Corruption scandal in the State Special Communications Service: 600 million hryvnias in kickbacks on UAVs

A giant corruption hole has been found in the «Army of Drones».

Online, you can find dozens of videos and photos featuring the head of the Ministry of Digital Transformation, Mykhailo Fedorov, and the former head of the State Service for Special Communications and Information Protection, Yuriy Shchyhol, boasting about delivering drones to the Armed Forces of Ukraine. In October 2023 alone, nearly two thousand EVO MAX 4T drones manufactured by Autel were delivered to the front from the «Army of Drones». According to Hromadske, the state lost about 600 million hryvnias on these drone procurements.

Prices — twice the market rate

According to YouControl, the company «Krion-M» has an authorized capital of 765 hryvnias. It specializes in trading furniture, carpets, lamps, etc. The office is located in a private sector on the outskirts of Kryvyi Rih.

The manager and beneficiary of the company is a 43-year-old named Maksym Sazhnyev.

Unexpectedly, last year, «Krion-M» started selling drones to the State Service for Special Communications and Information Protection. There was no direct and transparent tender — the offers were provided by companies invited by the State Service for Special Communications. These supplies were part of the joint project «Army of Drones» with the Ministry of Digital Transformation.

Since July 2023 alone, «Krion-M» has sold nearly 3,900 drones to the state for approximately 1.5 billion hryvnias.

Initially, one drone bought from «Krion-M» cost the State Service for Special Communications almost 500,000 hryvnias, even though the same model could be bought for half as much at the time (more on that later).

However, the exorbitant prices of «Krion-M» did not prevent the State Service for Special Communications from signing two contracts with them. Under the first contract, signed in May 2023, the company delivered 1,074 drones. Under the second contract, signed in August of the same year, the state received 1,912 «birds».

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Meanwhile, in July 2023, the government passed a resolution allowing manufacturers to include up to 25% profit in contracts with the state. Besides, «Krion-M» is not a manufacturer, and there’s another nuance: these 25% profit margins were to be based on the production cost of the drones. The markup of all participants in this supply chain clearly exceeds 25%.

Perhaps someone suspected something was wrong, or the State Service for Special Communications decided to somehow hide the inflated prices and align the figures with the 25% resolution.

However, there is a fact: according to the first contract, «Krion-M» delivered 1,074 drones at triple the price, and later provided another 402 drones at reduced prices. This additional supply was made under an addendum signed in February 2024. Thus, the average price per contract dropped from 498,071 hryvnias per drone to 359,631 hryvnias.

Under the second contract, 1,912 drones were delivered at full cost, and later 488 units were added at a reduced price. The average cost dropped from 494,029 to 393,576 hryvnias. This additional supply took place under an addendum signed in November 2023.

But where «Krion-M» got drones at a reduced price and what that price was — remains unknown.

Whatever price «Krion-M» started from — about 500,000 hryvnias initially or 359,000 and 393,000 afterwards, including the reduced prices — it is still too much.

The company explained that the prices were such due to the configuration: along with the drone and battery, the set included an additional battery (notably, such batteries sell retail for about 15,000 hryvnias).

The volunteer «Serhiy Prytula Foundation» purchased these drones in a set with one battery for 280,000 hryvnias in June 2023. In August — for just 212,000 per unit.

Even government institutions bought the same Autel significantly cheaper in 2023. The Zhytomyr City Council — at a price of 287,000 per unit. One of the Lviv municipal enterprises — for 269,000 hryvnias. Not 359,000 as after the price reduction at «Krion-M», and certainly not 500,000 as was initially.

The cherry on top — the Ukrainian Flytechnology company, which directly cooperates with Autel, itself offered the State Service for Special Communications wholesale batches of these drones at 212,500 hryvnias per unit in the fall of 2023. The same price was available in June 2023. However, for some reason, they never contracted with them.

The Ukrainian company Flytechnology itself offered the State Service for Special Communications wholesale batches of these drones for 212,500 hryvnias per unit

We could compare «Krion-M» prices with the market ones for a long time, but the point is simple. They are higher. Let’s calculate by how much.

