Ukraine Accuses Defense Company of Embezzling $40 Million

Ukraine’s intelligence agency said it had exposed a defense company’s $40 million embezzlement scheme, money that had been intended to procure mortar rounds, as the government sought to underline its commitment to fighting corruption at a time when U.S. military aid has stalled.

Officials at the defense company, Lviv Arsenal, attempted to siphon off 1.5 billion Ukrainian hryvnias, or $40 million, from the state budget that had been designated for the purchase of 100,000 mortar rounds, said the intelligence agency, the Security Service of Ukraine. The Defense Ministry cooperated in the investigation, which implicated some of its current and former senior officials, the intelligence agency, known as S.B.U., said in a statement.

The company got the contract and funds for the purchases in the summer of 2022, several months after Russia launched its full-scale invasion of Ukraine.

“However, it never sent a single round to our country, while moving the money into the shadows,” said an S.B.U. statement posted Saturday on the Telegram social messaging app. It said that five people had been charged, but their identities were not released. It was not immediately possible to contact the company, which the Ukrainian news media said was not well-known.

The war, and the tens of billions of dollars in military aid that has come with it, has proved a bonanza for defense companies in Eastern Europe, but Ukraine’s allies in the United States and Europe have raised the pressure on Kyiv to show it can guard against graft. Proving that Ukraine’s institutions are capable of fighting corruption effectively is also key to the government’s strategic goals of joining NATO and the European Union.

The issue has become more acute for the Kyiv government amid a stalemate in Washington over sending additional aid to Ukraine, with House Republicans linking the funding to efforts to secure the United States border with Mexico. Some U.S. lawmakers have also demanded tighter accountability for the funds.

President Volodymyr Zelensky of Ukraine replaced his defense minister in September and fired the heads of military recruitment offices a month earlier in measures that experts said aimed to show that the government was dealing aggressively with mismanagement and possible corruption in the powerful ministry.

The need to improve government institutions has increased given the lack of progress made by Ukrainian forces in the war against Russia. The failure of Ukraine’s counteroffensive last year to achieve significant progress has made a protracted conflict more likely. Ukrainian analysts say that, with Ukrainians under heightened pressure on the battlefield, it has become imperative for the government to ensure that its key war-fighting institutions are well run.

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