GOVERNMENT OF UKRAINE MINISTRY OF FINANCE MAIN CONTROL AND REVISION OFFICE REPORT OF INVESTIGATIVE FINDINGS Pursuant to Agreement on Performance of Audit on the Efficiency of Use by the Respective Controllers of the Budget Funds in 2008-2009 and in the First Quarter of 2010 October 14,2010 ‘TROUT CACHERIS PLLC AKIN GUMP STRAUSS HAUER & FELD LLP KROLL, INC, Trout Cacker's, PLLC‘TABLE OF CONTENTS Introdetion. Executive Summary Methodology. Investigation Relating to Procurement of 27 Renault Maser Vehicles by the Ministry of Emergency Situation. Investigation Relating to Procurement of Sugar by the State Material Reserve Investigation Relating to Use of Funds Recelved from the Sale of Carbos Credits Purruant to the Kyoto Protocol 36 Investigation Relating fo Procurement of 1000 Opel Combo Leisure Activity Vehicles and Medical Equipment bythe Ministry of ea nan Investigation Relating to Purchase of Pharmaceatical Products and Medical Equipment by the Ministry of Health in 2008 and 2009... 104 Investigation Relating to Land Registration Program Enacted by the Cabinet of Ministers a6INTRODUCTION ‘On May 5, 2010, the Cabinet of Ministers of Ukraine issued Resolution No. 334 (the ‘Resolution ) authorizing the audit and investigation ofthe se of budgetary allocations by the GGovecnmeat of Uraine during the sal yeas 2008 and 2009 andthe fist quater of elendst yes 2010. Pursuant othe authority granted under the Resolution, the Ministry of Finance and the Main Contol and Revision Office of Ukraine (he "KRU" engaged the law frm of Tout CCacheris, PLLC of Washington, D.C. to cary out the audit and investigation mandated by the Cabinet of Ministers, Trout Cachers engaged the international aw firm Akin Gump Stas Hauer & Feld, LLP and the investigative and forensic aut fm Kroll Inc. (collectively, he lnvestigatve Firms), long with the consuing firm Fist Internation] Resources, LLC, 10 ie Uaomssse »Thamar fom Legal Business Consultants to 18S Uisaina [Legal Business Consultants and 18S Ukrina entered into contract on November 1, 2007 forthe suply of 6 medical vehicles at tal cost of £200,000 On January 1, 2008, the contract was amended to provide tat ISS Ukraima would purchase 60 vehicles ion The contract indicated tht the vehicles were ora toa price of ‘manufactured by Emergensia 2000, Spenish entity. Because the vehicles were specitiod as Rena in invoices and customs documentation, tis unlikely hat Emergensia 2000 actualy "manufactured them, but Emergensa 2000 does appear tobe genuinely Involved inthe supply of mela vehicles. There iso evidence to date to suggest how ‘Legal Business Consltsnts obtained the vehicles, Sano Stipancic signed the contrat on behalf of Legal Business Consultants, and Zetko Gruatir signed for1SS Ukraina ‘Customs documentation shows thatthe vehicles were imparted by ISS Ukeina between January 2008 and February 2009, although the vast majority fears were Aetvered beoween January and March 2008. The invoices to 18S Ukrans contin an ‘dentfetion number forthe cars old A comparison of the invoices wih the fentiiation numbers ofthe vehicles sold othe Ministry show that at east 26 ut of 27 aethe same cars tat were imported by TSS Ukraine Si ato “Een Uateoneb-Uacno06222.188 Uiraina: Repeat Government Contractor . rate oifle 1S Ukrina was incorporate in Ukraine on Ferry 4, 2000 ad hs substantia public profile as a supplier of woos othe Government, including the Mins of Heat, the military the Stat Security Serve and the Mini of Emergency Stations, For example, in December 2000, 18S Ursin won a tender to ‘supply maiz equipment othe Naval Foress of Ukraine. In May 2005, the company split mcicl equipment toa reponl el care facili ron by he Minis of ea, The company supplied medical veils tothe State Security Service of Uline in September 2009, A source lio stated that ISS Ulin previouly spp iopers tothe Minsty of Emergency Sintons” ‘helo Grass cre the sole shrcholder an deetor of 198 Ukr * Assos below, he became the 100 peeent owner of 18 Ukmina when Lilja Gena who shares x surname and addres with Zl, transfered her 50 percent Interest in the company to Zhetko.” Connections to Legs Bus “Zhetko Gracatis and Legal Business Consultan principale Igor Krol, and ‘Santo Sipancic ar ll Crotan national nae inked by corporations f whic hey serve orkave served as decors. Namely, Granatiris curently eto of to ‘companies incorporated in the UK called Invest Consulting Company Lid. Invest 2 nea atm, Sea Gana, > Coil owe 2»co. and Invest Consulting Center Lu, (vest Cater)" Companies that are or have ben officers, directors, or sharsholders of Invest Co, and Invest Center are connected to Kroa, tiancic, and Legal Business Consultants i InvestCo, Invest Co was incorporated in the UK in Februry 2008 and hasbeen dormant ‘nce that ime. Before Gana was appointed a sole director in Febreary 2008, Tylney Directors Limited was the sole director Tylney Directors as been dormant since its ‘ncoporation in 2000.* Current, Krota and Stipancic are directors and shareholders of| ‘Tylney Directors and Stipaci ls formerly acted as secretary ‘Tylney Secretaries Limited and Corp Secretaries Limited have served as secretaries of IvestCo, Granatie became sole shareholder of Invest Co, in February 2009, Before that time, Tylney Directors and Tylney Secretaries each held a 50 percent interes. Corp Sceretares was incorporated in March 2010 and is ester atthe same adress as Legal Busines Consultants and several ther ents associated with or beneficially owned by Krota and Stipancc2” Kota iste sole distor of Corp Secretaries, and an entity called Nominee Co Secretaries Limited sits seeretary** Krota Is alo director of Nominee Co Seretaris Limited” Tylney Secretaries Limited is ee amos, 5 Boe 36 Undmst; Eki: UAMIOSS See a UnOonse. 3 Boit36 Uaounse3 Boe 3: UAOOISIR ‘TEAR 2 UADOISIT ets UAmnS aes DADS 0wholly owned by Krotaand Stipaance was incorporate in 1998, and hasbeen dormant since then" Tylney Secretaries als served as secretary of Legal Business Consultants fom February 2007 to April 2010, andthe two companies shared the same addres tone time. Krotz isthe sole director of Tylney Secretaries, and Tylney Directors ‘sits secretary. Atprevious times, Krots and Spans each acted as secretary. i Invest Center Invest Center was incorporated in Joly 1999 and was registered a the same adresses as Legal Business Consultants, atthe same time." The curent owners of| Invest Center are Tylney Directors and Tylney Secretaries, but past ownership was transfered burween these wo enites, Granate, Lepal Diector Limited, Legal Secretaries Limited, and vo ene incorporated inthe Ise of Man As discussed above, Kota and Stipancc own Tylney Directors and Tylney Secretaries. ‘Tylney Directors was formeriy a dirstr of Invest Centr, and Tyiney Secretaries camenty serves as the company secretary. Other former directors and officers of vest (Center include Legal Secretaries Linitd and Legal Directors Limited, Legal Secretaries Limited served as secretary of Tylney Directors ftom April 2000 to October 2008, seeretary of Invest Center fom November 1999 June 2006, and sereary of Legal Business Conslans from March 2000 to Febrry 2007. Babi 7 UAtbOSSt3, ‘Sis Se atnose “Babee UAwDs4 ‘Sees, Eee: UA; an 2: LACORS. “Se eg Een: UAODSS: a 4: UADUSH2: AMS: UAOIOSAS; aii ‘Wats, Uaebosez oad tov ar 2), 31Jn sum, Grant serves a ductor of one company hats owned by vo corporations that aren tum owned by Keats and Sine en of anther nity tht counts corporations beneficially wned by Kot and Stipanci as former directors, fcr, nd shareholders. 3. Eurospetsrans Shell Company Created o Mask ISS Ukraina's Role © ncomoration and connections to IS Ukaina At some pint between April and October 2009, Euospetstrans came to possess the vehicles. Although we could not obtain copy ofthe private contact Between "Eurospetsvans and TSS Ulva, it is apparent thatthe to companies are closely related. ‘Eurospetstans was incorporated in Ukraine on April 24,2008. The founder and sole shareholder of Eurospelsrans is Lily Grant, who shares a surname and adress with _Dholko Granai the shareholder of ISS Ukrina, Lily Granatic was frmery a shareholder of ISS Ukraina but transfered he 50 percent interest © Zelto, who became ‘the sole owner, on May 28,2009. Neither Eurospetsans ors director, Ivan Ray, has 4 significant pie profile, bh Desert (On October 9, 2009, Burosptsrans and Lakshmi Avto entered nto a dealership agreement that granted Lakshmi Avto the right to sell27 Renault Master vehicles owned by Eurospetsrans“* The contract provided tht the vehicles shouldbe od ata minimum ‘of UAH 47,000 prea, and Lakshmi Avto would resive a commision of UAH 10,000, ‘TwAoomss (ced stave 23) Conde ste. Bont ADO, 2era sld. The delersip agreement was signed on the sme day thatthe Tender Commitee approved and vote o publish the tender documentation relating tthe ‘vehicles, Despite the dealership agreement beeen Eurespettrans and Lakshmi Av, PANAX provided eter to th Teer Commie inti that Lakshmi Avi was tuthoived by PANAX adler and distur of the veces 4. Lalshmi Ato: Shell Company Created to Mast ISS Uioaina's Role [Lakshmi Avo was incorporated in Uksine on September 15,2008—at the same Le that Deputy Miniter Baranchuk was shepherding the equests fr the vehicles through the Ministry andthe Tender Commitee and barely two months before Laks _Avto was awarded the contrat ‘Ulrinian corporate filings and the contract between Lakshmi Avto andthe ‘Minisoy state hat Lakshmi Avs adres Sa Ulica Aviozavodsast, Kyiv. Howeve, 1 sit Visi evened tht no company by the name of LalsiniAvto ws located at that address, Insead,s police station i osted there.” KRU’s visi to Lakshmi Avo three ‘months prior tothe Investigative Firms site visit ls indatd thatthe company was not presen a that addres" Theres no information available regarding Sergei Nikogde, the allege sole director and shacholdez. The evidence raises suspicions that Lakshmi Avto is shell company create bythe principals of ISS Ukrsna and Eurospetsans. In his ‘way, thos individuals could manipulate the tender process to ensue that Lakshmi Avio ‘Sia et Uatons, Bev 3‘won this contact and ould cones the cain of supply andthe markups othe pice of the vehi 5. Companies Involved in Supply of Voices Had Inside Connections {othe Ministry of Emergeney Suatons ond Created Shell nies 10 Coneal Tse Relationships ‘The investigation aio evealed connections between Zhelko Grn and Deputy Minster Baran, inking the corporations and india involved inthe hain of supply toa high-level oficial of the Minisy of Emergency Situations, Grant's media profil in Croatia relates this eaings witha Croatian entity called DOK-ING, a producer ofde-mining vehicles and equipment. In 2009 and 2010, Granatir coordinated ‘vents in Ussing a which DOK-ING marketed products. The evens wer ih ofl and were tended by goverment ficial, inshuing Deputy Minister Branch Aso in 2008, representatives ofthe Ministry of Emergency Sitstons of Ukraine ‘raveled to Croatia aad signed a protocol eating to cooperation in de-mining and other ‘peacekeeping activites. The protocol was signed by Baanchuk on beal ofthe Minis ‘DOK-ING atended the metings a representative of the Croatian goverament. The ‘Utena epesntatives were interested ia DOK-ING's d-mining vehi, so DOK ING sranged visitto Ueno. The Crotan Embasey in Kyiv ntl tite DOK: ING, but sage that DOK-ING insted find an nv n Kyi to tate the visi su retings. Granta lected to under that work‘The char onthe followin page ilusates the chain of supply and he relatioeships among the various odividuals and corporations tht were involved in transferring the vehicles, 35Suppy Veils bee Poe ort6 Summary Timeline “The timeline below summarizes the events leading tothe procurement ofthe 27 ‘regency medical vehicles and iltastates the significance of key dts, + November 1, 2007: Legal Business Consutens and ISS Ukraina enter ito 200,000 contrac forthe supply of 6 medica vices + Jamey 10,2008: Legal Business Consultants and 188 Ukraina amend ‘contacto provide fr supply of 60 vehicles, at €35 333 per vehicle + April24,2009: -Burosptstrans i incorporated ‘+ May 28,2009: __Lilya Granat, oe sharebolder of Eurespetstans, transfers ‘her 30 percent intrest in 85 Ukraina to Zhe Granatir who becomes Sle shareholder of ISS Ukraina September 15,2009: Lakshmi Avo is incorporated + October 2, 2009: Tender Commitie meets and discusses the need for 44 medial vehicles, October 9,2009: Tender Commitie meets again to spprove publication of tender for 27 medial vehicles. Furospesran and Lakai Avo er into dealership contact granting Lakshmi the right to sll 7 Renault Master medical vehicles. October 15,2009: Tenders published onthe government website. Lakshmi ‘Avto contract with PANAX to conver th crs o be suitable for use as emergency vehicles. + November 11,2009: Four bids are opened and evaluate, ‘+ November 12,2008: Lakshmi Avto is selected the winning bidder. + November 20,2008: Lakshmi Avty (8.V. Niogd) and Ministry of Emergency Situations (Deputy Minster VIM. Baranchul sign contact for stpply of 27 ‘vehicles for atta price of UAH 21,573,000, ‘December 2008: Lakshmi Avto delivers vehicles andi paid by Ministry of Emergency Stations 3© The inisry Pad a Gronly Inflated Price forthe Vehicles ‘The Renault Maser vehicles wee ially imported into Ukraine by ISS Ukraina ‘between January 2008 and February 2008, Customs documentation” andthe contacts ‘between I Ukraina and Legal Busnes Constants, dated November 1, 2007 and January 10,2008, show that he Ministry of Emergeney Situations pad nearly tiple the ‘rice forthe same vehicles, despite their deprecation, |n 2007, 18S Ukrain psi €2 million for 60 vehicles, or €33,333 per vehicle, Based on historical exchange rates, this equates oa pric of UAH 24,000 per vehicle “Two years Inte, the Ministry of Emergency Situations pa Lakshmi Avto UAH 799,000, ‘orapproximaely€80,000, per vehicle, The PANAX contact added no more than €740 ‘of vale per viol “The loss tothe government—that isthe dference between the price that he Ministry pid andthe price that ISS Ukrana pai two yeas ealer—is approximately UAH 15 million. The Ministry paid Lakshmi Avon ill in December 2009. (OietlovO7 (S5Ukraina—LgalBusnes 60. £35,338 UAH282.000 ‘constants 653400000 WDilorO9 Minsey of Lakshmi 27 80,000 UAH 735000 emergoney 2137300000 Stuston Pa Dierence 15,038,00000 ti vas ‘ UABbODS (ted aoe as EAN) ®Unotosan Aan (cl set Exh 20, S UnomboS2 (edsoe asa 10) ahi I: Unt 3D, The Vehicles Remaln Substantially Unused ‘The voices were delivered to various regions in Kyi and visto sites where ‘hicles were located in the Kyiv Region were conducted in June 2010 during the course of the investigation. The vehicle the visited locaton ppered ta be undo aod ‘only intequealy. One vehicle was sre in he garage in the ack lot of fe sation “The exterior and interior ofthe vehich speared tobe new and unused, andthe vehicle had been driven only 179 kilometers, Te firemen were not familie wit operating the ‘vehicle and could not open the hood ofthe car. Basic matical equipment such as 2 srtcher and defibcltr wa stored inthe back ofthe vehicle, bearing PANAR's mak ‘Asecond vehicle, which was received on December 22, 2008, ad nly bee driven hee times, stot of 371 ameter. Five othe similar vehicles were lio parked athe ‘epo along withthe Renal Max. A thin vehicle's odometer ad loged 1340 omer 1V. Conctesions and Recommendations Jn um, the Ministry of Emergency Sitution purshased 27 vehicles st grosiy infos price, fr the veils had been wasted among mukipl elated compan, ‘Te company tht won the ones to supply the vehicles managed to siti hat seas nesly etal tothe confidential amount that the Ministy had badge. The vdence sronly sige hat the supply of emergency vehicles was sham wanton esignd to alow private individuals and corprations to profit atthe public's expense. 