Change of Power or Oligarchs?

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Change of Power or Oligarchs?

Kherson, Ukraine - War with Russia
Kherson, Ukraine – War with Russia

On the morning of February 22, the Verkhovna Rada began its session at the usual time of 10 a.m. However, there was no Speaker. Speaker Volodymyr Rybak, a deputy from Yanukovych’s Regions party, had resigned. So had the First Deputy Speaker, a deputy of the Socialist party.165 Their resignation letters were read out by Ruslan Koshulynskyi, The Girl in Kherson Second Deputy Speaker and a member of the nationalist Freedom Party.

Having learned about the resignation of the Speaker and his First Deputy, and that Yanukovych himself had quietly disappeared from Kyiv, the opposition went on the attack. Along with Yanukovych, his loyal acolytes – Attorney General Pshonka, Interior Minister Zakharchenko, and Treasury Minister Klymenko – had also fled the country.166 The night before, behind-the-scenes negotiations had been held in the Verkhovna Rada resulting in a number of deputies from Yanukovych’s Regions party, almost all independent deputies, and even a few communists joining the opposition.

With a quorum of the Verkhovna Rada’s 450 deputies in attendance, the opposition first seized legislative majority and then Ukraine’s executive powers. About 240 deputies supported these resolutions. Just before lunch, Oleksandr Turchynov, one of the leaders of Tymoshenko’s Fatherland party, was elected as the new Speaker of parliament. The Rada also passed a resolution of censure, stating “that Mr Yanukovych has vacated his constitutional duties, threatening the governance of the state, the territorial integrity and sovereignty of Ukraine, and the mass violation of citizens’ rights and freedoms.” Presidential Elections were promptly scheduled for May 25, 2014. The Verkhovna Rada also announced the return to the 2004 Constitution and appointed Speaker Turchynov as the country’s Acting President in order to maintain a tight leash on the country’s most powerful executive office.

Opposition party deputies demanded other stringent measures, including the abolition of the Socialist Party. Yanukovych’s Regions party and the Communists remained silent throughout. A new government and new Interior Minister and Attorney General were appointed in order to swiftly restore order in the country.167

On February 22, Tymoshenko was released from prison and immediately flew to Kyiv. The next day she appeared before the EuroMaidan, hoping to be greeted as a triumphant figure. But it could not be called a triumph. Tymoshenko was greeted with ambivalence: by some with joy, by others with distrust. The Maidan princess of 2004 did not become the EuroMaidan queen of 2014.168 Some suggested she ought to retire from politics, while others advised her to fight for the Presidency, which was more to her liking.

The new government laid all the blame for the country’s chaos on the law-enforcement branches and withdrew Interior Ministry officers from Kyiv. Next, the widely-loathed Berkut riot police, accused of exceeding its authority, was in fact abolished and withdrawn. Some of the Berkut officers fled to Crimea or defected to Russia, taking Russian citizenship (they were later redeployed by Russia to foment unrest in eastern Ukraine). Virtually the entire leadership of the Interior Ministry, both centrally and locally, was fired. Of course, this led to quiet neglect by the rest of the police of their immediate duties. The police, called to protect public order, worked to rule, quietly watching from the sidelines as representatives of various political formations beat each other up in the squares of various cities.

The events in Kyiv clearly scared Yanukovych’s party, which on February 22, on the initiative of Kharkiv governor Mykhailo Dobkin, decided to convene a rally under the banner of “Ukrainian Front”, which was attended by deputies of local councils in southeastern Ukraine and Crimea, mostly from the Regions party.169 In addition, governors of neighboring Russian regions (Belgorod, Kursk, Voronezh, and Rostov) and a delegation from the Russian State Duma attended the rally as guests. The “Ukrainian Front” was held in the Sports Palace in Kharkiv, surrounded by supporters of EuroMaidan, who were shouting “East and West together!”, “Out with the Gang!”, “Kharkiv, Rise Up!”, and so on. It proved to be a tumultuous setting.

