February 2018 saw one of the most notorious generals of the Ukrainian pharmaceutical industry Ludmila Bezpalko, 71 step down as a CEO of Borschahivskiy pharmaceutical plant.
Mrs. Bezpalko qualifies to be a typical post-soviet robber baroness – the so called “red director” – a Soviet era industrial manager, who via various questionable ways ended up to own the industrial enterprise she managed. As many “red directors” do, Ludmila Bezpalkois loves her employees with that typical love of a lord to her serfs. She would be remembered as one of the richest and ferocious players at the Ukrainian pharmaceutical market. No doubt, she deserves every million she managed to make and keep.
John Rockefeller said: “I can report for every million earned by me, except of the first one”. Ludmila Bezpalko is on the list of the richest Ukrainians, but she would be unlikely to be willing to account neither for her first million nor for her other millions. She made her first money in the “post-soviet roaring nineties”, when no serious money was made unless fraud and corruption were used.
Borschahivskiy pharmaceutical plant was founded back in 1947 and during Soviet era used to be a prominent pharmaceutical producer. After the collapse of the Soviet Union the plant was privatized in 1994 basically by the management in partnership with R&J Trading International, a US firm owned by two US nationals Jacob Yampel and Rostislav Furman. Gradually the partnership between the then CEO Bezpalko and the Americans turned sour. In 1998 the Americans got kicked out of business with no reimbursement. Mrs. Bezpalko was said to have cloned the company and to have moved the assets to such newly established entity. The Americans were basically left to own 50% of the joint venture with zero assets. R&J Trading International accused Mrs. Bezpalko of fraud and instigated a number of civil and criminal proceedings in Ukraine.
Both parties spent a few years in legal battles. At some point Messrs. Yampel and Furman were close to win, with Ludmila Bezpalko being on police wanted list. She had to spend a few months on the run hiding from the law enforcement authorities. But then she used money and connections to stay out of prison. Money worked, the Americans lost and Ludmila Bezpalko prevailed.
Almost 20 years after the said fraud no one really knows the details of the fraud, as many documents unsurprisingly disappeared. But the fact is that in 1994 R&J Trading International invested equity funds to own 50% of the Borschahivskiy pharmaceutical plant and in 1998 R&J Trading International ceased to own the business assets with no compensations whatsoever.
Ludmila Bezpalko was accusing her American investors of siphoning money out of the company by means of supplying pharmaceutical ingredients at inflated cost thus moving the profits offshore. She might have been right. This is a typical way of illegally extracting tax free dividends out of business and stashing the cash offshore. But this is exactly what Ludmila Bezpalko seemed to have carried on doing after getting rid of the Americans.
Her CEO salary or her dividend payments just do not stack up with the multi-million fortune Mrs. Bezpalko accumulated to be publicly renowned as one of the richest players in the Ukrainian pharmaceutical industry.
The “post-soviet roaring nineties” let only the fittest survive in business. Fit to survive rather often meant to use fraud and corruption as the key element of the business model. But the business environment in Ukraine is changing. So are the business generations. “Red directors” like Ludmila Bezpalko tend to be gradually squeezed out of business, as they are too crude even for such rough business environment as Ukraine is now. Corporate fraud, banking fraud, corruption, tax evasion and money laundering might be the skeletons in Mrs. Bezpalko’s cupboard she would prefer to stay in the cupboard rather than come to light under the scrutiny of criminal investigations. Hence timely resignation.