1 Sak and ier of neal vue, ae 30,2010. 9I The evidence gathered dwing his lnestation suggest that greater regulation of| ‘he public procurement and goverment contricting processes is needed o promote campy pv opin fei gt ce My rn Miya de oi ent hpi one ec ee ning on et po I tite te ed opr od ding te ede psi Sills. Aten vc ts inviipt hve eel at et cit rh xt Mit fc el ahve mi | Lal oa hacia wh wh Gre would not wat to det “0INVESTIGATION RELATING TO PROCURE! OF SUGAR BY STATE MATERIAL RESERVE ‘Tableof Contents 1 Introduction a2 TL Executive Samm: a2 TH, Investigative Findings “a (Terms of Contract Brokered on Beha of Ukrvesources Were Not Favorable (0) Sugar Was Purchased om Kin Exchange at High Price to Replenish Reserves (6) "Prepayment War Made on the Entre Conrt Amovns (@) Hermes Trade LLC Contracted With Closely Related Patty, Heritage Capital Investments LLP, for Supposed Supply of Sugar. (0) Hermes-Drade LLC. (i). TIM Enterprises LAP (ii) Rotherton vestments Led (0) Hertige Capital Investments LLP. 1V, © Conchasions and Recommendations 33 4 45 0 50 si 2 31 Iniradustion “This report dois a wansction by which sugar was purchased forthe Sat Material Reserve at high price and has not been delivered more than six months ate payment in fl “The investigation conduc with respet to ths epi govemed bythe following sections ofthe Teas of Reference: 4+ Preservation and we ofthe sate propery, managment of material reserve Financial and economic atv of sate authorities and publi sctor eles. Terms of Reference 12 1+ Public procurement of goods, works and services and compliance with grey prescribed competitive procedures, Terms of Reference 4 ‘+ auton with respect to compliance withthe lesishtio of Ukraine, fnerational lw and protic in al areas et ota these Terms of Reference. ‘Terms of Reference + Conclision on impact of discovered violation nthe state economy. Tem of Reference I + Propostleregstng specie mesures for improvement ofthe Snail and ‘sconomie station nthe sat. Toms of Reference I 1M, Exsetive Summary Tia largely fled tempt stabilize svar pies in 2009, the Cabinet of Minis isved decrees ondering the Deedkomessrve ‘DKR") to sel saga fromthe State Material Reserve o rete. DKR, through the state-owned enterprise 2Resurpostach, sold toi of 37,900 os for UAH 1326 milion, or UAH 3,600 per ton, in Aust and September 2008 {a uly 2009, oe month before DKR conractd with Resurspostacho sl the sugar, DKR ented into contract wth state-owned enterprise Uresouces, whereby ‘Ueresources would buy sugar on DKR’s behalf replenish he eserves. Ukrresouces offen served as DKR's broker to facilitate purchases on comedies exchange. In this paniclrnstace, Ukresouresprchascd 22,150 fons of ga fom a Usain ‘company called Hemes-Trade LLC in Febrasry 2010. ‘Uksresources bought the sugar when the prise was highest several months ater KR’ sale ofthe reserves and Ukrresoures contact with DER wo ssquire goods for the snateria reserve, DKR’s broker at Ukresources purchased on the Kyiv Azo-ndusrial [Exchange rather han he Ukctne Agricultural Exchange at was ypc, Hemes-Tade’s offer to sll wasthe only one made that day. DKR entered nto two cones with ener, ated Febrary 17 nd 18, 2010, t0 purchase tol of 2,150 on of sugar atthe price of UAH 1,000 per ton ~fora toa contract value of ore than UAB 243 milion. According to @ DKK price shecth average price fr sugar February £2010 was UAL 8,500 pr ton, ane prices hve fle since, Sut one week prior, on Febery 10,2010, Hemes-Trade contracted with 2 UK cy calle Heritage Capital Investment forthe supply of 60,00 tons of cane sug ‘om Brazil $590 pe ton CIF approximately UAH 4,705) A test of 3,000 tons ofthe sugar delivered to date reveal tht instead of cane sugary, it i in fct Ukrsinian best gar, a‘whether it hus been filled or was ever intended to be fll Moreover, HermetTrae nd riage Cpitel are closely linked. Hermes-Trade ‘was bought by #Scotith company, TIM Enterprises n December 2009 TIM Enterprise's general parr is RothertonIvestents Li, &company registred inthe ‘ish Ving Inds. TIM was incorporated in September 2009 a the time ares in Edinburgh as Herage Capa Invesimens,RoteronInvesnents Li (te general pariner of TIM Eaterpis, which now os Hermes) was incorporated in Jane 2009 by Hanan Gold an Isact lawyer. The minutes ofa mecting of he sharcholders oF ‘TIM Entervises memorizing the purchase of Hermes-Tade nda tat the meeting ‘ook place atthe same addres a5 Golds Te Av law fim. Despite Go's isto Hermes eas ined the contra on bel of Heritage Capt Investment Frhermore, medi reports sgt thatthe nivel who was director of Hermee-Trade nti one weak prior othe transcton wth DKR i former employe of Resuspetch, hich works closely with the DER, “The DKR prepa forall ofthe sugar in March 2010, which while permissible i unuiel, The contacts between DKR and Hermes-Trad provided hat delivery was a ccar within 90 days of payment, which was completed by March 25,2010. Aso ‘August 2010, only approximately 5,00 tons of suger adave ben delivered. The DKR ts intated egal preceding aginst Hermes Trade fer its breach ofthe contract by fun to deliver the sugar within thre moots of paymtst. Moe thn UAH 188 silon (or 8523 milion) wort of sugar remains undelivered, nd Hermes-Tade an maximizeits gins by providing suger several months after te contrac date asthe rie comin to decline. TOL Investigative Findings A. Terms of Contract Brokered on Behalf of Ukrresources Were Not Favorable 12000, the Government atempted to stable domestic retail prices of tugar by releasing thousands of tons of supa from the State Material Reserve, Oa uly 1, 2008, the Cabinet of Ministers issued Decree No. 722 signed by former Prime Minster Yulia ‘Tymoshenko ordering DeahKomReseeve (DER), the goverment entity that seministers the State Material Reserve, to sell 10,00 tons of sugar frm the rsurves to reailers! Decree No. 722 instructed the DKR co replenish the sugar eserves with sugar ‘made rom sugar bet harvested in 2009 atleast in the amount specified inthe dere, (On August 12,2008, tbe Cabinet of Ministers passed Resolution No, 952, resting DDKR to sell an ational 28,000 tons of sugron the domestic market? The August 12 decree was also signed by Tymoshenko, An earlier decree ated February 4, 2009 specified shat the DKRE should sell he reserve sugar at minimum peice of UAH 3,125, before the 20 percent value-added tax (or UAHL3,150 with VAT)? To facilitate the sale ofthe sugar, DKR signed a series of Commission Agreements wih state-owned enterprise Resurspostach* One uch contac, which was ated August 17,2009, provided that Resurspostach woul elke sugar atthe pice of Tes: van. “Thelntsigatreeamasben proved whol ov ote pres 45[UAH 3,500, which included VAT, pls expenses and a2 percent “rade mark-up"* Other contract were undated, Resurspostach sold a total of 37,900 tons for ttl pric of | ‘UAH 1326 million, UAH 3,600 per ton 1. Supar Was Purchased on Kyiv Exchange at High Price Replenish Reserves "Even before the sugar was sold, the DKR turned its tention replenishing the reserves, On July 14, 2009, DKR entered into a contract slate enterprise ‘Ulesoures to purchase sugar to replenish the material reserve” Pursuant to the omtract, Ulsesources was to act as DKRY's broker in procuring unspecified “assets fr the state eserve onthe kine Agricultural Exchange. The contac incorporated by reference the terms of Cabinet of Ministers Decree No, 667, dated July 1, 2008 Deere "No, 667 stipulated thatthe procurement of commodities forthe State Material Reserve in 2009 and 2010 should be conéucted by making purchase contracts on ucreited commodity exchanges (thats, as oppose ta tender process). That decree also provided thatthe purchase price of the goods would be determined onthe Agricultural "Exchange, subject to certain minimum and maximum pries designated by the Government, The agreement between DKR and Ukrresources was tobe effective until December 31,2009, However, an amendment othe July 14 agreement, which was dated December 14, 2009, eliminate the reference to boundaries for pricing and allowed the Ulsesources broker to register with and enter at contrasts on other acrid exchanges in addition ean 5, Uano0385, UAoor “KRU pidge, he verve tam not tel npn pa fr "BMS: UA 46(othe Ukraine Agricultura Exchange” The amendmen ali eliminated the December 31 eudlin nd provided thatthe agresment would remain effective until bath parties had fully performed. The day after the agreement was amended, Ulmesouces reseed asa broker onthe Kyiv Aaro-Inusrial Exchange.” ‘Seven monster Ukmesoures and DKR execite he July 14 agrement~ and when markt prices were at tet pak -Ukmesources st ott epleis the sugar reseres. The Uimesores broker une othe salar Kyiv Ago Industral Exchange to facta the saga purchase According to uanamed sources, it as ural fora sugar trade to take place onthe Kyiv exchange, which handles between ne and ten ‘exchanges per day, approximately 90 percent of which are wheat wade" Another source could nt reall any other purchases made by the DER onthe Kyiv exchange” (On Febrsry 17, 2010, he day tht Uknesourcs wet tothe Kyiv exchange nly one feo sel ugar wat ade, Hermes‘Trade LLC, andthe trade was the nly sae trade that took pce that dy. Consquent, Ukresouress brokered two contrac dted Pebrsy 17 and 18, 2010, between DKR and Hermes-Trae, «Ukranian company. The price that he parties sereed vpn was UAH 1,000 per toning VAT. DR would purchase 20,00 tons ander he February 17 contrast and 2,150 tons under the February 18 contr fora tot volume of 2,180 tons of ugar and ol purchase pice of UAH 245.65 milion, [omise Uaomamn ‘ans Un abc UAB lacie as ope, 0. Eas cass aIncluding VAT. Ths price was 227 percent higher than the marke rie The average marke rice fo sugar in Febrary 2010 was UAH 8,50 per ton, and the price pr ton in the months following DKR’s sale ofthe sugar remained lower tha atthe time of the emee-Tade transaction. Furthermore, acumen provided in response tothe Prosecutor General's inguties showed that competitors could have provided sugrn February 2010 at prices of UAH 8,350, UAH 6 $20, and UAH 5,933 per tn, including \VAT™ A source stated tht DKR monitors commodity prices en amenthly basis but relied on “internet research” in agresng tothe price of UAH 11,000 per ton” Both contacts provided for delivery tree months afte the execution ofthe respective agresment thats, May 17 nd 18,2010, Payment was to occur following receipt oF en invoice but prioe to receipt ofthe goods. However on March 19,2010, he second contact was amended," and delivery instead was o occur three months frm the ate of payment, which took place on March 22 and 23. Sources interviewed could ot provide an explanation forthe amendment [Both the DKR and Hermes-Trade were represented atthe Exchange by broker ‘The DKR was represented by LI Lyuy of Ukresourees, and Hermes-Trade by ‘BrolBimesTsenr LLC.” The commission agreements between Hermes‘Trade and BrokBinesTienir were dated February 17 and 18,2010 and authorized the broker 0 ctr into exchange contacts atthe Kyiv Agro-Infusrial Exchange forthe ale of “sugar of foreign production” inte amounts and values specified in the contracts between ‘nb CARRS; view conte souce, Aga 10, 200 Sant ot: Unb; 6: UA, Ea 6 UADNEDDS 2 lero enter sce, Aspe 10,2010 ‘Se: nora oe "eb: UADISS, UAGIO396; a EX UAOUOA80 aHermes-Tade and DKR. The commission agreements stated tha the contri should Include aterm of delivery until December 31,2010, which contradicts the original Bonners: noose, ne 7: UnonSt st{ [ Alirector before Berson. According to media repons,Kolga worked for state enterprise Resurspostach, which deals closely with DKR, between 2007 and 2008.” The Ukrainian comporate registry identified the founder of Hermes asa UK company named TEM. Enterprises 2 TIM Ewerprises LLP ‘TIM Enterprises LLP (TIM, linitedpartersip, was incorporated on September 28,2009, The company’s repstered address ie 133 Pountinbidge, [Edinburgh EHS 9BA, United Kingdom.” At TIM's December 14,2009 shareholder meeting, the decision was made to purchase Hermes-Trade The meting took place at 28 Aah Ha'am, Te-Aviy ral, M.Frdman-HGold & Co, the lw firm of are ‘atorney Honan Gold hasan office athe same address. TIM is contrlled by its genera) partner and 99.9 percent sharehokde,Rotherton Investments Lid. Rotherton Invesents was the ole particpan athe December 14 meeting and was represented by Hanan Gold se director 3. Rothertoniestments Ld Rotherton Investments was incorporated by Henan Gold on June 26, 2009 inthe [Brsh Virgin Islands. Gold i identified asa director of Retherion. Rotheron’s office sles listed a¢ 28 Ash Hata, Tel-Aviy Isl, the ame adress a Golds aw firm, MPridman-H.Gold & Co, 2 Eee: Una ™ Eee: Unanseb 24, Heritage Capital Investments LLP Gold ls served asa representative of Heritage Capital Invesimens LLP and has held power of atiomey to act on Hevitage's Behalf a of Febeusry 1, 2010, Gold signed ‘he February 10 contract between Heritage and Hermes-Trad on Heritage’ bebal, despite hiss to Hemes-Tade through TIM and Rosherion, and wae therfore involved ‘on both ses ofthe transition. UK corporate records show that Heritage, Limited prnership, was incorprsted on October 1, 2008. The company’s registred address is 133 Fountainbridg, Edinburgh EH 9BA, United Kingdom ~the same address as TIM Enterprises eritage Capi ‘Vin stands, Peacebridge Intertrade In. and its limited parr is an individual in 1's general partner is another company incorperaed ia the British ‘Panama. Peacebridge Interrude was incorporated on June 26, 2009the same date as [otheton Investments, There ino legitimate explanation for these complicated offshore structures or the coincidence of dates and adresse of incorporation, The corporate ‘elationships described above are illastrated inthe chart onthe following page 3lara! aj miaTV. Conclusions and Resommendations ns, the DKR pei an sbove-marks price forthe sugar, and he vat majory ‘ofthe total amount ha ot yet been delivered i months payment in fl The ‘vidence gathered in his investigation sugacsts that greater relation ofthe Government procurement processes is nededto promot transparency, monitor brokers and crac hat the Government engages oat on is bel, and prevent contacting panes and individuals within govermenceelte entities fom cllaing to structre ‘eansacons for thei on private benefit The Sate Material Reso should perform comprehensive du diligence on comoratons with which they intend to dea, to ensure that these companies will be ale to perform under the contract and wo check that he company does not have problematic goverment eso conics of intrest, before signing» conract and wansferring payment, Goverment departnents should also xb stronger negotiating power, for example, isting on delivery before payment {nade and by borough understanding fir markt prices. Finally slosr monitoring official and employees is required to ensure internal compliance and good practices. 