Ukraine: $11 Billion Allegedly Stolen In Colossal 3-Year Tax Fraud

Published: 13 June 2014

ihor bilous

Ukraine's Top Tax Official Ihor Bilous


Ihor Bilous, the country’s top tax official, claims that his predecessor took part in a massive tax fraud scheme in which US $11 billion was stolen from the country’s budget over the past three years through phony companies, reports the Associated Press (AP).

This amount is equal to more than half a year’s tax revenue for the entire country, reports the AP.

Bilous said that Oleksandr Klymenko, the previous Tax Minister, conspired with other tax officials in a secret room in the Tax Ministry headquarters to divide the illegal cash.

The room, a soundproof steel vault, is located on an upper floor of the building across from the minister’s office. Investigators say a white-noise generator was used to make the room soundproof, and it was furnished with transparent plastic furniture to ensure meetings were not bugged.

Klymenko left Ukraine abruptly following the fall of former President Viktor Yanukovych. Surveillance videotapes from the airport show him battling security guards to get to his plane, the AP reports.

He told the AP that he staunchly battled corruption, and said that his office opened more than 1,300 investigations on corruption last year. He said that nothing illegal took place in the steel vault.

“This room was necessary only for the purposes of confidentiality when planning operational activities, working off tax evasion and fraud cases of large taxpayers,” he said.

However, Bilous’ claims of a major tax fraud scheme are supported by information obtained by the business intelligence website Arachnys and a list of phantom companies found by a Ukrainian anti-corruption group.

According to officials, the phantom companies pretended to provide goods and services to legitimate companies in exchange for cash, reducing the tax liability for the legitimate company. The two firms would then split the money scammed.

One such suspected phantom company was Mistral, a management consulting and research company that went bankrupt early this year after allegedly conducting millions of dollars’ worth of deals.

When officials visited Mistal’s purported headquarters at 12 Saperne Street in Kiev, they instead found a construction site.

Investigators say Ukraine faces a long-standing problem with phantom companies, and Transparency International’s 2013 Corruption Perceptions Index places Ukraine at 144th place out of 175 countries.

Bilous has proposed policies to tackle corruption, and there are currently 30 investigations underway.

Critics say the government is not doing enough because the new administration is made up of the same type of cronies from the previous administration, reports the AP.

For now, the budget of Ukraine is sustained with the assistance of the International Monetary Fund in the amount of US $17 billion.