How to "disburse" 5 billion on roads and turn them into cash through shell companies and carpets
The last audit of public spending on road construction was in 2018. Since then, the Ukrainian media has published more than one investigation into the activities of the road cartel and abuses at the Big Construction.
At the end of 2023, ZN.UA published a story that without an audit of the SASU (State Audit Service of Ukraine), the NABU (National Anti-Corruption Bureau of Ukraine) could not continue to investigate the case of former head of the Dnipropetrovsk Regional State Administration Reznichenko regarding abuses during road construction in the region.
At the same time, Censor.NET has obtained materials describing abuses that may have been committed by one of the largest road construction contractors – Highway-South Company.
A month ago, Romania signed an agreement with a consortium of concession holders, Avant Airports, and Ukraine's Highway-South Company, to build a new airport near Bucharest.
Mykola Tymofeiev, CEO of Highway-South Company, called the airport the largest infrastructure project in Romania. For Highway-South Company itself, this is also a big plus. After all, for many years the company was the largest road construction contractor in Ukraine, and now our state spends more money on weapons than on asphalt.
Last year, Highway-South's revenue was UAH 8.215 billion. This is about the same as the earnings of the Hlyniana family companies or Atomservice in the food tenders of the Ministry of Defence.
At the same time, two weeks ago, it became known that Highway-South was suspected of improper work performance during the construction of a water supply line in Kryvyi Rih. Therefore, the Service for Restoration and Infrastructure Development is seeking to collect UAH 9.1 million from Highway-South Company LLC.
According to YouControl, Highway-South Company LLC entered the market in 2006. The company was founded by Oleh Nalyvanyi and Valerii Korotkov. The company has long been associated with Hennadii Trukhanov, and for several years Oleksandr Boiko has acknowledged his control over it.
Highway-South Company is Ukravtodor's largest road construction contractor.
For comparison. In 2019, Highway-South Company received UAH 5.8 billion in contracts, while Onur received UAH 2.3 billion and Avtostrada received UAH 1.5 billion. In 2020, Highway-South Company has already received UAH 17.2 billion, while its competitors Rostdorstroi received UAH 7.8 billion, Onur - UAH 6.7 billion, and Avtostrada - UAH 5.8 billion.
In 2021, Highway-South Company won contracts worth UAH 23 billion, Rostdorstroi - UAH 7.6 billion, Onur - UAH 11 billion, and Avtostrada - UAH 12.2 billion.
In previous years, the Antitrust League reported that Highway-South Company was involved in numerous criminal investigations by various law enforcement agencies, starting from the police, tax and SSU to the NABU, regarding tax evasion, embezzlement of budget funds, transfer of 15% kickbacks to Ukravtodor, overpricing of construction materials, use of "bogus firms and envelopes", etc.
According to the Antitrust League, Highway-South Company is "a contractor that includes in the cost of repair and construction of the road for budgetary funds the cost of construction materials 20-50% more expensive than the price at which they were purchased by companies from its influence".
"Nashi Hroshi even published a table with criminal proceedings against the company.
Less than a week ago, the Darnytskyi Court of Kyiv allowed the seizure of more than 100 documents from Kyivsvitlo as part of criminal proceedings. Some of them are related to the Highway-South Company.
The court ruling states that the National Police in Kyiv received a report that during the monitoring of public procurement, where the customer was KYIVMISSVITLO, it was found that the scope and completeness of the work performed "do not comply with the terms of the contract and also contains arithmetic errors, which indicates the embezzlement of budget funds".
Among other things, it was seized:
Calculation of the amount of the planned estimated salary of employees of Highway-South Company LLC original on 2 pp.;
Calculation of the actual indicators of general production costs of Highway-South Company LLC based on the results of 2022 original on 1 p.;
General production expenses by cost items of Highway-South Company LLC for 2022 original on 2 pp.;
Information on the structure, capacity of general production costs based on the results of Highway-South Company LLC in 2022 original on 2 pp.;
Calculation of the actual indicator of administrative expenses of Highway-South Company LLC for 2022 original on 2 pp.