55INVESTIGATION RELATING TO USE OF FUNDS RECEIVED FROM THE SALE OF CARBON CREDITS PURSUANT TO THE KYOTO PROTOCOL Contents 1. Introduction 0 Tl, Executive Suromary 37 UL, Overview of Carbon Emission Trading Under The Kyoto Protocol. 39 IV. Investigative Findings 50 ‘A. Ukraine Received €320 Million From The Sale of Carbon Emission Credits in 200s, mere 1, "International Contracts Mandated Tht The Funds Be Placed in Specialy Designated decounts And Be Used Exclusively For Greening deties 61 B._ In 2009, Pursuant to the Orders of Former Prime Minister Tymoshenko, ‘Ukraine Removed Kyoto Funds From The Kyoto Accounts In Violation of International Contracts and Ukraine's Budget Code. 2 In July 6 Transfer to Inerest Bearing Account 6 2. On duly 15, 2008, The Prime Minister Ordered he Sate Trento Trangor {180 Mition of the Kyoto Funds Into The Pension Fund. 66 3. OnSeptember 10,2009, Prine Minister moshenko Ordered the Scie Treasury to Transfer €200 Milion ofthe Kyo Fund nto Te Pension Fund... 66 4. On Ociober 5, 2009, Prime Minister Fsmasherko Ordered the Sate Treasury To Transfer €90 Mion ofthe Kyoto Funds Ito Neftogas Accounts So That [Nafiogaz Could Pay O40 Gazprom ot ‘Conclusions and Recommendations nmf LIntrodustion . ‘This report etal the former Prime Minister's and former Cabinet of Ministers? i Inappropriate and unlawful use of €320 milion recived from the sale oferbon emission rt credits pursuant tothe Kyoto Protocol. ‘The investgnion conducted hersin is governed by the following sections of the I ‘Terms of Reference: f ‘+ Public finance, performance ofthe state budget in respect of revenues and ‘expenditures, formation of public debt, and payment under debt obligations, [ substantiation of granting loans guaran‘eed by the Government and theit repayment nfl, tization of fans for reap ieton of banking sysem, ‘management of mandatory state social insurance funds. Terms of Reference 1 [ ‘Evaluation with respect to compliance withthe legislation of Ukraine, Jerson law ad practice inal area set out in these Terms of Reference L ‘Tes of Reference I | *Concision on impact of discovered vilations onthe state economy. Terms of Reference I *+ Proposals regarding specific messues fr improvement ofthe financial and economic situation in the sate. Tem of Reference H Execative Summary ‘The National Environmental Investment Agency (NEIA) of Ukraine entered nto F {ive international contacts in March, April, and November 2009 to sell 32 million assigned amount unis (*AAUs” or “carbon emission credits") under he famework of 37the Kyoto Protocol to te Unted Nations Convention on Climate Change (Kyoto Protocol”). Ukraine received €320 milion for the sale of carbon emission credits in 2008 (Kyoto Funds", The terms ofthe iterations smtracs, required tha the €320 milion ‘be maintained in separately segregated socounte ‘Kyoto Account”) and be uslized exclusively for “Greening Activities” aimed atreducing greenhouse gases and pollsion, Instead of being used for Grecaing Activites, the the Kyoto Funds were used for purposes probibited by iterationel contracts and Ukrsinian law. On thre separate oceasions, he former Prime Minister Yolia Tymoshenko ordered the State Treasury to ‘rane significant quantity ofthe Kyoto Funds from the Kyoto Accounts ito the General Treasury Account athe State Savings Bank of Ulzane (lso known as (Oschadbank of Ukraine). Each of thet instructions breached the international contracts and violated the Budget Code of Ukraine ‘+ Joly 14,2009: The former Prime Minster ordered the Ministy of Finance to ‘wansfr€180 milion (UAH 192 billion fom the Kyoto Accounts othe General ‘Treasury. The money was transfered on ly 15,2009 and converted into Iyvnias. Beteen July 15 and 17,2008, UAH 1.68 billion was then transfered ‘rom the General Treasury Account tothe Pension Fund. These fonds were tured othe Kyoto Accounts afer Ukraine resived sitionl funds fom the IMF, ‘+ September 10,2009: The former Prime Minister ordered the Ministry of Finance ‘o transfer €200 milion (UAH 23 billion) from the Kyoto Accounts tothe General Tretsuy. The money was transfered on September 11,2009. From sti t September 14-18, 2009, UAH 2.3 billion was transfered fom the General ‘Treasury Accountio the Pesion Fund. Thest fands have not been reed tthe Kyoto Accounts “+ October 2009 The former Prime Minster ordered the Ministry of inane to transfer the remaining €90 milion o The State Export Import Bank of Ukrine (CUlsexiibank” o provide liquidity on lve of red held by Nattogn2. The ‘ands were retuned othe Kyoto Accounts in May, 2010 ‘Asa result ofthese unlawful actions, none ofthe €320 milion reseved hough thesale of carbon emision cred had been used on projet aimed at refucing renhouse gas emisions as ofthe en of 2009. These ston have jeopardized ‘Ukraine's ably sel eatbonemiasin erin the ftre and exposed the county to significant egal ailites. Moreover the Grening Projets, funderaken, would create significant new employment opportuni forthe people of Ukraine during tine of financial rss, Inset, he Goverenent sacred job creation in order to mask dfs inthe Pension Fund and exposed the county to significant legs bilities I, Overview of Carbon Emission Trading Under The Kyoto Protocol ‘The United Nation Framework Convention on Climate Change (UNFCCC) i the recminent international treaty aimed st redcing global warming! Ukraine ratified the UNFCCC on May 13, 997. The Kyoto Protocol is an ntematonl agreement linked the UNFCCC that establishes legally enforceable, binding Hints on Greenhouse Gas " Sechapntss ives faces 257 hp 9Bmissions on ts signatories * Each signatory to the agreement must ree its emissions by pre-deteemined amount on a yearly basis. Ukraine ratified the Kyoto Protacl on ‘April 12,2004, and it etered into force on February 16,2005 Article 17 ofthe Kyoto Protocol allows parties tothe agreement to participate in emissions trading to ful their carbon emission reduction commitments under Article 3 ofthe Kyoto Protocol, Carbon missions trading allows countries shat are under thei emissions limit to sell excess capacity to counties over ther emissions limit. TV. Investigative Findings ‘A. Ukraine Received €320 Milion From The Sale of Carbon Emission (Credits in 2003 ‘Uaine was under its emission inti 2008 wheres pan and Spain exceeded {hei respective Himits. Consequently, baween March and November 2009, the NEIA entered int four agreements with Japanese companies and one agreement with Spain for the sale of carbon emission credits, Ukraine sold ttl of 32 milion carbon emission credits pursunt these agreements in 2009 and eared €320 million (each carbon ‘mission cet is valued at €10, as summarized below? > 0: UAOOEDSES eae AGS “Est Uaaosa XN 3 UAGEOS, eM Be UADODSAS Ea 7 LADD; swt canis nr the Kata Piel hve cere tpt rio reo nts, Ts rsa geo aowedoion on oe 8 ntFunds Received from the Sule of AU's Diteot [Bayer Coustry [Number of [Date Fonds | Toa Arrooment AAUs [Recsved | Reedved (6) TeMara9 | New Energy and nda Tesiaalogy Devlopmest | sipan | 15,009,000 22-ApriLon| 150,00,00 | Orgaisaion TERanO9 | TobokeHece FowerCo, [Tan | —Sp00n00 | airaparos| —Sigen 500 Ine TS Mars | Topeka Hece FowerCa, | Tan | — B00, 000) —To-Nayoo | — wa ao5 a0 Ibe [FeApeIO | Chiba Beie Power Co, ne | Jopar [nono | —Scieas | —Topoooo0 725Nov9 | Maier de Medio Ambien | Spain | 3001000] —SIcDes.09| —30000,00 1. Itemational Contracts Mondated That The Funds Be Placed In ‘Specially Designed Accounts An Be Used Eecuively For Groening Activities The terms ofeach contract stipulate that monies earned ffom the sal of carbon ‘mission credits must be used by Ukraine on “Greening Actives,” defined as “project, rmetsure and oer ttvtes for he reduction olimiaton of greenhouse gas or pollution in Ukraine, as wel as ther projects, measures and setivities aimed at ulling [Ulraine's] commitments under the Kyoto Protocol.” Greening Activites nclade jects aimed etenergy conservation, switching to clener fel sources, renewable energy, ulization of coal bed methane and pollution reduction” Moreover, ach contact requiresthe finds be maintained in segregated account" The international ‘contract also requir thatthe NELA consult wit its counterpaies in seledng Greening ‘Activites? The State Budget of Ukaine sao rogues tat funds eared from the sal of "ees 65 tows UAIONSGS, a 5, LAOONET. a5, UAGIOOGES pS LADD pS UAvO00@ as Stes above: UADOOE84, 61, UAT at 1, UACOOSHS, 41, URINE, a EL anos, at Sets 65 hve “See oAAUs be tized on Greening Astivies" The fonds cannot be used contrary to ‘Ueaiian av.” ‘The fond received fom the sal of AAUs were depsitd in speitially designated accounts (te Kyoto Accounts) held at Ukreximban inthe name ofthe Sate “Treasury of Ukraine * B, _In2009, Pursuant to the Orders of Former Prime Minister ‘Tymostenko, Ukraine Removed Kyoto Funds Prot The Kyoto ‘Accounts Ia Violation of International Contract and Ukraine's Budget Code ‘rng the course of 2008, total of 580m was withdrawn from the Kyoto Accounts, €200 million of which has not been etuned. These withdrawals inclu: ‘+ 110 miion transfer on deposit ton interest caning secount in Sly 2003; ‘+ 180milion in July 200 athe insrvton ofthe Prime Minister, ‘+200 milion in September 2009 athe instruction ofthe Prime Minister; ‘+ 90 milion in October 2008, ter wansfered abana the dieetion of the Pime Miniter Inthe case ofthe €180 milion and €200 milion trans, the Kyoto Funds were conver nto hryveis and deposited in Tear acouns held atthe National Bank of ‘Ukein, inorder to provide tigi tothe Treasury to meet payments dus. The €200 nil withdrawn in September remains oustanding. Bae wADmOr "Seah S snen 250) "le - UaGUBOas ui 1 UADOOSAST, ii 52-LADOOES, A 9: UDO; "BABI 9UAGONSS I 98; UATDOSSS. @‘The following schedule summaries the activites on the Kyoto ascounts; the ‘deals of whic are diseased below: = ss | asl || of sana ed el ss | eo |v as s ee a Seer [a ee Se ar S| a iy 6 Transfer to Interest Bearing Aecovnt (On July 6, 209, €110 milion was transfered fom Kyoto Account 7 to ‘Treasury Account held at Oschadbank, the tate Savings Bank of Ukraine. The transfer‘was mad ath instruction ofthe Minty of Finance" an pursuant a deposit sgeement bowen the Tieasury and Oschadbank™ According tthe tems ofthe epost agreement the sum of€110 milion wat tbe ld nan interest bearing depot sccout tl Aug 6, 2008. The €110 milion was tured othe Kyoto Account at ‘reximbank on August 5, 2009" 2 Ondhy 15, 2008, The Prime Moser Ordered te Ste Treaty to Tranfr €180 Million ofthe Koto Funds Ito The Pension Fad ‘Ato of 180m was aasfere by he Sate Treasury fom he Kyoto Accouts on Jy 15, 2009 and convert into hryvaas hough he Nain Bank of Ussie ‘The enversion was undertaken in acordance withthe order often Prime Minister Tymoshenko No 191JICK, date July 14,2009 ad efor intemal we oly. (0 Jly 14, 2009 the National Bank of Uraine complete application No. = 52252 for the alo frin aren, aesompanied by payment ode No, 275,276, 277,278" ‘Thespian sate tht be 160 lion would be deposited no tbe ‘Genera Treasury acount 47401992701 at the Nationa Bank of Ukraine forse, at nam exchange ate of 14635099 UAWBuro, The funds wer tensed fom he Kyoto accounts held at Ubresimbenk on uly 14,2009 in he allowing amounts ® anaios uaowree "i 9: UaOe S24 "na [0+ UAOIOO is eM 0) UAQOUTE; Exe 102: UAE; Ahh 10+ UADEDOTES “‘Amant in Baas | Amouni in UAW] FSIS ODORS 80,000,000 |_8s3.607,680 TSISBUBOONARD | s0,000,000| _533,504,800 SIS TOTOOMAD 40,000,000 | _ 426,803,840, SLSDOGHED 10,900,000 | __106 70,960 T920.617.280 180,00,000 Tess Canmisson of We OEE 0.05% [sem "The tnsfeed funds were deposited in account 47401992701, before being ‘converted into UAH at arate of 1.670096." On July 1, 2009 the converted amount of ‘UAH 1,919,656 97136 was transfered to Treasury Account 311290106 from account 47401992701." The National Banc of Ukraine was pu commission for handling the ‘conversion, which amounted t 0.05% ofthe converted sum or UAH 960 308.64 ‘The €180 milion converted into UAHs was used bythe Treasry to asst the United Regisny of Teasury Funds in meting payments de, particularly funds requzed bythe Pension Fund of Ukraine. On July 1, 16, and 17,2009 the Pension Fund sent formal requests tothe Treasury for loans o make pension payments chat were due” In response, payments totaling UAHI,683,400 were made tthe Pension Fund, 2 follows (ote that the Treasury does nt abvays transfer the ll amount requested) "Note he ching ae ie in Apc No, 16902521 10.6500 ever te ea Innate acme 0.70096 ‘Sia oe Uaotooree 2 Ev 0S UA nb UAOH0947 eit 0 UAB 6aie “Rvs Requesed by | Amount toaned te Pension Fund (UAH) | Pension Fund ua reo =symoopo0| 7a n0a000 07/36/2005 151400000] —e51,.¢00.000 7/57 /208, 2,000.00 582000000 Tor 3,984 400,00 | ies, 00,000 the UAH 1,919,656,971.36 had not been received, the Treasury fund would have been in deficit by close of business onthe July 16,2010." ‘The €180 milion was returned (othe Kyoto Accounts a Ukreximbank on August 45,2010 According io confidential sourees, the Treasury was able to repay the funds to the Kyoto Accounts using recent received funds fram the Ttermational Moneary Pond 3. OnSeptember 10,2008, Prime Miniter Tymoshenko Ordered the ‘tae Treasny to Tranfer €200 Millon of the yoto Funds Into. The Pension Fund A further €200 million was witdravn by the Treasiry from the Kyoto Accounts ‘on September 10, 2009 and converted into hryvias through the National Bank of ‘Ukraine. The conversion was undertaken a a esl ofan order ofthe then Prime [Minister ¥-Tymoshenko, No, 149-p1CK, dated September 9, 2009 and marked for internal we only. ‘The funds were withdrawn fom the Kyoto accounts held st Ukreximbank on September 10, 2009 inthe ellowing amounts, and converte into hryvnins sara of| 1.627855: pei ok uaoono, = Exh I: VAQQLAOSS. a0: UAGUOSSH bi 111+ UAGDDG; Ex 112; UADONRS, nee fone sues, ABS 8,200 66“Amount Euros | ~ Amount UAH STSwIzOOHRD | 50,900,000 | — SET, 552,750 SIS TOTOORARS | — 150,000,000 | TFA T7E 50 300,000,000 | —3325,571,000 ‘Tes: Commission of TET 005% 2a RDS ‘The transfer of€200 million was the raul of to Payment Onders esd by Ukreximibank on behalf ofthe Treasury, which tated thatthe funds should be deposited in aocount 4740199270 a the Nao 1 Bank of Uiseine™ On September 11,2009 the converte amount of UAH 2,324,408,214.50 wa iransferred to Account No, 311280106 ‘hom Account No, 47401992701 held atthe National Bank of Ukraine * The National Bank of Ukraine was pad commission of UAH 1.16 million fr handing the ‘The €200 milion was also used by the Teasuy to asst the Unified Reps of| ‘Treasury Funds in mesting payments dv, particularly fonds required by the Pension Fund. On September 14-18, 2008, the Pension Fund en formal request to the Treasury for loans o make pension payments hat were due In respons, uring the pried fom ‘unto? ae 1: URES. ‘Uatoss26, Bebe 17: UACOISS2; Bie L-UADOOSz2, 18: WACO sn 0e AbtSeptember 14,2009 to September 18,2009 payments toiling UAH 235 billion were smade'w the Peasion Fund, as fllows:"” Date “Raunt Requesiedby | aroun teanedto Pension Fund (UAN) | Pension Fan (UAH) opnaeoTe 965 70,000 955,700.00, 09/15/2030 233,000, 7300000, 5/16/2030 606,700,000 a, on 000, 05/17/2030 340,00 000 3,000,000, 05/18/2030 200 00,000 2,000,000, otal 2345 ,00.000| 2.345, <00,000, lf the UAH 232 bln had na been received the Treasury fund woud have Been in efit by clos of basneson September 16,2009. The €200 milion hasnt buen rstumed by th Treasury to the Kyoto Accounts 4. On October 5, 2009, Prime Minister Tmashento Ordered the State Treasury To Transfer E90 Mili of the Kyoto Funds Ito [Nafioges Aecounus So That Naflogas Could Pay O40 Gasprom "Nationa ont Stock Company Naoger of Usine (Nafiogs2") is one ofthe lege companis in Ukraine. Iis vertical integrate olen gs company engneod in fll eye of operation in gas and i fel exploration and development, production snd exploratory ring, ge and i transport nd storage, and soppy of atu to consumes, Over 90% ofthe oil and gas in Ukraine is produced by Naftogazand its 2 Tete Penn andrei makes enh call! Tens asi in cing pvslen armed, As este se ah ale, te Pse Panna sexo spe yw Be ‘ream. Alt he aan of asi ar acrdng amore dep ang (Ge cnue fear tet Sota he rea nce nay army Oe se F200, Be ‘Sarl of enna ess Seta, e by needy SC bee nny nd ‘Becene 20, fem UAIT3 bin ny, 308 to UAH 22 non Decne 30,203 6lies. Nftogaz pipelines also wansport voluminous quantities of Russian gas transiting to Europe.” Following the September 10,2009 with ‘0 €200 miton, €90 mition remained inthe Kyoto Accounts. On October 5, 2009 the Cabinet of Ministers issued Insuction No.1179, ordering the Treasury to transfer the remaining €90 milion from Kyoto Accounts Nos 2513004004489 and 2513903004489 hel with Ukzeximbank to “Treasury Account No, 2525005004489, also at Ukreximbank.