The Protagonists
To begin again, nearer the beginning: what was the election about? The two main candidates, Viktor Yanukovych and Viktor Yushchenko, shared a first name, but had hardly anything else in common. The other main player in the drama was the glamorous but steely Yuliia Tymoshenko, one of eastern Europe's few prominent female politicians. The three could hardly have been more different. Yushchenko was the Great White Hope, a banker with a clean image, much admired in the West. He was also a new type of politician. Since the Gorbachev era, Ukrainian politics had been dominated by a no-brainer contest between a handful of former dissidents and writers and the former Soviet elite they were never powerful enough to replace. Yushchenko was the first real challenger who came from within the system, with an insider's knowledge of its strategic weaknesses and pressure points. Yanukovych was the system's candidate, but he was also part of its seedier underside. Tymoshenko had served more spectacularly on both sides of the fence, becoming extremely rich by trading oil and gas in the 1990s, before being catapulted into opposition. The regime feared Yushchenko's popularity, but it also feared Tymoshenko's toughness – she was the one opponent who really understood the manipulative methods the regime used to stay in power and who was prepared to play the same game. Yushchenko and Tymoshenko now formed a partnership in opposition – the relationship between them the key to its success.
The Great Kham: An Orphan Amongst Hoods
Viktor Fedorovych Yanukovych was born into a poor working-class family from Belarus in the mining village of Makiivka, Donetsk in 1950.1 His mother, Olga, a nurse, died when he was two. His father, Fedor, a metallurgy machinist, promptly remarried and though Viktor continued to live in the same house as his father (which was no more than a wooden barracks), Fedor gave the boy over to his grandmother and ignored him. Yanukovych had to become a tough kid as he grew up. He has stated bluntly that, ‘I came from a very poor family and my main dream in life was to break out of this poverty’.2
His chosen escape route was joining a local gang and terrorising the neighbourhood. The young Yanukovych was sent to a prison for teenagers in 1968, after a three-year conviction in 1967 for robbery with force cut short his enrolment in a local technical school. However, a fortuitous amnesty for the anniversary of the 1917 Revolution meant he was out after only six months. (Ironically, the veteran Ukrainian dissident Viacheslav Chornovil was released at the same time, halfway through one of his four sentences.) Yanukovych had another spell in jail for inflicting serious bodily harm, supposedly during an armed robbery two years later. His criminal record was cleared (and cleansed) in 1978, but various documents thought to have been destroyed surfaced in Moscow in 2004.3 Other allegations refer to his tearing earrings from women's ears and even rape, and it is rumoured that his second conviction was actually for manslaughter.
Once out of prison, Yanukovych had various jobs, including stints in a gas workshop, as a car mechanic and general mechanic, until he worked his way up to a post looking after cars at Ordzhonikidze Coal. The ease of his subsequent admission to Donetsk Polytechnic in 1974 is often attributed to his links with the KGB, although there is no direct evidence for this. More telling is the fact that the car-mad Yanukovych attended the Monte Carlo rally the same year, when he would obviously have been vetted. As yet, he seems to have been of only limited use to the authorities, however. Like Yushchenko, in fact, like nearly everybody making a career in the USSR, Yanukovych prospered once he found the right patron, who in his case was the local hero kosmonaut Georgii Beregovoi (1921–95), who spent four days in space in 1968 – when Yanukovych was in prison – at the grand age of forty-seven. In 1978, Beregovoi helped with the matter of Yanukovych's old convictions, and in 1980 helped him to get his party card. Yanukovych was soon heading a series of local factories with tough-sounding names: Donbas Transit Repair, Ukrainian Coal Industrial Transport and Donetsk Auto Transport.
Economic life in the Donbas was also tough. In the late 1980s and early 1990s, the Donbas region was severely depressed. One of the key industrial heartlands of the Soviet Union, home to the Stakhanovite movement in the 1930s, was suddenly cut adrift when Ukraine became independent in 1991. Ukraine's massive mining industry employs 450,000 in 193 mines (105 of these were in Donetsk), which produced 90 million tons in 2004, about 100 tons per actual miner, compared to 400 per miner in Poland or 4,000 in the USA. The industry survives on estimated annual subsidies of $2 billion. The old guard, the so-called ‘red directors’, had been formidable lobbyists in Moscow, but now struggled to play the same game in Kiev. In the summer of 1993 they used the crudest of methods, inciting a strike wave as a means of barging into government. The strikes' secret sponsor, Yukhym Zviahilskyi, who had headed the largest mine at Zasiadko since 1979, became acting prime minister. The Ukrainian government was terrified of the ‘separatist’ political demands raised by the miners in a region where almost everybody speaks Russian, and was happy to keep the subsidies flowing. Increasingly, however, the likes of Zviahilskyi saw no need to pass them on. Moreover, in 1994 Zviahilskyi was accused by the Ukrainian procurator general, Vladyslav Datsiuk, of helping the dumping abroad of 200,000 tons of aviation fuel at rock-bottom prices, for a profit of $25 million. He also introduced a crazy dual exchange rate scheme, in which all Ukrainian enterprises were obliged to surrender 50 per cent of their foreign earnings at an artificially low exchange rate fixed by the state – and most of the money went to banks controlled by Zviahilskyi's cronies. His political protection was good, however. In March 1993, at Zviahilskyi's request, the then prime minister, Leonid Kuchma, had authorised the release of DM25 million from Ukraine's then extremely limited foreign exchange reserves to the cast-alloy company Donkavamet, to redeem stock owed to the German company Varex. DM12 million ($5.3 million) ended up financing Kuchma's victorious presidential election campaign in 1994.4 Zviahilskyi temporarily fled to Israel in 1994, but, once he was president, Kuchma agreed to his return in 1997, to face no charges, as a gesture to the Donetsk clan in advance of the next round of elections. Zviahilskyi settled back to a quiet life back at Zasiadko, in Donbas politics, and on the board of the Jewish Confederation of Ukraine.
