Over $14 Million “In the Shadows”: How Funds from Defense Contracts Were Embezzled

Ukraine’s defense sector faced massive corruption, with officials and contractors laundering millions through fictitious firms, inflating procurement costs, and misappropriating funds intended for military equipment.

Law enforcement uncovered a large-scale scheme to launder budget funds obtained through defense contracts for the Armed Forces of Ukraine. According to the investigation, in 2023–2024, officials from one defense enterprise colluded with organizers of a so-called conversion center and managed to amass millions.

Some of the “founders” of the companies, according to foreign registries, turned out to be entirely fictitious. 24 Kanal reports the details of the corruption schemes, citing the National Police and the Office of the Prosecutor General.

What is known about money laundering through defense companies?

The investigation found that the fraudsters operated in the field of military equipment repair. However, instead of actually repairing and servicing weapons, they siphoned off part of the state funds through a network of fictitious companies.

Payments were processed as purchases of spare parts or service work, but in reality, the money was transferred to controlled accounts, then converted into cash and returned to the scheme organizers. The commission for such “services” was 4–5%.

Over two years, state customers transferred more than 2.5 billion hryvnias to the enterprise.

According to analytical conclusions by the State Tax Service, financial transactions totaling over 576–578 million hryvnias show signs of money laundering from illegally obtained income.

The investigation established that the heads and directors of the fictitious firms actually reside in temporarily occupied territories, including the so-called “DPR,” support the Russian authorities, and could not legally manage Ukrainian companies.

As part of the investigation, law enforcement carried out over 40 searches in Kyiv, Kyiv region, and Dnipropetrovsk region. During the actions, they seized financial documents, electronic devices, mobile phones, correspondence of the scheme participants, and three premium-class vehicles.

Currently, the head of the conversion center, one of the co-organizers, and an accountant have been notified of suspicion under Article 209 of the Criminal Code of Ukraine, concerning the legalization of income obtained through criminal means. The offense carries a penalty of up to 12 years in prison with property confiscation.

The pre-trial investigation is ongoing. Law enforcement is identifying all involved individuals and determining the total damage caused to the state.

More on the exposure of similar schemes

• Recently, the SBU and NABU uncovered a large-scale corruption scheme in the defense sector. Funds allocated for dynamic protection for Ukrainian Armed Forces tanks were embezzled by the management of a defense enterprise together with contractors. According to the investigation, armor components were purchased at prices nearly three times higher than market value.

• Separately, NABU announced suspicions against two officials of the State Service of Special Communications and representatives of private companies in a case involving abuses during the procurement of drones for the Armed Forces.

• NABU and SAPO also exposed a scheme to embezzle funds from the state enterprise “Izmail Commercial Sea Port.” According to the investigation, a group of individuals, including the port director, through tender manipulations and controlled companies, seized over 24 million hryvnias by supplying equipment at inflated prices.

EMPR