® The finds were ‘transfered on October 6 2009, “The Treasury and Ukreximbank entered into a deposi agreement on the same day sting that he funds were tbe returned by December 7, 2009, upon which the €90| zillion should be reture to the respective Kyoto Accounts and any acerved interest credited to Treasery account 2513101284489." The deposit agement was later ‘extended to December 30, 2009, pursuant to Cabinet of Ministers instruction O137/11- 09.21CK, dated Decomber 8, 2009 and signed by Prime Minster Tymashonko. Oa the same day, th Cabinet of Ministers issued secret instruction No 37-eICK). Thi lowe the Treasury, athe disretion of he Minister of Finance, to extend the terms of ‘bank deposit agreements fr 2010 in accordance with whic temporarily fe state budge fands wee deposited. This wasto suppor the liquidity ofthe stat banks, which ‘were providing financing to state enterprises. Bebe aa Uaoase7 2 12; VANDER Ee 124 UAOISU. 2 Totnes eon tm dept war pled ne pee! af 0.75 of beLIDOR 2 th USD re hater ageane(on December 25,200, “eee” Cabinet of Ministers Onder No, 22901CK insructed the Treasury to extend the deposit greement unl May 5, 2010 Interest reesved in accordance withthe deposit prements end relevant extensions Was epost in Account No, 2513101284489 in the following smouns: = December 7, 2009: €28,728.9 ~ December 30, 2005: 10,659.66 = May 5, 2010; 659,127.21" ‘The €90 million was used to pay credit facies equted by Naftogs2. Shortly before the instruction ofthe Cabinet of Ministers of Ukraine dated December 8, 2009, hich resulted inthe Fast extension ofthe deposit agreement, Naflogse wrote to Prime “Minister Tymoshenko, informing her of €90 million eet failty due which they were Unable to repy.” This was he exact amount the Cabinet of Minster ondered ‘withdrawn from the Kyoto Accounts in October. [aftogaz obtained the credit facility fram Ukzeximbank, in order to pay Gazprom for natural gas imports which took pace in September 2008. The fly was defor ‘epryment on December 6, 2009 and, as result ofnsuicint working capital, Naognz requested thatthe Cabinet of Minters order the Treasury and Ukreximbnk ta extend the credit fii. “The €90 million was retard from Account No. 2513004004489 the respective ‘Kyoto Accounts (No. 2513004004489 and No. 2513009034489) on May 5, 2010." As 5 ek 5: vans Ei 136: Unanhoo. Su 12: UADon305; ib 18; AnD, 7[ L wit the other withdrawal, emeving the remaining 90 milion fom the Kyoto _Accouns and sing the Kyoto Fund as clara fora lin feet vilted the ‘nna const and th Budget Code of Urine. '¥. Concasions and Recommendations ‘The Cabinet of Ministers and the fermer Prime Minister ulizd th Kyoto Funds ‘without any repr jntematonl contacts, the purpose ofthe Kyoto Procol othe BulgetCade of Ucn. The repeated movement of find in and ou ofthe Kyota Accounts wat violation of intematons contacts ined by NELA swells the Buds, Cote of Using Moreover he former Prine Minist's manipulation ofthe Kyoto Accounts ohbited NLA fom underaking important cavcnmentl projets that would ave crea new jobs forte county's cizens, Italo prohibited NEIA frm ling end of year repots as egured unde th itertionl agreements, which sued considenble embarassment tothe conte: ™ Moreover, ours ert thse ato jopadind ‘Ukraine's bility to sell cshon emission rit the fruro—s potential sure of senificant revenue for years to come. "is nay ttn ns vie Be Kyte Prt! a ecaeth efecto sn ‘earn evel pont oil ei se Ging ‘Se 2ote Weta was tow telat les eet outing plane Grening Actes, nINVESTIGATION RELATING TO L PROCUREMENT OF 1000 OPEL COMBO. i LEISURE ACTIVITY VEHICLES AND MEDICAL EQUIPMENT BY MINISTRY OF HEALTH I Table of Contents 1. Introduction 3 | T. Hxceative Summary ” of Austrian Delegation to Ukraine 15 BL Development of Tavestnent Project by Ci 16 1. Establishment of Working Group 16 2 ssuance of Decree No 819. n 3. Supply Offers by Vamed. 1% [ 4 Publication of investment Project by Minis of Health. “a0 5. Amendments to Decree No B19 81 (Contract Between Vamed and Ukrmedpasiach 81 [ ‘Specification of Equipment tobe Supple 2 Financing the Investment Project. 85 Unereli Bank Autrin AG ("Unicrel) 36 | 2. Ureximbant. 88 L 1. Delivery and Current Usage of Vehicles and Equipment. » 1. Opel Combo Pile. » { 2. Delivery and Curren Unage of Medical Egupment 3 F. Cost of Vehicles and Equipment _ 98 1. Wale Added Tax 98 [ 2 Financing Charges. — 98 TV. Vamed’s Corporate Profile 00 ‘A. Corporate Structure : 100 j 1. Hamed AG, 100 2. Fresenus Praserve Gm 101 3. MIB Inmabitien Und Indusrcbteligungen Gb. 101 4, Be CBeteiligngsmanagement GmbH. 12 | V. Conclusions and Recommendations 02 n1 Introduction “This topo details the Mini of Heal’ ining a €101 milion debt to procure medical equipment and 1,000 Opel Combo vehices, many of which were ever inmeditely before he 2010 lection bearing large sickest indicate, ‘The rogram ofthe Goverment of Fymoshenko ‘The investigation conducted with respect this repr is governed by the {ollowing sestions ofthe Terms of Reference: + Public finance, perfomance ofthe late budget nese of eves and expenditres, formation of public debt and payments under debt obligations, substuctation of granting loans guaranteed bythe Goverment and heir repayment nfl ization of fund for respitiation f banking sem, management ofmandsloy sate social insurance finds. Termsof Reference + Public procurement of goods, works an servis and compliance wth esealy prescribed competitive procedures, Terms of Reference 4 + Evahuntion with respect to compliance withthe fessiation of Urine, international law and practic in al areas set ut in thse Terms of Reference Terms of Reference + Conlin on impact f discovered viltons on the state cconny. Tes of Reference + Proposals ezarding specific measures for improvement of he nancial ahd ‘economic siwaton inthe sate, Terms of Reference I BExccutive Summary, 1m July 2008, a delegation of high-Ievel Ausan officials and business lenders ‘visited Kyi. Two months ltr in September 2009, the Misty of Healt, through state-owned enterprise Ukrmedpostac, entered into a contract with an Austian company calle Vared Engincering GmbH! & Co.KG ("Vamed”), The agreement provided that ‘he Minisy of Health would purchase medical equipment wort e total of almost €87.5 millon and 1000 Opel Combo lesue stivity vehicles worth a total of €12§ million ‘Because there were no funds in the budge for this medial equipment, the ‘Minis of Health had received approval ftom the Cabinet of Ministers to borrow upto 500 millon to finance these purchases. An Investment Project, ete "The Procurement of Medical Equipment, Transportation Equipment and Medicines under State Guarantees” deseibed how the €500 milion would be spent. Ultimately, ‘Ulumedposiach borrowed more than €100 milion from two banks ofan the frst phase ofthe project. The smaller oan of €16267,008.18, pus interext i de tobe repaid on (October 5, 2010. The lage loan of €85 million provides fra repayment term ending no lterthan March 20,2020, The Ukranian government wil be quired to make picipl sd interest payment on this defor more than tn years “The Opt Combo vehicles wee distibutd tthe regions of Ursine immediately before the 2010 elections wih stickers ~ essentially mil campaign advertisements ~ hat wrapped along the lngh othe cas indicating “The rogram f the Government of “Tymoshenko.” At the time the curent administration took ofc, the majariy ofthe “eniow of enema ar oe 3,200 *rmsicalequpment purchased fom Vaned remained stored in Ukrmedpostah's warchouse In short, pole nde and Urainian national eet were lized to purchase Opel Combo lei ity eile purported to be neded as metical vehicles - that were iat for spparent partisan politica advantage daring the leadsp tthe 2010 leaons. Public resources wil condaue be dived repay the €101 milion db, plus tres, hat was incre opuchse thee materi. Questions have bee ised ‘510 whether the purchases fom Vamel Were neces and whee the undertaking of ‘bt was pent. Funds were not svalable inthe 2009 badge ofc these purines, but funds wl uve tobe appropriated fryers come in oder repay the oan, pls the sone interest and Sinancing chars MIL Investigative Findings ‘A. Visit of Austrian Delegation o Ukraine Acorting tan oficial within the Ministyof Heath the agreement wth Vamed ‘sft cased uring an offic vit by Ausan President Heinz Fischer to Kyi ‘fom Joly 608, 20092 The Austrian President was accompanied by group hat ‘nce Frcgn Minister Michael Spndlege,Economiss Minister Reinhold Mitelener, Christoph Leite president of the Austrian Chamber of Commeres, anda tousnes delegation consiting of representatives of 47 compan. President Fischer's visteccived boed coverage in the Ukrinian media. Press, ‘reports indicate that Fischer met wih President Yushchenko, Prime Minister Tymoshenko nie of ied ce, 6, 2010. 6nd Palismentry Chatman Volodymyr Lytyyn, Healtended the opening ofthe -Austrian-Ukriian Economie Forum in Kyiv together wih Ukranian Economics Minise Bobdan Danyysiyn and Sei Skeypehenko. Bilateral meetings ok place on minitral level but these were not reported to hav nce any bealthseated mater ‘The meetings included Foreign Minister Yr Kotoko, Entry Minister Yar Prodan nd Ministe for Fail, Youth and Sport Yori Paleo, Another participant inthe delegation was Rudolf Schote, a mere ofthe board of decir ofthe Osteeichische Kontrolbank CO&KE"), The OcKB has vil monopoly on servicing the Austian state's fnanets and loan civ, yeti owned by ‘he county’s private banks. Scholten ia a pla veteran and has eld several sinister pPointmens, As is outined below, O:KB was involved i the Snancing of ‘he Vamos deal as an insurer ofthe loan tothe Ueinian Goverment. OcKB was also inaly selected to loon 85 million othe Government, but Uniredt Bank Austia AG ‘wa ator sbi. Development ofavestment Project by Cabinet of Ministers 1, Bsabishmen’of Working Group Immediately flowing the Ansan delegations isto Ky the Cabinet of Ministers bgan to formule an “nvesteat Proje” invavingVemed. Pursuant othe Instruction ofthe Cabinet of Ministers No, 898+ ised on July 8, 2008, working group tp eview the favestment Projet was established and Deputy Heats Minister Valery Bidayy was appointed the Chaiman ofthe working group.” Among oer tasks, Bidnyy gene af Bid, ay 62010. 6Aiscussed the Investment Project with then Prime Minister Yala Tymashenko* Ocials ‘limately desided to obtain extemal financing rater than fund the projec through the state budget! 2 Issuance of Decree No, 819 ‘On August 52009 the Cabinet of Ministers issued and former Prime Minister ‘Tymoshenko signed Decree No, 819, which concerned the Ministry of Healt and Ulomedpostach securing credit and implementing an investment project sme st procuring medical equipment and vehicles" Ftst, Dacre No, 819 named Vamed a the supplier of unspecified medical products, equipment and vehicles. According toa source, ‘twas unusual for Cabinet of Ministers decreto specify supplier and fr procurempeat to take place without a tender” A separate source indicate that the Investment Project was the first ofits kind forthe Misty of Health® Because te projet required exter financing rather than expenditure of tate budgetary funds, the usual ender procedures ‘were not followed, Second, Decree No, 819 crdered the Ministry of Health to contract ered” of "0 ‘ore than $00 milion Euros” through lun from Austrian Bank OeKBS to Uksmedpostach. (The knder was subsequently changed to Uncredit Bank Austia AG, 1s discussed in farther detail below) The loan wast be used a implement the ‘government secured investment projet simed at providing medical insitatons with ‘nenew of ¥. Bay Day 6 2010. nae of otal sors, ne 20973, 2010. ‘ei a UAdotD 27.28 Dinter fetal sr, 2, 2010 Ineiew a coe soe, oe 2, 2010‘equipment, vehicles, medicines and other supplies. Finally, the decre also ordered ‘Ulsmedpostach wo work with Vamed to execute the investment projet. 