oDR: Feature

A Ukrainian tanker mystery continues – and leads back to the UK

When a mysterious tanker crashed off an Odesa beach two years ago, oil came rushing out of its hull - and so did the UK’s complicity in lax corporate oversight around the world.

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David Leask
12 February 2021, 9.25am
Image: Max Pshybyshevski

It was epic, Mykhaylo Shtekel says, and it was cold. He often remembers the early winter day in November 2019 that a tanker, the Delfi, ran aground on one of the golden beaches that stretch south from the Ukrainian port city of Odesa.

Shtekel, a Radio Liberty correspondent, had stood on the shore, soaked and shivering, and watched as the 1,600-tonne, 42-year-old vessel first hit a breakwater and then, after slowly filling with grey, frothing sea, rolled on to its side.

“It was some sight to see a ship, a pretty big ship, go down in a storm. It was pretty impressive,” Shtekel told openDemocracy. “Every now and again I look out the pictures I took that day and reminisce.

“It looked like a classic maritime painting: the powerful waves, the rescue boats. It was epic.”

The Delfi beached on 22 November 2019. Only in the following September was it finally towed off the mole, long after the Odesa surf had flushed the toxic grease and oil out of its old engines and into the Black Sea. At one point, environmental watchdogs measured hydrocarbons in the water at 157 times the accepted maximum.

Footage of the Delfi accident. Source: Dumskaya

This meant that in the summer of 2020, even at the height of the holiday season, the beach where the Delfi lay was closed and guards were posted to keep people away.

Somebody, nevertheless, swam out to the wreck and painted, in huge letters, the name Sofiya on the tanker’s rusted deck, which now faced the shore. The vandal, next to the graffiti, added a picture of a glowing sun.

The Delfi, Shtekel explains, had become a “tourist attraction”, a place of “pilgrimage”.

The tanker was also a talking point in the city. Questions were asked – if rarely answered. Who was responsible for the Delfi’s sinking? Why was it allowed to pollute a beach for ten months? Who ought to pay the 14-million-hryvnia (£365,000) bill for its eventual removal? Who owned it?

Eventually the last query got a response. The Delfi, local authorities said, was registered in landlocked neighbouring Moldova, but owned by a “company” in the UK – in Cardiff, to be exact. The name? Mister Drake PC.

So this was not just a Ukrainian story, it was a British one, too. The Delfi, on paper at least, was Welsh.

Mister Drake PC is one of thousands of UK ‘shell firms’, which are often anonymously owned, operating across the former Soviet Union

At the start of February 2021, the Ukrainian government took Mister Drake to court. Its aim was to strip the UK entity of its ownership of the Delfi, now languishing in the nearby port of Chornomorsk.

Lawyers were back in an Odesa court on 10 February to thrash out the dispute. Ukrainian government representatives argue Mister Drake PC failed to fulfil its obligations to clear up its mess in nine months, the period set by the Odesa port. According to news agency Ukrinform, a lawyer for Mister Drake, Oleg Sytnik, told an earlier hearing that local officials had prevented his client’s representatives from gaining access to the Delfi.

The case is one of several to stem from the accident, leading headlines in Ukraine. It is also, from a British perspective, entirely moot. Mister Drake PC, despite being described in Ukrainian reports as a “company”, is nothing of the kind.

The clue to its status lies in its name. PC stands for Partneriaeth Cyfyngedig, or “limited partnership” in Welsh.

Crucially, limited partnerships (LPs) have no right to own property, including ships, and no right to represent themselves in court. To use the jargon of corporate law: Mister Drake PC does not have a legal personality. Yet in Ukraine, the entity is fighting to keep its ownership of a ship in court.

We asked Oleg Sytnik, Mister Drake PC’s lawyer, to explain how this was possible. He declined to do so. “I am not prepared to discuss this with you,” he told openDemocracy.

A UK government spokesperson said: “There is no provision in legislation that would allow limited partnerships registered in England, Wales or Northern Ireland to own property. It is for the Ukrainian courts to determine which people or entities they take action against in light of this.”

Company law in the UK

When is a company not a company?

There are subtle differences between corporate entities in the UK, even those with similar names.

Take a limited partnership. This is historically one of several ways partners can share the profits – and losses – of a joint venture. Why limited? Because the liabilities of all but the general partner are limited.

In England, Wales and Northern Ireland, these entities lack many of the characteristics most of us would ascribe to a company. They cannot own assets. They cannot appear in court or sign contracts on their own behalf. They do not have to file public accounts and they do not have to say who owns them.

In Scotland, on the other hand, limited partnerships or SLPs do have a “legal personality”. They can hold property in their own name or enter into contracts. And so too can limited liability partnerships or LLPs.

People in the market for a ‘shell company’ to open a bank account or front a website do not necessarily drill down into the detail of what an LP in different parts of the UK can and cannot legally do.

So across the Soviet Union – where corporate cyphers are endemic – there is often little thought given to the subtle differences between LPs, SLPs, LLPs and even limited companies.

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Zombie companies

Mister Drake PC is one of thousands of UK ‘shell firms’, which are often anonymously owned, operating across the former Soviet Union.

Many of these ghost businesses have run into trouble with the law. As openDemocracy revealed last year, some 700 UK corporate entities have been blacklisted in Ukraine alone.

The UK paper trail does not surprise Graham Barrow, an expert in financial crime. He stressed many British shell companies, including those littering corporate Ukraine, were often “throwaway”.

“UK companies feature prominently in a plethora of suspicious financial activities or laundromat schemes, but these activities are invariably located somewhere else in the world,” Barrow said.

“And this is revealing. The only role of the UK company is to provide the paperwork, to open a bank account or to be the name on a proposal for an infrastructure project for example. It does not have an economic purpose on its own account.

