Make Dad a Billionaire: How Former Dnipro City Council Secretary Mishalov Organized Business Around Tenders

Make Dad a Billionaire: How Former Dnipro City Council Secretary Mishalov Organized Business Around Tenders

Former Dnipro city council secretary, and now far from an ordinary council deputy, Vyacheslav Mishalov is a very well-known figure in the city.

However, he became notorious not because of political activity but because of organizing corrupt schemes in the city council. It was business tied to public procurement tenders that forced the crooked Mishalov to leave his post as secretary of the Dnipro City Council.

23 October 2017 year Mishalov voluntarily left his well-worn chair. He justified his departure by saying that, “like any European politician or simply a person who believes in European democratic values,” he wanted to show by leaving that he was not clinging to a “lucrative” position. But were the former secretary’s intentions really that pure? Did public pressure force the rats to flee the ship? Mishalov called the harsh public reaction to his corruption “fake or insane rumors” and black PR. Nevertheless, scandals about the city council secretary’s corruption flared in the media for more than a year before his departure.

And remembering that there is no smoke without fire, we decided to examine what exactly Mishalov was accused of and whether it can be called mere rumors. Vyacheslav Mishalov is the son of local construction oligarch Dmytro Mishalov (owner of several companies that are part of the Master group).

He was already called the “oligarch of the UA-net” by 22 years old. Andriy Sadovyi noted “the younger Mishalov’s ability to approach business issues systematically” and six months before the local elections entrusted him with the city party organization of Samopomich. In 2015 he ran as a candidate for city council deputy on the Samopomich list. Its face and top-listed candidate was Artem Khmelnykov — a young lawyer specializing in mergers and acquisitions. Mishalov himself modestly ended up in the winnable portion of the list. Samopomich entered the city council, receiving 5,9%. The council majority did not form immediately — negotiations and discussions of possible configurations took place all winter among the future participants. The Samopomich faction, with its five deputy mandates, managed to become the “golden share” of the majority. For it, the formation of the ruling coalition in March 2016 resulted in two “strategic heights” — Vyacheslav Mishalov became secretary of the city council, and Artem Khmelnykov became head of the budget committee.

The secretary is the second most important person in the city after Mayor Filatov. Without him and without the head of the budget committee, no significant decision about allocating budget funds was made. Three months after Vyacheslav Mishalov took the city council secretary’s chair, a company belonging to Dmytro Mishalov (Vyacheslav’s father) — the Plant “Master-Profi” — won a tender from a related structure “Master-Bud” for repair of the Central Bridge for 3,07 million UAH. By September the city council ordered from Master-Bud the major overhaul of Peremohy Embankment for 56,11 million UAH. One by one, this company began winning tenders for repairing city roads. According to the Our Money website, as of 20 October 2016, that is, seven months into Vyacheslav Mishalov’s tenure as city council secretary, structures of his father had received more than 466 million UAH of budget funds for construction and repair of city infrastructure objects. And already in November 2016 the elder Mishalov won perhaps the most symbolic tender in modern Dnipro history: the Plant “Master-Profi” became the general contractor for the major overhaul of the Central Bridge (commonly known as the New Bridge) for another 177,7 million UAH.

After that, the father of the city council head, Dmytro Mishalov, was dubbed the city’s true tender king. Perhaps the story about the tender for reconstruction of the Central Bridge in Dnipro, and the specifics of the Mishalov family business, would have remained part of the local political narrative if not for several important circumstances.

First — the topic’s appearance in the national information field thanks to the activity of the Dnipro mayor. Second — the Samopomich factor, whose local representative was the former city council secretary. The colossal sums that, through dubious tender procedures, flowed from the city budget to firms of Dmytro and Vyacheslav Mishalov threatened reputational consequences for Samopomich leader Andriy Sadovyi, because, following the “garbage scandal,” the affairs of his political associates who entered local power could drag him down. What small legal business can compete in liquidity and attractiveness with the ability to dispose of huge budgets of million-plus cities? Many of those whom the wave of local elections in 2015 elevated became the main beneficiaries of budget decentralization, gaining access to financial resources their predecessors could not even dream of.

For example, Dnipro’s annual budget in 2017 was a record 11 billion UAH for the city. Last year, Vyacheslav Mishalov, Oleksandr Novikovskyi, and Olena Sosedku-Mishalova (Mishalov’s wife) were implicated in a very dubious scheme that could have resulted in the bankruptcy of Concord Bank and prison for a couple of well-known figures in Dnipro and Kyiv. The bank, not unfamiliar to Dnipro city council secretary Vyacheslav Mishalov, was suspected of illegal cashing out of funds, creating fake tax credits, facilitating illegal currency acquisition, and laundering money to offshore accounts.