3. Supply Ofers by Vames (On August 12,2009, Vamed wrote dietly to Deputy Heath Minster VG, _Bidnyy in is capacity 2s head ofthe Working Group and asked what equipment Vimed could supply? The eter requested the Ministry o provide Vamed wit list of suipmentequired in order offi the Investment Project. On August 13, the Ministry replied tothe eter and specified the quantity of equipment and vehicles required The ‘eter stated that it was drafted in accordance with Desree No. 819 of August 5, 2009, regarding the purchase by Ulemedpostach of eqipment through red, nd in accordance withthe fullment of eause 2 ofthe Cabinet of Ministers Resolution No 898.8 date 8 July 2009 regarding the creation of «working group onthe provision of redial service to rural population, “The leer attached a is estimating the Mins of Health's requirements for ‘meéicl equipment ané vehicles. For instance, the list includes the need to rocare 1,145 seooters and 2,869 specialized automobiles. These automobiles are not characterized fret, According to sources within the Ministry of Health, the needs indicated in Bidnyy’s Iter were base on repos from regional sub-departments of he Ministry to the central hesdauares ‘ak uatoson “do - Unonbos3 waBoon22. "Tere of fetal soe, a 2, 2010 and ay 6, 2010, ®(On August 19, Vame replied to Deputy Minster Bidnyy’s August 13 eter and set forth proposed terns of an offer." An appendix tothe ete stated the quantity and pice ofthe vehicles and equipment that Vamed proposed to supply. The included 2,889 adapted Opel Combo Arizonas ata pice of€16039 per vehicle. The documentary evidence uncovered indicates that Opel Combos are mentioned forthe rs time in ‘ames August 19 eter, However, sourees have sated that Vamed andthe Ministry of Health communicated sometime between the August 12 and August 19 leters and Opel Combos were discussed.” Vamed offered to supply iter Opel Combos or BMWX3s, ‘but Ope Combes were selected, apparent given that models superior fuel economy and ducal. A source alo speculated that Opel Combos were chosen because Opel produced engines and transmissions in Austria, and Vamed favored procuring Austan- manufactured goods. ‘Vamed's August 19 eter also stipolated thatthe Investment Project would be lnmplemented in phases, with he fest phase—wrch €100 million to commence by (October 1, 2009, The Government would supply 15 percent ofthe financing for ech stage ofthe Project. The remaining 85 percent would be supplied through an export credit facility guranteed by the Government. Peyment wast occur according tothe {Gllowing schedule: 15 percent in advance, and 80 perent after delivery and percent ‘upon execution ofthe deivery-acceptance prac ana 2-vatmooon ner con sores ne 23, 2010an 0 6208 ~4. Publication of esiment Project by Minty of Heath ‘On August 21, 2009 the Mins of eats published a omal Investment Projet ‘ied “The Procurement of Medical Equipment, Transporation Equipment and “Medicines under Stato Guarane” which al bee proved by he Inerdeparmenta “iorkng Group on vestments Heath Commitee" The Ivestent jet bears the sigptar ofthe bea of te Woking Group and Deputy Heath Miser Bidyy. The Project named Varo th supplier of equipment, vehicles, media prods and ‘mediations and listed the specifi goods equed, Vamed's August 1 eter, which ‘utine he equipment tht Vamed proposed to supply, was includ in the Invest Pret ‘The Project arte ale for €500 milion tobe spent in an “sconomiclly festive” way. Among other thing, he rice pi forthe mc equipment were sequed tbe comparables muketrses, Theft phase ofthe lavestnest Project, ‘woud cost €100 milion and into mer of tans of medical equipment swell a 1,000 Opel Combo vehicles. The vices were intended to be wed as transportation for locos based in the Regions of Usain, to allow thet trve acs he region and amy secesiry equipment on thei ounds. The veils wee no meant ransprt pation, and therefore, didnot require stretches.5. Ameninents to Decree No. 819 (Cabinet of Ministers Deere No, 819 was amended on September 9 and on (October 7, 2009." The September 9 amendment, va Decree No, 955, substiaed ‘Unicredit Bank Auris athe lender OeKB, which was formery the lender, would insted insure the financing. Decree No. 93 also provided for advance payment to ‘Vamed, not exceeding €15 millon pls the sum of commsions under the Joan faliy provided by Unicedit Rank Austia AG, tobe made using the finds provide bythe Ste Export-Import Bank of Ukraine *Ukreximbank”). On Octobe 9, 2009, afer itwas determined that Decree No, 819 bresched Ukrainian budgetary law, former President ‘Viktor Yuschenko suspended the implementation of Decree 819 by issuing Presidential Decree No. 15/2009." However, the contact with Vmed and the financing agreements ‘with hanks had already ben signed by this date and remied in force, C— Contract Between Vamed and Ukrmedpostach ‘The Ministry of Healt etered into contac through state-owned enterprise “Ukrmedpostach, ith Vamed on September 14,2008, to purchase fen types of medical ‘equipment in varying quantities for a total value of €99.9 million! The contract, concerned the first phase ofthe lager Investment Project. Fifteen percent ofthe total contrat price wast be paid in advance, with the raining 8S percent payable upon Aetivery rom thefts provided by a ret agreement with Unicredit Bank AG, "tic 135 Gaon "ii 13: Vana 811. Specification of Equipment to be Supplied ‘The contact provided forthe supply by Vamed to Ukrmedpestach of 1000 Ope! Combo vehicles at the pice of €12,500 per vehicle, fora total cost of €12.5 million. ‘There is curently no evidence available to show what price Vimed paid forthe vices The contre sso covered fourteen otber types of equipment. Several versions of specifications, which vary slighty in quantity of products and ttl price, were attached to the comract” The Intes spesifctins dated March 18,2010, lists total of 199,546 999.85 worth of goods. The vehicles and equipment tobe supplied, a8 set forth inthe Marc 18 specifications, ate summarized as follows: tem | cea touury pee ne” [ade | becresce | srg |uaracerer | Ee | guamcy| Pree sR Ta OpTCORES Tee Ear a foo | ope gece [tiem femme | s2s0n00| 2000 | s2soqounoe ees355 0 ‘saute, 0 Cb erste 2 foo | aioe Germany| sti zeuoe | 24s] sonoesoo [9001 | Series | ery | corms 900 | roar] suasza00 2Becrearcgae ras rs “eto 2 Pa vaso a asos600 sozom cir ‘os ad ne mac 200 ie Ae 2980800 Cornsaw — Ursa Som aS RST 0 o Dap run vous Seems seo Andee AN {om is ip eae ems Ste200 Saf ee i EN Sed sce [ees ee ore : SEE [ alleen nee a nc | mle ae ' am [BP SREP | Ee Ds | ene l aa aes I cee I eee mae | | so \ eo | f 1D. Financing the Investment Project ‘The strocure ofthe investment peoject Financing was developed snd modified l ‘during August and September 2009, Cabinet of Ministers Decree No, 819 dated August 5, 852008 provided tha ttl of €500 millon would be invested inthe project. The ‘nancing would be provided by Austan bank Ostrlchsche Kontrollbank "OSKB"), and the Utrinian Government would guarantee te loan” Unieredit Bank Austria AG (Unicredi), he bank that ukimately served asthe lender, was not meatined ia this Dewee. “Through Decree No, 933, dated September 9, 2008, the Cabinet of Ministers replaced OsKB with Unireit atthe lender Sources have suggested that Vamed ‘dentfed Unicredit for thie role. OcKIB remsined involved asthe insursr of the financing. Decree No, 933 also added provision for an advance psymentto Vamed, which boul not have exceeded €15 milion plus the sum of commissions under the loan provided by Unica, which nds should have heer provided by Ukzenimbank nthe frm of lon ‘ Ukrmedpostach. Finally the decree specified that aditonalcoss—insluding interest and commissions—incured during the investment projet woud be financed bythe Ministry of Hatt through state budgetary funds appropriated tothe Ministry. Financing agreements wer signed with Unireit on October 7, 2009 and with ‘Ukzeximbank on October 62009. 1, Unirett Bank Ausra AG (“Unteredt") ‘The agreement between Uskmedpostach and Uniredi provides a financing facili of upto €85 millon Fund are to be disbursed directly from Unireditto ‘Vamed, Inily, funds were disbursed based on Vameu’s shipping documentation, but ‘his procedure was changed in early May 2010, requting Ukrmedpostach to eeniy 5 Ss eg, asa 13-UAOOOOSL > Bobs 4; UAOO0D9, UADOO1ST, URDU, LAGOS 86acceptance ofthe goods before payment is made, Between December 2009 and July 14, 2010, Unieredit disbursed a total of €38,317,768.13 to Vamed. The total value of goods that Ukrmedpostach ha recsved from Vamed as of uly 14, 2010 was approximately €855810,73758, Charges Relating othe Loon ‘The Unicredifinancing agreement imposed a 55 percent annual interest ate ‘Additional ees were required to be pid to Uncreditfor managing the financing, ‘OcKEB for serving as underwrite, and to Ukreximbank for faiiating Ukmedpostach banking conection withthe Unicreit loan As of lly 14,2010, these financing charges totaled €44,189 354.60 Inert mpsser1.70 Hanagervent fete Unie asso oe ee 1525007590 FeoteUbreinbark 123739897 Tea! 418935409 a7%RenuymentTeoms Repayment of te principal loan amour begins ole than on Mach 2,201 nd continues fo ten years Payments are required twice a year—on Mirch 20nd September 20—in equa instalments of 6425 milion. However, fll gods were recived before September 210, hen epyment was scheduled to besinon September 20,2010, Repeat of nts ad commision on he los beg a Mach 2010 and sts occur ona semi-annual bai ‘Asof fly 14,2016, Unicedt had sent invoices to Ukmedposich fora tot of $29,149.01, This sum canbe broken down iat the following componente payment (€201,055 08), management fc (247 604,17,OcKB's es (351,523.39, and ael and legal expenses (5159836) Documentation indicat thats payment ‘as bezn made by Usexintnk on elf of Ukrmedpostach 2. Uivextnbant ‘Ukemedposach and Ukeximbark signed lon agreement on October 6, 20092 ‘Soures have inetd that itis pial practice fora domestic bank to playa oe inthe Sinancingarangemens for tansatons in emerging marke ™ The eet agreznet rove for 8 €17 milion lan, bu his amount was deceased on Ober to 1626700818 This amount covered th €15 milion nvance payment oVaned pls sdvane interest and commission payment deo Uricreit and charge eto O=KB. ‘Thee sum has been disbursed, Urexibenk pil 1267, 008.186 Uniedt 3 tit 2: Uatbon s-UAGEnO 48, “nerf cane seer Je and 8210Srey on October 8,209, and ransfred_15 milion o Vamos account at Unirdit « Oxtabe 8, 2009. “Te terms ofthe lan agreement provide for 1.28 percent interest, and a2 percent anna ficistion commision. A skedle prepared hy Ureximbank causes that total of €1 621,629.76 wil be payable in interest and commision “The principal an amount was to be epi in five installment begining on June 1, 2010, Repayment ofthe interests to occur in hireen installments begining en Ari 25,2010 and ending on October 5, 2010. Commissions onthe loan reo be repaid monty TE. _Delivery and Current Usage of Vehicles 1d Equipment 1. Opel Combo Vehicles ‘The Opel Combo vehicles were imported ito Ukraine butween December 30, 2009 and February 4, 2010, The total customs value ofthe ars was UAHI42 milion, Yulia Tymoshenko SiskersAffined tn Vehicles Dring the months lading upto the 2010 elections, the Ope! Combe leisue activity vehicles were disributed tothe regions fer stickers were applied identifying the cats originating from the Vlis Tymoshenko Government. The sticker, which ‘wrapped along the length ofthe Opel Combos, stated, “A Program ofthe Government of ‘Yulia Tymoshenko." An oli of the Ministry of Health stated thatthe stickers were ot paid for by the Mi istry and wamed oter employees thatthe stickers should “havenothing todo wih the Minstey® One reasonable interpretation is tha the vehicles were thus able to serve, essentially, as mobile campeign advertisements “The loca police station in one region confirmed tha ars were delivered fo that ‘region with Yulia Tymoshenko sckers. The regions ale poice headquarters ‘registered the vehicles, photographed them upon delivery, and stored the images lectonically, The police provided photograph of four while, two of which were ‘marked wih Yulia Tymoshenko stickers ‘Site visits also verified that many Opel Combo vehicles were delivered with the ‘olla Tymoshenko stickers affixed. In te villages that were visited in one region, witnesses stestad through sgned declarations tothe presence ofthe stickers” Furthermore, one witness wh drove to Kyi in December 2009 to pick up two vehicles for her Region observed large mumbers of Opel Combo vehicles ina garage awaiting isibtion, ll displaying Yulia Tymoshenko stickers. “The stickers were removed after circular was received on April 13,2010 om the Health Defense Department of the Kyiv Oblast administration, which requested ‘recipients to “urgently remove any sign sicker, drawings, et.) which are not foreseen bythe legal famework” fom ambulances and medical vehicles?” 3 tie of dena soe, 6,200. > Ba 5: UACons0 > fa acon‘The Ope! Combo vehicles have limited medical wility. They are not ambulances snd cant eansprt a patient ying down ona stetcher, While some vices were locate at hospitals and used to transport doctors, others Were store at town hall." 2. Delivery and Curent Usage of Medical Equipment ‘The medial equipment provided unde the contact i also intended to be Aisibuted othe opions, according to guidelines defied by the Ministry’ of Health However, data provided by Ulrmedpostach shows tha approximately 77 percent ofthe ‘medical equipment delivered by Vamed remains stored at Ukrmedposach’s warchouse in Kyiv. Ukrmedportach has received approximately €73,310.737.5¢ wort of equipment, or 8¢ percent the total sof uly 13,2010. The vale of medic] equipment deivered to the regions is approximately €16,763,922.65, Photographs illustrate the quantity of| edie equipment remaining in storage.” ‘Table | below shows the medical equipment and ars received from Vamed and indicates the proportion of equipment actualy distributed by Ulrmedpostach.Table2 shows the monetary value of medical equipment distributed tothe regions 3S i dive wi cone cn, 7,200 Baie a VAGUS‘Table : Proportion of equipment distributed to the regions Teansport Iresbator ‘model 1585 uwao0r Ty uaa. aan. 08-2008 ae ump use 32: aan ra ATOR: rs HeinentLow Mest cn so (00 : ° cr oe con TovYutas Ukraine 8S. ss (m0 ° rors Unie aro ay 188 © oo”93ao =esystame mot | Opel Combe Ensnetng e coo somo Erenewrre gusta s000 1000 “O° 300010000 ‘Table 2: Value of gods received and distributed eee aad ae eee) Teaniport nestor model ase Patient manitr ‘unea00P TU 0 95se suzanne wa raso00 18550000 °°? sae aa a ey eo BY |i per ll = | ae c rE snpna3son © ssssso ‘con a — ie one aon ie ar am 500 4237.00 618,800.00 FRESUSTARE RW ‘ironman «0870 tate) : Daprstic Utesound sistem 400 a8 9400 OLE Standard 3 Urasound sistem 250 = ee {equipment for rmeasutrg ods 400 34422300 | "pcos ev) 96nes = = ‘On May 14, 200, Minster of Health Bidnyy issued an order med at spending ‘up the distbuton of medical equipment purchases by Ukmedpostach. The contact provides that Ved so tin lea medical personel in hoo operate the equipment ‘Thisteining has apparently begun to ocr, In ato, on Jane 9, 2010, the mein "reported that Ukrainian Prime Minister Mykola Azarov and Austrian Ambassador ‘Wuketich hold a meeting at which Vamed representatives were present. According tthe ‘media, Prime Minister Azarov assured the Austrian delegation thatthe Goverament Intend o comply with commitments entered int by the previous goverment, long ‘5 they donot contadit Ukrainian legislation. One ofthe topics discussed was healthcare, and Prime Minister Azarov sessed his intention to use the know-how of foreign experts to improve the Ukrinian health care ser Cost of Vehicles and Equipment ‘On November 27,200, Deputy Health Miner Bidyy wrote tothe Fist Deputy Prine Mlister OY. Turco, rogesting thatthe Mins of Economies end review ofthe prices for goods in the Vamed contrat rom manufacturers. The Mnisty of Bonomi response on January 25,2010 indicated that, generally prices inthe contrast were nothight thn thse which cold obtsind from manufrs, For instance, Ope Cons, prchsed fon Veda €12500, woul cot betwen €16,000 snd €1, 000 the market. However this the prc f one car and dos ot appear to sccount fra potential discount received by purchasing large quanti of vehicles, Desi of price comparisons for fouritems were not provided. Additional potenti ‘markups to prices were conser during the cous ofthe ivestgation. 