Deputy Head of the Office of the President Yermak, Tatarov, continues to cover law enforcement officers who are profiting from Mykytas’ scam

This is the kind of vicious circle: the police (do not) investigate criminal cases against "Ukrbud" because the police themselves are partners in the schemes of "Ukrbud," which was one of the most scandalous developers in the entire history of Kyiv.

Last week, a scandal with the largest construction pyramid in Ukraine, which left about 12 thousand affected families, flared up with new force. As reported by the publication ZN.ua, the investors of "Ukrbud" got tired of waiting for their problems to be resolved and released a public recording of a telephone conversation of the head of HC "Kyivmiskbud" Ihor Kushnir with the head of the construction financing funds manager (CFF) FC "Zhytlo-Capital," provided by former MP and former head of "Ukrbud" Maksym Mykytas six months ago.

In this recording, Mr. Kushnir demands in obscene form to transfer money for construction from the CFF accounts without providing certificates of completed works, states that he will not correct serious deficiencies in the houses already put into operation, and shares his thoughts on the investors who are dissatisfied with the shoddy completion of their apartments.

Investor outrage at such treatment is understandable. Back in December 2019, Volodymyr Zelenskyy publicly announced that the issue with the affected investors of "Ukrbud" was resolved and all will be completed by "Kyivmiskbud."

But in three years the problem has actually not been resolved. Those whose buildings were almost completed by "Ukrbud" were lucky — they were brought to a minimal condition and put into operation with numerous deficiencies. The active completion of all others has not basically started during this time because there is no money for it.

If approaching emotionally, this story clearly shows white and black. But is it really that blatant? After all, Mr. Kushnir does not just swear at everyone but also explains his attitude by the fact that the 80% communal "Kyivmiskbud" has already spent 600 million UAH more on completion than it received.

There’s Something Written on the Barn, but There’s Firewood There

According to various estimates, over 100 thousand families have suffered from construction frauds in Ukraine. But only the situation with "Ukrbud" was taken up at the highest level. "Ukrbud" might have been the largest developer, but with a difference of a few years, there were two more stories with nearly as many affected over 10 thousand: "UkoGroup" (2016) and "Arkada" (2020) are involved. So it’s not about the authorities’ concern for people or the scale of the problem.

The problem of "Ukrbud" is presented as an issue with the construction of objects of the Ukrainian State Construction Corporation "Ukrbud" — it is directly stated even in Volodymyr Zelenskyy’s response to a petition. At first glance, everything seems logical: problems with the state construction corporation, so the state takes up solving them.

But there’s a nuance.

The Ukrainian State Construction Corporation "Ukrbud" did not build any housing objects in Kyiv. The construction of housing in Kyiv under the brand of "Ukrbud" was carried out by private companies associated with the State Corporation. According to the membership agreements, the State Corporation had no right to interfere in their economic activities and does not bear any responsibility for the actions of its associated members.

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Photo: papaprint.com.ua

The participation of the State Corporation in the construction of residential complexes in Kyiv ended with the permission to write its name on the fence — a usual marketing trick to attract the attention of potential clients. This may be unknown to the President of Ukraine, but it was well-known to investors signing contracts and giving money to private companies. And when "Ukrbud" encountered problems, the victims used this marketing trick in their own interests: they took to the streets with posters alleging that they were robbed by a state corporation.

Hanging the debts of private companies on the state for a writing on a fence is as absurd as demanding that Volodymyr Zelenskyy personally compensate all the stolen funds in the "Great Construction," referring to the writing "President of Ukraine Program" on every GC stand.

The state in the story with "Ukrbud" really had to act more actively than in the case of other construction scams, but for a different reason: "Ukrbud" is an outrageously large-scale corruption story.

Initially appointed by the Cabinet of Ministers as the head of the State Corporation, and later already as an MP, Maksym Mykytas actively used his official position in his interests. The brand of the State Corporation not only worked for the benefit of private companies but was also used to deceive ordinary citizens. But this obvious conflict of interest is somehow unnoticed by law enforcement agencies.

Doesn’t it seem strange to you that there are successful criminal cases against Mykytas for 80 million UAH damages caused to the National Guard with "Ukrbud," while billions of hryvnias from private investors, disappearing with "Ukrbud" and Mykytas’s participation, are quietly attempted to be compensated at the state’s expense?

What Was Behind "Ukrbud" Fences

"Ukrbud" was one of the most scandalous developers in the entire history of Kyiv. The format of the article does not allow for a detailed examination of this issue, so we will focus on a brief version specifically concerning the aspect of completion.