Yanukovych, who had both left Kyiv and his wife of forty-three years in Donetsk, showed up in Kharkiv with his new girlfriend. He planned to speak at the rally and lead a march from eastern Ukraine to Kyiv. In the end, he did not attend in person. He did send a video address to the people of Ukraine in which he reminded them that he was still the legally elected President of the country and would not sign any decisions of the Verkhovna Rada that had been issued in his absence – something the Rada had not asked Yanukovych to do given his flight from the capitol.

Contrary to expectations, no sweeping statements about Ukraine as a state were made at the Kharkiv rally. A non-binding resolution that was passed by those in attendance did not even use the words “autonomous regions” or “federalization” of Ukraine. It boiled down to: “given the events of the last days in Kyiv, local self-governments take responsibility for ensuring order on the ground until the restoration of constitutional order and legality, as well as the legitimization of the new government”. This did not stop Kyiv from accusing the rally of separatism because the resolution questioned the legitimacy and constitutionality of the central government.

The organizers of the congress were clearly nervous, rushing the speakers, and urging delegates to keep in mind the hostile crowd who had gathered for the rally near the Palace of Sports. Governor Mykhailo Dobkin as well as Kharkiv Mayor Gennady Kernes, the leaders of Kharkiv, disappeared, bewildering their guests from Russia. A couple of days after the event, they reappeared, explaining their absence by urgent business trips. Soon after, Dobkin was fired and put under house arrest; Kernes was charged with a number of crimes (which he denied). Then he, too, was put under house arrest. In late April, during a bicycle ride, Kernes was attacked. He was taken to the hospital with a severe bullet wound and then transported to Israel, where surgeons saved his life.

Yanukovych, meanwhile, having assured his people in his video messages that he would be with them “until death,” tried to leave Ukraine together with his new girlfriend. But Ukrainian border guards would not let him leave when he tried via Kharkiv, Donetsk and then Luhansk. Then Yanukovych left for Crimea, from where he was “escorted” to Rostov-on-Don, Russia. This city became his temporary foreign residence as the Russian government had expressly forbidden Yanukovych to go to Moscow. From late February to April, he appeared at press conferences in Rostov and made all kinds of statements about the situation in Ukraine, meanwhile calling on Russia to “restore legitimacy” in his country. But Yanukovych had already become a lame duck, perhaps the reason why it was repeatedly reported in the press that he was dead.

On February 27, the Verkhovna Rada inaugurated Arseniy Yatsenyuk as Prime Minister.170 In his address, Yatsenyuk said that the country was in danger, the Treasury was empty due to the previous government, but the path towards European integration would be unshakeable.171 The new Ukrainian government – which was not recognized by Russia, but was recognized by Western European nations and the US, as well as the large Ukrainian diaspora abroad – began to make its first decisions. Only four people had government experience and the 21 ministers were carefully balanced across all the parties who had taken part in the opposition to Yanukovych. Tymoshenko’s Fatherland party claimed the largest number of ministers, seven in all. 172

 

Having subsequently passed “approval” through the people’s “purgatory” – the EuroMaidan – the government zealously set to work. The main task was to patch up the holes in the state budget created by the previous government. The $3 billion tranche given to Russia to the Yanukovych government was running out, and Russia had no intention of extending the remainder of the $15 billion loan to the new government. Then the Ukrainian government turned to the US and EU for help. The International Monetary Fund agreed to provide the bulk of a $17 billion facility if Ukraine complied with certain political and economic conditions.

Yatsenyuk also appealed to the US and EU to block the assets of the Yanukovych family and other representatives of the former Ukrainian government abroad, but there was no discussion of returning these funds to Ukraine. An initiative to do so foundered as none of the oligarchs had the slightest interest in this.

It begs the question: which clans controlled Ukraine on the eve of Russia’s covert military campaigns in Crimea and Donbas?