1 Value kdded Tax ‘The Investment Project andthe contact between Vamed and Ukrmedpostach™ contemplated tat the Ope Combo vehicles would be exempt fom VAT and customs aes because hey would be lsd as modal veisles. The Opel Combos did nat qualify under he existing VAT medizal exception because their purpose was not ‘eleanor indi he State register oneal men anne rc wl bcd ld gs ree eg of ‘Sime the cote of est regan ote Equine! nai nt reed ‘oat as enone ands ty operons come to allng sch egaet eek SS VAT eae On Vane na ox ace{ Primaily or exclusively medical A Ieter fom the Ukrainian Medical Certiation Center of the Ministry of Health explined that the Opel Combos didnot mest certain ‘atonal standards for “Emergency Fist Aid Vehicles and their Equipment” or “Medical Products” Among otber things, the Opel Combos coud not anspor patient on @ stretcher and dd not have any special medial equipment insaled However, sources have ssid that all ofthe government indvidals involved in he transaction knew thatthe vehicles wee a theta, subject VAT. Offa intended ‘make the Opel Combos VAT-sxemps, but auch effos were unsuccessful” ‘Ukemedostach ws, therfore lable fr VAT onthe vices bt hed the ands to pay {he total sum of UAH36,965,54222, On December 23,209, he Cobins of Miners issued Decree No, 1616 approving postponement ofthe VAT payment athe Ministry of Health's request. 2 Fhancing Charges “The end est, howeve, i thatthe Goverment pa anal price forthe ‘medical equipment and vehicles because ofthe financing charges incured—a otal of 45810,98645, For example these charges Would ad approximately 5,755.86 pres, 56 percent ofthe oes considering that approximately comrat price related othe vehicles. The toa ditional ability in connection with the cars, then, is €5,753,859.65 or UAH 62,423,985.83 using historical exchange ates, Igeniens of comico owes, Joe aed iy 6,200. 9°‘This ctelation ie summarized inthe following table: ‘Based oa these calculations, the Financing charges would lead to a final pice per «of 18,253.86, compared toa contract price of 12,500. IV. Vamed’s Corporate Profile AL Corporate Structure ‘Vamed Engincoring GmbH & Co.KG was incorporate in Austin on 25 September 1997, Itisregistered at Stemgasse 5, 120 Vienna, Corporate records list its ‘ature of busines as tochnical planning. Vamed Engineering GmbH & Co. KG's rectors ar sted in corporate lings as Ved Eagincoring Ombl, Vamed AG and Dr Johann Stralhoferoffsef Pot Gass 25,2332 Heanersdot 1 Famed AG Yamed AG, an Austrian ent isthe genera partner of Vamed Engineering ‘GmbH & Co. KO, andthe limited parr is Vamed Enginering Gmbl, a wholly owned subsidiary of Vamed AG. Vamed A his been identified incorporate databases s 77% ‘owned by German entity Fresenius Proserve Gmbli, withthe remainder held by two ‘Austrian ents, Imib Immobilien Und Industribetligangen Ombll with 15% and B & © Beteligungsmanagement Gb with 10%.2. Fresenius Proserve Gm Ht rescue Proserve GmbH, which owns 77% of Vamed AG, is wholly owned by ‘German entity Fresenins SE, which sisted onthe German DAX and he Prime Pharma 4 Header index aswel asin the Dow Jones STOXX 600, Fresenius SEs global health are company offering serves split int fur independent snes cements Fresenius Medical Care, Fresenius Kai, Fresenius Helios and Fresenius Vamed,* Media research indicates hat Fresenius Vamed operates uner the name Varied AG. Fresenius Vamed is reported to speciale in international projets for hospitals snd eal care filiies ands headgurtered in Vienna, Fresenius SE's annual eport {or 2009 sates that Fresenius Vared won aargestale contact forthe supply of medial cauipmentto improve infastuctrinrral areas in Ukraine and thatthe contact was to be processed in 2010. Media report also document Vamed's olen providing medical cquipmentto the Ukrainian Government and its involvement in the health care sector in ater counties Vamed hasbeen discussed nthe media ata provide of medical cquipment tothe Ukrainian Government” 3. MIB Immobilien tnd Idusriebeetigungen Gmb#t {nib Immobiion Und Industrebteigungen GmbH, wich owns 13% of Vamed AG, sisted in corporate flings as wholly owned by Osterichisce Industriholding [AG, alo an Ausan entity, which in tum i wholy owned by the Austin stat, Spam sono, see, Han 51" UAGOS5S5; Eshibe 152 UAORS9S DIS: UADOES IS; Ex 1014 Be CBetetgurgemanagemens Gmdtt B&C Beteilgungsmanagement GmbH owns 10% of Vamed AG and is owned bby B& C Holding GmbH (09%) and LBC Unternchmensbeteilgungsges MBH. (1%, ‘both Austrian ents. B & C Holding Gm sin tun wholly owned by B & "Beclligungsvervalungs GmbH, an Austrian entity, which s wholly owned by B & C Privatstiftung an Avstian est. LBC UnternehmensbeteligngsgesM.B.H. is wholly owned by Immetilen Holding GMBH, an Austrian entity which in turn is owned by Immobilien Privasiftung, ‘on Austrian ust Private Austrian tuts donot have t file sharcholder information, nd ‘erefore it has not been possible a ently the ultimate beneficial shareholders of B & (CPrvatsttung oF Immotilen Privastitung V. Conshusions and Resommendations In sum, the Minsty of Health incurred €100 milion in debe that must be repaid by subsequent administrations over the next ten yeas, afte the useful lif ofthe vehicles and medieal equipment has expired, Much ofthe medical equipment remains unused, andthe leisure activity vehicles, which have limited medica ti, were distributed ‘immediatly before the 2010 clestons with stickers indicating “The program ofthe Govemment of Yala Tymoshenko,” ‘More shorough consideration of documented needs for procurement of medical equipment fr Ukraine and its Regions ses to he necessary, This is especialy tue hen, a inthis ase, fonds are not svailabe inthe badge and det must be insured and subsequently repaid over along pevod of time. Greater ansparency is also warranted, 25 it emai unclear why the contact with Vamed and the Invesmen Projet were & tated, and wheter the transaction involved any quid pro quo or other personal ‘benefits to those negotiating and agresing othe transaction. Finally greater regulation ofthe distibtion and use of items procured by the Government would preventthese ‘tems fom being used to promote individual politicians or pols! partes. 103INVESTIGATION RELATING TO PURCHASE OF PHARMACEUTICAL PRODUCTS AND t MEDICAL EQUIPMENT BY THE MINISTRY OF HEALTH IN 2008 AND 2009 Table of Contents Introduction 106 1H, Executive Summa 107 ‘A. Overview ofthe Schemes. 108 B. The Tender Process 109 C. Lackof Cooperation from the Ministry of Health 108 TIL Background on the Ministry af Heat's Procurement Process. 0 TV. Background on Mark-Ups Permitted by Ukrainian Law. 13 1 Vo Investigative Findings nd ‘A. Interfarm 2 ua 1. "Corporate Profi ua 2. Government Contracts Reviewed. - i 3. _Intrfarm Bmore Into Sham Coniracte with Foreign Sell Company Olin Group LEC To Conceal the Trae Mark Ups us 4. Olden Group LEC ~ m2 B."Imbiolmpex. 126, 1. "Corporate Profi ~ 136 2. Five Conracte Wer Anaed 136 | 3. There Bere Sigficant regulars nthe Tender Process. 128 4. The Goverment Contacts Obtained by Imbioimpex Totaled More Than UA 10Milion 129 5. Imbioinpex Entre Tao Sham Contracts with Foreign Shell Companies To Disguise Mart-Ups. 9 6. Pricing Data Srongy Suggests that Actual Mark-Ups Escocded 10% Lit (31 C.- Urited Medical Service m1 1. "Corporate Profle 1a 2. Goverment Contacts. mac) 3. Conracie with Foreign Shell Companies Bs 48. Jade Commercial Limited 37 5. Pricing Dat ~ “se D. “TriThentralny Aptechny Shad, 142 1. Suanmary of Key Findings. : 1 2. Corporate Profile. ua.3, Bidatng Process 4 Government Contract : 5. _ Contacts with Foreign Shell Company E. Sumdays veo 3. Conpacts with Utrainin Intermediaries. VL.» Concnsions and Recommendations los 1s ur 149 158 134 155 156 138Introduction “This report discuses a numberof transactions between the Ministry of Health and ‘ve separate Ukrainian intermediary companies fom which the Misty procured ‘vaccines, phammaceutcals end medicl equipment. The Ukrainian intermediaries Involved offshore intermediaries inthe aneactions asa means to conceal ther rue profit and the amount that manufacture pices wore masked up when the Ukeinian ‘companies sold tothe goverment, ‘The investigation conducted wit respect otis report is goveed bythe {following sections ofthe Tes of Reference: eefomanc ofthe sate budget in respect of revenues and expenditures. Terms of Reference. Publis procurement of goods wrks and servis and compliance wth geeally resrbed competitive prosofures, Tens of Reference Ls ‘Brahation wih respect to compliance withthe legistion of Ulin, intersting inal areas out in thse Tes of Referens. Terms of Reference I Conclusion on impat of isovered violations onthe state exenomy. Tems of| Refecenee Proposal regarding speifc measures fr improvement ofthe financial and economic station in he state. Tems of Reference IT Exceative Summary During 2008 and 2005, the Ministry of Health purchased vaccines, pharmaceuticals, and medial equipment fom five Ukrainian companies, four of which ‘were asosiated wit layer of foreign shell companies. The Ministry, through state- ‘owned enterprises Ukravaktsna, Uksmedpostach, and Poltskmed, pai he five ‘Ulssinian contractor —Inertarm,Imbioimpes, United Medical Service, Tri-Cenaly AptechnySkiad and Sumskaya ~ more than UAH 250 million fr vacsnes and ‘Pharmaceuticals and UAH 100 milion for medica supplies, ‘The Ulssinian conractors msde it ppesr tha they had purchased the goods ‘trough foreign intermediaries shell companies with secret or ofshore owners ‘Signicant amounts of mony pid by the Ministry of Health othe Ukrainian comparies ‘wore ansferred to foreign intermediaries bak accounts in Latvia ad Lithuania Although the foreign intermediaries purported to buy the vaccines om the ‘manufacturers and sel them (the Ukrainian contactors in fact there is no evidenee to suggest thatthe frcgn interme performed any legitimate work relating tothe supply ofthe vaccines, Customs documents show tht the vaccines wer shipped dry fom the manufcters to Ukraine. Through the us ofthe frcgn shell companies, the ‘Ukrainian contactors were able o circumvent the Ukrainian law tat proibits marks in excess of 10 percent ofthe customs value on such prot nd thereby charge the ‘Ministry an inflated price, The foreign shell compares and Ukranian intermetiares cared out their scheme by entering nt sham contracts and submiting fraudulent customs document to conceal she actual price tha he Uksinian companies pid the 107‘manufactures forthe meal products. The wue mark-ups (ver the manufacturers’ roe) paid bythe government to thete contractors ar therefore generally higher han customs declarations and the sham contracts Would indicate, Industry sources indicate ‘hat, in many instances, the vacines and medical supplies could have been procured for ‘one-half the price the Ukrsnian contractors charged the goverment. A ‘Overview of the Schemes Interim used a US shel eorpany called Oken Group, LLC coneal its markups on Sanofi Psturmanufacred veins, Te company is owned by wo othe shel companies inthe offshore urisicion of Belize sd the isn of Nie. Imbioinpes claimed to have obtained vaccines though vo intemediaes, ‘Virion GmbH, whichis incorportd inthe Sesh, and Hoss, which {is incorporated in New Zealand ‘United Motil Service conctled manufac pists though the wie ofa shell eompany incorporated nthe UK ead Jade Commercial Ld ‘Thesham concats between United Media and Jade were executed wel ‘efor United Medial was awarded the goverment contacts, bt were forth ame quart of gods tha th Ministry evenly pushes, suggesting comopt influence over the bing proces, “TricectralnyAptecny Sad wd UK shel company called Eastte ss an intermediary, 108In cach as, the foreign intemmediany exists only on paper and never ook possession ofthe vaccines. The most easonable conclusion isha the sham contracts beoween the Ukrainian companies adhe foreign intermediaries served to conceal the manuf prices and allow Uksinin contractors to charge inflated rcs tothe goverment. Confidential sures provided ping analysis relating cei Pharmaceuticals nd medical products snd confirmed thatthe government was charged more han 210 pereent mark-up ovr the manctacturer pie. B.The Tender Proce ‘The Investigative Firms silo reveal ta th tender proces ized by the Ministy of Hea is fargelydysfinctionsl. Many ofthe Ukrinan companies ae repeat contractors with the Minis of Health andthe companies’ principals ave tis othe Minis o other goverment connections, Tender documentation relating 10 cern of 1 contrat involving the Ministry of Heh and the ive companies reveals collusive bidding, For example, in several instances, there ae only two companies paticiatng in ‘he tender and the lesing company wil ave the same adres sth wining contactor snd telephone number thetreachestheofces ofthe winning sontractr. The Minty of Heath expresed no concer wit the issu of colsive bidding. Instead it appears that the Minit views ts rol 8 odo nothing more than to select the fowest bidder © Lackof Cooperation fom the Ministry of Health Final, some ofthe wineses who cooperated in or investigation were terminated shorty afer we interviewed then ora they were guhering document to provide to investigators. No one within the Ministy of Health was able to provides 109convineing expansion ofthe decison to teminae these employees. Several Ministry fica provided evasive and incomplete answers when questioned onthe sabe of Sings andthe Ministry was consistently show to provide documents and gant interview requests, In um, the Minisoysconduet was inconsistent with its pledge to flly cooperation wit the investgntion. 1A, Background onthe Ministry of Health's Procurement Procsst ‘Both before and after the Mins of Heal of Ukraine (the “MIU") decides to posure parclar medical gods, sce f steps are, at leas in theory followed. The fist stage of the procurement process involves researching te need fr a parclar ‘vaccine of pee of equipment. This she responsibly of the Expert Commie ofthe ‘Tender Commitee, The Expert Commitee consis of doctors, sient, physicians nd rescrchers, who evaluate the quanti’ ofvaeines needed for cach eon, make recommendations othe tener commit on vacine purchases, and monitor complaints of adverse reactions ‘On an annua basis cach of Ukraine's 27 regions subi a ist ofthe vaccines required. The expert committee evaluates the requests and prepares reeommendstons fr the tender commit “The Expert Commitee cannot recommend thatthe MI purchase more vaccines than requested by the regions. Their ecommendations are compile in & technical document, which details the approximate quantity equred fr he year andthe spprximate pie per dose and toa cost A member ofthe Expert Commitee explained thatthe commit largely uses the price from the previous year asthe basi fo the no‘recommended price! The General Director of Ukemedpostich explained that this anual ‘procurement plans published onthe website ofthe MH and is therefore is accessible to allof the Uksinan itrmediaries described below? ‘The expert report is then pase to the Tender Procedures Deprinent, the sscretral department ofthe Tender Commie, which reviews the report and enters it on the Tender Committee agenda, The Tender Procedures Deparment compares the prices {inthe annal technical documento the previous year’s prices. 