1 billion UAH. That’s how much was stolen by officials of the Kyiv city administration, who managed the work of the capital’s municipal construction companies.
Companies that have been successfully operating in the Kyiv real estate construction market for many years, having built millions of square meters of residential and non-residential real estate during their activity.
Officials of the Kyiv city administration who are directly involved in the billion-dollar scheme:
1. Kushnir Ihor – Chairman of the Board – President of PJSC “Holding Company “Kyivmiskbud”;
Kushnir Ihor
2. Nepop Vyacheslav – director of the municipal enterprise Zhytloinvestbud-UCB;
Nepop Vyacheslav
3. Volodymyr Shariy – director of the CP “Spetszhytlofond”;
Shariy Volodymyr
4. Fedotov Kostyantyn - Director of the Department of Construction and Housing of the Kyiv City State Administration (KCSA);
Fedotov Kostyantyn
5. Spasibko Oleksandr - Deputy Chairman of the Kyiv City State Administration.
Spasibko Oleksandr
Two of these enterprises are 100% municipal property of the Kyiv territorial community, and the Kyiv City Council owns 80% of the shares in the third company. The construction companies are managed by top managers appointed by the Kyiv City State Administration.
The press has written many times about the successes and failures, problems and concerns of these flagships of the construction industry, I will not repeat myself. I want to tell you how we are robbed, and what I have personally, as an expert in buying and selling real estate, encountered many times while helping clients buy housing.
About one of the simple tricks by which dishonest officials withdraw huge amounts of money from the state budget. The money is literally made out of thin air, with minimal expenses.
The fraud is simple and not multi-step, but, according to my calculations, it has taken at least a billion hryvnias from the state budget, although this amount is most likely 50 per cent higher. I have seen this scheme in three Kyiv construction companies - Kyivmiskbud Holding Company, Zhytloinvestbud-UCB and Spetszhilofond.
While the latter two companies have started using this scheme over the past few years, PrJSC HC Kyivmiskbud has been using it since the beginning of the century.
The point is this: Construction companies make money selling residential and non-residential real estate, and they make a lot of money.
It would seem that it is impossible to steal here - the company assessed the cost of apartments in the building it is building, put them up for sale, sold them, and received money into a bank account. Everything is honest and transparent.
But as is almost always the case in the Ukrainian economy, where there is big money, there are those who cultivate it. In this case, construction companies, putting apartments up for sale, understate their real market value, but not everyone can buy apartments at a reduced initial price.
More precisely, they are intended in advance for several specific buyers (these are private companies) who purchase apartments under "Preliminary Apartment Purchase and Sale Agreements" or "Property Rights Purchase and Sale Agreements". Dozens and hundreds of apartments are sold wholesale. They do not buy apartments on the first and last floors, but only apartments with the best layout, panoramic views, small area, that is, those apartments for which there is increased buyer demand on the real estate market.
But the trick is that when buying tens and hundreds of apartments from municipal construction companies, “wholesale buyers” of apartments do not pay a single hryvnia for the “purchased” apartments.
After the conclusion of "Preliminary agreements for the sale of apartments" (Kyivmiskbud scheme) or "agreements for the sale of property rights" (Zhytloinvestbud-UCB and Spetszhilofond scheme), these apartments are transferred by "wholesalers" to real estate agencies, which put them up for sale through the press and Internet sites (e.g. OLX and similar).
The cost of an apartment in this case is 10% to 30% higher than the original price of the construction company - this is the real market price of an apartment.
When a realtor of a real estate agency is a specific buyer for a specific apartment, a tripartite "Assignment Agreement" is concluded with this buyer, under which 80-90% of the apartment price is paid by the real buyer to the construction company that is building the house, in this case, the Kyivmiskbud Holding Company, Zhitloinvestbud-UCB and Spetszhilofond.
Under such an agreement, the buyer pays 10-20% of the apartment price to the "wholesaler-buyer" who "bought" the apartment from the Kyiv municipal construction organisation, plus an average of 2% of the transaction is paid to the real estate agency that finds a buyer for the apartment.
