Arms contracts broken: Defence Ministry unlikely to get money back

The Ministry of Defence is unlikely to be able to recover the billions of hryvnias it transferred to arms importers that never delivered the promised military equipment and supplies.

Source: Yevhen Hrushovets, a lawyer and the head of the Anti-Corruption Council at the Ministry of Defence of Ukraine, in an interview with Ukrainska Pravda

Quote: "This is a real problem because these special importers don't have the money. That is, the money was the Ministry of Defence's – and now there is no money...

But if we're talking purely from a legal point of view, the Ministry of Defence has no other choice: it can either go to court to recover the money, or file a criminal complaint concerning the misappropriation of these funds.

So the Ministry of Defence says to this importer: give us back the money...

The Ministry of Defence files a lawsuit in court. The court should rule, we think, in favour of the Ministry of Defence, because in principle, everything is simple: there was a contract, money was paid, and no deliveries were made. Accordingly, the Ministry of Defence will receive a court judgment to recover the funds. And I think it will end there."

Details: Hrushkovets noted that this is because the Kyiv Commercial Court is not authorised to go to the contractor to collect the funds. In addition, the contractor often has no funds in its accounts – "It doesn’t just have zero, its balance is negative."

Therefore, the Ministry of Defence will also go to the Enforcement Service. The enforcement officer will open proceedings and immediately suspend them, because there is currently a moratorium on recovering money from state-owned enterprises, and these special importers are state-owned companies.

Hrushkovets explained that if these were private companies rather than state-owned enterprises, the Ministry of Defence would go through bankruptcy proceedings. But in this case, that cannot happen either, because there is another moratorium on bankruptcy for state-owned companies.

"So the outcome is that the Ministry of Defence has filed a lawsuit and obtained a judgment, but it won’t receive any money," the head of the Anti-Corruption Council said.

Hrushkovets also added that the Ministry of Defence has already filed more than one criminal complaint, and a number of cases are currently being investigated by Ukraine’s National Anti-Corruption Bureau, Security Service and State Bureau of Investigation. But even when there are notices of suspicion, pre-trial restrictions and actions aimed at getting these funds back from various sources, it is still not easy to get them back.

Background: 

• Earlier, it became known that Ukrainian state-owned companies engaged in international arms procurement received billions of hryvnias under contracts with the Ministry of Defence in 2022 and failed to deliver.
• In particular, the Ministry of Defence had ordered the state defence special exporter Progress to supply US vehicles costing US$300,000 each and Grad MLRS rounds, but Progress failed to fulfil the contracts.
• In early 2023, the Ministry of Defence began filing lawsuits against these state-owned suppliers. As of 23 May, Ukrainska Pravda had managed to find at least 30 such lawsuits in the court register.
• These included lawsuits filed against Progress, SpetsTechnoExport, Ukrspetsexport and the Defence Procurement Agency. 
• The total amount of money owed under the overdue contracts listed in the register is UAH 8.9 billion (about US$238 million).
• This UAH 8.9 billion includes both prepayments received by suppliers and fines and penalties for overdue contract performance. However, according to Ukrainska Pravda, the claims filed cover only part of the overdue contracts.

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