Limited partnerships from England, Wales and Northern Ireland do not have to declare owners or file any accounts. Anti-corruption campaigners say their lack of transparency poses a serious risk. After all LPs appear fairly frequently in official documents across the former USSR – where the intricacies of UK corporate law are not widely known – as the owners of significant assets. Last year openDemocracy reported on a ship in the Russian far east owned, according to local registries, by a Northern Ireland LP.

delfi (3).jpg
Image: Max Pshybyshevski

The Delfi story has another British nuance. LPs are often said to exist only on paper, as a means to open a bank account. But sometimes it is not obvious that they have even a paper existence.

Take Mister Drake PC. According to Companies House, the entity was dissolved months before Delfi beached. And then, amid a flurry of filings at the UK corporate registry, Mister Drake seemingly re-animated in the spring of 2019 with a new address in the outskirts of London – rather than an office near Cardiff railway station – and new anonymously owned partners.

How can this be? There is no way of striking off dissolved limited partnerships from Companies House. Instead, these entities can continue to live on, like zombies – stalking, in our case, Ukrainian business.

“Shell companies have introduced a whole new legacy of sleaze to the UK’s international reputation,” says online anti-money-laundering investigator Dylan Kennedy, of Intelpool Limited, who has traced many companies, including zombie LPs. “Here we have yet another disposable, unmanned UK registered corporate entity that is no longer alive but somehow refusing to die.”

So who does own the Delfi? The representative of Mister Drake PC cited in court papers in Ukraine is Yuri Golikov, a local businessman. openDemocracy was unable to reach him for comment.

But Dumskaya, an online Odesa newspaper, which has catalogued the Delfi saga, has named another businessman as the tanker’s owner: Oleg Kovtunov, an associate of Golikov. Kovtunov was once a regional councillor for the political party of Viktor Yanukovych, the Ukrainian president who was ousted in 2014 and is now living in exile in Russia.

A 2020 investigation by Ukrainian TV channel Pryamyi also claimed that Golikov, in conversation with their journalists, had confirmed that Kovtunov was the owner.

Prior to Ukraine’s local elections in October 2020, the country’s current president, Volodymyr Zelenskyy, said he would name Delfi’s real owner. “We found the beneficiaries. We will not give you the name of the political party [now], as they’ll say that I named it before the elections,” he said in September. Zelenskyy is still yet to name the Delfi’s owners.

“Like newspapers used to wrap an old fashioned serving of fish and chips, once these companies have performed the task at hand, they can be instantly cast aside and forgotten”

It is far from easy to keep track of who owns what in the opaque world of Black Sea shipping. According to Dumskaya, sources in Odesa’s port industry claimed that since 2018, the tanker had been operating as an unregistered fuel station off the Odesa coast. This suggestion was echoed by local maritime expert Oleksandr Zakharov, when speaking to the TSN channel in the aftermath of the accident.

The Delfi had repeatedly changed names, owners and flags. Under one of its old identities, the ship, then called the Ekologiya, was allegedly used to smuggle oil products into Ukraine up until the 2014 fall of Viktor Yanukovych.

Dumskaya, citing a criminal investigation by Ukraine’s security services (SBU), described a complex scheme to pass foreign fuel off as having come from Odesa’s oil refinery. The newspaper claimed several shell companies and tankers were used in the alleged smuggling operation, including the then Ekologiya. At the time, the Odesa refinery was owned by Serhiy Kurchenko, an energy tycoon once described as Yanukovych’s personal “wallet”.

Dumskaya said the investigation had found company stamps in the name of Ekologiya – and two other British corporate entities previously said to own the ship – during a 2017 raid on an office “affiliated” with the Kurchenko group as part of its smuggling probe. The multi-millionaire, now living in Moscow, has always denied accusations that he smuggled petrol into Ukraine.

Ukrainian officials initially named the two British entities, whose alleged company stamps were found in the investigation, as the owner of the Delfi, before later saying the ship belonged to Mister Drake PC.

delfi (22).jpg
Image: Max Pshybyshevski

For Graham Barrow, the ambiguity over controls on UK limited partnerships is a familiar problems.

“Once the paperwork has been completed, or the bank account opened, the company itself is now disposable. This can lead to the ridiculous situation, following discovery of malfeasance somewhere in the world, of potential legal action failing because the entity concerned has ceased to exist.

“The ease with which company formation in the UK is accessible and affordable to actors all over the world, also brings significant risks. Like newspapers used to wrap an old fashioned serving of fish and chips, once they have performed the task at hand, they can be instantly cast aside and forgotten.”

The UK government knows it – and the rest of the world – has a problem with British shells, especially limited partnerships.

In 2017, the government moved to force Scottish limited partnerships or SLPs to name their owners. Why? Because SLPs, unlike similar entities elsewhere in the UK, could legally own property.

A year later the government announced proposals for a host of further reforms, including new powers to strike dissolved LPs off the register at Companies House.

This measure should end the plague of zombie partnerships stalking countries like Ukraine. But, along with other reforms, this measure will have to wait for a place in a tight parliamentary diary.

A UK government spokesperson stressed where the law – on Delfi – and similar cases currently stands.

“It is not currently possible to strike limited partnerships from the register and there is no statutory way for limited partnerships to notify the registrar that they are dissolved,” they said.

The Ukrainian government did not explain why it was trying to strip the ownership rights to a ship from a limited partnership which is legally incapable of holding property.

A spokeswoman for the Ukrainian Ministry of Justice repeated the government’s position that Mister Drake PC had forfeited its right to the Delfi by failing to remove the vessel from the beach. The case continues.

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