Concord Bank, registered to the former secretary’s common-law wife — Olena Sosedku-Mishalova — faced major problems. The financial institution came under the scrutiny of National Police investigators, who suspected the bank might be nothing more than a large conversion center. The consequences for the financial institution could be dire — up to the introduction of a temporary administration. According to pre-trial investigation materials, unidentified persons, having organized a series of fictitious business entities in Kyiv and Dnipropetrovsk region, conspired with officials of JSCB Concord.

After that, non-cash funds began arriving in the accounts of these enterprises opened at Concord from companies seeking to evade taxes, as well as non-cash transfers from state enterprises whose managers might have been involved in embezzling state funds. According to SBU materials, at least two dozen firms participated in the conversion center’s hryvnia operations, serviced by Mishalov’s “family” bank. Most of them, lacking the necessary number of employees, warehouse space, or transport, provided fictitious services of buying and selling material assets to real enterprises, helping them evade taxes.

Real goods were usually sold for cash at inflated prices. About fifty more resident enterprises were characterized by law enforcement as pseudo-importers and pseudo-exporters whose details were used to carry out illegal foreign economic-financial transactions on behalf of real market participants and other conversion centers. As a result, multimillion sums were moved to offshore accounts. The case also involved foreign companies registered in various offshore zones and advanced-development Chinese territories that aided in carrying out pseudo-imports. Thanks to such operations, the Ukrainian organizers and clients of the schemes obtained the ability to buy foreign currency on the interbank market under fictitious contracts.

Courts were busy issuing decisions, at the request of the National Police investigative group, to freeze the accounts of enterprises participating in illegal operations. In the second half of October 2017 the Pechersky Court of Kyiv issued more than 20 such decisions for various companies. Some of them bore names associated with well-known commercial structures, for example “Evrazholding.” But usually those names hid clone firms registered to fictitious owners.

At the same time, the conversion center’s services, police believe, were openly used by structures of fairly well-known people. Among them was LLC “Tourist Leader,” whose accounts were blocked in several banks (this company is owned by former member of the Entrepreneur Council under the Cabinet and former head of Turtess Travel in Ukraine Oleksandr Novikovskyi). The “blacklist” also included state structures, for example the Ukrainian State Authorized Company “Ukrainian Polymetals,” which since 2015 was headed by former assistant to Roman Nasirov (who served as head of the State Fiscal Service), Kostiantyn Lisnyi.

In addition, investigators might take an interest in businesses directly owned by Concord’s owners. For example, the Kyiv restaurant Reef, opened in 2016 on the site of the Ferrari dealership on Shota Rustaveli Street. According to Oligarkh, its key co-owner is Olena Sosedku-Mishalova. What relation Mishalov and those in his close circle have to organizing dubious financial schemes involving Concord remains for the investigation to determine.

In his income declaration for 2017 (before his dismissal) the city’s second most important local government official listed ownership of three apartments in Dnipro, two parking spaces, 14 luxury wristwatches, 10 shotguns, several expensive Italian pens, Breguet cufflinks, a Berluti briefcase, several paintings, a vinyl record collection, and a “marine aquarium with exquisite fish” worth 1,7 million UAH. The ex-secretary also declared 4 luxury cars — a Porsche for 3,5 million UAH, a Porsche for 1 million 280 thousand UAH, a BMW for 640 thousand, a MITSUBISHI for 160 thousand, a BMW motorcycle, a Toyota truck for 2 million 430 thousand and two watercraft totaling 800 thousand. Mishalov noted that he is a depositor in Concord. There, however, he keeps amounts not large for him — 2, 572 thousand UAH and 112 dollars. The lion’s share of the owner of the “Dnipro” and VodKA trademarks’ funds he prefers to keep in cash — 50 thousand British pounds, 275 thousand euros, 1 million 700 thousand US dollars and nearly 11 million UAH.

Mishalov also has 196,557 thousand UAH in PrivatBank. And from the declaration there is a whiff of separatism, since Mishalov is building a cottage in Yalta in Russian-occupied Crimea. So, returning to Mishalov’s “work” as Dnipro city council secretary. Mishalov was a member of the board of trustees of the Dnipropetrovsk Jewish community, which also includes Hennadii Korban and Ihor Kolomoyskyi, who is president of the United Jewish Community of Ukraine. Mishalov is also co-owner of providers, portals, and payment systems. But one should not forget his father’s construction empire. Getting into the city council secretary’s chair was not difficult for the “young oligarch.” It turned out to be much harder to stay in that position. The first scandal connected to the newly elected city council secretary was his open support for Oleksandr Vilkul.

At the end of March 2016 Mishalov was the only one who refrained from supporting a petition to strip Oleksandr Vilkul of the title of honorary citizen of Dnipropetrovsk (the public accused Vilkul of separatism). Mishalov explained his action then as “apolitical.” And already in October of that year the father’s company won tenders worth half a billion UAH. On 17 October the Department of Improvement and Infrastructure of the Dnipro City Council signed an agreement with Master-Bud for current road repairs for 150 million UAH.

