Why the Bureau of Economic Security, Controlled by Tatarov, May Be Liquidated

Why the Bureau of Economic Security, Controlled by Tatarov, May Be Liquidated

How the BES drew parliamentarians’ attention and why there is talk now of possibly liquidating the new agency?

13 in December the Verkhovna Rada created a temporary investigative commission (TIC) to check and assess the activities of the Bureau of Economic Security of Ukraine (BES), established only a year earlier. The commission is investigating possible breaches of law by BES officials that led to reduced budget revenues.

The formation of the TIC was voted on by 324 members of parliament. The commission was headed by MP from the Holos party, Yaroslav Zheleznyak.

BC examined what drew parliamentarians’ attention to the BES and why there is now talk of possibly liquidating the newly created agency.

Background of the BES. And the liquidation of the BES

In 2020, to receive the second tranche of macro-financial assistance totaling 1,2 billion euros, the Europeans set a number of conditions for the Ukrainian authorities regarding the reform of regulatory bodies in Ukraine.

One of these conditions called for eliminating the tax police and instead creating a new agency to handle economic crimes.

The tax police was notorious for pressure on business, the infamous practice of “raids,” and rampant corruption.

At that time in Ukraine, economic crimes such as tax evasion or money laundering were handled by three law enforcement bodies — the tax police, which was a specialized unit of the State Fiscal Service (SFS), the Security Service of Ukraine, and the National Police.

Overall more than 13 thousand investigators from these law enforcement agencies were engaged in combating economic offenses.

Their powers often overlapped, and parallel work prolonged case proceedings.

At the same time, their effectiveness in countering economic crime remained very low.

According to the Office of the Prosecutor General, in 2019 there were 1287 criminal proceedings registered in Ukraine concerning tax evasion. Of these, only 10 cases were brought to guilty verdicts in court, while in 8 cases the court sided with taxpayers.

The government planned to create a single body to handle all economic crimes in the country — the Bureau of Economic Security. But now the BES faces liquidation.

In the summer of 2020 the bill on the Bureau of Economic Security was submitted for consideration to the Verkhovna Rada.

The document, authored by Danylo Hetmantsev, chair of the Committee on Finance, Tax and Customs Policy, was approved by parliament, and in March 2021 it was signed by President Volodymyr Zelensky.

On the day the BES law was signed, the President’s website posted a message that the bureau would again analyze “beneficiaries of financial operations and determine whether there are legal violations in the flow of funds of certain business or state structures.” Meanwhile, the Security Service of Ukraine would lose “functions not inherent to intelligence agencies relating to the investigation of corruption and organized criminal activity in management and the economy.”

It was expected that the creation of the BES would reduce the number of law enforcement officers dealing with economic crimes in Ukraine. In the new agency, the total staff was not to exceed 4 thousand people.

The government established the Bureau of Economic Security on 12 May 2021 as a central executive authority coordinating with the Cabinet of Ministers.

Despite its law enforcement status, the BES was conceived by the law’s authors also as an analytical center. The law provides for departments of strategic and tactical analysts in the BES to monitor the economy and provide certain conclusions/recommendations to the Verkhovna Rada and the government. The analytical department was to set the detectives’ direction — in which sectors, regions, or areas there are risks of offenses.

Controversial competition

The Bureau of Economic Security was to begin work on 25 September 2021 after the selection of the agency’s director.

The head of the BES was chosen by a competition commission chaired by Tymofiy Milovanov, former minister of economic development, trade and agriculture.

59 candidates applied for the position of head of the Bureau. The competition was not without scandals.

For example, former NSDC member Oleksandr Danyliuk was not admitted to the competition for head of the BES because he could not nostrify (validate) a diploma obtained at a U.S. university. Allegedly because of his exclusion, Danyliuk later struck Milovanov during a birthday celebration.

There were also questions about the organization of the competition itself. During key finalist interviews, which took place in one working day, most members of the commission — at that time Minister of Infrastructure Oleksandr Kubrakov, First Vice Prime Minister Oleksiy Lyubchenko, Deputy Head of the Office of the President Yuliia Svyrydenko, and Head of the Foreign Intelligence Service Oleksandr Lytvynenko — were connected to the meeting via videoconference. However, they did not appear on screen, did not ask candidates questions, and in general did not demonstrate that they were truly “present on the other side of the screen.”

This raised doubts about the quorum necessary for the legitimacy of that key stage of the competition, according to an investigation by the Schemes program.

Journalists also found that on the day the final trio for the director position was selected, some commission members did not know the voting method or how the scores would be tallied.

As a result of the competition, Vadym Melnyk was chosen as head of the BES — the former head of the liquidated Tax Police. And what about the liquidation of the BES?

Melnyk has worked in the fiscal system for more than 20 years and knows the principles and methods of the Tax Police’s operations thoroughly.

Initially it was planned that the BES would be led by a person with a first-rate reputation, but the Office of the President’s desire to take control of the Bureau prevailed.

Melnyk is a protégé of Oleg Tatarov, the controversial deputy head of the Office of the President under Andriy Yermak. In the OP Tatarov is responsible for control over law enforcement agencies. At the same time, NABU suspects him of fraud involving Ukrbud apartments for the National Guard. At the end of 2022 the year, NABU and the SAP completed an investigation into the embezzlement of 18 million in the construction of apartments for servicemen.

Melnyk has known Tatarov since Tatarov’s time at the Main Investigation Department of the Interior Ministry (in 2011–2014).

