Sentence for IUD, or How games with Putin end

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The decision of the Moscow City Court, which sentenced the CEO of the "Industrial Union of Donbas" corporation, Oleh Mkrtchan, to nine years in prison, should be considered politically motivated. It’s a kind of gesture of desperation from the President of the Russian Federation, Vladimir Putin. He clearly demonstrated what naive attempts by some Ukrainian politicians and businessmen to conduct ’brotherly’ dealings with the eastern neighbor lead to.

Thus, the Kremlin leader has personally sawed off the branch on which he had long been sitting…

Guilty, because…

O. Mkrtchan, who has headed ISD since 2002, was detained in Moscow on February 8, 2018, on charges of fraud and embezzlement.

According to the Investigative Committee of the Russian Federation, the CEO and co-owner of IUD organized the embezzlement of $2.5 billion allocated by the Russian state Vnesheconombank for the development of the corporation.

Indeed, in 2011, VEB provided IUD with a loan of 85 billion rubles for the development of the Alchevsk Metallurgical Plant under the pledge of the plant’s shares.

With this money, the corporation was able to build a power plant for AMK and acquired new equipment for the rolling mills. However, they did not have time to complete the modernization fully.

Before the change of government in Ukraine in 2014, O. Mkrtchan, on behalf of the plant, paid the bank $40 million as interest on the loan, but in 2014-2016, payments stopped due to military actions in Donbas.

In 2016, the debt claim rights were transferred from VEB to a company associated with it, the "Industrial Assets Fund." It became the plaintiff and the "aggrieved" party in this process. And on August 16 of the current year, it received a decision to recover 189 billion rubles from O. Mkrtchan. At the same time, the Russians have no opportunity to execute it.

The matter is that legal proceedings between the Russian and Ukrainian shareholders of IUD have been ongoing for many years — not only in Russia but also in Cyprus.

The Russian side feels deceived and claims a share of the Ukrainian partners as compensation. However, the courts have not concluded yet, and it’s unknown when they will.

On one hand, the second Ukrainian co-owner of IUD besides O. Mkrtchan, Serhiy Taruta, previously mentioned in media interviews that he doesn’t have the authority to dispose of the corporation’s property because it is frozen under a lawsuit by Russian shareholders.

On the other hand, the Russians do not influence the operation of the Dniprovskyi Metallurgical Plant (Kamyanske, Dnipropetrovsk region) and the Polish assets of IUD.

The reasons are primarily political, since relations between Moscow and Warsaw and Kyiv are hard to call friendly. Therefore, VEB cannot legally gain control over DMP and the IUD Huta Częstochowa plant.

It can be indirectly assumed that they have such access only in Hungary at the IUD Dunaferr metallurgical plant. Since, as reported by the media, V. Putin has previously discussed the problematic questions of this enterprise’s operation with the Hungarian Prime Minister Viktor Orbán.

As for DMP, it has been under the informal operational management of Rinat Akhmetov’s "Metinvest" group since the spring of 2017.

IUD’s Russian assets were sold as part of bankruptcy proceedings a few years ago to settle debts.

Thus, out of 189 billion rubles of stated claims, VEB can currently only obtain 1.5 million rubles, $40,000, and €14,000, plus a vehicle of an unspecified brand. All of this is the personal property of O. Mkrtchan, seized along with him as an individual.

There are two important moments in this story.

The first is the criminal charges against a businessman of such stature with real imprisonment.

But what exactly consisted of O. Mkrtchan’s fraud - the Investigative Committee of the Russian Federation did not explain.

Moreover, the court hearings were held in a closed session, and the materials of the process, at the insistence of the RF prosecutor’s office, bear the classification ’secret.’ And this is the second point to pay attention to. If one dismisses the Investigative Committee’s ’criminal case,’ the episode is no more than banal.

In any bank, they will recount dozens, if not hundreds, of stories about businessmen who took money as loans and then didn’t return it.

A relatively fresh and in some ways similar to the IUD case can be taken from the "Donetskstal" group: before the war in Donbas, it also took large loans for modernization and development of metallurgical production, and then stopped paying.

And the court also ruled to recover the debt - since, despite losing part of its assets in ORDLO, the group still retained active enterprises in Ukraine (Pokrovsk Mine Management).

But at the same time, nobody imprisoned the owner of "Donetskstal," Viktor Nusenkis, who permanently resides in the Russian Federation and holds its citizenship.

