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In Ukraine, it grows on trees ...

Ever since becoming Ukraine’s president in 2010, Viktor Yanukovych has been preparing for his next election in 2015 – and this time he intends to win without the support of the oligarchs. But he needs cash, lots of it, and this, as Sergii Leshchenko reports, is where "self-made" Serhiy Kurchenko comes in.

Sergii Leshchenko
20 August 2013

He’s twenty seven years old, he’s Ukrainian, and the list of his acquisitions reads as though Cinderella had got herself a Visa Platinum card with no spending limit. In the last year, he has become the owner of a football club (which in the coming season will be playing in the Champions’ League), as well as an oil refinery (bought from Russia’s second largest oil corporation, Lukoil), not to mention Ukraine’s largest media empire, with dozens of newspapers, periodicals and online outlets in its stable.  His last exploit to hit the headlines was an attempt to recruit one of the American Forbes family, publishers of the business journal that bears their name. This was a rare failure - Miguel Forbes turned him down.

Ladies and gentlemen, meet Serhiy Kurchenko.

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Serhiy Kurchenko — a rare example of entrepreneurial success in Ukraine? Photo: metalist.ua

A year ago the name meant nothing to even the most observant  journalist, let alone the Ukrainian public. But today his story could make the  front page of ‘Forbes’ itself – the tale of a genius who has come from nowhere to become a multimillionaire, and still three years short of his thirtieth birthday. Miraculous. Except, of course, that this has all happened in Ukraine, a country famous for its corruption, authoritarianism and cronyism. And the irresistible rise of this mysterious character — from a modest background to the ranks of its most prominent oligarchs only raises a smile, because no one doubts that Kurchenko is a front man for the Yanukovych clan, tasked with legitimizing the enormous wealth they have accumulated in three and a half years of running the country.

No one doubts Kurchenko is a front man for the Yanukovych clan, tasked with legitimizing the enormous wealth they have accumulated in three and a half years of running the country.

The President’s Family

Viktor Yanukovych’s election in 2010 did not bode well for Ukrainian supporters of the market economy. The new president never hid his preference for oligarchic rule, and it was during his time in charge of the Donetsk Region, between 1997 and 2002 - years of general economic collapse - that the oligarchic grouping around Rinat Akhmedov emerged there. This son of a coal miner is now Ukraine’s richest citizen, with a net worth estimated at over £10 billion, and the owner of Britain’s most expensive residence at No 1 Hyde Park, London. It was with Akhmedov’s help that Yanukovych became Ukraine’s Prime Minister in 2002, putting him on the road to the presidency, and he has provided him with staunch electoral support ever since.

Another important source of support for Yanukovych has been the clan based on the mythical RosUkrEnergo gas supply company, represented by Serhiy Levochkin, the President’s head of administration, and Dmytro Firtash, a businessman who, according to Wikileaks, has admitted to close ties with mobster Semyon Mogilevich, one of the USA’s ten most wanted criminals.

After Yanukovych’s victory at the polls, it was pay-back time for the clans: Akhmetov was handed Ukraine’s energy industry, while Firtash got titanium. Yanukovych, a man not averse to turning a quick buck himself, was also a quick learner, and once in power began to form his own clan - known as the ‘Family’, just like those created in Russia by Boris Yeltsin in the late 1990s and later by Vladimir Putin. But if the core of Putin’s clan was the ‘Ozero’ dacha community, the key people in Ukraine were people who had risen without a trace and whose only links were their individual friendships with Yanukovych or his son Oleksandr. The First Deputy PM, the Finance Minister, the Minister for Internal Affairs, the Minister for Energy and the Head of the Internal Revenue are all Oleksandr’s nominees, while the Prosecutor General and the Head of the Security Service are the President’s men.

After Yanukovych’s election victory, it was pay-back time for the clans

And his last appointment probably caused shock waves in the judiciary: Vyacheslav Ovcharenko, an unknown judge from Yanukovych’s home town of Enakievo, became head of Ukraine’s Constitutional Court. Ovcharenko knew nothing about constitutional law, but a possible explanation for his meteoric rise could be the fact that Yanukovych in his youth served two prison terms for crimes involving violence, but all the documents and records relating to these cases somehow disappeared  - just at the time when the future head of the Constitutional Court  was working in Enakievo.     

Serhiy who?  

Twenty seven year old Kurchenko, throwing his money around at a time of economic crisis, is another creation of Yanukovych’s clan system. He can count two key figures in the government, First Deputy PM Serhiy Arbuzov and Oleksandr Klimenko, head of the Inland Revenue, as his godfathers inside it. Kurchenko’s name started appearing in the papers at the end of 2012, when he bought the Metalist football club, based in Ukraine’s second city Kharkiv. Football in Ukraine has been a loss-making business for many years, and consequently a club is the toy of choice for any self respecting oligarch.       