We take the final prices that the company lowered by supplying additional drones. We’ll compare them with the Flytechnology offer — 212,500 per drone. We’ll add the cost of the additional battery — 15,000 hryvnias on top.

It turns out about 195 million hryvnias were ’earned’ on the contract signed in May 2023 between the State Service for Special Communications and «Krion-M», and another about 398 million on the contract signed in August 2023.

For this nearly 600 million hryvnias, it would have been possible to buy another 2,600 such Autels with an additional battery for each. Or 2,000 pickup trucks for the Armed Forces. Or 4 Bayraktars. Or 70 mobile command posts to strengthen air defence.

A German Company with Ukrainian Roots

The supply chains of these Autel drones are no less interesting, as «Krion-M» is not the only one involved. The UAVs sold to the state at an inflated price were purchased by the Ukrainian LLC from European companies — Polish UMO and German Danator.

The Polish UMO has long been on the arms market. However, it started making serious money during Russia’s full-scale invasion of Ukraine. In 2022, its profit increased nearly 15 times compared to 2021.

On September 28, 2023, «Krion-M» purchased 912 Autel drones from the Poles for nearly 447 million hryvnias. Thus, the price of one set reached nearly 490,000 hryvnias at the then exchange rate.

For comparison: the official European distributor of Autel sold the same drones at retail for 280,500 hryvnias in September 2023. These are retail prices, usually somewhat higher than wholesale.

We tried to contact UMO representatives to find out, in fact, where the 200,000-hryvnia difference came from. They did not respond to our inquiries. Meanwhile, «Krion-M», which purchased drones from the Poles, claims they did not disclose either the supply chain or the primary cost price to them.

But the second company, from which «Krion-M» bought drones — the German Danator — deserves special attention, because there is not much German there. The company was registered in 2023 in the small German town of Kirchberg. The founder is Ukrainian Serhiy Velychuk, who still manages the company.

Until 2020, Velychuk worked at the state enterprise «Spetstechnoexport», specializing in the export and import of defence industry products. Before that, he was an employee of the Kyiv Prosecutor’s Office. Even earlier, starting at least from 2010, he worked in the Ministry of Internal Affairs.

Dossier of Serhiy Velychuk

«Krion-M» purchased drones from Serhiy Velychuk’s company at already inflated prices. In July 2023, they bought 532 drones for 6 million 240 thousand euros. That is 11,730 euros per unit, which, at the then exchange rate, is about 487,000 hryvnias.

«Prytula Foundation», let’s recall, bought such drones for 212,000 a month later in August 2023. More than twice cheaper.

So why did the Ukrainian-German company have such prices?

«What will I tell you? What is this, kindergarten?» Velychuk answered our request to name the price at which Danator purchased drones.

According to the businessman, his drones have some special firmware, which makes them expensive. He said the firmware cost about 2,000, either dollars or euros — Velychuk doesn’t remember.

Mostly, Ukrainian military personnel reflash their Autels on their own — and this is free. But maybe Serhiy Velychuk invented an advanced technology with no analogs.

To figure this out, we found a drone from the batch Danator sold to «Krion-M». It has markings from the «Army of Drones» and the corresponding serial number.

We showed this drone to a technical expert from the «Prytula Foundation». According to him, the firmware is completely standard.

Drone marking and serial number

«I don’t see any manipulations having been done to it. This is a standard factory firmware. The drone is on the neutral system. Usually, they are not modified in any way. A price of 2,000 dollars for the firmware of one drone is astronomical, and we have never encountered anyone asking for such a sum for such a modification», the expert said.

In total, in July 2023, «Krion-M» purchased at least 1,074 Autel drones from Danator for the State Service for Special Communications. As we already know, without special software. The batch cost 14 million 130,000 dollars, or 516.5 million hryvnias.

Given that the price of the drones was twice as high, it is likely that half of these funds remained with the German company of the Ukrainian Serhiy Velychuk or was divided among him and other participants in this supply chain.