The ‘red directors’ in their Soviet sinecures, however, were increasingly challenged by the various local mafias that began to develop in the Donbas, given the relative scarcity of capital for setting up legitimate businesses. Most notorious was Akhat Bragin, ‘Alik the Greek’, whose first turf victory was the takeover of Oktiabrsk market in 1988. He then built up the trading company Liuks, which specialised in the then hard to find ‘luxury’ items (I was unknowingly guilty of supporting its Kiev branch in the early 1990s, when it sold the only drinkable alcohol available), followed by the Dongorbank (Donetsk City Bank), and, the jewel in his crown, the Shakhtar Donetsk football team in 1995. Like Dynamo Kiev and other east European teams, Shakhtar became a mini-empire in itself, owning a hotel and newspaper and becoming a conduit for alleged money laundering. Bragin's eventual successors spent $10 million on a state-of-the-art training complex, and began splashing out on foreign players such as the Nigerian Julius Aghahowa ($7 million) and coaches, such as Nevio Scala from Italy, Bernd Schuster from Germany and the Romanian Mircea Lucescu. A new 50,000-seater stadium is also promised; it will be built by 2007 and will rival any in Europe. The result was Shakhtar's first league title in 2002 and regular spots in the lucrative Champions' League. Meanwhile, Bragin's men continued with more traditional activities, wiping out all the ‘old generation’ gang leaders in 1994, including Viacheslav Frolov, Eduard Brahinskyi, Mykhailo Dvornyi, Anatolii Dutko and others. Once their local monopoly was established, rival mobs from elsewhere were dealt with in a similar fashion. The Dolidze brothers from Georgia, Akop Akopian from Armenia, and the Dzhamalov brothers from Dagestan,5 all came a cropper when they stepped on the wrong turf.
Phase two for the new Donetsk clan was to move into energy supply. In 1995, the Industrial Union of the Donbas was established (which has a ‘respectable’ web site, www.isd.dn.ua). Its purpose was ostensibly to act as a coordinating lobby for local businesses, but its real aim was to corner the market for supplying gas to those enterprises, and asset-strip those who couldn't afford to pay hard cash in return. Unfortunately, this move coincided with the premiership of Pavlo Lazarenko (see pages 39–40), who came from the rival region of Dnipropetrovsk and sought a national monopoly for his own United Energy Systems of Ukraine. A series of shocking murders brought the Donbas clan down to earth. Bragin was killed by a massive bomb in Shakhtar's stadium in October 1995, that also did for his chief bodyguard, retired KGB Colonel Viktor Dvoinykh, and four others. In November 1996, Bragin's business partner, the former regional governor Yevhen Shcherban, owner of the Aton energy and metal trading concern, was gunned down in broad daylight at Donetsk airport by assassins in police uniforms hiding under the plane wings. Shcherban's wife also died. His son only survived by hiding under the waiting limousine. Others who died at this time included Oleksandr Momot, head of the Industrial Union of the Donbas (IUD), and, in Kiev, Oleksandr Shvedchenko, former governor of the region, and the then director of the Russian gas company Itera-Ukraine.
Phase three in the modern economic life of the Donbas was quieter and less dramatic, but ultimately much more profitable. It also marked the ascendancy of a younger generation, which used mafia methods to push aside the ‘red directors’ of the IUD, led by a younger member of Bragin's ‘Tatar’ clan, his alleged enforcer Rinat Akhmetov (born 1966),6 whom some rumours associate with the death of Bragin and an attempted murder in 1988. By now, the IUD had established an effective lobby for milking coal subsidies – but there was not much money to be made in coal. Forced to concentrate on husbanding their own resources, local businessmen-politicians such as Akhmetov developed two highly lucrative ‘closed-cycle’ schemes. Most of the local coal mines were still nominally owned by the state. Most lost huge amounts of money, but were heavily subsidised by Kiev, which, since the 1993 strikes, had backed away from confronting the potent mix of economic, political and language problems in the region. Akhmetov's group had won power over the mines through its monopoly of investment capital, but did not want to exercise control. It just wanted the cheap coal. The scam worked as follows: once ‘the whole chain of production from the mining of coal to the export of metallurgical products [was] in single hands, it was possible [for Akhmetov et al.] to … divert the state subsidies abroad in the form of profits for metal exports and recovered VAT.’7 In plainer English, the steel factories now made big money from exports, because their raw materials were astoundingly cheap – especially if the new owners forgot to pay the workforce as well. Significantly, the only exception to this general pattern, the Pavlohraduhol (Pavlohrad Coal) association, made up of ten mines and two coal-enrichment plants, which was bought by Akhmetov's group in early 2004, was both profitable (making $65.4 million in 2004) and based outside the Donbas, near Dnipropetrovsk. It therefore operated differently. Akhmetov even paid well.