 

The Donetsk clan

 

After the ousting of the Yanukovych clique, new political forces backed by the oligarchs came to power. In fact, they were the same oligarchs who had previously supported both the old government (openly) and the opposition (covertly). Their calculation had always been that you have to be friends with the ruling majority and support the opposition minority, because if the government falls, the opposition you support will come to power, and your economic interests will still be taken care of. “Down with the old oligarchs – long live the new oligarchs!” might apply elsewhere but not in Ukraine because the oligarchs remained the same, even if political power changed hands. A number of oligarchs had stable seats in the Rada: the 20 richest members of the Ukrainian Parliament had a combined wealth of $8.6 billion.173

 

The roots of this unhealthy mix of economic and political power went back to the 1990s era of independence and the distribution of state property among Ukraine’s main players – former Presidents and Prime Ministers, heads of special services and law enforcement ministries. Their main purpose was to improve their own well-being. The combined wealth of the oligarchy was estimated at more than $83 billion and the top “influencers” of Ukrainian politics and its economy were and remained the Donetsk and Dnipropetrovsk clans174.

Despite the fact that about 50 percent of the country’s metallurgical industry, almost the entire coal mining industry, heavy engineering and energy companies are concentrated in Donbas, the national government in Kyiv, with few exceptions, was dominated by the Dnipropetrovskis. They had been part of Mount Olympus since Soviet times. Nevertheless, they had to worry about the Donetsk clan.175 The latter skillfully used the miners’ trade unions, the strongest in the country, and the political forces represented by the Communists.176

 

It was only after Yanukovych and his associates came to power that the Donetsk people managed to grab power in Kyiv at last.177 All key positions in the Presidential administration, the government, the parliament, the security services, the prosecutor’s office, the center, and the regions were filled by representatives of the Regions party. Oligarchs Rinat Akhmetov and Dmitry Firtash became the backbone of Yanukovych’s regime.

The leader of the Donetsk clans was Akhmetov, without whom not a single appointment or removal of the highest positions in Ukraine took place. He was Ukraine’s richest oligarch and the key sponsor of Yanukovych’s Regions party, with a fortune estimated at $22-25 billion in 2012 (according to Bloomberg, he was the 26th richest man in the world that year).178 Several clan members held important political roles. Akhmetov’s friend and business partner Borys Kolesnikov was a former Deputy Prime Minister and former Infrastructure Minister.179 As Deputy Prime Minister and Infrastructure Minister Kolesnikov was responsible for the preparation of EUFA’s Euro 2012 in Ukraine.180 The main soccer clubs in Ukraine, however, were bought out by that time, and Kolesnikov, a passionate hockey fan, became the owner of hockey club Donbas.181 Kolesnikov shared Ukraine’s confectionery market with opposition deputy Petro Poroshenko and they had factories both in Ukraine and Russia. Brothers Andriy and Serhiy Klyuyev were also representatives of the Donetsk clan. Both were Regions’ deputies of the Verkhovna Rada, and Andriy became Yanukovych’s First Deputy Prime Minister, Head of the NSDC, and briefly Chief of Staff at the height of the 2014 political crisis until Yanukovych’s flight from office.

 

 

The “Yanukovych family”

 

 

Of course, a businessman who becomes a high-ranking official and continues to run his own business at the same time is liable to be accused of dishonesty, and often is. But then what can we say about the politician who becomes a big businessman precisely when he occupies a high government position, especially when it is the highest executive office, the Presidency of the country? Viktor Yanukovych became such a businessman during his Presidency. According to the assessment of Anders Aslund, a senior researcher at the Peterson Institute for International Economics in Sweden and a former economic advisor to the Ukrainian government, the net worth of the Yanukovyches stood at $12 billion in 2013.