Two Sides of Responsibility

The head of the Ministry of Digital Transformation, Mykhailo Fedorov, claimed that the Ministry of Defence was not coping with the procurement of drones from the beginning of the full-scale invasion. Hence, the Ministry of Digital Transformation, together with the State Service for Special Communications, took matters into their own hands. «We had to build drone procurement without those… who didn’t want to do it», Fedorov said.

Thus, politically, Fedorov and Shchyhol were responsible for the procurement of UAVs. For instance, here is the end-user certificate for drone deliveries purchased at an inflated price. It bears the signature of the then-head of the State Service for Special Communications, Yuriy Shchyhol, but he didn’t recall this during a conversation with Hromadske.

End-user certificate for drone deliveries

Additionally, Shchyhol stated that he was not at all involved in procurement procedures. Even though the only founder of the procurement department of the State Service for Special Communications and Information Protection of Ukraine is itself. The State Service for Special Communications, which he headed.

This is confirmed by Mykhailo Fedorov: «The State Service for Special Communications procures for all the Defence Forces. 95% of the drones flying towards Russia were not procured by the Ministry of Defence but by the State Service for Special Communications».

The current head of the State Service for Special Communications, Yuriy Myronenko, shares this opinion. «For me, it’s obvious: I am responsible for everything happening in our system, in all the departments we have», the official told us.

On November 20, 2023, his predecessor, Yuriy Shchyhol, was suspected by NABU of misappropriating state funds worth over 62 million hryvnias during the software procurement. He was dismissed from his position that day.

Interestingly, just four days before this, Mykhailo Fedorov sent a letter to NABU about price inflations in Autel procurements. So, the Ministry of Digital Transformation apparently noticed the problem only in November — months after drone deliveries to the front, which, according to Hromadske, started back in July 2023.

Mykhailo Fedorov says he himself learned about the inflated prices in September 2023, after which the Ministry of Digital Transformation started monitoring, and it was on this basis that they approached NABU.

«We started receiving signals from other companies back in September, maybe August, that we could procure at a different price. Then, at the end of September, I got the first invoices from the front at such (inflated) a price. We requested these contracts, instigated market price monitoring. In November, I wrote to NABU about certain problems with Autel, asking them to improve or deepen the monitoring of these contracts», Fedorov said.

Mykhailo Fedorov

NABU eventually opened a criminal case regarding the price inflations on drones purchased by the State Service for Special Communications from «Krion-M». In January 2024. But so far, no one has been charged.

How did it happen that contracts with doubled prices were signed at all?

While Yuriy Shchyhol shrugs off responsibility completely. Mykhailo Fedorov says he didn’t monitor the procurements from the beginning of the «Army of Drones» project, which is nearly a year and a half. Although the Ministry of Digital Transformation had access to the contract volumes and the number of drones purchased.

«I didn’t control the prices of drones or which companies sold them. For example, I found out about “Krion-M” after the fact — from invoices journalists or military personnel sent me. Because I personally did not monitor the electronic system. The idea was that we — were not the buyer, but we told the buyer: “Look, we politically (and I personally) take responsibility for the project, you procure — and you must do it legally, transparently. So overhead, I forward all contracts in real time to anti-corruption bodies”», the minister explained.

According to him, after the Autel story, the Ministry of Digital Transformation drew conclusions. They hope the system will work differently since there is a new head at the State Service for Special Communications. «We, as the authors of this project, are not satisfied that prices can differ. The reputation of this project must be ironclad. What are my internal conclusions? Firstly, next year, 50% of all purchases should be transferred to the closed module of Prozorro. Secondly, we built a team that now controls each contract», the minister noted.

According to him, the investigation should now assess the price inflations for Autel.

So what’s the bottom line? A company that previously traded carpets was admitted to million-dollar drone procurement contracts. The total amount of inflations we were able to identify reached 593 million hryvnias. Even with existing additional agreements.

Meanwhile, the demand for UAV supplies is growing. In 2024, the Cabinet of Ministers allocated 48 billion hryvnias for the «Army of Drones» — for supplies through the same State Service for Special Communications.

Could funds from this enormous budget have been misused in other procurements? Like in the story with our Autel? We can only guess for now.