Businesses linked to Akhmetov, in other words, got very rich through hard currency surpluses, but only at the cost of driving the local mining industry further into the ground. A second scam involved using the regional financial-industrial groups and the regional administration to acquire shares in the energy generating and distribution companies to provide another cheap input for the local metal industry (although this repeatedly led to anti-dumping measures being taken against Ukraine). A final scam was to have much of the region declared a ‘Free Economic Zone’, with minimal taxes.
By the early 2000s the Akhmetov business empire therefore had four main parts: System Capital Management group (SCM), Ukraine's biggest company, which controlled iron and steel production; the ARS joint stock company (supposedly Alik Rinat and Samson, another local tough guy), which coordinated mining and the supply of coke; Ukrvuhillyamash (‘Ukrainian Coal Machinery’), which supplied local pits with mining equipment; and the Concern Enerho conglomerate, another regional energy supplier. Other groups moving into the Akhmetov orbit included Oleksandr Leschynskyi's UkrInterProdukt, the biggest player in the Ukrainian food industry, allowing SCM to diversify to an extent. Significantly, Akhmetov's empire only operated a little in Russia, despite interests in the machine-building plants just over the border at Kamenka and Shakhtynsk. Despite being the most Russophone region in Ukraine, after Crimea, the Donbas region was very self-focused in one sense, and oriented towards global exports in another. The neighbouring Kharkiv region, by contrast, has many machine-building industries that are much keener on maintaining close industrial cooperation with Russia. Historically Donetsk always resented control from outside – whether from Moscow, St Petersburg or Kiev – even in 1917. Outsiders were always viewed with suspicion – in 1905, radical agitators who sought to stir up local strikes ‘were seized and thrown alive into the hot slag and blast furnaces’.8 On the back of massive demand from China, steel made up 40 per cent of Ukrainian exports by 2003, and accounted for the lion's share of the 26 per cent surge in exports that year.
In the mid-1990s, Viktor Yanukovych rose rapidly through the ranks of the Donetsk regional administration. By May 1997, he was its head, mainly because his methods were tough, and he had achieved a good division of labour with Akhmetov. Yanukovych made his name locally with the purge of Lazarenko supporters and others in 1997, after Lazarenko lost office in Kiev, and by providing political cover for Akhmetov's takeover of all local rackets. Nationally, he came to prominence with the increasing importance of the Donbas in Ukrainian politics, and with President Kuchma's increasing dependence on the power of the local clan. After flirting with separatism in 1993–4, the local machine began to organise its own backyard politically as well as economically. After an infamous visit in 1998, Kuchma promised to leave the clan to its own devices if it delivered him the vote. Previously, the large but impoverished local working class had voted for the Communist nostalgia ticket at most elections in the 1990s. They won twenty-two out of forty-seven seats in 1994; and, in the mixed system used in 1998, seven out of twenty-three local seats and 39 per cent of the local party list vote. First, the clan set up fake left parties of their own to siphon off Communist votes; then Yanukovych used ‘administrative resources’ to build up an all-powerful local machine, dubbed the Party of the Regions, an unintentionally ironic reference to its overwhelming dominance of one region (only). Locally, everyone just called it ‘The Party’. As in Soviet times, there was no danger of anyone not knowing whom you meant. In 2002, this won 37 per cent of the vote, compared to a national average for the government party of 11.8 per cent. Kuchma was impressed with the 52.9 per cent vote the Party organised for him in the 1999 election, which ensured Yanukovych's move to Kiev. In the late 1990s, the locals liked to say ‘In Kiev they make politics, in Donetsk money’, but the Donetsk clan was now needed in national politics, and there was money to be made in Kiev.
When politicians are called ‘tough’, it is usually a metaphor. Yanukovych's reputation for verbal and physical violence, however, is not just a historical matter. His nickname in prison was kham (a boorish villain or thug) and his impulsive character was more like Sonny than Michael Corleone. In 2004, while out campaigning in west Ukraine, Yanukovych was forcibly questioned by an elderly man who opposed Russian as a second state language. Yanukovych's aside to an aide, ‘Get him the fuck out of here’, was all too audible. On secret tapes made in 2000, he threatened that non-obedient journalists ‘will have their heads smashed against the wall’. One campaigning editor from Donetsk, Ihor Aleksandrov, had his head smashed not long after – not against the wall, but by baseball bats.9 During the 2004 campaign, Yanukovych was also privately rumoured to have come to blows with several prominent politicians on his own side, and his regular shouting matches with the likes of the head of the Security Services did little to help the elite's unity in the face of a strong opposition challenge.
Yanukovych represented that part of the Ukrainian elite which preferred to use such methods. Chapters 3 and 4 will show why some establishment politicians and businessmen did this, and what they had to hide. Not everyone behaved like this, however. After over a decade of orgiastic corruption, those parts of the business elite that had already made their fortunes through corrupt privatisations and now had going concerns that would benefit from secure property rights wanted to become legitimate. The contradiction would ultimately undermine Yanukovych's campaign.
