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VICTOR PINCHUK’S $200 MILLION CASHFLOW, BEFORE AND AFTER

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By John Helmer, Moscow

What do Hillary, Bill and Chelsea Clinton, Anders Aslund, Steven Pifer, the Peterson Institute for International Economics, and the Brookings Institution have in common? Answer: they drink unpasteurised milk from the Ukraine. Lots of it.

How damaging this may be for the health depends on how Victor Pinchuk (image left, right), the Ukrainian pipemaker, responds to filings in the Moscow Arbitrazh Court. Reported publicly this week, the court papers suggest that through companies registered in Cyprus, Pinchuk milked about $200 million from the Rossiya Insurance Company in Moscow. For the time being, the Russian court action is a civil one, and seeks repayment by Pinchuk’s East One holding and related companies. If Pinchuk doesn’t repay, Cyprus, European Union, and US court action, alleging conspiracy to defraud, is likely to follow. Pinchuk’s innocence should be assumed in the meantime. Drinking raw milk, however, carries a contamination risk.

clintonAudited public records reveal that the Clinton family consumed at least $13 million from Pinchuk between 2006 and the end of 2012. Pinchuk’s foundation hasn’t released [1] its accounts for 2013 or the first half of 2014, so the Clinton (right) total is likely to have grown. The Clinton Foundation will not explain [2] the multi-million dollar discrepancy between what Pinchuk says he’s been paying, and what the Clintons claim to have been receiving, so there’s no telling how much extra has been taken by the Clintons in expense-paid trips and speaking fees.

The Peterson Institute for International Economics (PIIE) in Washington claims it is “an independent, private, nonprofit institution for rigorous, intellectually honest study and open discussion of international economic policy. Its work is made possible by financial support from a highly diverse group of philanthropic foundations, private corporations, and interested individuals.” The institute also claims [3] that the “sources of financial support for the Institute have been listed annually on the PIIE website since June 2013. All Institute books, Policy Briefs, and working papers acknowledge any direct funding sources, and web pages for these publications provide links to underlying data files to demonstrate the independence of analysis.”

In fact, the institute’s list [4] of its donors doesn’t identify Pinchuk. The record [5] of the institute’s employment of Aslund (below) to write on Ukraine is lengthy too, but there is no mention [6] that Pinchuk has been footing the bill. Aslund’s tribute to Pinchuk’s father-in-law, ex-president Leonid Kuchma, identifies [7] the Peterson Institute as owner of the copyright. “Whatever happened under [Kuchma’s] rule,” Aslund and the institute have declared, “he created a functioning democracy. One reflection of Ukraine’s democratic strength is that both Kuchma and his predecessor, Leonid Kravchuk, remain public personalities. Kuchma’s 70th birthday is an opportunity to celebrate his contributions. Few people have done so much for their country.”

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Pinchuk is listed [8] as a current director of the PIIE board. This suggests that he continues to transfer money to the institute’s budget. A spokesman for the institute said that in 2013 Pinchuk gave $100,000. For this year, the spokesman added, “we release information on the funding for 2014 at the end of the year. We therefore cannot say what or if the Pinchuk Foundation donated to the Institute in 2014.”

As for Aslund, PIIE says: “Salaries of all Institute senior fellows come out of our general revenues. No senior or permanent research staff member’s position is financed by any specific contributor. This applies to Dr. Aslund.”

Also in Washington, Pinchuk’s foundation (page 65 [6]) has been paying the Brookings Institution $200,000 per annum to employ Steven Pifer [9], a former US Ambassador to Ukraine. According to the Brookings website, “our mission is to conduct high-quality, independent research.” Funding, says Brookings [10], comes from “generous individuals, foundations, leading corporations, and U.S. and foreign government agencies that share our commitment to quality, independence, and impact in public policy research and analysis.”

A report [11] on fund sources for Brookings, dated May 2013, didn’t mention Pinchuk. A New York report [12] this month on foreign government and corporate lobbying through donations to US think-tanks, including Brookings, failed to mention Ukraine.

The Brookings annual report [13] for 2013 identifies Pinchuk as a member of its “international advisory council”, but doesn’t disclose that Pinchuk paid for his seat. According to the Brookings disclosure, the council members “provide invaluable advice and diverse perspectives on developments in their own regions, along with candid insights into how the U.S. and its policies are received abroad.” In what Brookings calls its “Honor Roll of Contributors” for the period July 1, 2012, to June 30, 2013, the Pinchuk foundation is listed in the category of payors of between $100,000 and $249,999.