It looks like a very detailed study of the activities of not just Kyivsvit, but a much larger player.
Censor.NET sent inquiries to the National Police and the State Bureau of Investigation about the existing proceedings against Highway-South, but both law enforcement agencies refused to provide such information.
At the same time, the publication has materials that may indicate the possible misappropriation of public funds in the amount of close to UAH 5 billion in 2019-2022 by Highway-South Company LLC and its satellites. This refers to the cooperation of Shliakhovyk 97 LLC, Belohvi LLC, Modern Road Materials LLC, as well as Plaizent-Prom LLC, Medan LLC, Snab Point LLC, Sentvin LLC, Element 29-SN PE, Lary-Mar LLC, and Senturi LLC.
In particular, the materials available to the publication indicate that Plaizent-Prom LLC, Medan LLC, Snab Point LLC, and Sentvin LLC, by conducting their financial and economic activities, leased the same non-residential premises from Highway-South Company LLC one after the other, and Shliakhovyk-97 LLC leases the same warehouses, containers, sites, and other property.
It is known that the companies Plaisant-Prom LLC, Medan LLC, Snab Point LLC, and Sentvin LLC carried out financial and economic activities until law enforcement agencies became interested in their activities.
According to open data, Plaizent-Prom LLC operated from 30.01.2019 to 31.07.2020, then it was replaced by Medan LLC, which operated from 27.03.2000 to 13.08.2021. Today, Snab Point LLC has been operating from 01.12.2000 to the present day and Sentvin LLC has been operating from 14.01.2022 to the present day.
How are these companies connected? As already mentioned, only recently Boiko admitted that he owns Highway-SouthCompany. The registers indicate that he is also the founder of Shliakhovyk-97 LLC, which is the main supplier of materials for Highway-South Company. The director of Shliakhovyk is his brother Yurii Boiko, also known as the manager of Highway-South Company.
In Modern Road Materials LLC, Shliakhovyk-97 LLC is the 50% shareholder.
Probably, Plaizent-Prom LLC, Medan LLC, Snab Point LLC, and Sentvin LLC are shell companies that, according to the materials available to the publication, are used to carry out fraud.
The fact that all these companies are connected is also evidenced by a court ruling in one of the criminal proceedings against Shliakhovyk-97 LLC on the fictitious purchase of bitumen.
As part of the seizure of evidence, "documents, seals and stamps of non-resident legal entities Lightcom Trade LLP SEAL, TRIDENT OVERSEAS MANAGEMENT LTD COMPANY SEAL, WESTPARK BUSINESS LTD ANGUILA, SZSK St. Petersburg LLC, as well as the seal of MEDAN LLC, SNAB POINT LLC, SENTIN LLC and others" were found and seized from one of the defendants in the case.
"The discovery of these seals subsequently led to the discovery and seizure of primary financial and economic documents containing the details of these companies in connection with the existence of the belief that these business entities are controlled by officials of Shliakhovyk-97 LLC and Highway-South Company LLC," the court ruling reads.
The company Highway-South Company LLC commented on the ties with these companies to Censor.NET:
"In total, the company's database contains more than 10,000 counterparties (suppliers of construction materials and other inventory). However, the disclosure of commercial information on prices and supply volumes, if the company is not its sole owner, contradicts the confidentiality policy and the terms of contracts with counterparties," the company said in its response to the publication's request.
The question about the lease of premises by shell companies was answered: "The lease of industrial or other premises is not the company's core business. However, the company may lease premises to other manufacturers to organize more efficient supplies for the company's needs. All deeds are confirmed by relevant documents".
After all, the materials available to Censor.NET describe the possible misappropriation of public funds through various schemes.
The details of the abuse can be traced back to the way the individual components - sand, loam, bitumen, etc. - were purchased.
In the register of court decisions, Censor.NET found proceedings describing one of these schemes.
