Old guard pushback continues to haunt Ukraine’s arms procurement cleanup

Maryna Bezrukova immediately knew she was upsetting murky and powerful forces in Ukraine’s arms trade.

Amid a push for reforms in the Defense Ministry, Bezrukova took the reins of the ministry’s Defense Procurement Agency (DPA) this January. She left behind her comfortable job at the state electricity grid operator Ukrenergo.

Now she is in charge of purchasing weapons and ammunition for Ukraine’s military and transforming the previous leadership's bad business practices. It’s a monumental task for a warring country reliant on Western weaponry, while foreign companies make matters worse by upping prices for Ukraine.  

Yet a more ominous obstacle stands in Bezrukova’s way, according to Daria Kaleniuk, co-founder of the Kyiv-based NGO Anti Corruption Action Center (ANTAC), which is involved in the procurement reforms. Shady third-party traders and employees within the Security Service of Ukraine (SBU) are obstructing the new arms procurement agency’s reforms, she claims.

The SBU denied the accusations of obstructing the agency’s work and told the Kyiv Independent that it “acts exclusively within the limits of its powers and in the manner determined by the Constitution and laws of Ukraine.”

The SBU is Ukraine’s main security agency tasked with counterintelligence, counterterrorism, special military operations, and the protection of national statehood and state secrets. It has a mixed reputation and only recently has been accused of corruption, pressure on business, and illegal surveillance of media.

Bezrukova is careful when talking about the exact sources of pressure she’s facing.

“Intermediaries are trying in every possible way to preserve the status quo and their incomes,” Bezrukova told the Kyiv Independent in response to ANTAC’s claims, adding that some intermediary companies may be connected to law enforcement agencies.

Bezrukova joined the Defense Ministry at a moment when its reputation was shaky after a series of corruption scandals last year. Defense Minister Oleksii Reznikov and his team were subsequently dismissed in September. Under the new leadership of Defense Minister Rustem Umerov, transparency was promised.

The defense procurement sector was reshaped in December 2023, aiming to meet NATO standards. The DPA, first established in August 2022, was to focus solely on lethal aid. Meanwhile, the new State Rear Operator (known under its Ukrainian abbreviation DOT) agency was formed to purchase non-lethal aid like food and clothing.

Shortly after accepting the position Bezrukova was warned by a top defense official that vested interests opposed her appointment.

Bezrukova was unsurprised to hear this and knew the job would be fraught with risks. But she felt her seven years transforming procurement within Ukrenergo had prepared her well for the tricky road ahead.

Her main task, as she saw it, was to cut better deals with arms suppliers. For that, she needed to remove unnecessary intermediaries.

Third parties sold weapons they gathered from producers or stockpiles to the Defense Ministry at inflated prices. They then pocketed the profit. Sometimes, the contracts have been paid for, but the arms never arrived.

Ukraine has probably lost “tens of billions of hryvnia” on such defense contracts, Bezrukova told the Kyiv Independent.

It doesn’t help that there is no public oversight of these contracts: DPA cannot publicly declare its weapons and ammunition contracts under martial law, leaving it vulnerable to misconduct.

One way to support the struggling agency is a supervisory board with international members, Bezrukova said. The board, which is currently being formed, will help ensure fair procurement and give protection against political pressure, she said. It will also allow her to push back against international companies upselling arms. However, the board’s formation process lacks transparency, according to ANTAC.

Bezrukova’s ambition to overturn the system has put her in the spotlight of arms dealers and their cronies. She said that since her appointment, she has received threatening messages, faced doxxing on the Telegram messenger app, and wasn’t able to hire new people for her team due to artificial obstacles.

“The only option they have (left) is to destroy my reputation. I think it will be the next step,” she said.  

Direct contracting

Russia’s full-scale invasion upended the arm trade in Ukraine.

Before the invasion, Ukrainian arms traders were selling Ukraine’s Soviet-era weapons abroad, often illegally. In one case, Europol arrested a criminal network in 2020. The group smuggled weapons from Ukraine to conflict zones in the Middle East in Africa.

“The arms transfer business in Ukraine was extremely secretive and controlled by a monopoly of people linked to the mafia and was protected by the security service,” Kaleniuk told the Kyiv Independent.

But from 2022 onwards, traders swapped to importing weapons as Ukraine desperately sought to arm itself against the Russian invaders. The same shady people remained in the system, leading to misconduct, Kaleniuk added.