The Pinchuk foundation’s annual statement of its income refers to “contributions and charitable donations from legal entities and individuals”. These are channelled through a UK entity called “The UK Office of the Victor Pinchuk Foundation”. The foundation report claims the foundation took in $14.3 million in 2011; $16.9 million in 2012. Through what entities Pinchuk delivered this cashflow is not disclosed.

piferPifer (right) was asked to say if he is receiving his Brookings income from Pinchuk, and if so, how much that will be for this year. He and the Brookings spokesman did not reply.

The source of the cash on which Pinchuk has been drawing to make such payments has been unclear since the financial collapse of Interpipe, the east Ukrainian pipemaker which is Pinchuk’s principal production company; it began defaulting on its international bank and Eurobond debts in 2011. Fresh defaults began last November [14]. According to Pinchuk’s agreements with Interpipe’s lenders, he is forbidden to draw cash or dividends out of Interpipe.

According to court papers disclosed in Moscow on September 18, cash amounting to Rb7.6 billion (about $210 million) has been taken through Svatozar Enterprises Limited of Cyprus from OCAO Rossiya, the insurance company, when Pinchuk owned them both through his EastOne Group [15]. The court paper [16] demands repayment of this amount. A hearing on the claim [17] has been set for November 11.

The detailed case evidence is not yet available in the Arbitrazh Court’s digital files. The scheme alleged is that as Rossiya generated large volumes of cash from the sale of insurance for compulsory third-party motorist liability, Rossiya was obliged to pay the money out, and receive in return bills of exchange from Svatozar. Subsequently, without access to its premium income, Rossiya was unable to meet insurance claims and other obligations. In November 2013 its insurance licence was revoked by the Central Bank of Russia. It has subsequently been ordered into bankruptcy by the Moscow court, and is now being restructured and sold. The Russian insurance regulator was obliged to cover Rossiya’s default to its customers of almost Rb2.3 billion, the largest such payout in Russian insurance history.

A Fitch Ratings report [18] on the problems at Rossiya, issued just weeks before the collapse, failed to detect the internal problems. “Fitch sees Rossiya’s current business model as unviable given the significant deterioration of the operating environment in the local compulsory motor third party liability (MTPL) insurance segment. For Rossiya, the impact is exacerbated by the company’s lack of success from its efforts to achieve a healthier portfolio structure with less weighting to MTPL business. In Fitch’s opinion, there might be a heightened risk of regulatory preventive actions as a result.”

The arbitrazh court was first told of the cash-stripping scheme in January of this year by the court-ordered administrator for Rossiya, Evgeny Zhelnin. At the time, the speculation in Russian and European insurance circles was that Pinchuk had been taking Rossiya’s premium revenues through offshore reinsurance schemes. On September 24, however, fresh details were reported [19] in the Moscow press. The scheme now alleged to have been used was the issue to Rossiya of bills of exchange by Svatozar. What Svatozar’s capacity to repay this debt was registered at the time, and what collateral was pledged by Svatozar, or EastOne behind it, have yet to be disclosed.

dudnikAt the time of its collapse, the chief executive of Rossiya was Andrei Dudnik [20]. According to the website of EastOne, Dudnik is currently chief financial officer of EastOne. He has also served in the same role at Interpipe, and before that at Ernst & Young, Interpipe’s auditor.

In earlier reporting [2] of the case, spokesmen for Pinchuk at Interpipe, the Pinchuk Foundation, and EastOne did not respond to questions. The Pinchuk Fund and EastOne share offices at the same building on Mechnikova Street in Kiev. Messages for Dudnik were relayed by the Pinchuk Foundation. Both were asked whether funds from the Svatozar-Rossiya transaction reached the Pinchuk fund. They did not reply.

“An insurance company entering into this sort of related-party transaction,” said a lawyer familiar with the proceedings, “should have had it vetted. Most likely this did not happen. The old Rossiya board members may therefore be personally liable, and also to have committed a criminal breach of trust. These potential criminal aspects ought to permit Russian prosecutors to seek cooperation from their Cyprus counterparts.”

As for what American recipients of Pinchuk cash know, or ought to know of the provenance of Pinchuk’s donations to themselves, and of the evidence in the Rossiya case, the Peterson Institute said: “We are pleased and proud to receive support from the Pinchuk Foundation. We make no representation and have no comment with respect to the business activities of Mr. Pinchuk or any donor to a foundation supporting the Institute.”

Brookings refused to comment.