Audit claims Ukrainian officials misspent millions

[October 14, 2010]  KIEV, Ukraine (AP) -- The government of former Ukrainian Prime Minister Yulia Tymoshenko misappropriated nearly half a billion dollars, according to an audit by three U.S. investigative firms released Thursday.

The three firms were hired by the government of President Viktor Yanukovych, her fierce rival. Tymoshenko was the main driving force behind the 2004 Orange Revolution street protests that threw out Yanukovych's fraud-tainted election victory. But Yanukovych won February's presidential vote amid public discontent over economic problems and vicious infighting in the Orange camp.

A top Tymoshenko aide denounced the audit as politically driven and incompetent, and charged that one of the firms had previously represented Yanukovych's financial backers, in a conflict of interest.

"Instead of reforming the Ukrainian economy they are engaged in a witch hunt of the opposition," Hrihoiry Nemyria, deputy head of Tymoshenko's faction in parliament, told The Associated Press. "We denounce these findings. They are obviously politically motivated."

The study by Trout Cacheris PLLC, Akin Gump Strauss Hauer&Feld LLP and Kroll Inc. claimed that Tymoshenko's government committed fraud and resorted to "classic international money laundering mechanisms" while buying sugar, vaccines, importing expensive foreign cars and even selling carbon credits to other countries.

The audit, which covered the period from 2008 to the beginning of this year, claimed that Tymoshenko's Cabinet spent $140 million (euro101 million) on German minivans for alleged medical use by the Health Ministry which were later used as Tymoshenko's mobile campaign advertisements.

It also said that the former Ukrainian government misappropriated some $280 million (euro200 million) that were received for the sale of carbon credits as part of the Kyoto protocol and never used the money on environmental projects, as required. That money was transferred to the Pension Fund which was strapped for cash amid a severe recession, the audit said.

In addition, the three firms claimed that Tymoshenko's government misspent $24 million (euro17 million) on sugar which was never delivered to Ukraine, and misappropriated $44 million (euro32 million) while importing vaccines and medical equipment.

"The investigation revealed evidence of misapplication of state funds and apparent fraud involving the highest levels of the previous administration, specific ministries, and private corporations," the auditors said in a statement. "We have gathered powerful circumstantial evidence of conduct that is not typical of honest officials and businesspeople."

Nemyria dismissed the audit as part of a "systematic attack on the opposition." Since Yanukovych took power, a number of former officials who worked in Tymoshenko's government have been investigated, questioned and one has been jailed.

Nemyria would not comment on the specific accusations, saying he hasn't read the report yet, but said that the previous government committed no wrongdoing.

Nemyria charged that Akin Gump should not have been allowed to conduct the audit because it represented financial backers of Yanukovych's party in the past.

Mark MacDougall, partner at Akin Gump, denied that there was any conflict of interest, but would not comment on the claim that his firm had represented specific businessmen tied to Yanukovych.

The firms declined to say how much they were paid for the audit. Plato Cacheris of Trout Cacheris only said the companies received "much less than was stolen."

A senior Ukrainian government official speaking on condition of anonymity said the audit cost the state budget $2 million (euro1.4 million). The official was not authorized to discuss the issue with the media.

The firms said the Ukrainian government has already filed two lawsuits based on the results of the audit -- one in the United States and one in Britain -- against companies they say helped launder money. Yanukovych's government says it intends to use the audit's findings to get back the money that was misspent.

[Associated Press; By MARIA DANILOVA]

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