One might think that after the onset of a full-scale invasion, Zelensky’s circle would have abandoned dubious schemes for distributing budget funds. However, neither the introduction of martial law nor even a significant reduction in tax revenues stopped them.
The proven scheme of embezzling budget funds − on road repairs − has not disappeared. Even in the first months of the war, when the fate of the country was being decided and the occupiers stood near Kyiv, the government timely allocated money to private construction companies. In 2022, 95 billion hryvnias (approximately $2.5 billion) were spent on roads.
Undoubtedly, road repairs in the country are necessary. The question is only that, with the introduction of martial law, contractors began to be chosen by direct contract, without holding an open tender. The project estimate was not published − also due to martial law. In Ukrainian realities, this very often led to corruption, and, accordingly, to losses of the state budget. In many cases, the project documentation included construction materials at significantly inflated prices. The fact that funds for road repairs were allocated against the backdrop of bloody battles in different parts of the country, when the Ukrainian army desperately needed ammunition, is another question.
Strangely enough, but the war expanded opportunities for corruption. The occupation of Mariupol with its metallurgical plants, problems with the export of goods through the Black Sea ports, and the forced emigration of several million people had a very negative impact on tax revenues. But the budget losses were almost completely compensated by Ukraine’s allies. The USA, Canada, Germany, Great Britain, Japan, and other countries began to allocate not only military but also financial assistance. This saved the Ukrainian economy and allowed covering the deficit of the state budget even under the conditions of a significant increase in the budget of the Ministry of Defense.
A new scheme of stealing state funds was associated with military purchases. The sharp increase in the number of the Armed Forces of Ukraine required the supply of large volumes of various goods: from food to clothing, fuel, and ammunition. According to Dana Yarova, a member of the Public Anti-Corruption Council at the Ministry of Defense, large-scale thefts are directly related to the government’s decree of February 28, 2022, which simplified procurement procedures for the defense department. According to this decree, which was in effect until the summer of 2023, all purchases previously conducted through open tenders were switched to direct contracts.
For a long time, Ukrainian society only suspected that large-scale theft could occur in defense procurement. But in January 2023, “Dzerkalo Tyzhnia” journalist Yuriy Nikolov accused the leadership of the Ministry of Defense of large-scale abuses, based already on specific facts. He published documents showing that the army was buying chicken eggs at 17 hryvnias each, while the retail price in stores was 6-7 hryvnias each, and the wholesale price was 4-5 hryvnias. Potatoes were ordered at 22 hryvnias per kilogram, although the retail price in stores did not exceed 8-9 hryvnias.
The news about chicken eggs outraged Ukrainian social media users. If few understood the prices of military equipment, everyone knew how much eggs cost in stores. And most importantly, society finally began to realize that the scale of corruption in the Ministry of Defense amounted to billions and was not limited to chicken eggs alone.
Defense Minister Oleksiy Reznikov reacted to the scandal, rejecting any accusations of corruption. However, he did so in a very strange way. According to him, journalists misunderstood everything, and the high price of eggs was explained by the fact that 170 hryvnias was the price not for 10 pieces, as sold in stores, but per kilogram of eggs. Moreover, journalists did not take delivery into account.
Reznikov’s justifications only added fuel to the fire. He was quickly caught in a lie. Tender documentation confirmed that it indicated the price for 10 eggs because in Ukraine, eggs are never sold by weight. The result of this scandal was that journalists, opposition politicians, and the National Anti-Corruption Bureau began to more carefully study how the Ministry of Defense spends money.
The amounts of allocated funds were very large. The budget of the Ministry of Defense in 2022-2023 amounted to about half of the entire state budget and was almost entirely covered by Western financial assistance.
An audit conducted in January 2023, two weeks after the article about the price of chicken eggs was published, showed that the Ministry of Defense allocated more than 13 billion hryvnias ($370 million) for the purchase of food for servicemen at prices two to three times higher than in Kyiv stores. And these were only food products for some military units in the rear. Further, facts of purchasing military uniforms and bulletproof vests at inflated prices in the first months of the war began to be revealed. A commodity examination showed that the price of 43 thousand hryvnias for a 4th class bulletproof vest at an exchange rate of 29 hryvnias/dollar was several times higher than the prices at that time.
To satisfy society’s thirst for justice, on February 2, 2023, Deputy Minister of Defense Vyacheslav Shapovalov and the head of the procurement department Bogdan Khmelnitsky were arrested. As of February 2024, they are still in pre-trial detention and preparing for trial.