The “President’s family” consisted not only of Yanukovych’s sons (who actually ran the “family business”. According to the Interior Ministry, more than 50 banks were involved in the money laundering of the Yanukovych clan. The multistorey office of the “Yanukovych family” was located in the center of Kyiv. It was where its money laundering was carried out. Serhiy Arbuzov – who became First Deputy Prime Minister and started his career under the patronage of his mother, the CEO of Bank Donechchina and later Governor of Ukraine’s central bank – played an important role in this chain.

The “family” included some lucky friends. A young friend of the President’s son, Serhiy Kurchenko, at the age of 28, after graduating from two universities, moved from Kharkiv to Kyiv and instantly became a billionaire, buying up Ukrainian businesses and assets: enterprises, stadiums, soccer clubs. The twenty-something businessman consolidated about 55 companies in the gas industry that were registered in Kharkiv and Crimea within “his” Gaz Ukraine. Gaz Ukraine, with a turnover of more than $10 billion, now controlled 18 percent of the Ukrainian gas market. It goes without saying that Tymoshenko, Ukraine’s “gas princess,” felt even less happy in prison as she saw her gas companies move to a new owner. But other businesses were also being scooped up. For example, the “FC Metalist Kharkiv” soccer club and stadium were taken away from Oleksandr Yaroslavskyi, a Kharkiv businessman.

Later Kurchenko changed his strategy and created a group of companies called “East European Fuel-Energy Company” acting jointly with Russian Lukoil and Sibneft to buy in Ukraine and abroad (particularly Germany) a network of gas stations and refineries. To suppress the media, Kurchenko, on the orders of Yanukovych’s son, bought up the assets of the United Media Holding group, founded by another Kharkiv resident, Boris Lozhkin. The latter had merged his business with Rinat Akhmetov. In effect, the Yanukovych family were taking part of the business from their own sponsor oligarch, Akhmetov.

When Yanukovych copied Putin’s model of the Presidency, he realized, like Putin, that in order to strengthen his personal power he needed to limit the influence of the opposition, as well as that of his own supporters in the Regions party and business colleagues, even if they had been his own sponsors and partners. Wielding power like Putin, Yanukovych started with the most promising oligarchs, by ousting, pushing them aside, expropriating, and buying at low prices some of the businesses of Rinat Akhmetov and Dmytro Firtash.182 Serhiy Kurchenko and similarly capable young businessmen were used for these raids. Indeed they managed to build an entire chain of firms to resell other people’s businesses and launder money received from the state budget. Of course, this model of extortion could not have existed without the Attorney General, the Interior Minister and the SBU turning a blind eye. These people became members of the Yanukovych family. Attorney General Pshonka and his son collected “tribute” in the form of bribes and “kickbacks” from businessmen. Ukrainians, with their laconic humor, noted that the main business quality of a Ukrainian businessman is not “selling”, but “kickbacking”. But only people close to the ruling elite could expect kickbacks. In this sense, Interior Minister General Zakharchenko and SBU Head Oleksandr Yakymenko were also members of the “family,” tasked with finding businessmen willing to pay tribute.

 

It became clear to Ukrainian oligarchs that the Yanukovych family was engaged in “lawlessness”, at any rate that “sensible” arrangements could no longer be reached with Yanukovych.183 An undeclared war against the President and his cronies began within the Donetsk clan that had once been loyal to Yanukovych. As one researcher wrote in 2012, “the steep strengthening of the Yanukovych family clan, infringing on the interests of billionaire oligarchs, will lead in 2013 to a sharp aggravation of relations in Ukraine and predictable public confrontations with the aim of trying to remove the Yanukovych clan and its closest cronies”. He was preternaturally accurate in his predictions.

In autocratic countries, such as Ukraine and Russia, businesses closely linked to government officials flourish until the government collapses. It is no coincidence that as soon as Yanukovych left Ukraine, the leader of Yanukovych’s Regions party in parliament hastened to make clear that his party had “nothing to do with the Yanukovych family” and distanced himself instantly from his one-time patron.

