UAH 18 billion shadow empire: ESBU exposes «conversion center» serving hundreds of companies across Ukraine

 A massive tax evasion scheme involving hundreds of clients operated across multiple regions of Ukraine—including Kyiv, Odesa, Poltava, and Chernihiv—and was integrated into international financial channels in the European Union and the United Arab Emirates.

The scheme utilized approximately 500 controlled companies. Over 200 enterprises minimized their VAT liabilities through fictitious transactions, thereby facilitating subsequent money laundering and cash-outs. Total turnover reached up to UAH 18 billion.

Detectives from the Economic Security Bureau of Ukraine established that one of the suspects organized the so-called 'conversion center' and recruited other group members. To achieve their goals, they generated fictitious VAT credits through 'on-paper' transactions without any actual delivery of goods or services. Subsequently, the funds were converted into cash, or their origins were concealed through further financial operations.

The group utilized an extensive network of controlled entities, including over 100 fictitious enterprises and approximately 400 individual entrepreneurs (FOPs). These were used to formalize sham agreements, allowing client companies to reduce their tax liabilities.

The mastermind behind the scheme is a man currently hiding abroad. He coordinated all activities and recruited several accomplices, each responsible for specific areas: financial operations, accounting, company registration, opening bank accounts, and recruiting front persons (strawmen).

A separate mechanism was established to offshore funds. For this purpose, more than 20 controlled non-resident companies registered in the European Union and the United Arab Emirates were used. The funds moved through accounts and a network of currency exchange offices both within Ukraine and abroad, particularly in European countries. Subsequently, the money was either withdrawn as cash or converted into crypto-assets to make the financial flows more difficult to trace.

Additionally, the participants of the scheme provided services for the «legalization» of goods of dubious origin. Specifically, this involved fuels and lubricants as well as petroleum products, which were given the appearance of legal origin through the use of fictitious documentation.

The scheme had been operational since at least 2020 and spanned several regions of Ukraine, including Kyiv, Odesa, Poltava, and Chernihiv oblasts, as well as the city of Kyiv. During this period, more than 200 enterprises utilized its services.

The total volume of funds that may have passed through this scheme is estimated at up to UAH 18 billion, with an approximate annual turnover exceeding UAH 1 billion. Based only on specifically identified instances, tax evasion amounting to more than UAH 56 million has already been documented.

The Territorial Office of the Economic Security Bureau of Ukraine in the Poltava region, along with detectives from the Main Investigation Unit of the ESBU and officers from the Strategic Investigations Department of the National Police, conducted a large-scale special operation. Over 40 searches took place across various regions of Ukraine.

Law enforcement seized primary accounting documentation, computer hardware, and mobile phones, including more than 30 devices linked to the activities of entities showing signs of fictitiousness. Other seized items included bank cards, ledger records (black bookkeeping), and approximately 40 seals of controlled business entities.

Cash in both national and foreign currencies was discovered, totaling over UAH 5 million, approximately USD 300,000, and EUR 20,000. Additionally, five vehicles were seized.

Currently, the organizer, financial director, accountants, recruiter, representatives of the real sector of the economy, and other participants in the scheme have been served with notices of suspicion under several articles of the Criminal Code of Ukraine: Part 1 and 2 of Article. 255 (creation of and participation in a criminal organization), Part 1, 2, and 3 of Art. 212 (tax evasion), Part 2 of Art. 205-1 (falsification of documents for the state registration of legal entities and individual entrepreneurs), and Parts 1, 3, and 4 of the Article. 358 (forgery and use of counterfeit documents, seals, and stamps).

The organizer was served with a notice of suspicion in absentia. Measures are being taken to place him on the international wanted list.

Four individuals have been detained, and three have been placed in pre-trial custody (remand in custody).

The pre-trial investigation is ongoing.

Prosecutorial supervision is provided by the Poltava Regional Prosecutor's Office, while operational support is handled by the Strategic Investigations Department in the Poltava Region of the National Police of Ukraine.

In accordance with Article 62 of the Constitution of Ukraine, a person is presumed innocent of committing a crime and cannot be subjected to criminal punishment until their guilt is proven in accordance with the law and established by a court’s verdict of conviction.