One major scandal involved a little-known company, Lviv Arsenal, that was given a $36.6 million contract to purchase 100,000 mortar shells in 2022. The ammunition never arrived, but part of the money passed through several European companies including Croatian company WDG Promet. Shortly after the transaction, the company purchased an explosives factory in Bosnia and Herzegovina, according to Radio Free Europe/Radio Liberty.

An SBU investigation exposed officials in the Defense Ministry and the managers of Lviv Arsenal complicit in the scheme. Security services arrested Oleksandr Liyev, a former top official at the Defense Ministry, on Feb. 12. In total, five people were charged, both in the Ministry and Lviv Arsenal, although Liyev, who admits Lviv Arsenal failed to uphold the contract and denies wrongdoing, was released a month later.

Overall, Ukraine may have lost at least tens of billions of hryvnias to fraudulent schemes, according to Bezrukova. But she is hoping to turn things around. She is moving towards direct contracts with defense manufacturers after third parties received 80% of agreements last year, before she came in.

According to Deputy Defense Minister Dmytro Klimenkov who supervises the DPA, the transition to direct contracting is perhaps “the biggest challenge” for the agency but “one of the key priorities of the ministry team headed by Rustem Umerov.”

“Contracts with manufacturers are always about better prices and more reliable supply. And in the agency there are big changes in this direction,” he said.

Both Klimenkov and Bezrukova acknowledged that intermediaries are still helpful and needed to acquire weaponry from countries that refuse to sell to Ukraine. For governments that don’t want to go against Russia, like Serbia, third parties are the main avenue for procuring weapons.

An arms trader told the Kyiv Independent that some Western producers prefer to work through middlemen. He claimed their preference to do deals with Ukraine at arm’s length is due to the risk of being caught up directly in corruption scandals and the extensive bureaucracy of doing deals with Ukraine that forms a vicious circle preserving and fostering intermediary schemes.

Intermediary companies aren’t happy about the prospect of being squeezed out of the business by the DPA’s reforms.

In one instance, an intermediary company from a NATO country sent Bezrukova a threatening message when she tried to move away from working with them. The company told her that direct contracting was “not how things were done” in the arms business.

Earlier, Bezrukova’s personal information was dumped on an anonymous Telegram channel. It exposed her passport details, address, and telephone number. An accompanying message said: “You can hide or not but we will find you.”

Hiring hurdles

As part of her efforts to reform the agency, Bezrukova is trying to bring in fresh, professional people that she can trust. But she noted that candidates are enduring protracted background checks by the SBU, nosediving the hiring process amid a staffing shortage and fierce workload.

The agency needs 328 people but is currently lacking around 100 employees. Only 40 people were hired in the last three months, the DPA told the Kyiv Independent.

Prior to Bezrukova’s leadership, candidates only waited one or two days for background checks. But since late November, when her appointment was expected, waiting times have shot up to one to four months, the DPA said.

Bezrukova says she understands that background checks can take a long time due to the SBU's workload. But she stressed that “it is in our interests to update the agency as soon as possible and strengthen it with professional personnel.”

Maryna Bezrukova, the head of the Defense Procurement Agency in Kyiv, Ukraine, on June 19, 2024. (Danylo Pavlov / The Kyiv Independent)

The SBU told the Kyiv Independent that one of their responsibilities is the “counterintelligence support of the defense complex,” including the DPA. That includes running checks on entities and individuals’ connections with the special services of foreign countries, the SBU said. However, “decisions based on the information provided by the SBU are made directly by the management of the DPA,” the SBU said.

The problem, according to Kaleniuk, goes beyond stalled security checks. It’s that many of the “old guard” connected to the arms intermediaries remain in the DPA. The old leadership put them there, she said, adding that employees inside the SBU connected to the arms trade oppose Bezrukova’s appointment and are deliberately sabotaging her efforts, including hiring a new team.

Under Bezrukova, the agency poses an “existential threat” to their interests, Kaleniuk said. The SBU wants to keep people they can control and work within the agency, she added.

“We've always seen this kind of opposition to the defense procurement,” she told the Kyiv Independent.

Bezrukova is pushing through the hurdles, noting that she has full legal decision-making over new hires regardless of the SBU. The agency runs its own security checks on all candidates and sends their documents to the security service but doesn’t always wait for the full background checks to come back before hiring.

She told the Kyiv Independent that she is replacing several deputies, including her predecessor Volodymyr Pikuzo, who was demoted to deputy head of the agency. Instead, Bezrukova recently hired Artem Sytnyk, former head of the state National Anti-Corruption Bureau (NABU), as deputy director of security.

Promising progress

Apart from trying to hire new people, Bezrukova is shaking up the agency with a new structure.