The “businessmen,” who bought themselves protection under the “roof” provided by government officials try, while in power, to quickly become rich, move their capital abroad, divide it up, and hide it under other people’s names. They haven’t got much time until they are replaced, and they know it. While Kuchma, Tymoshenko, Yanukovych were in power, their entourage became fabulously rich, knocking the financial base out from under the feet of their opponents or even putting them in jail. The example of Tymoshenko (in Russia, Mikhail Khodorkovsky) was the most illustrative in this sense. Everyone understood that her case was political. That the now ruling Yanukovych family was taking her business was no less obvious. Whether or not Tymoshenko had really committed crimes was completely irrelevant.184

 

 

Dnipropetrovsk Group

 

 

This was the power base of Yulia Tymoshenko. The Dnipropetrovsk clan, unlike the Donetsk clan, was formed back in the time of Leonid Brezhnev, Russia’s leader as General Secretary of the CPSU Central Committee, and a native of Dnipropetrovsk. This clan occupied the leading party and political positions both in Moscow and in Kyiv which at one-time gave the small region far-reaching international power. In the 1960s and 1970s a joke was popular in Moscow about the three stages of Russian history: “before” Petrovsky (Peter the Great), Petrovsky and “Dnipro”-Petrovsky. More than half of the cadres of the Ukrainian party and nomenklatura authorities were from the region.185 Whereas the Donetsk people relied on the mines and metallurgical plants, the Dnipropetrovsk people relied on the military-industrial complex of the region.186

 

Luckily for the leaders from Dnipropetrovsk, Kuchma, who was part of their clan, became President in 1994 and restored his local peers to national importance. By the end of 1996, the Dnipropetrovsk clan dominated all branches of state power. It was through this formerly Communist-turned-business network that the energetic, attractive and ambitious Tymoshenko built up her video business in Dnipro.187

 

A special role among the Dnipropetrovsks was played by Pavlo Lazarenko, former governor of the region. Appointed Prime Minister in May 1996, Tymoshenko was appointed under him as Ukraine’s leading gas CEO. Lazarenko’s was a cautionary tale of too much greed. He began to form his own group in the government, controlling the country’s fuel and energy complex.188 After Kuchma sacked him, Lazarenko joined Kuchma’s opposition, created his own party, Unity (Hromada), and in 1998 was elected to the Rada and hoped to run for President himself.189

 

As we saw at the beginning of the book, it led to his fleeing the country to the US, hoping to receive political asylum. Instead he ended up in jail, charged with extortion, money laundering and fraud on the evidence supplied by his political opponents in Ukraine who now controlled the government. He was released only in 2003 after paying $86 million in bail.

Lazarenko remained under house arrest from 2003 until 2009.190 On August 25, 2006, he was sentenced to nine years in prison and a $10 million fine. A little later, a judge decided to reduce the amount of proven financial abuse by about $5 million. The most scandalous accusations – relating to the activities of Tymoshenko’s gas company – were dropped from the US charges during the time when Tymoshenko was Prime Minister.191 Even in jail, Lazarenko never gave up and tried twice to run in local elections in Ukraine in absentia.192

 

Tymoshenko, Lazarenko’s former underling, carried on after him. She continued to control the activities of the UESU and created her own political faction, Fatherland, replacing the Unity party, which collapsed because of Lazarenko’s arrest. Probably the most powerful position of the business clan was held by Tymoshenko’s group. Having ceaseless ambitions, she was not afraid to challenge Yushchenko.193 When she became Prime Minister she regained her gas empire.

No one was as adept at Russian politeness as Yulia Tymoshenko, who could negotiate with everyone and everything. For all the charm of her nature, she could not compromise, neither in business nor in politics. In this, she resembled only one person – the Prime Minister and President of Russia Vladimir Putin. Both had the same principle of exchanging opinions: you come in with your opinion, and you leave with mine. For this reason, the main task of the Donetsk people who came to power under Yanukovych was to destroy Tymoshenko’s gas empire and compromise her as a politician.194,195

 

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