay the Czech company to act as an intermediary. Auditors found ‘no grounds for making such a decision’. Previous audits had warned against purchasing through intermediaries, but the government did not heed that advice," the NYT writes.
The newspaper calculated that the decision increased Ukraine’s spending on the rockets by an estimated $130 million.
Spetstechnoexport became the DPA’s largest debtor
In 2024, the Defence Procurement Agency sought to purchase Soviet-design rockets from a Serbian manufacturer. Because of Serbia’s pro-Russian policies, Ukraine relied on a chain of intermediaries to obtain the rockets.
The government signed a contract with the Ukrainian state-owned arms supplier Spetstechnoexport. According to auditors, the company had a history of failing to fulfil contracts, and its executives were suspected of embezzlement and money laundering.
Anti-corruption agencies also publicly announced that they were investigating possible embezzlement and money laundering by the company’s former executives.
Auditors also noted that Spetstechnoexport did not hold a Serbian export licence for the rockets. According to the auditors, the company provided a "letter of guarantee" from Ukrainian military intelligence instead of a licence. The auditors noted that this preferential treatment had no legal basis and was granted despite the company’s history of failing to fulfil its obligations.
Spetstechnoexport then entered into a subcontract with the US arms company Regulus Global.
This contract was one of several signed between Regulus Global and Spetstechnoexport, with a combined value of $1.7 billion. Regulus Global, led by former Merrill Lynch stockbroker William Somerindyke Jr., already had experience supplying weapons to the Ukrainian army, the article states.
However, the rocket supply deal began to unravel.
Somerindyke said that then-Defence Minister Rustem Umerov sought to remove intermediaries from the arms manufacturing business. He asked Regulus to work directly with the state procurement agency, effectively removing Spetstechnoexport from the process.
Ultimately, the deal fell through, and by early 2025, Spetstechnoexport had become the procurement agency’s largest debtor, with more unfulfilled contracts than any other supplier, auditors found.
In the fallout, the Ukrainian government sued Spetstechnoexport for late penalties and interest. Spetstechnoexport, in turn, demanded money from Regulus.
Somerindyke said his company had done nothing wrong and had simply been "caught in the middle" during the reorganisation of Ukraine’s defence procurement system.