A Banker Amongst Thieves
Viktor Andriiovych Yushchenko was born in 1954, in a small village in Sumy in the north-west of Ukraine near the Russian border; ironically, his birthplace was not far from the village of Chaikine in Chernihiv, where President Leonid Kuchma had been born in 1938. Yushchenko's parents were both village teachers; his father, Andrii, taught foreign languages and his mother, Barbara, mathematics. Andrii Yushchenko served in the Red Army and was taken prisoner, but escaped from seven camps, including Auschwitz, Buchenwald and Dachau (he died in 1992). According to Stalin's warped logic, capture was surrender, and any time spent outside the USSR was grounds for intense suspicion. Many of those who returned to the Soviet Union were shot, and others were shot before they could return, so young Viktor was doubly lucky even to be born.
Yushchenko could, however, have grown up a Soviet patriot. It is worth emphasising that he is not from west Ukraine, the regions formerly under Poland and the Habsburg Empire, but from Sumy, which has been closely tied to Russia since the seventeenth century, some parts since 1503. Yushchenko is a country boy. He speaks with an accent that involves some surzhyk (the local admixture of Russian and Ukrainian); his often perilous hobby is bee-keeping. Ukraine has three main churches: the Greek Catholics in the west and the two branches of the Orthodox Church elsewhere. Perhaps surprisingly, Yushchenko belongs to the one that is still loyal to Moscow. On the other hand, he heard terrible stories in his youth of the Great Famine of 1932–3, caused by Stalin's collectivisation and grain-requisitioning policies, when rural regions such as Sumy were ravaged by some of the highest death rates, estimated at between 15 and 20 per cent of the local population – some four hundred souls in Yushchenko's immediate region.10 Other happier stories celebrated the traditions of Yushchenko's home village, Khoruzhivka, as a winter outpost for Ukrainian cossacks in the seventeenth and eighteenth centuries. Yushchenko was also an economics student in Ternopil, west Ukraine, in the early 1970s, a period that he says made him ‘more Ukrainian’.
Yushchenko was soon upwardly mobile. After army service in 1975–6 and some desk jobs back in Sumy, he moved to Kiev in 1986, joining up with his first patron, Vadym Hetman, at the USSR Agroprombank. The bank was a Soviet giant, responsible for funding the collective farm system, but once perestroika began its local branches were converted into a Ukrainian bank, Ukraïna, in November 1990. Some allege that the family connections of his first wife helped Yushchenko at this time, but others vigorously deny this. Hetman's patron, in turn, was the then chairman of the Ukrainian parliament, Ivan Pliushch. Yushchenko's once slow rise was now rapid. He became the deputy head of the bank in December 1989. Hetman became the first head of the brand-new National Bank of Ukraine (NBU) in 1991, and ensured the relative unknown was appointed his successor in December 1993. Hetman cited ill-health as the reason for his resignation, but in reality he had constantly quarrelled with President Leonid Kravchuk and Prime Minister Leonid Kuchma, over inflation-boosting monetary emissions. Yushchenko was able to introduce some belated discipline. In 1993, the inflation rate had gone so far off the scale that it was difficult to calculate. One estimate had it at 5,371 per cent, another at 10,200 per cent. Yushchenko brought it down to a mere 80.2 per cent per annum by 1996, and then to an almost stable 15.9 per cent in 1997. Hetman had organised the printing of a proper currency, the hryvnia, in 1992, but had refused to launch it at a time when he feared it would only be devoured by hyperinflation. Until the economy stabilised, Ukraine had to make do with the joke ‘coupon’ – essentially monopoly money, which initially had no serial numbers or watermark. Yushchenko was able to introduce the hryvnia successfully in September 1996, with no panic, confiscation or inflation spike. The notes still had the words ‘printed in 1992’ plaintively written on them. Although the hryvnia took a temporary slide during the local currency crisis in 1998–9, it has largely been a stable store of value, both before then and since. Yushchenko was now unmovable; he served at the NBU for six years, at a time when other Ukrainian ministers were lucky to last one. During this period, he largely stayed out of politics, apart from a brief flirtation with the National-Democratic Party from 1996, which was then pro-market, but also pro-Kuchma.
Yushchenko's second wife, Katherine Yushchenko-Chumachenko, is from the Ukrainian diaspora. Her parents met in Nazi Germany, where they were both ostarbeiters (slave labour from eastern Europe), but found their way to Chicago, where Katherine was born in 1961. After working as the Washington representative of the Ukrainian Congress Committee of America from 1982 to 1984 and receiving an MBA from the famously free-market University of Chicago in 1986, Chumachenko worked in the State Department and in the Reagan-era White House, where she became the administration's ethnic affairs liaison in 1988, working on ‘Captive Nations’ issues. Katherine (Kateryna) moved to Kiev in 1993 with KPMG consulting, who were advising Ukraine's new breed of financiers, including those at the Central Bank. It was here that she met Yushchenko, and the couple were married in 1998. Yushchenko has two children from his first marriage and three from his second, and his first grandchild was born in February 2000. His marriage to Chumachenko made him a more cosmopolitan figure than most politicians in Ukraine, but it also opened him up to some particularly vicious attacks in 2004.