"Kyivmiskbud" conducted an audit of "Ukrbud" objects and officially appealed to the Secretary of the National Security and Defence Council, the head of the Security Service of Ukraine, and the Minister of Internal Affairs for assistance in resolving detected problematic issues by January 24, 2020.

This document vividly demonstrates the extent of "telephone law" as it contains requests:

— to ensure the required decision in courts — from district and circuit to the Supreme Court;
— not to file court decisions that have come into force to the executive service;
— to lift court-imposed freezes on plots;
— to withdraw lawsuits already filed by government bodies;
— to approve the necessary urban planning documents;
— to renew land leases or change their designated use;
— to ensure the issuance of the necessary permits.

And those are only the issues with violations of the law that Maksym Mykytas did not manage to resolve with his connections.

This is how the real establishment of a rule of law state on Ukraine’s path to Europe looks. The head of an 80% communal company discovers that "Ukrbud" is a vast fraudulent pyramid that draws money from citizens for the illegal construction of two dozen residential complexes. But he appeals to the heads of key law enforcement bodies not with a crime notice but asking to quietly legalize all the detected violations. And law enforcement agencies, having received such an appeal, do not rush to open even more criminal cases to restore order, but start to "clean up the tails."

And this is only the land-construction side of the coin; there was also a financial one.

Funds were raised through one of the most secure and regulated by specific legislation schemes via the CFF. The Law of Ukraine "On Financial and Credit Mechanisms and Property Management during Housing Construction and Real Estate Operations" expressly prohibits using investors’ funds for anything other than a specified construction object. This should be controlled by the manager, represented by FC "Zhytlo-Capital": until the developer submits reports and certificates on the use of already provided funds, they cannot receive the next financing.

But somehow, billions of hryvnias disappeared, which could only happen in the case of a conspiracy between the manager and the developer.

There are more intriguing issues than just the disappearance of funds. "Ukrbud" constructions halted in 2019, allegedly because sales fell and there were no funds. But according to official reports, previously available on the National Commission on Securities and Stock Market’s website, in 2019, the largest inflows were made to the CFF of FC "Zhytlo-Capital": the amount of money under management increased by 8.4 billion UAH over the year — from 18.9 billion as of 31.12.2018 to 27.3 billion as of 31.12.2019. It is not known whether these enormous funds were actually present or whether certificates for participation in the CFF or covering billions missing from "Ukrbud" through the "Kyivmiskbud" were issued under the guise of a crash.

It is strange, but nothing is heard about the search for the missing billions, and FC "Zhytlo-Capital" remains the manager. All the old developers — associated members of "Ukrbud" — have also officially remained, and HC "Kyivmiskbud" was given the opportunity to sell unsold apartments and build new houses on remaining land in exchange for covering the deficit and completing apartments for the affected investors of Mykytas.

Law enforcement agencies have long been aware of "Ukrbud" frauds. For example, the Ministry of Internal Affairs (MIA) has been investigating cases of withdrawal of investor funds, at least since 2015, and facts of illegal construction even earlier, but no results are visible.

What is the reason for such police inefficiency can be easily explained by the example of one of the "Ukrbud" objects.

The Case of Tatarov and MIA

Let us take the "Gvardiyskyi" Residential Complex, located near the "Pecherska" metro station. At first glance, it is an ordinary business-class high-rise with expensive apartments. But the first UAH 150 mln in investments were gathered into the CFF when "Ukrbud" was officially still building an administrative building with a district police department of MIA.

The object’s name is not accidental — it was built on a plot allotted for the construction of precisely the regional department of the Main Directorate of the MIA in Kyiv. But instead of a district department, a residential building with 25 floors coincidentally emerged in a zone where the maximum height is limited to 27 meters, on the public building and facility zone, without any provisions for housing construction.

Photo: domik.ua

The illegal construction was easily legalized considering the client’s identity — initially, the State Architectural and Construction Inspectorate issued a permit for an already partially erected structure and last year, under the newly appointed head of NABU Semen Kryvonos, the State Inspection of Architecture and Urban Planning put the illegal construction into operation. A spicy detail: this illegal high-rise was built in the same block where SIAU is housed, yet profile officials never acknowledged legislative violations beneath their very windows.

Unlike the “Aristocrat” residential complex located just 300 meters from the National Guard for which Maksym Mykytas received a well-known criminal case, nobody probes into the MIA apartment issues in the “Gvardiyskyi” complex. The reason is simple—it’s being developed by the old Main Directorate of MIA liquidated after establishing the police at the end of 2015.

Who would think of checking what a governmental authority, long due for liquidation, is doing? The old Main Directorate of MIA is involved in housing construction—a secret business of the police. And only with "Ukrbud," they have five joint residential complexes.