According to Dana Yarova, the scandal with chicken eggs and military uniforms is just a minor episode in a vast sea of corruption. The most large-scale abuses occurred in arms purchases in 2022. Then, the Ministry of Defense distributed tens of billions of hryvnias to dubious firms, part of which simply stole the money and did not deliver the ordered weapons and ammunition to Ukraine.
By the end of 2023, it became known that since the beginning of the full-scale war, the amount of overdue accounts receivable on contracts of the Ministry of Defense amounted to 36.3 billion hryvnias. That is, the state transferred money to the supplier, but did not receive the promised goods. For comparison, 36.3 billion hryvnias is almost 3000 Canadian armored vehicles Senator, which could save thousands of lives of soldiers. Or about 5000 anti-tank missile systems FGM-148 Javelin.
It should be noted that the arrested deputy minister of defense, Vyacheslav Shapovalov, had close ties with Minister Reznikov. Previously, he was his deputy in the Ministry of Reintegration. After being promoted, Reznikov took him to the Ministry of Defense and made him his deputy again, giving Shapovalov the opportunity to manage purchases for the army.
In 2015-2017, when Reznikov was the secretary of the Kyiv City Council, Shapovalov was involved in construction issues, holding the position of deputy chairman of the Kyiv Regional Administration. At that time, Reznikov’s son-in-law Dmytro Shteinhaus received a large land plot in Brovary near Kyiv with an area of 80 hectares from the regional council and began residential development on it.
Despite the scandal with Shapovalov, President Zelensky long held Oleksiy Reznikov in the position of minister. He was only dismissed on September 5, 2023. After the egg scandal, the disclosure of facts of corruption in the defense department intensified. Moreover, Reznikov proved to be a rather weak leader of the ministry. He failed such an important issue as the supply of small drones to the army, dismissively stating in December 2022 that “wedding drones are not needed by us.” But a few months later, it turned out that drones play a very important role on the front line. By the end of 2023, Ukrainian soldiers had learned to use FPV drones so skillfully that in some areas they successfully replaced artillery, holding back the advance of infantry groups of the enemy.
Since most of the information about arms purchases still remains a military secret, journalists do not have the opportunity to check how state funds were allocated. Two facts are of concern. In June 2022, when Ukraine, thanks to Western aid, began to buy weapons at a huge pace, Denis Sharapov, a former business partner of the head of the President’s Office Andriy Yermak, was appointed head of the new state enterprise “Defense Procurement Agency.” Once they together headed the company “European Partnership Media Group,” but in 2018 both left the founders of the company.
The new agency received the authority to dispose of all funds of the Ministry of Defense provided for the purchase of weapons and military equipment. By the beginning of 2023, the state enterprise, controlled by Sharapov and Yermak, spent 355 billion hryvnias of budget funds (approximately $9 billion). This is almost a quarter of all revenues of Ukraine’s annual budget.
According to sources of the “Dzerkalo Tyzhnia,” after the scandal with Shapovalov, Yermak and Sharapov withdrew from arms purchases. But the data on how military purchases were made in 2022 have not disappeared. There is every reason to believe that a significant portion of the money was simply stolen. The best confirmation of this is the total volume of overdue accounts receivable of the Ministry of Defense.
To protect information about corruption in arms procurement, on December 21, 2023, the Verkhovna Rada controlled by Zelensky elected Olga Pishchanska to the Accounting Chamber of Ukraine, and the next month, contrary to the position of Western partners, she was appointed head of this institution. It even came to the point that Penny Pritzker, the U.S. Special Representative for Economic Recovery in Ukraine, arrived in Kyiv. She once again tried to convince Ukrainian officials to cancel the dubious appointment of Olga Pishchanska. But the advice had no effect on the Office of President Zelensky. Pishchanska had been prepared for the position of head of the State Property Fund since September 2023, to replace Rustem Umerov, who headed the Ministry of Defense after Reznikov’s dismissal. And Zelensky stubbornly did not want to abandon his intention.
In 2020-23, Olga Pishchanska headed the Antimonopoly Committee. As it turned out, during her leadership, this institution “forgave” companies of Ihor Kolomoisky fines of almost 5 billion hryvnias.
And finally, the main fact that explains everything. Olga Pishchanska’s sister Svitlana is a longtime friend and neighbor of Zelensky, from childhood in Kryvyi Rih. As she herself says, “we grew up in the same yard.” In July 2019, an Italian company owned by Svitlana Pishchanska, which owns a 15-room villa of Volodymyr Zelensky on the coast of the Italian resort Forte dei Marmi, was registered in her name. In 2019, this property was included in the president’s declaration, but the next year it was no longer there because the villa formally received a new owner.