The next two chapters will describe Yushchenko's move into politics after 1999. His clean image was his main asset, but it was also seen as a threat to many, so there have been at least three serious ‘black PR’ operations in the attempt to undermine it.11 The most serious by far targeted Yushchenko's highly successful stint at the National Bank.12 This focused on the period before the 1998 regional currency meltdowns, when the NBU allegedly transferred $613 million of IMF funding through Credit Suisse First Boston to ‘speculative’, or just plain risky, accounts. Part of the money, $275 million, was used to buy the government's own treasury bills over the winter of 1997–8, creating a false market in domestic debt. The National Bank also double-counted $150 million via a round tripping operation through various accounts (to Cyprus and back), to inflate its perilously low foreign exchange reserves and therefore qualify for further credits. The NBU later agreed to an audit by PricewaterhouseCoopers, who found no actual appropriation of monies, but stated that the ‘NBU's reserves were potentially overstated by an amount that varied from US$391 million in September 1997 to US$713 million in December 1997’.13 In other words, the NBU was guilty of extremely creative accounting. The IMF stopped funding Ukraine, despite Yushchenko's apology. The NBU's inelegant defence is that they did what they had to do to survive in the conditions of the time.
The second smear campaign concerned the Gradobank affair. In the early 1990s, after the USSR broke up, Germany agreed to make separate payments to Ukrainian ostarbeiters of $178 million, and between 1994 and 1997 slightly over half of this was administered through one of Ukraine's more obscure new banks, Gradobank. However, $38 million was embezzled and diverted to a front company, Centurion Industrial Group, based in Hong Kong. The duo responsible, bank president and parliamentary deputy Viktor Zherditskyi and Ihor Didenko, later boss of the notorious Oil and Gas of Ukraine, were arrested in October 2000 and July 2001, respectively, the latter, entirely coincidentally no doubt, at the same time as the founding conference of Yushchenko's political movement, Our Ukraine. The official Ukrainian media implied that Yushchenko was indirectly involved, given his duty of oversight at the National Bank, and that he had sanctioned a loan of UAH5 million to the ailing bank in 1998. The loan was secured against a promised sale of the bank's art collection. Although the bank was small, it served the post-Soviet nouveaux riches, and therefore owned a Picasso, but the sale never took place. Yushchenko's liberal colleague Viktor Pynzenyk, who was in government as a deputy premier in 1994, was supposedly also guilty of (a lack of) oversight; but there is little more than insinuation in any of this. Given their family histories, the slur was particularly offensive to Yushchenko and his wife.
The third PR offensive was the attempt to rewrite the various scandals around the Ukraïna Bank, which went bankrupt in July 2001. Money from the bank supposedly funded the studies of Yushchenko's oldest daughter, Vitalina, at Kiev University. Vitalina also allegedly took a number of banking courses, costing about $3,500, in Ukraine at the bank's expense. In addition, Yushchenko's brother Petro allegedly failed to repay a $35,000 loan from the bank, and also received shares in a sister bank, First Investment Bank. However, despite also becoming a parliamentary deputy for Yushchenko's political bloc, Our Ukraine, in 2002, Petro was no equal to Marko Milošević, Mark Thatcher, Billy Carter, or even Tony Blair's hell-raising father-in-law, actor Tony Booth in the damaging or embarrassing relative stakes. (Petro Yushchenko is the older brother.) Amongst Yushchenko's other ‘family’, Serhii Buriak, the founder of Brokbiznesbank, is godfather to one of Yushchenko's children, but was in the clan ‘party’ Labour Ukraine, along with his brother Oleksandr (who defected from Yushchenko's party, Our Ukraine). Little has been made of this, however, as Brokbiznesbank is actually close to the Communists, who are, in turn, close to the authorities.
Again, the Ukraïna affair was another blatant case of the pot calling the kettle black. By the late 1990s, the bank's funds were controlled by President Kuchma's associates, who were queuing up to leech them in characteristic fashion. The head of the supervisory board, Volodymyr Satsiuk, and his deputy, Oleksandr Volkov, used them to fund Kuchma's 1999 presidential campaign, and Kuchma's wife, Liudmila, dipped in for money to finance the $40 million overspend at, appropriately, the Ukraïna palace, Kiev's new concert venue for the nouveaux riches. The bank transferred $50 million ‘at Putin's request’, to help pay for Russia's 2000 election.14 Oleksandr Tkachenko, chair of parliament from 1998 to 2000, also had his nose in the trough. He and Satsiuk transferred many of its resources to their company, Ukrros.
Yushchenko may not be completely innocent of involvement in these scandals, but he does seem never to have had his own hand in the till. With the important exception of the NBU case, the PR campaign against him amounted to vague insinuations about circles close to Yushchenko, including the patrons of Yushchenko's patron, contacts of Yushchenko's contacts and so on, as is also the case with other vague and unsubstantiated allegations that Hetman and/or Pliushch had appropriated agricultural credits in the early 1990s. The important difference was that there was no Hetman or Yushchenko ‘clan’ as such. Unlike the Donetsk clan or the Dnipropetrovsk clan or the Kiev clan (see Chapter 3), Hetman and Yushchenko did not rob the state. They did not enrich themselves with rigged privatisations. They did not use their ill-gotten gains to corrupt the political process. Both men belonged to a team of would-be professionals, uneasily situated between Ukraine's post-Soviet class of robber barons and the nationalists, who were pushing for a monetary break with Russia. In April 1998, Vadym Hetman was gunned down in the lift outside his flat, with five shots to the body and a final shot to the head. There were clearly greater misdeeds elsewhere.