The club’s previous owner, old-school oligarch Oleksandr Yaroslavsky, had fallen out with Kharkiv’s city fathers – many believe their disagreement was cooked up deliberately to force him to sell the club. ‘I had no plans to sell,’ Yaroslavsky complained. ‘I had £400 million in the kitty, enough to keep Metalist going for ten years, and I planned to invest in new players. But then I thought - I invest all this cash and I get nothing but grief from the authorities!’ The solution was to sell to Kurchenko. ‘I don’t even know who this guy is,’ Yaroslavsky admitted several weeks after the deal.

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Kurchenko (right) at a meeting with the management of Metalist football club in the office of Gas Ukraine. Photo: metalist.ua

The young millionaire began by smuggling petrol into Ukraine in spring 2012 – officially supposed to be re-exported to a third country, but in fact sold to local customers. In nine months the Ukrainian treasury lost more than £1 million in Customs duty.

Kurchenko’s first money spinning activities were described in detail in a parliamentary question put by opposition MP Yuri Sirotyuk.  It seemed the young millionaire began importing contraband petrol into Ukraine in spring 2012. ‘At first his system worked on the “lost in transit” principle – the fuel was imported into Ukraine and was officially supposed to be re-exported to a third country – but in fact it never left and was sold to Ukrainian customers.’ As a result, in nine months the Ukrainian treasury lost more than £1 million in Customs duty. The government, however, not only turned a blind eye to illegal trafficking, but also started to make life difficult for Kurchenko’s business rivals: Customs officials would hold up the paperwork needed to import petroleum products – except, of course, for members of the Family. On top of this, while it was losing millions in Customs revenue thanks to Kurchenko’s little scheme, the Ukrainian government was also in talks with the IMF about a multibillion bailout loan.

Kurchenko meanwhile acquired a gas company, Gaz Ukraina, which was equally unscrupulous in its trading practices. It would buy gas from state owned enterprises at a discount price and resell at market rates. Once again, it was almost impossible for other companies to compete. According to my sources, Kurchenko’s entry into this sector was initially  facilitated by another powerful son – Artem Pshonka, whose father Viktor, an MP representing the ruling Party of Regions, is Ukraine’s Prosecutor General, and only later did Arbuzov and Klimenko, both close associates of Oleksandr Yanukovych, become his patrons in the government.

Preparing for 2015

Today the Kharkiv wunderkind controls four major sources of cash for Ukraine’s biggest pocket: the sale of cheap gas; the import of petrol and other petroleum products; the importing of gas into Ukraine from other European countries; and the ‘grey market’ conversion of non-cash money into cash. The amount of money passing through the hands of the ‘family banker’ runs to hundreds of millions of pounds a month, and all to ensure that come the presidential elections in 2015, Viktor Yanukovych will not have to depend on the oligarchs for support.

Preparations for 2015 also include the Family acquiring its own media outlets for the presidential campaign, to avoid any dependence on those owned by oligarchs, many of whom have reason to dislike Yanukovych and his young team. Kurchenko himself has taken business away from oil magnate Ihor Kolomoisky, owner of one of the country’s largest media corporations, including its main TV news channel 1+1. Another major media company is owned by Viktor Pinchuk, another enemy of Yanukovych, whom he holds responsible for the criminal prosecution of his father-in-law, ex-president Leonid Kuchma. Another large media group, ‘Inter’, recently fell into the hands of another clan that competes with the Family for influence on Yanukovych – the RosUkrEnergo group led by Dmitro Firtash and the President’s administration chief Serhiy Levochkin. Inter’s previous owner Valery Khoroshkovsky was appointed by Yanukovych to head Ukraine’s security services after his election in 2010, and later held the posts of Finance Minister and First Deputy PM, but then he fell out with the president and left the country, where he hasn’t been seen for more than six months. The Family’s attempts to make him sell his TV channel were unsuccessful, and his media empire joined the ranks of its opponents.

Preparations for 2015 also include the Family acquiring its own media outlets for the presidential campaign, to avoid any dependence on those owned by oligarchs, many of whom have reason to dislike Yanukovych and his young team.

After the failure with ‘Inter’, the Family turned its attention to ‘Ukrainsky Media-Holding’ (UMH), owners of a host of print and online publications, including Forbes Ukraine, produced under licence from its American publishers. It was announced last month that Kurchenko had bought it for a reputed $370,000,000 (£241,000,000). The irony is that it was Forbes that had first revealed to the world the existence of this mysterious businessman with close links to Yanukovych. As the young oligarch prepares for his new role of proprietor of these awkward media, the journalists fear a new era of censorship. Forbes Ukraine‘s editor Vladimir Fedorin has resigned from his job, explaining Kurchenko’s purchase as motivated by a desire to shut journalists up before the presidential election and whitewash his own reputation. ‘I consider  the sale of Forbes Ukraine the end of the project in its current form’, he announced as he left.

The Yanukovych family has however still one gap in its defences: it still doesn’t have a major TV network. And since TV is the main source of information for 87% of Ukrainians, this is a serious problem. It remains to be seen whether any old oligarchs will voluntarily sell their channels to the Family – or whether one of them is lined up to be the Ukrainian Vladimir Gusinsky, who in 2001 was forced to hand over his Russian NTV channel to Putin.

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