What is the result? The Kyiv community, represented by the utility company, loses 10 to 20% (sometimes up to 30%) of the cost of the apartment, while "wholesaler-buyers", which are ordinary "gasket companies" backed by top managers of the Kyiv City State Administration, earn 10 to 20% of the apartment’s cost.
There have been cases where firms - "gaskets" through real estate agencies - put up for sale about 80% of the apartments in a "construction" building, "purchased" from municipal construction companies. There are 150-200 apartments in a building. Can you imagine the scale of the losses to the Kyiv budget?
According to my calculations, this scheme has stolen from UAH 800,000,000 from the Kyivmiskbud Holding Company since the zero years, from UAH 150,000,000 million from Zhytloinvestbud-UCB, and from UAH 70,000,000 from Spetszhilofond.
This scheme is well-known, it is often mentioned on online construction forums by apartment buyers, it has been written about in the press more than once, and I have come across it many times in the process of finding apartments for clients.
This is to say that the heads of construction utility companies cannot be unaware of it and, in general, it is clear that they either organised this scheme themselves or are covering it up, having personally ill-gotten gains from the resold real estate under the fraudulent scheme.
It should also be borne in mind that the monetary assets of utility companies are equated to state monetary assets, so it is a case of embezzlement of state money.
In addition, all utility companies are obliged to transfer 30 to 50 per cent of their income to the Kyiv budget each year, and given that many tens of millions of hryvnias go to "gasket" companies, the Kyiv budget has lost hundreds of millions of hryvnias over the years.
Personalities
Since 2012, Ihor Kushnir has headed the Kyivmiskbud Holding Company. The scheme for withdrawing money from the state utility company through shell companies had been in operation long before he came to Kyivmiskbud and is just one of many gray schemes for withdrawing money from the company’s budget.
In December 2016, the Verkhovna Rada of Ukraine registered draft resolution No. 5524 "On the creation of an investigative commission of the Verkhovna Rada on issues of checking the financial and economic activities of PJSC "Holding Company "Kyivmiskbud", which still remains an unvoted draft. A similar draft resolution is also in the Kyiv City Council, but the situation is the same. Everything is only in drafts.
Probably, someone is slowing down the independent inspection processes. Who? Probably, those who really don’t benefit from these inspections.
The municipal enterprise "Zhttloinvestbud-UCB" and the municipal enterprise "Spetszhytlofond" with a 100% authorized capital of the Kyiv City Council are subordinate to the Department of Construction and Housing of the Kyiv City Administration, which has been headed by Kostyantyn Fedotov since March 2016.
Prior to this appointment, since December 2014, this official was the head of the State Enterprise “Spetszhytlofond”.
Before Fedotov, the city’s construction department was headed by Oleksandr Spasibko, who currently works as deputy for construction issues to the chairman of the Kyiv city administration, Volodymyr Klychko.
Spasibko came to work at the construction department of the city administration in October 2014 and in a month made a dizzying career, heading one of the largest departments of the Kyiv city administration, becoming its director.
Spasibko and Fedotov had previously worked together for many years in the same construction commercial company, and most likely it was Spasibko who brought Fedotov to the construction communal enterprise "Spetszhitlofond", facilitating his appointment to the position of director, and later, having been promoted, handed him the post of director of the construction and housing department of the Kyiv city administration.
And already since the summer of 2015, through real estate agencies, “front” companies began to put up for sale apartments in buildings built by the municipal enterprises “Zhytloinvestbud-UCB” and “Spetszhytlofond” on the Kyiv housing market.
Here the “wholesalers’” margin on most apartments sometimes amounted to 30%, but it varied in different buildings, on average 10-20% of the cost of the apartment.
The buyer paid 80-90% of the cost of the apartment under a three-party “Assignment of Claim Agreement” to the municipal construction company that was building the house, and 10-20% to the “wholesale buyer” who “bought out” the apartments from the municipal construction organizations.
I would like to clarify that we are not talking about selling apartments through construction financing funds, asset management companies or investment funds, but rather about selling communal apartments through private intermediary firms that are not created by the state, but by private individuals.
The fact that the money of public utilities is state money, i.e. budget money, of course does not stop anyone, because “money does not smell.”