Yuliia Volodymyrivna Tymoshenko, the youngest of our three protagonists, was born in 1960 in the city of Dnipropetrovsk, Donetsk's long-term rival as the unofficial capital of Ukraine's industrial east.15 Tymoshenko is not just comparatively young, but has also used her undoubted glamour as a political asset in a way that would not work in the West. To the Ukrainian, and increasingly to the foreign, press, even the hostile press, she is usually just ‘Yuliia’ – a priceless asset in itself – aka the ‘Gas Princess’, the ‘Ukrainian Princess’ or ‘Lady Yu’, and ultimately the ‘Joan of Arc’ or ‘La Passionara’ of the Orange Revolution. The political movement she set up for the parliamentary elections in 2002, the ‘Bloc of Yuliia Tymoshenko’, where she emerged as a resounding success with 7.3 per cent of the vote, was not only named after her, but was deliberately designed to produce the acronym BYuT or BYuTy (pronounced as ‘beauty’).
She has always dressed well and expensively. In a stormy TV debate on how to replenish the state budget in March 2002, faux-left winger Nataliia Vitrenko icily remarked that Tymoshenko's ‘$30,000’ earrings would make a good start. But Ukraine is not the West. Post-Communist societies value consumption, and are often happy to forget about what pays for it. Tymoshenko has also adopted a trademark hairstyle. Version one, with folkish braids arranged in side-buns made her look not unlike Star Wars' Princess Leia. Version two, a Heidi-like arrangement, with the braid now crowning the head, running from one ear to the other, was more distinctive. As a hairstyle, it would never top a ‘Rachel’ from Friends , but after 2004, it was much in demand the world over (see plate 9).
Tymoshenko is also tough. The different sides to her character could be taken straight out of a play by Shakespeare or Goethe. Like Yanukovych, she was deserted by her father at the age of two, and was brought up in relative poverty in a Khrushchev-era apartment building mainly inhabited by local taxi-drivers, where she played football with the local boys.16 Her paternal maiden name is supposedly Grigian and her maternal name is Telegina, but she is understandably coy about this. She found a traditional Soviet way out of hardship, marrying young, at nineteen, to Oleksandr Tymoshenko, after he reportedly rang her flat by mistake, but stayed on the line and asked her out. Accident or not, the marriage was fortuitous. Oleksandr's father, Hennadii Tymoshenko, was a powerful figure in the local Communist Party, so Yuliia soon gained promotion in her first job as an engineer-economist. The marriage didn't last long. Oleksandr was the first in a series of men left by the wayside. The couple's only child, Yevheniia, was born within a year, but her parents have not cohabited for ten years.
Tymoshenko's career proper began as a typical komsomol cooperative entrepreneur in 1988 (see pages 32–3), running a youth centre, Terminal, whose actual business was using imported VCRs provided by her father-in-law, whose party duties included looking after the local cinemas, to run off pirate copies of Western videos such as Rambo.17 Oleksandr Turchynov, who would serve as Tymoshenko's political right hand for the next fifteen years, was then a twenty-five-year-old komsomol agitprop specialist, who also worked for Terminal. In May 1991 the extended Tymoshenko clan moved into the bigger time, using its capital to set up the Ukrainian Oil Corporation (in Ukrainian, KUB). KUB also benefited from offshore capital from Cyprus of unknown origin, and was registered as a Ukrainian–Cypriot joint company, 85 per cent of whose shares belonged to the shadowy Somolli Enterprises Ltd, which was controlled by the family's financial mentor Oleksandr Hravets (now a resident of Israel), although Yuliia Tymoshenko had 5 per cent of the shares. KUB began to make serious money in 1992–4. Its ‘business model’ was based on its monopsony control of agricultural produce in Dnipropetrovsk, obtaining produce by barter for its petrol and selling it at a high mark-up for hard cash.18 It could not have obtained this position without good political contacts, namely the future prime minister Pavlo Lazarenko, then head of the local Agro-Industrial Complex (an old Communist Party sinecure). At the same time, Hennadii Tymoshenko ran another international company, Sial, whose main business was natural stone mining, with a quarter share in the lucrative red granite quarry at Totovske, then turning over an estimated $84 million a year.
This was still small beer, however. Yuliia Tymoshenko was soon able to lever herself into public prominence by skilfully exploiting oligarchs who were then further up the feeding chain. The first of these was another young komsomol entrepreneur from Dnipropetrovsk, Viktor Pinchuk, with whom Tymoshenko set up a joint corporation named Sodruzhestvo (‘Friendship’ or ‘Community’), to exploit Pinchuk's Moscow contacts and set herself up in the energy import business. Pinchuk left for unknown reasons in 1995 – subsequent relations between the two have not been particularly friendly – and in November 1995 Sodruzhestvo, now led by Hravets, Hennadii and Yuliia Tymoshenko, became United Energy Systems of Ukraine (UESU). Yuliia Tymoshenko, then aged thirty-six, was the company's general director. Pinchuk now heads the Interpipe business empire, producing metal pipe, and is one of Ukraine's, indeed one of Europe's, richest men. In 1999, he married President Kuchma's daughter, Yelena. His political party, Labour Ukraine, Trudova Ukraïna, was nicknamed Trubova Ukraïna because truba is the Ukrainian for ‘pipe’.
