Losses from the implementation of a scheme to purchase wood for fortifications in the Kharkov region through dubious companies could cost the state budget about 150 million hryvnia.
Investigators from KhAC found evidence that the supplying companies bought wood from two forestry enterprises in the Kharkov region, which should have reduced the cost of logistics costs significantly. The average price per cubic meter of wood is 5,500 hryvnia, which in the Kharkov Regional Military Administration is called the market price, looks twice as high as the average selling price of round timber in local forestry enterprises.
The beginning of the story
Let us remind you that the head of the Anti-Corruption Center “Mezha” Martyna Boguslavets noted for a column in Ukrayinska Pravda that the department of housing and communal services and fuel and energy complex of the Kharkov Regional Municipal Administration entered into direct contracts for the supply of wood for fortifications with five companies with signs of fictitiousness.
For a total amount of more than 360 million hryvnia, KhOVA officials entered into contracts for wood (71,619.7 cubic meters), information about which is classified, with individual entrepreneur Chaus I.A., Hertz Industry LLC, Satisbud LLC, ATT BUD LLC and Woodworking Enterprise Voskhod LLC.
“The owners of these companies do not resemble successful businessmen: they have open court cases, from whiskey thefts to domestic violence against their husbands and mothers, some of them have been deprived of parental rights and have enforcement proceedings on bank loans. Another interesting detail is that these beneficiaries don’t even seem to realize that they are millionaires. After all, they continue to work in shifts “in the fields” and factories,” said Martyna Boguslavets.
HAC also established that all these companies are interconnected.
However, after the first publications and explanations from HOVA representatives, questions remained unanswered. In particular, did the Kharkov forestry enterprises have the necessary wood and, most importantly, where exactly did the “favorite suppliers” of the Kharkov OVA buy the wood for fortifications?
Because the management of KHOVA assured that such a cost per cubic meter of wood was due to logistics: local forestry enterprises were not ready to provide the required volume of round timber, so private companies had to transport it from other regions of Ukraine - delivery supposedly greatly increases the cost of wood.
Now we have found the answer to this question.
Where does the wood come from and how does the circuit work?
The Hertz Industry company is one of the largest suppliers of wood for fortifications in the Kharkov region. She received contracts worth UAH 135 million.
It turns out that this company brought wood for fortification, which was shipped to the Izyum and Volchansky forestry enterprises of the Kharkov region. This was found out from court rulings and using an online check using the tag number on the website of the State Forestry Resources Agency of Ukraine.
Of the 18 tags that were not encrypted in the court register, thirteen are wood from the Izyum forestry, four from the Volchansky forestry, and one more from the Gadyachsky forestry branch of the State Enterprise “Forests of Ukraine (Poltava region).
Here is an example of checking the legality of the wood of one of the tags, which law enforcement officers seized just at the Kharkov fortifications.
Yes, these are just individual tags on this case and only one supplier company. But we do know that four of the five firms, Hertz Industries in particular, are strongly connected. In fact, this could be one “syndicate” created to make money from timber fraud.
However, KHOVA officials insisted that there was a shortage of timber in the Kharkov forestry enterprises, and company representatives said that they had to transport timber from all over Ukraine. Their words have not yet been confirmed.
How the scheme worked was revealed by law enforcement officers in another criminal proceeding, which KhATs previously mentioned. According to the investigation, several enterprises controlled by one group of individuals purchased wood from state-owned enterprises. For example, the state enterprise “Izyum Forestry” had a price of 970 UAH per cubic meter of coniferous wood (pine) with a diameter of 15-19 cm and a length of 3-4 m, but they sold it at several times more expensive.
“Then the above-mentioned enterprises carry out non-commodity operations for the sale of wood to the above-mentioned enterprises that are controlled by them and, using fictitious technical specifications, allegedly transport the products to the Dnipropetrovsk region, but in fact supply the products from forestry warehouses to the Department under direct contracts at a price of 4,100 UAH m3 of coniferous species (pine), with a diameter of 15-19 cm, a length of 3-4 m. Thus, for the period from January to March 2024, the Department purchased wood from private enterprises that are controlled by an unidentified group of persons and that are involved in the commission of the above criminal offenses, on the total amount is about 170 million UAH,” the court ruling says.
But that's not all in this story.
Non-payment of taxes and misappropriation of property
BEB detectives seized tags in the case of intentional non-payment of taxes (Part 3 of Article 212 of the Criminal Code of Ukraine) and misappropriation, embezzlement of property or taking possession of it through abuse of official position (Part 4 of Article 191 of the Criminal Code of Ukraine). And regarding taxes, there is another interesting point that was not noted at first. According to Martina Boguslavets, these companies evaded paying VAT, which was not included in the contracts with the Kharkov Regional State Administration for the supply of wood.
The head of the Mezha anti-corruption center notes that firms are required to register as VAT payers after exceeding the transaction limit of one million UAH (in accordance with clause 181.1 of Article 181 of the Tax Code). But the “favorite companies” of the Kharkov OVA did not do this, which led to a shortfall in budget revenues. In particular, the well-known Hertz Industry evaded paying taxes.
“We analyzed the LLC’s payments in the amount of almost 55 million UAH and found at least 10 million UAH of taxes dissolved in the air. Because, firstly, VAT was not provided for in the contract, and secondly, the LLC was not registered as a VAT payer. Although, given the volume of supplies, it should have done so. Evidence of this is a number of agreements. An example is a contract for UAH 4.7 million with “zero VAT”. Similar agreements with forestry enterprises, “one to one” in the text, included VAT. When signing the agreement, the department saw what they were doing, allowing firms to receive an additional 20%, which should have been taxes,” notes Boguslavets.