The DPA is now set to more rigorously inspect manufacturers and sellers, including stock checks, before signing contracts. Afterwards, an export license is established and the agency pays the company part of the contract. The complete payment only comes after the products are on the border or in Ukraine, Bezrukova said.

“In this way, we can be sure that our money is safe,” Bezrukova said.

Already, the agency concluded more contracts in the first quarter of 2024 alone than in the whole of 2023, Klimenkov told the Kyiv Independent. The DPA has allocated 98% of its Hr 216 billion budget so far this year of which Hr 110 billion has been paid to suppliers, mostly in advance to support production, according to the DPA. The agency will stop advance payments in full following Bezrukova’s reforms.

Over 70% of funding has been funneled this year into Ukrainian companies, bolstering the mushrooming domestic defense sector. Ukraine remains dependent on foreign allies in some areas, such as where state-of-the-art technologies are key to manufacturing weaponry. But Ukraine is making inroads here.

“You cannot win a war with imports, and we need to develop our own military industry,” Klimenkov said.

In particular, the DPA is leading the way in drone procurement under Bezrukova’s management. Orders this year totaled Hr 2.5 billion ($61.8 million) and saved Hr 187 million ($4.6 million) through transparent and competitive bidding, according to the Defense Ministry. Klimenkov praised the agency’s transformation efforts in increasing competition and adopting international procurement standards.

“(The DPA) is a commendable institutional solution for wartime,” a NATO official told the Kyiv Independent under the condition of anonymity.

He said that the agency could play a role in all of Ukraine’s security sectors and set the path for NATO standard procurement. However, he noted that it should have more “weight in the system” to achieve by handling procurements for “all security systems of Ukraine, not just for the list of products contracted by the defense ministry.”

Supervisory board protection

As the DPA improves and expands, arms dealers are likely to ratchet up attempts to discredit or break the agency using the SBU’s influence, Kaleniuk warned.

According to NAKO and ANTAC, the solution to safeguarding the agency is to introduce a supervisory board independent of the government that includes foreign members. This will ensure the agency's oversight and compliance with regulations and the law, said Musiiaka, from NAKO.

A British-based recruitment agency has narrowed down the shortlist to a dozen candidates from six countries. It includes applicants from the U.S., U.K., Poland, Germany and France, the Defense Ministry said on June 19. A decision will be made soon, according to Klimenkov.

The ministry refuses to publish the names of candidates to “prevent interference by third parties and pressure on candidates.” Following criticism about the lack of transparency, the ministry eventually agreed to share the long list and short list of candidates with anti-corruption groups. However, it said it could only share the names of the candidates who gave their permission.

On the short list, only eight out of 12 candidates allegedly agreed to have their names revealed, according to Kaleniuk. Even with this limited access, anti-corruption activists said the selection process appears questionable.

“From the long list we found strong candidates who were not invited to the short list. While in the short list we found much weaker candidates,” Kaleniuk said.

According to Klimenkov, the supervisory board will oversee the agency’s management and the implementation of its strategy and promote transparency and the agency's credibility in the world, “which would also help us secure direct contracts with international arms manufacturers.”

The supervisory board will also help protect Bezrukova from further attacks, ANTAC co-founder Vitalii Shabunin told the Kyiv Independent. It will also build trust from Western partners in an agency that has to operate under the utmost secrecy.

Moreover, the presence of foreign board members will boost Ukraine’s access to international supplies and establish direct connections to Western suppliers, the NATO official said. It will open the market and widen Kyiv’s knowledge of the foreign market, Musiiaka added.

For Bezrukova, board members are the key to mitigating the cost of international companies that are upselling weapons and ammunition. She doesn’t hold enough sway on her own, she stressed.

“If somebody who has influence inside a (partner) country could say to businesses, ‘don't be greedy, we are about strategic partnerships,’ it would be great because prices are an issue,” Bezrukova said. “(The board is) about power in different countries.”
The board may bring Ukraine’s defense procurement closer to NATO standards of transparency, but it also represents a tightening fist on Ukraine’s illicit arms trade.

“Not everybody in the Security Service and among arms dealers are happy with that,” Kaleniuk said.

Toma Istomina contributed reporting to this story.

Note from the author:

Hi, this is Dominic Culverwell, thanks for reading this story. While the news of corruption persisting in Ukraine is always frustrating and saddening, it’s important to remember that there are many people fighting against it. I hope that this article shines a light on the positive routes Ukraine can take just as much as the problems it's facing. If you want more in-depth coverage, then please consider supporting us.

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