United Energy Systems' time in the sun was brief, but spectacular. At the time, the burden of Russian energy imports had almost bankrupted the Ukrainian state, which therefore sought to set up a series of regional energy wholesalers to shoulder the burden instead. UESU won the right to supply the thirsty local industry in several oblasts around Dnipropetrovsk (the others being Kirovohrad, Poltava, Cherkasy, Mykolaïv, Sumy and Donetsk). It was therefore in competition with the Donbas clan to the east (see page 10) and the Republic group, controlled by two other oligarchs, Ihor Sharov and Ihor Bakai, to the west (see pages 46 and 57). UESU had the best political connections, however. Significantly, it won its initial concessions when Yevhen Marchuk was prime minister (1995–6), before his successor, none other than Pavlo Lazarenko, jumped on board (1996–7). By mid-1997, UESU was distributing 800 billion cubic metres of gas a year. Energy imports were still heavily subsidised, with Ukrainian and Russian oligarchs splitting the difference to earn huge profits on the side (see pages 45–6). UESU was therefore able to build up an empire in double-quick time, becoming almost a ‘state within a state’, including the airline SES-Avia, the Slovianskyi (‘Slavic’) and Pivdencom (‘Southern Industrial’) banks, and over twenty industrial affiliates – like KUB, it basically focused on exploiting energy supply to asset-strip desperate local factories. According to several guesstimates, UESU enjoyed annual revenues of $10 billion to $11 billion – 20 to 25 per cent of Ukraine's then GDP – and paid $11,000 in tax.19
The good times did not last, however. Explanations for this vary, but the golden years of UESU's economic ascendancy were also the years when the political influence of the Dnipropetrovsk clan, including not just Tymoshenko, but also the prime minister, Lazarenko, and President Kuchma, was at a maximum in Kiev. Who fed whom in the relationship was far from clear, and it was equally unclear whether UESU's riches primarily benefited Tymoshenko or Lazarenko, or served as a general honey-pot for all the top Dnipropetrovsk clan. Its influence was much criticised abroad, as it began to seem that the whole of Ukraine was falling under its lopsided control, as was Lazarenko's allegedly gargantuan corruption (see pages 39–40). In July 1997, Lazarenko resigned, swiftly followed by other clan members such as the procurator Hryhorii Vorsinov (who was notorious for not prosecuting Lazarenko) and the energy minister Yurii Bochkarov, suddenly depriving Tymoshenko of her political protection.
Tymoshenko's second problem was her relations with the Russian energy giant Gazprom. In March 1997 she had written to none other than Bill Clinton to complain about its abuse of its monopoly, but Gazprom was the devil most Ukrainian politicians knew and grew rich from. Gazprom's then boss, Rem Viakhirev, whom Tymoshenko had once charmed in a mini-skirt and thigh-high boots, was on the way out, and in 2001 would be replaced by Aleksei Miller, with whom Tymoshenko had no similar ‘understanding’. The two factors combined to persuade Kuchma to transfer UESU's local monopoly to a new company, Oil and Gas of Ukraine, under Ihor Bakai. Feeling the heat, Tymoshenko began to build a political base, standing for parliament in a by-election in Kirovohrad and winning 91.1 per cent of the vote. Tymoshenko paid off all pension and wage arrears in the constituency, using a ‘commercial loan’ – her official salary was then UAH13,000, only $7,200. Then she built up the largely dormant Hromada Party, which was controlled by her old ally Oleksandr Turchynov, into a mass organisation with 300,000 members. Lazarenko barged in as leader, but only at the party conference in October 1997. (Hromada was basically an east Ukrainian party, which was strongest in Dnipropetrovsk, although it took its name, meaning ‘Society’, from the political clubs set up by the Ukrainian intelligentsia in the nineteenth century.)
Tymoshenko had showed her mettle. Hromada set itself up as the first ‘dissident’ oligarchs' party. Tymoshenko even headed its ‘shadow cabinet’. However, its political opposition to the president cost UESU dear. It was hit with a tax demand for UAH1.4 billion (then $750 million), a $42 million debt to Ukrhazprom, and stripped of its lucrative quarter share in the Khartsyzskyi pipe factory. In September 1998 Tymoshenko's colleague Mykola Syvulskyi, a former deputy finance minister, was arrested. The authorities claimed he had illegitimately channelled funds from Ukrhazprom to UESU, while Tymoshenko said it was because he was organising Hromada's campaign to impeach Kuchma. By November 1998, Tymoshenko was willing to sue for peace – although with the economy mired in recession and an election in the offing (1999) Kuchma was also then in a weak position and needing to make a deal. At a famous semi-secret meeting ‘for tea’ (not Kuchma's normal drink of choice), Tymoshenko agreed to leave Lazarenko and Hromada – this was just before Lazarenko was arrested in Switzerland – in return for being allowed to build up a new party of her own, called Fatherland, which soon held the balance of power in parliament. Tymoshenko could clearly play it as tough in politics as in business. Her remaining business interests were temporarily secure, and she was increasingly spoken of as a candidate for government. On the other hand, when rumours surfaced that she was backing the socialist party leader Oleksandr Moroz for the presidency in 1999, Slovianskyi Bank came under political pressure. Clearly, Tymoshenko now had to become a top-rank politician herself in order to survive. However, it was not yet clear with whom she would ally herself. Before Yushchenko became a candidate for prime minister in December 1999, Tymoshenko was backing another term for his rival Valerii Pustovoitenko (who had served as prime minister after Lazarenko, 1997–9) as the best means of keeping her remaining UESU interests alive.20 Once Yushchenko declared his interest however, Tymoshenko joined his side. She also began learning Ukrainian, and reinventing herself as a patron of national and even nationalist causes.
Criminality or Kompromat?