Non-registration by VAT payers allows companies not to register tax invoices, and thereby hide the chain of receipt of goods, and therefore the origin of the wood. In particular, under such a scheme it was possible to sell unaccounted wood from forestry enterprises.
In this case, we may be talking about non-payment of VAT in the amount of more than 70 million UAH.
The difference between the prices of the forestry enterprises, which sold wood for fortifications to the HOVA department, becomes even more noticeable by an additional 20 percent.
From the court ruling on non-payment of taxes and misappropriation of property through abuse of official position, it became known that the wood received by the Department of Housing and Communal Services and Fuel and Energy Complex of the Kharkov Regional State Administration from Hertz Industry LLC was used in the implementation of contracts for the construction of fortification structures of prisoners with a number of companies, in particular, Project Alliance LLC, Trest Zhilstroy-1 OJSC, Zhilstroy-2 ODO.
An inspection of the objects revealed that they were of poor quality due to existing damage to their components (filled trenches, basement structures, the presence of cracks and holes, etc.). The territorial community did not accept the buildings on its books due to poor quality and incomplete work, as well as non-compliance with technical documentation
Work of forestry enterprises
Repeatedly, representatives of KHOVA and supplier companies noted that it was necessary to bring a large volume of wood in a short time. That is why private traders were attracted, because supposedly Kharkov forestry enterprises did not have such volumes.
However, the Kharkov OVA, despite the promise of the deputy head of the KHOV Mikhail Harnam, was unable to name the forestry enterprises that refused to provide wood for the construction of fortifications. KhAC made a corresponding request immediately after a press conference by the head of the KhOVA Oleg Sinegubov and his deputy Mikhail Kharnam, at which the latter told reporters that the forestry departments had denied them the required amount of wood.
In the official response, KHOVA avoided specifics and listed the forestry enterprises that were approached with requests for wood exclusively (!) by email. There were no other attempts to communicate with forestry authorities regarding timber for fortifications.
“The Department of Housing, Communal Services and Fuel and Energy Complex of the Kharkov Regional State Administration sent requests to the forestry enterprises of the region and other regions, to the local branch of the State Enterprise “Forests of Ukraine”. No refusals or positive responses were provided; none of the forestry enterprises could satisfy the operational need for the required amount of wood,” says the response to the request.
At the same time, the head of the State Enterprise “Forests of Ukraine” Yuriy Bolokhovets noted that the enterprise he heads is capable of fully providing wood for the construction of fortifications in Ukraine. He said this after the scandal with the construction of fortifications in the Kharkov region.
“Defense of the state is our priority. The company primarily fulfilled and continues to fulfill all defense orders without exception. We are the largest state-owned company. If there is a need for this, Forests of Ukraine is ready for a significant increase in supply volumes. The conditions for the transfer of wood for fortifications are determined by the Ministry of Defense of Ukraine, OVA, and military units. Tenders, direct contracts, any other mechanisms. Customers do not need to contact intermediaries - we will find volumes and organize delivery. No matter what point on the map of Ukraine we are talking about,” Bolokhovets emphasized.
At the end of 2023 and at the beginning of 2024, the Kharkov region was considered a reference region in the restoration of fortifications. That's what the president said. Vladimir Zelensky “advertised” our defense at the final annual press conference and recommended building it like in the Kharkov region. Then the president did not emphasize which line of defense he was talking about - the first, second or third. He said this after a personal inspection of the Ukrainian-Russian border. When on May 10 the Russians broke through the defenses in the Kharkov region in several places, responsibility for the first and second lines of defense was transferred to the military, and the third, which the invaders did not reach, was transferred to KHOVA.
A month after the start of the Russian counter-offensive in the Kharkiv region, Slidstvo.info writes that the military was prohibited from commenting on fortifications in the Kharkiv region, although the soldiers unofficially criticize the quality of the fortifications.
“They told us not to mention the fortifications, not to mention the offensive, not to mention the lost villages. Do not publish anything publicly. There was no justification. They only said that you were working into the hands of the enemy. And the fortifications are very sh*tty, really bad - we have to build everything all over again,” says one of the fighters with whom journalists spoke.
Continuation of the scheme
However, journalistic revelations, criminal proceedings and the position of representatives of forestry enterprises on the availability of wood do not stop KhOVA officials. The Kharkov regional military administration continues to buy wood for fortifications from companies that have signs of fictitiousness, are interconnected, evade paying VAT and buy round timber from local forestries with exorbitant overpayments.
Nine contracts were concluded with Woodworking Enterprise Voskhod LLC during May 10-22 for the supply of 165,953 cubic meters. m of wood for 1.35 million UAH (average cost of 1 cubic meter – 8105 UAH).
6 contracts were concluded with Satisbud LLC during May 13-23 for the supply of 1,730.59 cubic meters. m of wood for 9.16 million UAH (average cost of 1 cubic meter – 5294.5 UAH).
A contract was concluded with ATT-bud LLC on May 23 for the supply of 50 cubic meters. m of wood for 280.5 thousand UAH (cost of 1 cubic meter – 5610 UAH).
Also two contracts dated May 24 for the supply of 440 cubic meters. m of wood for 2.28 million UAH (average cost of 1 cubic meter – 5181.8 UAH) was concluded with another private owner, Logistic Optimal LLC.
In the Prozorro system, new agreements begin to appear in June (May agreements, after the resonance in relation to these companies).
However, we also found single agreements between HOVA and forestry enterprises: 2214 and 2700 hryvnia per cubic meter of wood, including VAT (Branch “Chuguevo-Babchansky Forestry” of the State Enterprise “Forests of Ukraine”). As you can see, the difference is impressive.
Thus, tens of millions of budget funds, which could be used to purchase thousands of FPV drones, remain in the accounts of scam companies with founders who look like fakes.