Now the liquidator of the old Directorate is the deputy head of the new MDNP in Kyiv Viktor Nechytaylo. Mr. Nechytaylo, coincidentally, is well-versed in issues of misconduct by police officers—even defended a dissertation titled "Investigation of Influence Misuse by Law Enforcement Officers." His dissertation supervisor was the deputy head of the Presidential Office, Oleh Tatarov, whose role in "Ukrbud" activities is also well-known.

It’s a vicious cycle: the police do not investigate criminal cases against "Ukrbud" because they are partners in "Ukrbud" scams.

Who Will Pay for the Feast?

According to a Kyivmiskbud audit, the deficit for completing apartments for affected "Ukrbud" investors amounted to over UAH 2 billion (in 2020 prices). On whose dime do they plan to cover it? By robbing the Ministry of Defence?

Victimized investors often argue some apartments are to be received by the Ministry of Defence, so the state must help with purchasing free apartments or a preferential loan. The Ministry is indeed supposed to receive part of the apartments, but the share for building on their plots is two to three times lower than the market.

"Ukrbud" obtained Ministry of Defence land with gross legal violations, without a contest, and was supposed to give them 3 to 8% of the built apartments, depending on the plot. Meanwhile, the market conditions in Kyiv are from 12% of all space on the outskirts to 20-25% in the center that the land user providing their plot for development receives (these are the terms "Ukrbud" contracted with private land-users). The Prosecutor’s Office attempted fairly successfully through the courts to nullify illegally concluded contracts, and the Ministry of Defence was willing to reacquire contracts but on more market-aligned terms.

We are not talking about peanuts but about developing up to 30 hectares in Kyiv— that’s a Ministry of Defence under-receipt of 500-800 apartments for military personnel worth UAH 1-2 billion. And these apartments were stolen from the military to save "private Mykytas": the Cabinet of Ministers, at the Ministry of Defence’s request, adopted resolution No. 772-r as of 17.06.2020, prohibiting the Ministry of Defence from defending the Ministry of Defence’s rights in court, as absurd as that sounds.

Profits of "Kyivmiskbud" Not to Kyiv’s Budget, But to Complete Apartments for “Ukrbud” Victims

PJSC HC "Kyivmiskbud" is 80% owned by the territorial community of Kyiv, so it must remit 80% of its operational profits to the city’s budget.

Redevelopment of apartments for the affected stipulates "Kyivmiskbud" procures at least two billion more on redeveloping remaining plots, yet this money won’t yield into the local budget but compensate for what "Ukrbud" owners pilfered.

Truth be told, under Mr. Kushnir’s leadership, "Kyivmiskbud" adeptly siphons nearly all profits through private contractors, so these two billion might also bypass the local budget and affected investors.

Add UAH 1-2 billion in additional costs from Kyiv’s budget for necessary social infrastructure after legalizing all the illegal construction by "Ukrbud," and you’ll have the price the state and city will have to pay to redress actions by Mr. Mykytas and his partners.

What is to be done?

Affected investors better remember that Ukraine has chosen the path to civilized Europe. In Europe, public claims to legalize grave developer violations of the law and have the state compensate investors for privately stolen funds would end badly.

How many victims by "Ukrbud" wrote crime reports to law enforcement and officially obtained victim status?

And how many victims sought at least through the CFF manager for reimbursement and penalties for contract violations?

Even the previous developers who failed to fulfill obligations were officially never replaced.

Neither the authorities nor HC "Kyivmiskbud" has any legal grounds to meet the demands of "Ukrbud" investors: investors officially are not victims of illegal activities, nor are there any contractual relations under state guarantees.

Political contexts and circumstances constantly change. It was beneficial for someone to promise a quick resolution to the "Ukrbud" problem and lead victims by the nose for years. Later, limitation periods for investor money fraud will pass, governments will change, and imposing a loud punishment for illegal “Ukrbud” object completion might become lucrative.

The story with Kobolyev’s premium in "Naftogaz" is too suggestive and could easily be the last nail in the coffin of investors’ hopes. Neither the "Kyivmiskbud" president nor officials risk anything if they don’t find money for completion. And if they do find the money, future accusations from NABU for causing billions in state losses could become very probable.

So perhaps the victims should stop wasting time, file criminal complaints, and demand the state finds the missing funds while also punishing the guilty? Such actions would also gain public support, unlike attempts to extort from the state under manipulative slogans.

And when the state fails its duty, the investors will then have a legitimate right to demand either apartment completion or damage compensation from the state.

Heorhiy Mohylnyi, Urban Planning Expert; published in ZN.ua