Melnyk’s candidacy was approved with the assistance of presidential aide Serhiy Shefir. However, that was not enough — approval from President Volodymyr Zelensky was needed.

To that end, Melnyk launched a broad media campaign about his “achievements” in the Tax Police. The PR for Melnyk was handled by the agency 'Magonova & Partners,' which organized for him a performance-conference reminiscent of an iPhone launch.

At the same time Melnyk demonstrated his loyalty to the Presidential Office through active Tax Police raids at Kyiv City State Administration and on municipal enterprises. Then the Office of the President was trying to remove Kyiv Mayor Vitaliy Klitschko from the position of head of the Kyiv City Administration.

Melnyk’s appointment was a demonstration that instead of creating a new service, they were simply changing the signs.

Tatarov’s old cadres

According to Yaroslav Zheleznyak, most of those who actually moved to the BES were former employees of the tax service, the prosecutor’s office, and the police.

Some of them immediately began applying practices from their previous workplaces. For example, in the Zakarpattia region in early January a senior detective of the local BES department was exposed for taking bribes while covering up illegal sales of electronic cigarettes. Law enforcement documented the transfer of the first part of the bribe to him of $2 thousand. Upon receipt of the second part of $4 thousand, the BES detective was detained.

According to Statewatch chair Oleksandr Lemenov, who participated in the TIC meeting as an expert on criminal justice bodies, the lack of transparency in the selection processes, the influence of various 'watchers' over the BES, and the 'appointment of God knows whom' are among a number of criticisms of the BES’s activities.

“What struck me most was how cynically the Presidential Office, or more precisely Yermak’s deputy Oleg Tatarov, shoved two of his associates into the Bureau,” Lemenov wrote on his Facebook page. “Vitalii Hagach was appointed deputy head of the BES. He is a prosecutor from Zaporizhzhia. Appointed without a competition. (…) Interestingly, the head of the TIC on the BES, Yaroslav Zheleznyak, asked the head of the Bureau about him through the prism not just of connections but of godparenthood with Tatarov. He wanted to know where Melnyk got Hagach’s CV. We did not receive an answer.”

The second notable figure in the BES is Mykola Chinchyn, the former head of the Main Investigation Department of the Interior Ministry during Yanukovych’s era. Hence the need to liquidate the BES.

“He was lustrated because he fell under the Law 'On Purification of Power.' However, the famous Administrative Court of Kyiv, which was only recently liquidated, once annulled this restriction. Chinchyn has no lawfully established restrictions under the competition and works as an analyst. Melnyk has known Chinchyn’s work for a long time. Chinchyn is a close associate from the Interior Ministry of that same Oleg Tatarov during Euromaidan, whom they intensively used in favor of Yanukovych,” Oleksandr Lemenov noted.

Days ago Oleksandr Tkachuk was appointed head of the BES’s main detectives’ unit, who, according to Lemenov, is also a Tatarov protégé.

Tkachuk does not have the necessary managerial experience required for such a position.

Investigations not conducted. Liquidation of the BES is getting closer

The Bureau of Economic Security officially began work back in November 2021. According to the Office of the Prosecutor General’s statistics, last year it sent only 12 cases to court, seeking a few dozen million hryvnias in restitution.

“This is while the illegal tobacco market alone steals 20,6 billion hryvnias from the budget per year — and for some reason the BES does not see this,” Zheleznyak told BC.

Why does the BES show no results?

According to Zheleznyak, even the investigations that have been conducted contain a large number of procedural violations that will prevent real results, which is confirmed by a large number of complaints from business.

“All year there have been clan wars inside the BES between influence groups vying for control, so there is not enough time for real work on economic security,” Zheleznyak says.

A number of criminal proceedings have been opened regarding Russian assets at the BES. But, according to information available to the TIC, proper investigations are not underway. In particular, the MP learned that the Office of the Prosecutor General gives procedural instructions on conducting specific measures within the investigation of 'Russian assets,' but the BES does not carry them out.

According to Zheleznyak, over 11 months of 2022 the BES spent 211 million hryvnias from the state budget on its activities, but the state budget did not receive a single hryvnia back.

Such inefficiency, the MP says, can only be explained by actions of the agency’s employees to conceal violations and participate in corrupt schemes.

In an interview with Zakon i Biznes, the author of the BES law, Danylo Hetmantsev, noted that although the BES is a sad topic, “it doesn’t work and shows openly negative indicators,” parliament has not yet decided what to do with the bureau.

He said various options are currently being considered — from a reboot to liquidation.

According to Hetmantsev, the main problem is that the BES has staffed only 7% of its authorized positions, of which 80% are former tax police employees.

The future of the BES will be decided after the Verkhovna Rada’s temporary investigative commission completes its work and publishes its findings.

Liquidation of the BES — the only solution

Since 2023 the Bureau of Economic Security has put employees on a reduced work schedule due to lack of funding, Zheleznyak reported on Telegram. The BES must be liquidated.

He said that this year almost the same amount was allocated for the BES in the budget as last year — 503 million hryvnias. At the same time, the agency’s staff was expanded several times last year.

“Usually no one in BES leadership managed to calculate that more people need more money. And in November they were busy with something else — active fighting between clans inside the agency. Also, at the end of the year they issued bonuses and spent hundreds of thousands on stationery purchases from individual entrepreneurs, and developed an Instagram account,” the MP added.

Olha Prokopyshyna, translation Skelet.Info