Accusations of corruption involving Tymsohenko are numerous. As early as 1995–6, she was twice accused of ‘failing to declare’ large sums of money at customs. The first case involved $100,000 at Moscow Vnukovo airport in July 1995, and the second concerned $26,000 in her luggage at Zaporizhzhia airport in east Ukraine in 1996. These charges were dropped in 2001, if only because the rules for money movement had changed.
In March 2000, the pressure on Slovianskyi Bank, then Ukraine's biggest commercial bank, with profits of UAH83.3 million (then about $20 million) in 1999 and assets of UAH556.1 million (just over $130 million) began to tell. Bank chair Borys Feldman, another Dnipropetrovsk native close to Tymoshenko, was arrested for failing to pay tax on a loan (not actually a criminal offence). Kuchma was caught on tape (see pages 51–2) in May 2000 urging the chief tax inspector, Mykola Azarov, to deal with Feldman: ‘You sit him down [in a cell] with criminals, let…’. Kuchma felt able to trail off because Azarov obviously knew what his boss had in mind. The case was moved to east Ukraine. In August, Azarov reported that, ‘We've already agreed with the Luhansk court … where the possibilities for influence are organised enough’ and the judge has agreed to add whatever charges Azarov deems necessary.21
In February 2001, Tymoshenko was accused of transferring (or laundering) a total of $1.21 billion through Slovianskyi to the Latvian bank Aizkraukles, and on to the ‘First Trading Bank’ registered on the always financially active Pacific island of Nauru.22 In April 2002, Feldman was duly sentenced by the Luhansk court to nine years, although the conviction was overturned by the Supreme Court in May 2004. The charges against Tymoshenko also failed to stick, and in 2002 the government returned more directly to the UESU affair. Slovianskyi had, of course, collapsed back in 2000.
In the summer of 2002, Tymoshenko's father-in-law, Hennadii Tymoshenko, the former UESU president, company director Yevhen Shaho and former UESU accountants Lidiia Sokolchenko and Antonina Boliura, were charged with illegally acquiring $2.25 billion through sales of Russian natural gas in Ukraine. The four were arrested in Turkey in June and extradited in October 2002, but a Kiev court threw out all charges in May 2003, only for that decision to be reversed again in October. Also in October, the parliamentary Rules Committee turned down the first of several requests to lift Tymoshenko's immunity.
Finally in September 2004, Russian prosecutors dusted off an old case and demanded her extradition on charges of bribing five Russian officials in 1996, including defence ministry finance chief Georgii Oleinik, under house arrest since December 2000, and deputy finance minister Andrei Vavilov, whose dismissal in April 1997 didn't stop him becoming chair of Severnaia Neft (‘Northern Oil’). According to the Moscow Times, the complicated scheme worked as follows: Gazprom borrowed $450 million from Imperial Bank and the National Reserve Bank to pay taxes. The money was forwarded to the defence ministry via Vavilov, which then paid United Energy International, a UK-based company linked to Lazarenko and Tymoshenko, for associated Ukrainian companies to deliver equivalent ‘material-technical valuables’ in lieu of Ukraine's energy debt.23 One side says they never arrived, at least not in the quantity promised; another that Gazprom forwarded military uniforms supplied by a UESU company to the defence ministry against tax. Ultimately, the charges come down to the accusation that Tymoshenko may have bribed defence officials to exaggerate the value of the supply contracts by $80 million.
A request was sent to Interpol to issue an international warrant for Tymoshenko's arrest because she had failed to come to Moscow in September for questioning. The warrant for Tymoshenko was posted on Interpol's site, but lifted on 8 December 2004, pending further information. In the wake of the Orange Revolution the Ukrainian authorities dropped all charges against Tymoshenko and her associates on 28 January 2005, for ‘lack of evidence’. The Russian authorities did not. Mixed signals included a promise that she would not actually be arrested as soon as she stepped foot on Russian soil, but various statements indicating the investigation was still open led to her cancelling her first visit to Moscow after the Orange Revolution in April 2005.
It is far from clear how much of Tymoshenko's former business empire survived the late Kuchma era. However, it is certain that she ceased to be a key economic player at the very time when Ukraine's privatisation programme was getting started. Nowadays, she may well live off dividends and interest from her former riches, which are allegedly based in Cyprus or Lebanon, possibly channelled through the shell of UESU, which still has about 3 per cent of the energy market in Ukraine. She is also said to control the paper Vechernie vesti (‘Evening News’), which her website links to (www.tymoshenko.com.ua).
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The figures of Yanukovych, Yushchenko and Tymoshenko encapsulated the changing nature of Ukrainian politics, economy and society at the time of the 2004 election. Unlike previous Ukrainian elections, which all too often were dummy contests between the unelectable and the unmovable, all three stood on the tectonic plates between ‘government’ and ‘opposition’ that were now beginning to shift. Viktor Yushchenko promised a big clean-up in Ukraine's political and business culture, but was close enough to the heart of the old system to make this promise sound less threatening. Viktor Yanukovych represented many of the worst aspects of Ukraine's new robber capitalism, about which some of the elite already had their doubts. Once she turned into a politician, Yuliia Tymoshenko would use her experience of Ukraine's murky business world to stop others following in her path. Having been an enthusiastic poacher, she would become a particularly zealous gamekeeper. After sketching in some wider historical background, the next two chapters will pick up their careers again, going back to around 1999.