1the pice is higher than ‘he previous year, the Expert Commitee is required to explain the discrepancy. source ‘explained that approximately tre years of previous prices are taken into account when sting the vaccine budgets as prices fuctat as «result ofthe manufacturers" pice changes and exchange rat luctations* However, consuling only prior yee prices lows matkup to become entrenched, ‘The Tender Commitee includes approsimately nineteen MHU officials, Once a decision regarding the tender request has been made bythe Tender Committe, the “Tend Procedures Department publishes an announcement in the State Procurement Bulletin for approximately one month, In order to respond ta the tender request, an entity st be a resident of Ulzane or otherwise be properly registered to do business ia Uline After the denne for subeitng bid arrives, the bids are opened andthe propos are sl publilysnnounced. Bidders are typically present the announcement. nrview fenienial oe,Augat 62010. ove of snes, Ast 3,216 > iene of oie sue, gt 2010. m“The name of each bidder andthe price bi are recorded. After the envelopes ave been ‘opened, the tender comics has 30 daysto decide which bidder o select. The Tender ‘Commitee ensures tet bids are complete, and te exper group then reviews the ‘echnical documents submited by bidders. The Expert Commitee prepares table -summaring te dtl ofeach bid including quant, manvfictrer, and othe enter. ‘The conclusions ofthe expert group ae taken into consideration by the Tender ‘Commitee when making a decision. According to e witness interviewed, the rie and _qualc of the produts are the main factors in the decision * ‘The bids are again evaluted by the Tender Commies, andthe lowest bid is selected, If he Minstry’s budget forthe specified vaccine is not sufficient fo meet the rive ofthe lowest bidder, then the mamber of vaccines requested wll be eguced. The total price ofthe purchase an the revised numberof units required then sent tothe ‘winning bidder to be acepted, Information regarding the winning bidder and the _quantty and price ofthe vaccines being supplied is recorded ina decre tha then sent toa state enterprise. The state enterprises are then responsible for contacting the Urainian intermediary that as won the tender. Ukrvabtsna is responsible fr vactine procurement. The other state enterprises relevant this investigation are Poitehmed and Ulrmedpstach, ‘The sate enterprises have no involvement in the tender process andar insted by the Ministry to enter into a supply contract and to ensure tha he contracts flied inserms of delivery, quality and ming. One source explained that Ukvaktsina's ole in "Tew of ctl oa Ag 6,201 mthe vaccine procurement process includes managing the paperwork, receiving an pecting the gods, vriffng the amount and quantity of goods received, reviewing ceriiaton from the manufacturer, storing the vaccines and distributing vaceines tthe regions Anether witness explained that Plitedmes tsk isto prepare the sgreement, ‘anspor the goods, assemble the equipment and provide support daring the guarantee period * poor quality gods ae delivered the intermediary ie required to replace them and pay a fine. Fines are also imposed ifthe intermediary defaults on the ime schedule. A.wimess explained thar the MEU had no information onthe mark up applied bythe nts in the procurement process but agreed with he inference that Ukrainian ‘companies ae likey hiding their profit margin by using foreign intermediaries” Other ‘witnesses sated thatthe sate enterprises bad no information about the foreign intermediaries but suspected thatthe foreign companies add no value tothe proces. IV, Background on Mark-Ups Permitted by Ukrainian Law Decree ofthe Cabinet of Ministers No. 955, ated October 17, 20087 which ‘became effective on Novernber 6, 2008 and was amended by Decree No. 333 on March 25, 2009," governed pricing markups wih respect to pharmaceutials. The Decree provided that, when pharmaceatica are procured in fll or in part wih tate funds the ‘supplier's sale mark-up tothe government shall ot exced 10 percent ofthe wholesale mere of foil sar 9,200 ‘hare of enfin srs mp 17,2010, “nt foe sore, ly 15,2010. “nee of oie sor, ul 9,300 iyprice. (A.10 percent mark-up was also permitted under Decree No, 154, issued in Decent 1996) The wholesale prize is defined in Decree No, 955 a the uit pice of the goods imported. The unitrice af th imported goods n tum isdfined asthe price lise on the customs declaration. Tus the supplier cannot add more than a 10 percent ‘markup to the customs Yale when sling to the government Inthe transactions that were investigated, he price mark-up between the ‘Ukrainian itemediar and the Mins of Health was within th 10 percent init However as discussed in more detail below, the true map is hidden and is much hieher. The foreign intermediary, which ads no vale othe transaction is present merely to conceal the manfatre's price ths enabling he Ukranian interme to lst higher customs valu, and obscure the actual profit gained by the Ukrainian companies rough markups wel above the 10 perent threshold ‘Ve nvestgative Findings ‘This vestigation consisted of five distinc but elated investigations into transactions involving the Ministry of Healt, state-owned enterprises and Ukrainian companies Intertfarm, Imbioimpex, United Medial Service, T-Tentralay Aptechny Sklad, and Sumskaya, AL Interfarom 1. Corporate Profie Inter i well known onthe Ukinin make for supply and distibtion of pharmacological and medical products ad is enong the top supplies of medial products under ste procurements contacts, winning numerous tenders for medical nasupplies yea after year. Founded in 1994, Interfarm hasbeen supplying medicines under tate contacts since a least the early 20005 12009, Intrfam, together with Gaza and T-TSAS (ee below), was one ofthe ‘op five contrctrs for state procurement by MHTU." The dominance of some companies, ‘nclading Interfarm, in he state procurement market andthe high prices that they bave been charging for ther products have log been a subjex of controversy in Ukraine.” In May 2010, the Minisey of Beonomis disclosed a pbliestion about contacts to procure vaccines hat the MIU concluded between April 13 and 15,2010, Interfarm ‘was named among the largest recipients of funds fom MHU, obtaining UAH 97 million. in November 2009, nterfrm was ranked itn erms ofthe volume of ate tenders won, totaling UAH112.7 milion. A report in Febuary 2007 in Apteka, a trade publication of he pharmaceutiza industry, stated that ive companies shared the vast majority of MHU procurement orders, The list incu Intrfarm, which it si, was ‘working with Aventis Psteur (now known a5 Sanofi Pasteur). In June 2010, Inefarm ‘was included on the “grea li” of companies by the Uktainian customs eutorts, ‘which are subject to simplified rules of customs contol and process. ‘The limited Ubilty company OOO Iaerur was incorporated on November 9, 1096 and maintsins a office anda website. According to corporate records, Varolav ‘Viktorovich Sorokoryis the head ofthe company. Vadim Ivanovich Romanyuk and Tectia Rega ao 'spalA Som 34 Novem 209, Sea Nien us[ ‘Aleksey Horiovich Zak are equal owners ofthe company. All thre ofthese individuals ‘signed the contacts in elation tothe purchase of vacenes by the MHU in 2008 and 2009, According to comporate records, he company was founded ky Romanyuk, Zak, Vladimir _Evgenievich Zhukoy, and Nikolay Sergeevich Taranenko. 1m June 2009, one publication claimed thatthe MET allows its suppliers to work ‘with delays ting evamples a which several companies, insfuding Interfrm and Ti- ‘TAS, supplied vaccines 100-165 days after payment was made, The article questioned ‘why MHU was allowing such interest-free ereit and sugested that it was never done without benefit for hose who allowed these dey." 2. Government Conracs Rviewsd ‘The investigative team reviewed five government contracts between the MU, interarm an sate enterprise Urvaksin in relation to the provision of medical vacciaes: ‘+ Government Contact 1/1 signed on 19 March 2008 for 641,725 units of ‘TETRAcCHIB at UAH 40:80 per ni. The total value ofthe contract was UAH 26,182,380." + Government Contact 1/2 signed on 19 March 2008 fr 95,000 units of Trimovax st UAH 41.28 per uni, The total value ofthe contact was UAH 3,921,600" + Goverment Contact 1/7 signed on 20 March 2008 fr 850,275 nite of Pertxim st UAH 160 perunit. The otal value ofthe coniet was UAL 72,043,680, Ave it seven separate batches.” nib sh UAON22531 16+ Goverment Conzact 1/8 signed on 20 March 2008 for 342,840 nits of moves Polio t UAH 38.11 per uit, The ttl value ofthe contact was UAH 15,095.632.40 + Government onract 11 signed on 5 February 2008, for 46 642 units of “Timovax at UAH 68.11 per unit The total value ofthe contract was UAH 3,176786.622" The conractwas amended on 14 August 2009 46,349 nits at ‘UAH 6854 per ui, mounting to ttl contac valu of UAH 3,176,76046 All five contact stipulate thatthe vaccines ae tobe aquired frm Sano Pasa rence, The otal vie ofthe five contracts amano UAH 18;390,052.86. “The fit four contracts, al signed in 2008, stipulate that Ulrvatsin shall make a 100 erent prepayment ofthe total pris ofthe goods to fnterfam 90 days before Intertarm actually supplied any vaccines. The ith contract, signed in 2008, stipulates tha he payment ofthe goods shal be made within seven dys fom the dt of delivery of the oot (bl ofthe MEU, theft four onze ae signed by Fist Deputy Miniter fest MG, Prodan, nd the fih contrac signed by Deputy Miniter of Heats “ZMyayk. On behalf of neta, the frst four cnracts are signed by Commercial Director OB, Zak, and theft enacts signed by Director Ya Srckovyl iste oan 9 73, Inerfarm Briere Ino Sham Contracts with Foreign Shell Company Olden Group LLC To Conceal the True Mark-Ups Inefarm entered into eight contracts with a shell company called Olden Group [LLC that conesponded to and purported to ull Interfr’'s contacts with the MEU.” ‘The following contacts were reviewed: pare actin ints nin rice foals Kare sata00 TS 5260670695 frasree a WATTS lsnreenara le7e7a8 —reTRAcTaB poss pars crs 7aR® ——Fimovae io faze anes 78708 enti ones (aT Rasa f7as/8 Penta OS ELBIT lsiL7aLALON frame ——finovaxPote jaaano (TST fssnae0637 WR Fiimovax a co “The corrats tate that Olden Group will supply oInefurm vacines ‘manutactred by Sanofi and provided fr payment Olden Group's bank scountin Lavi, trough comespondent accounts st New York banks, In total the MMU paid a ‘mark-up amounting to UAH 2,536 817.56 onthe five contacts with Interfam, when ‘compared to Itefanns conesponding contacts with Olden Group. Wile this 22 percent approximate markup was within permissible boundaries, the actu markups were = i169: VAt00225-35; Ent 164; UAOIE2298.4; Exit 168: UACO224-47; Ee 165: lalnastse en: UAOMZ2S043; xm 18 UALO2N63 san eh: CANIS usalmart certainly more significant because Olden Group is shel company that didnot ‘sctally perform any work onthe contacts. The eght agreements between Intefarm and ‘Olden Group were sham contacts designe to deceive the Ukrainian government, For example, whereas the MHU pid $8.113 per dose for TETRAACEUIB vacting, industry sources stated that this vcs could be purchased for approximately $2 Likewise, industry eources roportthat the Tiimovax vacine could be acquired a 4-5 per dos, but ‘the government paid $8,208, Interfrm used Olden Groop to hide the true pees that Incerfarm pa forthe ‘vaccines and thereby increased is profit by caging more than 10 percent markup, ‘There is no evidence that Olden Group performed any services under the const. or ‘ever tok possession of the vaccines. For example, Olden Group's invoices to Interfarm indicate hat Sanofi Pasteur sent the goods directly to Inerfarm, through Borspal airport (Nevertheless, Iaterfarm sated on customs documentation that Olen Group ‘vas the sender ofthe goods)" The contracts between Iterfarm and Olden Group were 8 sham designed to evade Ukranian law regarding permissible markups and disguise the infated prices hat Interfarm was carping Ukvaktsna, Despite Olden Groups failure to provide any Iegimate value under the contacts, Olden Group managed to obain more ‘han USS2 milion (r approximately UAH 182 millon rom the scheme with 2 see eg. Eu 17: Uno, Exh 172: UAtO0265 ib 7: A027 E16 yao en 1s: Uxoooaas2 Bes Tr: UAcotz2; Ens 17-UAIE296 2 emt aeo he comes ewan err and Davai twee ewe AR nessopene n9Interfarm during 2 3-month period The know transfers of funds from Iterfarm to (Olden Groups Latvian bank account are summarized in the following abe: ‘Due of | Ament (USD) | —Allepsd—[~terara [U8 Hanis Tovah] Olen Grose irae SETS | SETS DaiaeBat New | Ps Bak, Proce, | YoruN¥sP | Lavi ee in ee | Morgan Chase ink, | FEDUODIS sronsiso | New vor. NY: ‘mera Egress ‘Dnt New Yor as SER [SST SE Bese Ba New Preciank roca, | YousnYisP | Lai, ce Ute ice | Mergun Chase Bank, | $OD0019 monsise™ | New vera Ne: ‘eran Eres aoe Yo ives Pasa sesTe SE esse Ba New | PreeBank Sia0e | Poca, | YorNv ie | Lal Ace Dinan ce | Moran Chase Bank, | $6DU0019 moonsiso | New vere Ne ‘nen Epes tee Yo TSO OTST | SISTA PSE Dea New OE ces, | You NYP | Lavi ce Ul Ace | Moras Chase Bink, | Poto019 sionsiso™ | New ores Bae New Ye, Tas ATER [Ta — SS Dama DSE Ne rere Pcs | You NYP | Lavi ee sl Ace | Moran Chase Bunk, | Foe40019 Monsis0™ | New vores ‘Bank Ne York, ” 5 Sie Bis 171-17 ed above, Se al Ebi 8 UAORSE; 16: VASO, 0Dear | mao | Ai] US Rave Oka ra Tae Ses TST PR Deseae BaNew | Pere acre, | Yon NYIP | Lai, Ae Une Ace | Meru Chase an, | nbeon9 sonia” | Nowvor, 1. Bk, New Yor bg TREN | HIRE | BET |S PRC | Dace NA RBS Urine Ace" | Yor NYP | Lanes Ae. mronsIS0 | Soran Che Bak, | PeDseio019 New Yor: Doren gree Saat New Yor Y aa RS — RTT Deaths Bak New| Pare Bi Prorat, | YerNYEIP | Lai ew, Une ee | Morgan he Bak, | SDeeioai9 sroasiso | New'Youe NY, Dean gee Bank New Yor Nn Toe ART TST [RE Danaea New | Pre Ba creat, | Yoru NV | Lai ee rine ce | Arg Cane Ba, | RDEHDOIS sronsiso | New You NY: dren pres gt New You. Tas | RTE | ELA [SE Daaseie Bs ew | Parr Bak Gaarssto} | (6607) | Poor, | You NYaP | tan Ace irae ce | Morgan Cone Bn, | #040019 mm0USIS0 | New Yok NY [Ansan Express Sant New Yow. anos | EIR aSosapD | ERE [SC Daawsie Bank Na | Paar Bak, (estoasras) | 687965) | Moorea, | YouenyiaP | Lava. ace ‘iran ce | Moran Chae Rank, | St40019 ronisise” | Nowy, ‘amet Bret fant New Yo ryDateat | Amous( (USD) | _Aleged | Tawra] US miaivoled | Olsen Gop "wre Prceber | honk Bank Acoumt ‘Dow | Asoent TORR | STE | 4. Olden Group LLC ‘Olden Group LLC was incorporated on March 25,2003 and is registered in the United States, nthe Sate of Oregon” The members ofthe company ae listed a: ‘+ Worldwide Management Corporation, registred in Belize. The etiy was incorporated on January 15,2002 andi registered at PO. Box 346 Corozl Town, ‘Belize. PO, Box 3463s shared by atleast fve cher shell ompanies, all of ‘whom share the same registred agent, Citrus International Limite, Belize ‘+ Intemtionl United Holding AG, registered in Niue, smal island inthe South Pacific with population of approximately 1,400 people. The entity was incorporated on January 16,2002, one day after Worldwide Management (Corporation, and is registred at No. 2. Commercial Centre Square, Alf, Niue, Information fm the Nie Registry report thatthe company was disolved on December 31,2006 as yesut of the closure ofthe Niue Inenational Business (Companies Regisuy. Niv's corporate registry was disbanded afer international itil that itwas bing used exclusively asa haven for money laundrer and tax evaders, Sharcholer information snot valle fr Intemational United ap anor m2I Holding. The company’s registered agent sisted as The Intemational Tast Company of Nive” Dennis Smeley is Tied on corporate records a affiliated with Worldwide Managernen Corporation anor International United Holding ™ Interne research suggests that