As for the appropriation of funds - this is, in itself, a very dubious charge.

For example, earlier, the Ukrainian prosecutor’s office made similar claims to the management of the Zaporizhzhya Titanium-Magnesium Plant. There, the funds intended for investment were spent on repaying a large debt to JSC "Zaporizhzhyaoblenergo."

Yes, legally, the misuse of funds is apparent. But how is a company supposed to operate if energy providers disconnect it for debt non-payment - prosecutors also do not know.

Therefore, such accusations are often used as elements of pressure on the owner and proprietor of the business.

Why pressure was needed in IUD’s case is understandable. As noted above, Russians have been unsuccessfully settling legal relations with their Ukrainian partners for several years.

It’s clear that in the Kremlin, they don’t see prospects for victory in the usual legal route. Hence, IUD’s CEO, who had been living in the Russian Federation for a long time, ended up in jail.

The Shadow of VVP

Relations between the co-owners of the "Industrial Union of Donbas" have been strained from the beginning — when in January 2010, the former Vice Prime Minister Vitaliy Hayduk sold a 50%+2 shares stake in IUD to some Russian investors, whose interests were represented by VEB.

S. Taruta and O. Mkrtchan opposed the deal but had to agree with the partner’s decision to exit the business. Subsequently, IUD’s enterprises operated quite unstably.

The periods of reaching full capacity alternated with declines in production volumes, and market analysts linked such "swings" with disagreements among the shareholders, causing AMK and DMP to often experience working capital shortages. Or, simply put, they sat on a starvation financial diet without funds to purchase essential raw materials — iron ore. At that time, incidentally, multi-billion debts for its supply to "Metinvest" arose.

As a result, the clarification of relations transitioned into the legal stage and continues to this day. But who these very mysterious Russian investors are — is still officially unknown.

It is evident that the reluctance to reveal them and the details of the 2010 deal prompted the Moscow City Court to classify the process and its materials.

Although, for instance, when Ukrainian oligarchs Ihor Kolomoiskyi, Hennadiy Boholyubov, Viktor Pinchuk, and Kostyantyn Hryhoryshyn sorted out their relations in the High Court of London — their testimonies were publicly accessible.

Anyone interested could read in detail how Ukraine was "sawed" under L. Kuchma, its economy torn to pieces, and who had what agreements.

In the case of the process against O. Mkrtchan, everything is different. And here, it’s worth recalling the media reports at the time, citing sources in government circles of the two countries.

They claimed that the IUD deal was discussed in negotiations between the then Prime Minister and presidential candidate Yuliya Tymoshenko and V. Putin on the eve of the 2010 elections in Ukraine.

And that supposedly part of the money paid for IuD went to fund Y. Tymoshenko’s election campaign.

The version appears at least plausible — considering that Hayduk was the Vice Prime Minister in Tymoshenko’s first cabinet and headed her advisor group during her second premiership.

And also considering V. Putin’s involvement in the fate of IuD Dunaferr, which Hungary’s Ministry of Economy recently wanted to return to state ownership.

It is unlikely that the Russian leader showed so much attention to IUD without having a personal interest in this matter.

It’s hard to believe he was merely selflessly caring paternally about some investors — who are fantastically shy and have not dared to step into the public realm over so many years.

Therefore, it is logical that: either these are structures related to V. Putin’s closest circle, or… there are no investors at all, and VEB is not just an intermediary but a party to IUD’s participation.

By the way, Igor Sechin, the chairman of the board of Rosneft, who formerly held positions as Vice Prime Minister and Deputy Head of the Presidential Administration, is considered the unofficial "overseer" over Russian metallurgy.

Political scientists consider him the second most influential person in the Kremlin. And as one Russian top manager noted in a comment to Western media, "Sechin does not distinguish between personal gain and national benefit."

In other words, "the state is me." Or this: "What is good for me is good for Russia." A typical perspective for any dictator.

Igor Sechin is credited with organizing the criminal process against Mikhail Khodorkovskiy, the co-owner of Yukos, then Russia’s largest private oil company — which resulted in the oligarch ending up in jail, and the company’s assets were transferred to Rosneft.

Certain parallels with the IUD case are strikingly clear. Whether it will conclude according to the "Yukos" scenario or another way will show in time.

Vitaliy Krymov, published in  OstroV