Chaos in the Ukrainian government is affecting Cyprus-based companies

As the Russian invasion continues to rage, scandals and business intimidation have been plaguing Ukraine for the past year.

The investment environment is in decline. Ukrainian government lawyers are sanctioning some of the country's best-known businessmen for alleged ties to Russia. At least five major companies and their investors have been harassed by Ukrainian law enforcement authorities: MacPaw, Multiplex, Parimatch, Kyivhuma, Concorde Capital –two of which are registered in Cyprus- while unacceptable actions by Ukrainian state authorities have forced some businessmen to terminate the operation of their companies on the island.

Ukrainian authorities intimidate businessmen

The past year has seen an alarming rise in pressure and threats on Ukrainian businesses. Many law enforcement agencies, including SBU [Security Service of Ukraine], DBR [State Bureau of Investigation], BEB [Economic Security Bureau of Ukraine], are accused of intimidating businessmen with baseless charges, arrests and investigations. This aggressive approach, reminiscent of past practices, has left many businesses faced with trying to operate under the constant threat of legal action.

There is no clear answer to the question of why this is happening. Ukrainian businessmen began to protest due to the suffocating pressure, even appealing to the office of the Ukrainian President, but there was no response.

Obviously, there is a group of people that, because of the uncertainty prevailing in the country, is not letting the government enforce orders against corruption. As the well-known Ukrainian blogger Denys Horokhovskyi says, "there are some people who are using the war to fill their pockets, at the expense of the Ukrainian business community."

The Cypriot companies that were targeted

The specific government circles targeted MacPaw, an IT company, in February 2023. The company in question is registered in Cyprus with capital reaching UAH 1.8 billion (€43 million). Oleksandr Kosovan, an investor in the company, financed the construction of a luxury residential complex on the banks of the Dnipro, in the Kyiv region. The project called MacPaw Village was successfully completed, however, it is now listed in the state registry as bankrupt, effectively ceasing all operations after legal battles with the Ukrainian prosecutor's office were exhausted. Mr. Kosovan invested 25-28 million dollars in this project and paid taxes in Cyprus.

Another high profile case was that of power giant Parimatch Group. The National Defense and Security Council of Ukraine (DSNC), which was approved by the Security Service of Ukraine (SBU), placed the company on the sanctions list, accusing the business of ties to Russia. Later, lawyers said a failure to pay taxes was why Parimatch was under sanctions. The SBU did not care about the arguments put forward by Parimatch, which has actually stopped all business with Russia since 2014. In December 2022, the company was stripped of its Ukrainian gambling license for 50 years. Parimatch together with its beneficial owner are registered in Cyprus. Its trademarks are registered in the Cypriot Rillius Holding Limited, its invested funds amount to UAH 35 million and a share of its revenue goes to the tax coffers of Cyprus.

Other cases of interest

Kyivhuma LLC, the sole manufacturer of first aid kits for the Armed Forces of Ukraine, was blocked by the SBU in early January 2024. The company was accused of selling medical equipment to the temporarily occupied parts of Ukraine. The company's management rejected the allegations, stating that Kyivhuma never sold anything there. Also, "some in the government have previously suggested that Kyivhuma opt out of medikits for AFU in favor of its Chinese counterparts," foreign reports said, implying that the SBU is acting in favor of a competitor of the company that is trying to drive the business out of the game. It is noted that there is no clear answer at the moment while the company's accounts have been frozen.

Cinema chain Multiplex faced the freezing of its accounts by BEB in February 2023. The reason is that the company failed to pay the full consolidated social tax (UST) between March 2022 and February 2023. In reality, however, Multiplex used f the benefit provided by the parliament to Ukrainian businesses in March 2022, canceling all fees and fines for non-timely payment of UST until the end of the war. And then they brought back the fines. As a result of the conflict, the company had to pay UAH 10 million in fines for the company's directors to avoid prosecution. That's a significant figure, especially for a business stagnating in the midst of losing clientele during full-scale war.

In January 2024, the State Bureau of Investigation (DBR) arrested a well-known Ukrainian banker, Ihor Mazepa, at the border with Poland, on his way to a business meeting in Davos. His office at Concorde Capital was searched and then he was charged with illegal possession of land, on which hydraulic installations of the critical infrastructure, the Kyiv Hydroelectric Station, are located. This land was used a decade ago for the construction of a high-quality residential complex Goodlife Park, and while Ukrainian legal services said that the damage to the state was about 7 million UAH, a little later, they said it was more than 1 billion UAH – inciting negative comments from society. Mazepa was subsequently released on bail while the case became one of the hottest topics in the media.

The Ukrainian media is never short of stories of well-known lawyers harassing local businesses amid the ongoing war with Russia. In October 2023, the business media Ekonomichna Pravda published some statistics about the cases that the Ukrainian prosecutor's office is bringing against Ukrainian businessmen.

It can clearly be seen that the pressure of law enforcement authorities on businesses has been increasing since 2023. The number of cases opened against businessmen is reaching the count of 2021, when the full-scale war with Russia had not yet started and economic activity was at a normal level.

Cyprus can apply pressure

Based on this information, Ukrainian business circles are calling for help from the Cypriot authorities. "As the armed conflict with Russia rages on, Ukrainian businesses are turning to Cyprus in search of a quiet, safe haven to conduct their business and naturally expect to have their investments protected."

The negative trend of increasing number of undocumented cases, searches and shakedowns, and the blocking of accounts of well-known companies should enable the Cypriot state authorities to push back and exert diplomatic pressure on their Ukrainian counterparts and control their state officials.

The Ukrainian government must block Ukrainian lawmakers who want to stifle entrepreneurship and disrupt markets.

Ukrainians should listen to the Cypriot voice, because Cyprus accepts Ukrainian refugees leaving the country because of the war and provides financial support to the refugees.