Ukrainian legislator arrested in Germany on charges of stealing compensation funds (10/29/00)

Ukrainian legislator arrested in Germany on charges of stealing compensation funds

by Roman Woronowycz
Kyiv Press Bureau

KYIV - The arrest of a Ukrainian lawmaker in Germany on charges that he stole 86 million DM (approximately $43 million U.S.) from a fund for ostarbeiters has sent repercussion through Ukraine's political establishment and touched at least two of Ukraine's leading reformers, including the head of government.

German authorities detained National Deputy Viktor Zherdytskyi, a non-aligned member of the Ukrainian Parliament, in Hannover on October 10 after he attempted to withdraw a substantial sum of money from a personal account. A day later they charged the Ukrainian lawmaker with fraud and abuse of trust.

Ukrainian officials brought their own charges the following day, when they announced they were opening criminal proceedings against Mr. Zherdytskyi on charges of large-scale embezzlement.

The center of both the German and Ukrainian investigations is the now defunct Hradobank, which 43-year-old Mr. Zherdytskyi headed as chairman of the board of shareholders. The bank had been under investigation by Ukrainian authorities since it could not account for 86 million DM, part of some 400 million DM transferred to the bank in 1994 by German officials as compensation to be paid to former Ukrainian slave laborers who worked in Nazi concentration camps and factories during World War II.

The bank was one of five Ukrainian financial institutions that were authorized to disburse money to Ukrainian ostarbeiters, after a deal Germany made with the former slave laborers earlier in the year.

After the bank was discovered to be insolvent in January 1997, Kyiv was forced to pay some 70 million DM in compensation from the national budget.

According to the Embassy of Ukraine in Berlin, German officials believe that of the 400 million DM that was transferred to Hradobank to be disbursed to Ukrainians who qualified for compensation, some 200 million DM was illegally placed in dubious investments. Another 86 million DM disappeared, reported the newspaper Den.

German officials told Den they have turned up an intricate web of offshore accounts and paper companies associated with Mr. Zherdytskyi, stretching from Hong Kong to Switzerland and Germany.

Ukraine's Deputy Procurator General Mykola Obikhod was more specific during a press conference in Kyiv on October 13.

"We are talking about Zherdytsky's theft of large sums of money from the Hradobank and its transfer to his own offshore company, Centurion [Industrial Group Ltd.], which is registered in Hong Kong, with the use of fictitious documents. Afterwards it was transferred to Zherdytskyi's personal accounts in a Swiss Bank," explained Mr. Obikhod.

Ukrainian officials admit the case against the lawmaker is complicated by the fact that the money originally deposited in the Hradobank was put into a trust account - which meant that it could be invested by the bank during the period of time that was required to identify those eligible for compensation from Germany and to review their documents.

Hradobank invested the money in risky projects in Ukraine's faltering cement manufacturing industry. The investments flowed into companies whose ownership often changed or ended up in court or in bankruptcy. Eventually the money vanished.

Mr. Zherdytskyi has pleaded innocent to both charges. At first he refused to meet with representatives of the Ukrainian Embassy in Berlin, but later changed his mind. According to Studio 1+1 Television, he has requested that German officials not allow his extradition to Ukraine for trial.

The fraud charges surrounding Mr. Zherdytsky, who could receive 10 years in a German prison if convicted, have touched Prime Minister Viktor Yuschenko, who chaired the independent National Bank of Ukraine at the time of the bank transfers, as well as Viktor Pynzenyk, a national deputy and leader of the Reforms and Order Party, who was first vice prime minister of economic reform in 1994.

Mr. Pynzenyk has been accused by Kievskie Viedomosti, a Kyiv daily newspaper, of ordering the deposit of the money into the Hradobank account, which is not a crime in itself but leaves him open to speculation as to the reason for the decision. He came under scrutiny after a series of articles published in the newspaper suggested that Mr. Pynzenyk directed the Ukrainian National Fund for Mutual Understanding and Reconciliation, a non-governmental organization authorized by the German government to handle the disbursement to the former ostarbeiters, to deposit the money in Hradobank's accounts.

The newspaper also has made a political connection between Mr. Pynzenyk and Mr. Zherdytskyi through Ihor Dydenko, a business partner of the arrested lawmaker who was a member of the Reform and Order Party at the time and who, in turn, had business dealings with Ihor Hryniv, Mr. Pynzenyk's first lieutenant.

Mr. Pynzenyk has defended himself only so far as to say that some of the money that was invested in the cement firms came from orders from highly placed government officials and against his advice. He did not identify those officials.

Kievskie Viedomosti also charged that Prime Minister Yuschenko was peripherally involved in the scandal because he did not appoint a government official to oversee the bank after financial problems had become apparent in October 1996, just after the German money had been transferred. The newspaper stated that a Hannover law-enforcement official had suggested that the former NBU chairman might have to answer prosecutors' questions.

Mr. Yuschenko vehemently denied any involvement in the Hradobank affair during an interview with The Financial Times on October 20. "That's [a] complete lie," he said regarding accusations that he agreed to the deposit of the German compensation in a private commercial bank rather than in the NBU that he chaired.

Mr. Yuschenko said that at the time he "was surprised" by the government's decision to transfer the money to the Hradobank, according to Interfax-Ukraine.

The series of articles by Kievskie Viedomosti has provoked a stream of criticism from political opponents of the Yuschenko Cabinet. It comes just as the government is trying to push the 2001 budget through the Verkhovna Rada and awaits a decision on the resumption of International Monetary Fund credits.

Kievskie Viedomosti is owned by Hryhorii Surkis, a multi-millionaire national deputy and owner of the Kyiv Dynamo Soccer Club, who is said to be the prime minister's primary political foe.

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