This scheme is the same as in PJSC "HC "Kyivmiskbud". Some apartments can be purchased in the sales department of public utilities, and the apartments that are in the greatest demand are only from fictitious "wholesale buyers" who, without paying a penny to the cash desk of public utilities, skim the cream and foam on resale.
Money is literally made out of thin air, because the front companies do not build themselves, do not invest a single hryvnia in construction, but receive simply crazy income.
We are checking the information
It is very easy to check what was said. All municipal enterprises must, at the first request of a citizen of Ukraine, provide information on the activities of the enterprise, including financial activities, with specific amounts and dates, but without specifying specific buyers. Although it is unlikely that responses will be given to letters from ordinary citizens, but responses will be given to requests from deputies and public organizations.
Send a request to Igor Kushnir, Oleksandr Spasibko and Kostyantyn Fedotov, and ask them to provide information on the number of tripartite "Assignment of Claim Agreements" concluded over the past two to three years (or over one year at your choice) by PJSC "Holding Company "Kyivmiskbud", KP "Zhytloinvestbud-UCB" and KP "Spetszhytlofond". Under which money for an apartment (or rather for property rights to an apartment) was transferred to construction companies by persons under the "Assignment of Claim Agreements".
Ask about the amounts that were paid under these "Assignment of Claim Agreements" by a third party directly to "wholesale buyers" and it will be tens and hundreds of millions of hryvnias. But this is money that should remain in the city budget, and not be transferred to the accounts of embezzling officials.
What to do?
The question is extremely relevant. How to prevent such theft of state money in state construction and municipal companies?
There are many options - this includes approval of the price of apartments by a commission under the Kyiv City Administration, which will include public activists and independent experts, Kyiv City Council deputies and representatives of the Kyiv City State Administration, who will agree on real market prices for apartments in construction communal organizations and submit them for approval to one of the departments of the Kyiv City State Administration.
This may also be a mandatory condition in the “Agreements for the Sale and Purchase of Property Rights to an Apartment” regarding the contribution of such a percentage in favor of the developer from the cost of the apartment, when concluding a tripartite “Agreement for the Assignment of Claims”, which would make the mass resale of apartments from municipal developers meaningless from the point of view of criminal profits.
It is possible to come up with other options, if there is a desire, but of course it will not exist until people come to work in the Kyiv city administration who will first and foremost care about the interests of the state, and not about their personal gain in public service.
In order to have a real interest in the results of the work on the construction and sale of apartments, in this case, Kyiv City State Administration officials should receive high salaries and possibly income in the form of a small percentage of the amount received from the sold communal apartments.
There should be a financial incentive, because if necessary, top managers work 15 hours a day without days off and for a monthly salary of 10-15 thousand hryvnia, none of the highly qualified specialists will work to the point of exhaustion.
And, of course, their work must be under strict public control, otherwise everything that has kept Ukraine from getting off its knees for 25 years will be repeated again and again, with each new top manager appointed.
But the plundering of the Kyiv budget must be stopped now and in the future. Or why such sacrifices and suffering that Ukraine has been enduring for the fourth year?
Including for life without corruption and corrupt officials.
Kyiv mayor
One of the main questions in this corruption scheme is the role of Kyiv mayor Vitaliy Klychko.
Klychko is far from being a stupid person, as the press often tries to present him. A narrow-minded person would not have created a powerful political party that has repeatedly won a large number of seats in parliament and local councils. Even very good consultants and advisers, without a personal high intellectual component, would not have helped to win elections. Let’s leave aside the mayor’s tongue-tiedness, one is not a hindrance to the other.
And the question arises, does the mayor know how his deputy and top managers of the Kyiv city state administration earn money on the resale of municipal property or not? There are two options. The Kyiv mayor either heads and organizes the corruption process of stealing municipal money himself or he does not know what is happening in the structures subordinate to him. There is no third option here.
We will definitely find out how it really is over time.
Of course, in the current situation, when corrupt officials are in power, it is unlikely that anything can be changed. I think it makes sense to create a people’s registry of crimes and a people’s registry of corrupt officials. People who steal from the state budget will not be in power forever. Their time will come to answer for the crimes they have committed and to return what was stolen.