"In the course of the pre-trial investigation, it was reported that officials of Highway-South Company LLC in league with officials of the Road Service in Dnipropetrovsk region, the former head of the Service PERSON_5 , INDIVIDUAL ENTREPRENEUR (IE) PERSON_6 and officials of Petrykivka Fish Farm PJSC organized the embezzlement of budget funds during the construction of the state road H-31 "Dnipro-Tsarychanka-Kobeliaky-Reshetylivka" by deliberately inflating the cost of sand, as well as its illegal extraction in the territory of Petrykivka district of the Dnipropetrovsk region," the ruling reads.
For the construction of the road, Highway-South Company LLC purchased sand through Plaizent-Prom LLC, Phil Good Incorporated LLC, Concrete Coverings and Technologies LLC, and Shliakhovyk-97 LLC.
As reported, the sand for the road in the Dnipropetrovsk region was allegedly brought from the Vinnytsia region.
"Thus, officials of Highway-South Company LLC entered into official documents information on the cost of purchasing sand at a price that is 340% higher than the market price: while the market price of a tonne of sand ranges from UAH 35 to 65 per tonne, Highway-South Company LLC will purchase sand from controlled companies at a cost of UAH 124 per tonne," the ruling says.
At the same time, the pre-trial investigation revealed that sand was extracted on the territory of Ivanivka village, Petrykivka district, Dnipropetrovsk region, "without the availability of title documents for such a land plot, as well as extraction permits".
To confirm the crime, officials of Petrykivka Fish Farm PJSC (which used the land plot) found "draft" records, money obtained by criminal means, documents and magnetic data carriers confirming criminal activity, seals and stamps, etc. in the premises located on the said land plot."
The only information found in the register was that the Dzerzhynskyi District Court of Kryvyi Rih did not extend the investigation.
Other stories are known.
Thus, according to the source, over the entire period of financial and economic activity, Snab Point LLC purchased 292,508.30 tonnes of stone sand mixture, worth UAH 115.6 million.
The main suppliers of stone sand mixture to Snab Point LLC were PE Leader, Technical Centre Snami LLC, Comfort LTD, Kryvbas-Schebin, and others.
Snab Point LLC had two main buyers of stone sand mixture:
1). Highway-South LLC - 272,356.70 tonnes worth UAH 130,976,377.80.
2).Shliakhovyk-97 LLC - 22,054.61 tonnes worth UAH 11,507,414.40.
Thus, Snab Point LLC sold 2,000 tonnes more of the mixture than it bought, and the company's potential overpayment was UAH 26.8 million. And this is the budget's money.
There is also a case of diesel fuel supply. If we check the available data, the main supplier of diesel fuel to Highway-South Company LLC was Eurostandard LLC. But Boiko's company bought diesel from it directly only in small volumes. Instead, the bulk volume was purchased through "shell companies " Plaisant-Prom LLC, Medan LLC, Snab Point LLC, and Sentvin LLC, the publication was told.
For example, over the entire period of financial and economic activity, Plaizent-Prom LLC purchased 29,671,375.95 liters of diesel fuel.
The lion's share of the diesel was purchased from Eurostandard LLC - 28,253,367.44 litres for a total of UAH 585,130,910.64.
Another part of the fuel was purchased by the shell company from Raf-Service, Vano Trade Group and Sol-Ahrotrade.
The main buyers of diesel fuel from Plaizent-Prom LLC were:
1) Highway-South Company LLC - 24,702,737.63 liters worth UAH 681,141,197.88.
2) Shliakhovyk-97 Company LLC - 1,587,285.00 litres in the amount of UAH 40,838,875.20.
3) LLC "Modern Road Materials" - 1748 liters worth UAH 45,454.99.
Several other companies bought diesel in small volumes.
But as a result, according to available documents, about 3 million liters of diesel worth more than UAH 0.5 billion remained nonrealized at Plaizent-Prom.
And since the purchase of diesel fuel by Plaizent-Prom LLC from a company such as PE Raf-Service provided an opportunity for the groundless formation of a tax credit for Highway-South Company LLC, this story is beginning to acquire the signs of the so-called "twists", which, according to Danylo Hetmantsev, have long been absent in Ukraine.