Smee isthe Director of Intemational United Holding and Curtis M. Hanson isthe Director or Worldwide Management Corporation. The investigative team snot denied publi profile fr ether Smevley or Hanson except for references to ‘heir soles at Worldwide Management and International Unite Holding, Likewise, it does nt appear that ether Worldwide Management Corporation or Intemational United Holding conduct any corporate asivies, Research suggests that both companies are Incorporation agents that work together and have incorporated a mumber af other enties inthe United Stats. ‘Olden Group hus not led changes ots members, estered agent or pinlpal sures since incorporation, From 2008 to 2010, Olen Group has paid the required annual fee but hasnt filed any document indicate that Intrational United Holding has boon disolved ‘The contacts between Tnterfur and Olden Group LLC ar signed by purported Directo © Yaroschuk. Yaroschuk snot named a an fcr ofthe company incorporate records. Betaus of the common surame, the investigative team was not able oie «public profile for this individual, Olden Group doesnot havea public profile with the Sabi ir vaasere 1exepion of efreces in Ukraine inte context oft involvement nthe proeurenent of eccnesby the MIU, l ‘The tanscions involving the Minty of Healt, Interim, and Olden Groups Il vel asthe owneship ft relevant corporations, aise inthe char onthe following page. oscena ame oe Sipcicones “ote | \ 7 . Bs vy eet eds BL \ 5 sect “Sear ‘Sioned with aa * Sad cntoas wih eves in 6— can Decor moet vist comer ie | Priieged & Confidential at Dkection of CounselBi Imbioimpex 1. Corporate Profit ‘The Limited Lbilty company OOO Imbioimpex is among the companies that are ‘well os onthe Ukrainian market fo supply and distribution of pharmaceuticals and redial products and is one ofthe top suppliers of medical products understate procurements contracts. Publications have noted that there are only few main supplies of vaccine, with Imbicimpex being one of those. Iimboimpex was incorporated on 7 December 2006 and reports its registered office dates as 02160 Kyiv, Dneprovskiy disc, prospekt Vossoedineniya 7-3, telephone number 5591027, The company was founded ands curently wholly owned by Aleksey Sergeevich Savchenko, Savchenko i lo the head ofthe company. ‘Sevchenko was farmery head of state-owned enterprise Ukrvaktsina, where he sccumulated an extensive network of contacts He began as a Deputy Director when ‘Ukrvahsion was first established circa 1994 and left approximately five years ltr to jin MedAtom, the predecessor ofInbioimpex. Savchenko subsequently retumed to ‘Ukrvaktsinn s General Director bu was damissed yea ater and proceded to set up Imbioimpe. 2. Fie Contracts Were Analyzed “The investigative Firms reviewed and analyzed the five vaccine procurement contacts hetween the MH, Imbioimpes, and the state enterprise Urvaktsing, including nao Ne 2.112009 Inu of cena ie, ABE 25,200 as‘the tender process andthe manner in which the vaelnes Were supplied, The following five coniacts were analyzed + Government Contract 1/14 signed on May 27,2008 for 1,325,230 units of Ant- polo vaccine ype 1, 2,3 at UAH 1.75 per unit. The total value ofthe contact was UAH 2,319,152502 *+ Goverment Contact 1/15 signed on May 27,2008 for 102830 units of Rabies ‘vaccines at UAH 30.00 per unit, The total vale ofthe contract was UAH 3,084,900 + Government Contact 1/15 signed on May 27,2008 for 108,625 units of TB ‘vaccine at UAH 180 per nit-The total vale ofthe contracts UAH 195,525. ‘+ Government Contract 17 signed on Febrsry 9, 2008 fr $7,200 units of Rbesia vaccine at UAH 30.0 pr nit. The total vale ofthe contracts UAH 1,716,000 ‘+ Government Contract 110 signed on February 9, 2008 fr 1,041,100 units of Anti-polio vaccine type 1, 2,3 at UAH.2.90 per nit, The total va ofthe ‘contract was UAH 3,019,190." The unit pice ofthe vaccine has inreased almost 66% since 2008 when the price of oe wit was UAH 1.75 (Government Contact 1/14). > Ee: act ss > sti 195: UAC > xb Uae ry3. There Were Slgieant Irregularities Inthe Tender Process ‘On each ofthe five tenders Imbioimpex was the lowest bidder. The only otber bidders onthe tenders won by Imbioimpex were MedAtom,Interfarm, and TH-TSAS* However, te adresses of Imbicimpex and MedAtom are identical Although the two nites purport to ist ferent phone numbers, oth numbers when dle reach Ibisimpex. When investigators contacted the number listed for Met, the respondent onthe phone sated that it was the numberof Imbioimpesx and the addres of ‘the entity was Office 223, 7-2 Vozzyednannya. Another call was made tothe number listed as Imboimpes, nd the same individual tat answered the fst call, again confirmed that the eddrest ofthe enity that was reached was Office 223, 7 ‘Wozzyednanaya, A sure indicated that Imbioimpex was the predecessor to MedAfom and that the entity's director, Aleksey Savchenko, as worked for bth companies.” This strongly suggests that Imbioimpex used MedAom to crete the appearance of ‘compatition inthe tender process, In four out of ive tenders, Imbioimpen’s bid price was higher than the avaiable budget ofthe MIU to spend onthe speci vaccine, In the secetance to Imbioimpex, [MHL stipulate that fewer vaccines are to be aoguired than stated in the inal tender documents inorder to ensure that the budgetary limit isnt exceeded “Moreover, inane instance — the rabies vaccine tender in April 2008 —Imbioimpex id exactly the same amount forthe tender as was availble inthe government budget 5 Se gen ib 198 VAS ns(WAI 3,084,900)" One reasonable conclusion is that mbolmpex knew the budget init in advance of submiting it tender 4. The Government Contracts Obtained by Inbiotmpex Totaled More Than UAH 10 Millon “The oa value ofthe Sve contracts amounts to UAH 10,534 767.50. The fis, tree goverament contracts al sgned in 2008, stipulated tht Ukrvetsna shall make 100 percent prepayment ofthe til price ofthe goods oImbiinpex. The ater two contacts, bth signed in 209, silt that the payment ofthe goods shal be made ihn seven days fom the dt of dtiveyof he gnats ‘The contact ae signed by Deputy Minister Halts M. Mytnyk on behaiot MEU and General Director O'S. Savchenko on behalf Inbioimpes. 5. Inbloimpex Entered Ino Sham Contracts with Foreign Shell CCompantes To Disguise Mark-Ups Imbioimpe entered into for contract with a New Zealand entity called Hostas “Limited and and one contrac with a Seychelles company named Virion Gmbll relating {othe MAU contracts** The contacts and invoices instructed Imbioimpex to transfer ‘yen to Hostas bank account in Letvia and to Virion’ bank account in Lithuania * “lst Limited i classic shell company. Hosts wa incorporated on June 1, 2007. si months after Inbioimpex was incorporated. Hosts is registred at 69 Ridge Road, Albany, Auckland, which isthe reistered office address of Company Net Se Ba 98 le ave | sn 199 UAGON TG Ei: UAOOI08; E20; UADHOU Eastin (patois xt ms A005. 2 tami 20 Uaenaest 2, 19Limited a New Zealand-based company formation agent. Hosts listed a different suldress onthe contracts with Imbioimpex at Unit, 396 Rosedale Road, Albany, ‘Auckland, New Zealand. This ie the address of Register Company, an online ‘company registration website!” The orginal application to incorporate Hosts Limited ‘was submited by Register a Company. ‘The address fr communication for Hostas Limited ie provided in ts most ecent sual fing PO Box. 301135, Albany, Auckland," which isthe postal ares for Company Net as listed on Company Net's website” AC the time of incorporation, the sare for communication provide for Hosts was in Latvia at 22 Antonis St, 21 ign LV-1010, Research indicates thatmore han 140 companies ate registred atthis dress Hostas submited filings decarng ito be inactive during the accountng periods ending March 31,2008 and March 31,2009. ‘This was during the period that Inmbioimpex contracted with Hosta. Hosta does not havea publi profile and no website has ben identified for the entity. In the contracts with Imbioimpex, Hosts is represented by the purported company President, Oliver Pe. Pen doesnot have public profile andi noc connected to Hosts in corporate ecords, and no individual by that name has ben indented in New Zealand. The sole dieetor and shareholder ofthe ‘company i an individual resident in Panama who i an officer of at leas seventeen ‘S206 watoOseTS. “*tbian: Vans ‘Shae, UADOSS ‘sie 310- Uatos990 fe 21 Unto wb 212 CRs 130‘ntti, This individual's profile suggests that se is working as an incorporation agent, ands nominee officer rather dn beneficial owner ofthese entites. Prior to April 2009, ‘the company was wholly owned by Beswide Enterprise SA which isregisteed atthe same address as Hosta director in Panama, The ares i also shared by Panama Legal ‘Consultants, a Panamanian la fim proving offshore incorporation services." ‘Visio Gib was incorporated on November 11,2005 and is egistered at 306 ‘Victoria House, Vetra, Mahe, Seychelles, This isthe adress of agen, the Seychelles incorporation agency Intershore Consult (Pty) Lid The company's website ‘reports that Intershore Consul incorporates ents in offshore jursttons including the Seychelles, Belize end Panama. Tnthe contacts with Imbiainpex, Vision i also represented by the company Director, Oliver Per, who is also the company President at Hosts Limited, Pen does not appear tw have «public profil, The company’s stats registered as “not in good standing its filed to pay the annual registration fee. 6 Pricing Data Svongly Suggests tht Actual Mark Ups Exceeded 1026 Limit Tn to, MHU pada mark-up of UAH 354,004.49 onthe five contrasts with Iimbioipex. However, that igure dos not begin to capture the re markps, which «evidence suggest that Imbioimpex onczled by using another layer of intermediaries, ‘Hostas and Virion. Confidential sures revealed manufactures prices to be substan Tower than the prices charged by Imbioimpex. For example, whereas the Sais vans ‘bent 216 Uaconss, Benet Uaconsoe 1[MEU paid UAH 30 per dosage of rubella vaccine, and Imbioimpex reported that it paid ‘WAH 29.65, research evel that a manufacturers price shoud have been spproximately UAH948, meaning tha nbioimpex may have marked up the vceines by 300 percent. ‘The transactions involving the Ministry of Heal, Imbioimpex, Hosta, and ‘Virion, as well a he ownership ofthe relevant comporatons, ae ilutated inthe care on the following page 132[r= SSS “ror Aue um “at suc eas Sereno, pert vt sen ht ss aS ~~ = =, = mere | ws a EN pe, SE emmys SH cams eines § a arma ‘ier cd a a ee a ae -—~ a ‘rem say Ete acy egeeseee eee le Tb oat, “tte = SemSS en an | 7 et rr te eo ts o | | le / \ srt | mares eames ume swe Aa Some e ¢ % “> en soos ‘moan nous eS i =e sae | Tv Tv©. Uted Medical Service 1. Corporate Profit ‘United Meal Service (“UMS”) wasiitly incorporated as Elsint Medial Service on August 1, 1987, and changed is mame on December 3, 1999. United “Medical Service denies itself san exclusive distributor for Chinese company Beijing ‘Wandong Medical Equipment Co, Ltd, and an official distributor forthe US company CCodonies ne. and the Japanese company Koniea Minolta, United Medical Service is reported as awinne ofa number of tender, inching « UAH30 million contrat fr the supply of medical, orthopedic and surgical equipment for renigen dignostes with the MH in October 2008 2 Government Comracts ‘The Ministry of Health of Ulsaine, United Medical Service Limited and he state terprises Urkmedpostach or Poltechmed entered int three eilateral contrat in relation tothe provision of medical equipment + Government Contract No 137, signed on December 3, 2007, for 29 units of Diagnostic Radiography Sysems HF 51, KODAK Point of care CR 140 System and KODAK Dry View 8150 Laser Imager. The otal value ofthe contract was [UAH 34,626,000. The manufscturers under this contact ae stipulated as Beijing Wandong Medical Equipment Co Lid (China forthe PSI system and CCaresteam Health Ine (USA), Orex Computed Radiography Lid (Isl), Agfar 1CCevaert HealthCare Gmbh (Germany), ContetVision AB (Sweden), Rayeo “Medica Products Company Linited (China forthe KODAK equipment ‘+ Government ContractNo, 767-2008, sind on October 16,2008, for 26 units of| X-Ray Diagnostie Systems HF 5] and medical ryink printer Horizon GS. The total value of the contact was UAH 30,758,000. The manufacturers unde his contract are Beijing Wandong Medical Equipment Co Ltd (Chins) and Codonics Ine (USA), *+ Government Contract No 1127-2008, signed on October 3, 2008, for 2 units of| “Magnctis Resonance Diagnostic Sytem i open 0.367 and Medial Dry ink Printer Horizon GS. The total value ofthe contact was UAH 10,750,000." The manufacturers under this contact were Being Wandong Medical Equipment Co Lid (China) and Codonies ne (USA). “The total value ofthe three conracts was UAH 76,134,000, Altres contacts stipulate that dhe stats entexpise shall make a 100% prepayment of the total price of the ‘goods to United Mediesl Service. On tehalf ofthe MEU, the fist contract in 2007 is signed by Deputy Minster of Healt BG. Bidoy, and the two contacts in 2008 are signed by Deputy Minister of Health ZIM, Mytnik. Each contracts signed by General Director 0.V. Mayboroda on behalf of United Metical Services. 3. Contracts with Foreign Shell Companies ‘United Medica Service entered ito four contracts witha UK entity called Jade ‘Commercial the elated to UMS" contracts withthe MEU. The toa valu of those fur 3 Eaubeaie vamars a7, 1scontacts was USS9,714,283.72." The Investigative Fiems did nt review any evidence that would suggest tht Jade Commercial performed any work or ddd any value under the contact Instead a reasonably conluson is that Jade Commercial existed merely to coneral the manufactures’ prices and enable UMS to eam larger ro. “Moreover, UMS and Jade entered into sham “supply” ontracts well before UMS ‘vas awarded the riateral contacts with the Mins. As flected in the chart below, the sham contracts were execute between 113 and 278 days before the governmest contracts between UMS andthe government, and ar forte exact same quant of goods. Gaerne Ont Shas Convace Dees ONS | Day Whe snd de ‘Stam Contact Garrat ‘Conract ~ 6 208, No. 76F S00 ise} "ng DE No TOC ar [UMS Misty orien olehped | UA. arse UMS ne Mae 6 ray mines 26 ps. | Maia: 261 tines 26 aoe UAI0 96000 pete Vas UAH S0S70984 ~ ORL SI IOS Ne THT Pa | ANIA Ne OETA 1 UM, aley of HeshancPltetinad, | Paes UMS 8 ie Muerss: 2 DMaeie? MAL Moines 22 rates | MRL atin Pinto Vl ‘ese UAE 0750000 Uanssm02% ane 2, 2008. 10. UA, seins ei 151 BRIERE Na TROT aes |= E, OTTA OS HF ‘UMS Mina ota Urmetpnach | Wage Meas 39307 Marais 291 Gaga tessa, | Gagne stem se, coding Ilan eal radiant sem, |r. eseprony Sem & ‘Esimluadusiopbos: Vale UAH” | Sled amar Val Susonoon aH 5,135100, 5 an, anon 2710; Ebi: Uno 8-276 E22: UAODRTH; Ei LeAfter eeiving payment in ul om the government, UMS wired finds fom its ‘nk account in Uonne to Jade's accountin Lavi. The ham contacts beeen UMS and Jade als serve to shield the manufacture rice nd therefore, to minimize the report markups. Therefore the tr markups ar siniicantly higher than he isfrene between the UMS sale price and he Jade sale price. [UMS sao convactod with Emansis, Ukrainian company, forthe supply of augment. The ttl vale ofthe contact was UAH 11486900, Jr Viena, the sole Bah 235 VADs 98 ur