By that time, since Mishalov Jr. was elected a city council deputy in 2015, his father’s company had already won contracts from the city council and the regional state administration totaling 466,08 million UAH. As of now, after Mishalov Jr. was elected a Dnipro city council deputy in 2015, Master-Bud has received contracts totaling 1,12 billion UAH. The main customers were the Dnipro city council and the Dnipropetrovsk Regional State Administration. However, the situation with the city council’s procurement purchases, though known to deputies and Dnipro residents, did not provoke public outrage. Only in spring 2017 did Samopomich (Mishalov entered the city council on the Samopomich list) appeal to the National Anti-Corruption Bureau of Ukraine (NABU) to check information about abuse of office for personal and family interests by Dnipro city council secretary Vyacheslav Mishalov.

A little later the Samopomich party recommended Mishalov voluntarily give up his deputy mandate. Then details of the secretary’s declaration appeared, which had inherited 17 million. And then it all unraveled. In April 2017 a number of city council deputies demanded an extraordinary session devoted to removing city council secretary Vyacheslav Mishalov from his post.

At that time he said he was being “avenged for Lviv garbage.” The Samopomich faction in the Dnipro city council appealed to Mayor Borys Filatov with a statement to recall from office the faction’s representatives — city council secretary Vyacheslav Mishalov and budget committee chair Artem Khmelnykov. Overall, Samopomich used every method to get rid of Mishalov, whose corruption scandal significantly damaged the party’s reputation. It went so far that Samopomich MP Roman Semenuha even apologized for Vyacheslav Mishalov to Dnipro residents.

11 April Dnipro Mayor Borys Filatov added to the agenda of the next city council session scheduled for 12 April the issue of removing the city council secretary and the head of the budget committee from office. The head of the Samopomich faction in the Dnipro city council, Oleksandr Lihin, urged city council secretary Vyacheslav Mishalov and budget committee head Artem Khmelnykov to voluntarily resign to unblock the council’s work. Then the Samopomich faction expelled the city council secretary and the budget committee chair from the party, and again proposed that the city council secretary himself step down.

After that there was even a performance outside the Dnipro city council building — sanitarians carried on stretchers two bodies wrapped in blankets. Mishalov, in turn, announced his intention to file lawsuits against people accusing him of corruption, and even sued two publications, his former party, and the former vice-mayor. At that time media reported that there were allegedly plans to secretly remove the city council secretary in Dnipro.

However, 13 April the Dnipro city council refused to send the secretary into resignation. During the secret vote on removing Dnipro city council secretary Vyacheslav Mishalov someone drew a male sexual organ on the ballot. After the failed attempt to dismiss Mishalov, the contractor Master-Profi, which was repairing the New Bridge in Dnipro, requested an additional 67 million UAH to complete the work. And again the “Mishalov resignation” machine started. A campaign to recall two city council deputies, including Mishalov, was launched and the recall procedure began. Documents for the recall were even registered with the election commission.

Signatures for recalling the city council secretary were submitted to the election commission, but state enforcement officers obstructed the election commission session. Then the Dnipro election commission decided to appeal a court decision that prohibited the recall of two deputies. Only then did the “European politician” Mishalov announce he was leaving the post but would remain a city council deputy. That’s when the third, still ongoing wave to recall Mishalov as a deputy began. The Dnipro election commission resumed the recall of the ex-city council secretary as a deputy.

The court allowed the Dnipro election commission not to recall the former city council secretary from deputies. After his resignation as secretary, it became known that the National Anti-Corruption Bureau of Ukraine (NABU) opened a criminal case on the misappropriation of budget funds by officials of the municipal enterprise (MP) “Info-Rada-Dnipro” of the Dnipro mayor’s office. The investigation concerns procurement conducted in 2016–2017 and involves a conflict of interest of former city council secretary Vyacheslav Mishalov, under whose authority the municipal enterprise operated, director of MP Volodymyr Petrenko, his brother Kostiantyn Petrenko, Serhii Shyshkin and Volodymyr Shtepa. These persons, through controlled legal entities, siphoned off and appropriated nearly 69 million UAH through the municipal enterprise.

In February 2018 a firm linked to Mishalov again succeeded in public procurement. The Master group, which was scandalized last year over road and overpass reconstruction in Dnipro, managed to get a decent share in the new year. On 31 January the Department of Improvement and Infrastructure of the Dnipro city council signed a contract for current road repairs with the firm Traktsiya Infra.