In addition, Raf-Service LLC is involved in several criminal proceedings, where it is stated that this company has signs of fictitiousness for transferring non-cash money into cash.
The story is similar to Snab Point, which also mainly bought diesel from Eurostandard and sold it to Highway-South Company, Shliakhovyk-97 and Modern Road Materials. As a result, Snab Point bought 742.6 million worth of fuel and sold 834.8 million. Thus, according to the documents, more than 92 million budgetary funds, which were most likely misappropriated
The above-mentioned companies sold very different products to large construction companies. For example, the aforementioned Plaizent-Prom LLC supplied not only diesel but also loam. Why not? These are very similar areas. Larger multi-machine operators worked only on MoD's supply.
Thus, according to the analysis available to Censor.NET, over the entire period of financial and economic activity, Plaizent-Prom LLC bought 313,928.90 tonnes of loam, while it sold 46,9948.3 tonnes to Highway-South Company LLC. In other words, it sold 156,019.40 tonnes more than it purchased.
The average purchase price for loam by Plaizent-Prom LLC was UAH 20 excluding VAT per tonne, and the average price for its subsequent sale to Highway-South Company LLC was UAH 35.26 excluding VAT per tonne. If you calculate the difference in hryvnias, you will get about UAH 13.8 million, which probably ended up in someone's pockets.
In addition, Highway-South Company LLC purchased 138618 tonnes of loam from Medan LLC for UAH 10,037,038.80.
The average purchase price of loam by Medan LLC is UAH 33.35 excluding VAT per tonne, and its subsequent sale to Highway-South Company LLC is UAH 42.35. The company earned UAH 1.5 million.
"Medan was established in 2020 and liquidated in 2021. This year, its existence was enough to become a subject of a National Police investigation and to become the subject of journalistic materials.
For example, journalist Inna Popovych said in a video blog for Watchdogs.Info that this company was registered in a department store in Vinnytsia, and its owner and director is Denys Lobodin from Chornomorsk, Odesa region. He is also an employee of Highway-South Company.
Popovych's article stated that Highway-South Company LLC, through its related intermediary Medan LLC, inflated the cost of materials for road construction by at least UAH 340 million.
Highway-South Company also bought concrete from the same Plaizent-Prom LLC, Medan LLC, and Snab Point LLC. Although all these shell companies purchased from other companies. For example, Vakula-T LLC, Concrete Coatings and Technologies LLC, Budindustriia-1 LLC, TIR LLC, Betonbud LLC, Beton Center SE, MTS-Beton LLC, Yuh-Beton LLC, etc.
As a result, Plaizent-Prom LLC sold 15,005.17m3 of concrete to the state contractor. While Plaizent-Prom LLC paid 31.4 million for the concrete, it sold it to Highway-South Company for 43.8 million. As a result, more than UAH 12 million of budget funds were wasted.
By the way, according to the materials available to Censor.NET, the shell companies then cashed out the money.
For example, in order to obtain cash, Plaizent-Prom used so-called "twists": when, in order to form a tax credit, Plaizent-Prom LLC purchased household goods for the population for UAH 12 million (carpets, lamps, chests of drawers, beds, chairs, soap dishes, benches, glasses, floor lamps, sconces, knitted fabric rolls, spinning rods, fishing hooks and many other goods).
These goods were sold for cash and documented as being sold to Plaizent-Prom LLC. However, in reality, none of these goods were sold.
Censor.NET asked Highway-South Company for a comment to confirm the existence of purchases from these companies, as well as to explain why they bought from them and not from manufacturers.
"Highway-South Company provided the following response: "The choice of a material supplier by construction companies is related to a number of factors: availability of the required volume of products, the ability to ensure delivery on time, the ability to organize delivery to a specific location, the provision of a significant deferred payment, product quality guarantee, etc. So the price factor is important, but not the only one. That is why construction companies work with both manufacturers and traders. Usually, Highway-South Company selects a supplier based on internal tender procedures."
The author of this article is far from believing that the described schemes are unique to this market but raises questions about the effectiveness of law enforcement and the judiciary.
Tetiana Nikolaienko, Censor. NET