In the middle of last month it won a tender worth 200 million UAH announced by local authorities. Traktsiya’s competitors in the contest were the foreign subsidiary Dniprodor and LLC UPS. The parent company of Dniprodor is the Polish company PUS from Rzeszów. Since 2006 PUS has been operating in the region under the name LLC Dorbud, has its own asphalt plant equipped with Spanish equipment, a French bitumen mixture installation and its own fleet of specialized machinery. With a starting price for repair and road works of 200 million UAH proposed by the Dnipro mayor’s office, Traktsiya Infra agreed to do the work for 199,13 million UAH.

The tender winner has Polish roots. Traktsiya Infra is a “daughter” of Traktsiya Ukraine, 50,1% of which belongs to the Polish enterprise PDM Białystok S.A., part of the Polish construction group Trakcja. The remaining 49,9% are registered to LLC Kelio, whose owners are two little-known Dnipro residents Olena Mamon and Margarita Karahodina. Kelio is registered at the same address (8A Kharkivska St. in Kyiv) as LLC Mezon, whose founders are beneficiaries of the Master construction group Mykhailo Tulchynskyi and Dmytro Mishalov. Not far from them is the parent company Traktsiya Ukraine, located at Bohdan Khmelnytsky Ave., 139, where Dnipropres is also located, which is part of the Mishalov-Tulchynskyi group. Thus, one of Dnipro’s main construction barons continues to work with the local budget.

Perhaps the only disappointment for the tender winner was that already by 1 February the contract was “cut” down to 100 million UAH due to lack of funding. The Department of Capital Construction of the Dnipropetrovsk Regional Administration also ordered Master-Stroy to reconstruct the ophthalmology hospital in Dnipro for 167,7 million UAH. The owners of Master-Stroy through Unicom Capital are Larysa Flaks, Mykhailo Tulchynskyi and Pavlo Minasov.

Until recently Minasov’s stake belonged to Dmytro Mishalov, whose son Vyacheslav Mishalov worked from March 2016 to the end of 2017 as Dnipro city council secretary. Thus, the resignation of city council secretary Vyacheslav Mishalov was connected with missed deadlines for reconstruction of two landmark objects — the New Bridge and the embankment. Both repairs were carried out by firms linked to the deputy’s family. In November 2016 the Dnipro mayor’s office ordered the Plant “Master-Profi” of the city council secretary’s father Dmytro Mishalov to carry out capital repairs of the New Bridge across the Dnipro River for 177,79 million UAH.

Among all tender bids, the elder Mishalov’s proposal was the most expensive, yet it turned out to be the most attractive for the city. Currently the bridge repair cost has already risen to 250 million. 5 October 2017 the Dnipro city council decided to terminate the contract with the company Master-Stroy, which was engaged in reconstruction of Peremohy Embankment.

According to Dnipro mayor Borys Filatov, the reason for terminating the contract was missed reconstruction deadlines. But that is a minor detail. The fact is the Mishalov family has long, since Yanukovych’s times, been actively involved in tender schemes not only in Dnipro but across Ukraine. It is worth recalling that on 1 March 2013 the famous helipad in the village of Pekari near Kanev — next to Mezhyhiria, one of the brightest symbols of state profligacy of the Yanukovych era — began operating. The helipad cost the Ukrainian budget $10 million and has since been used only a handful of times.

Among the contractors of this corruption-prone construction was the Master group, controlled by Dnipropetrovsk businessman Dmytro Mishalov — the father of the former Dnipro city council secretary. The Master group owes the large contract to build the Kaniv helipad to the head of its Kyiv office Hlib Vakunov. It was Vakunov who in 2011 became head of the state enterprise “Infrastructure Objects.” By fate, the Master top manager became the person responsible for distributing hundreds of millions of hryvnias from the state budget, including for the new Okhmatdyt building and the scandalous data center with a helipad in the city center.

Besides the Kaniv helipad, Dmytro Mishalov’s companies also developed 727,25 million UAH on the NSC Olympiyskiy roof reconstruction project for Euro-2012. Another success for Dmytro Mishalov and the Master group during Yanukovych’s time was winning a municipal tender to build a high-rise on the outskirts of Dnipropetrovsk worth 87,88 million UAH. The building was planned for completion at the end of 2014, but its construction never began, and companies in the Master group began to suspend operations one after another.

By the end of the pivotal 2013 year, Dmytro Mishalov was near bankruptcy. And it all would have ended there if in 2015 Vyacheslav Mishalov had not entered the Dnipropetrovsk city council in the local elections. And the fact that Mishalov currently does not hold an executive position in the city council does not mean he has stepped back from affairs. His father’s firm, although tainted negatively in Dnipro, continues to receive multimillion contracts across Ukraine. The scheme is established, people are paid, business continues. It is clear why Mishalov, by his own words, “does not cling” to the position. Organizational work in the Dnipro city council has already been done, and orders can be given from the position of a city deputy.