July 31, 2014
From Lugansk to Las Vegas: The Corrupt Empire of Oleksander Yefremov
How a Ukrainian Boss and His Political Machine Have Helped Russia’s Attack on Ukraine
Oleksander Yefremov, a boyish-looking sixty-year-old, is one of eastern Ukraine’s most prominent politicians and businessmen. For over a decade, he has been the corrupt strongman of Lugansk, one of the two provinces where Russia’s government and military have been sponsoring the war in Ukraine.
Yefremov is a son of the Soviet Union, born the year after Stalin died in the gritty mining-and-steel city of Lugansk. ("Lugansk" reflects its spelling in Russian, which is the city's predominant language; from Ukrainian, it is transliterated "Luhansk.") Yefremov rose as a young man through the ranks of the Komsomol (the Leninist Young Communist League) and the Communist Party in Lugansk oblast, or province.
When the Soviet Union collapsed in 1991, Yefremov joined legions of Communist Party bureaucrats in reinventing himself as a businessman. With his powerful connections, he patiently sluiced government money, through opaque tenders and takeovers of state properties, to build a network of companies that now stretches from Lugansk’s polluted coal fields and smelting factories to the British Virgin Islands and the West. A key to his empire is a holding company run by his Bulgarian partner in a leafy Las Vegas suburb, according to records assembled by a Ukrainian non-profit group, the Anti-Corruption Action Center.
On July 28, the Ukrainian government prosecutor’s office formally opened a criminal investigation against Yefremov, charging him with abuse of office and extortion. Yefremov, currently in Kyiv, dismissed the investigation as “absurd.”
For Ukraine, Yefremov is a pillar of the political machine that has dominated eastern Ukraine since the country’s independence, and that ruled the east – and for years the country – as the Party of Regions. The party’s top leader was former president Viktor Yanukovych, who fled Kyiv under the pressure of Ukraine’s pro-democracy movement in February. Even if the new Ukrainian government manages to defeat the Russian-sponsored insurgency in Lugansk and neighboring Donetsk province, Yefremov and other corrupt bosses of the Party of Regions will remain a challenge for efforts to build a more democratic, transparent government.
The Party of Regions remains the second-largest party in the parliament, able to help obstruct economic and government reforms. President Petro Poroshenko has pressed for early elections. Even in that vote, the party will remain a powerful machine in the east, where it has dominated government structures and shaped public attitudes with its campaigns for autonomy or separatism from Kyiv (and thus from any need to share power or wealth with the national government).
Like Yefremov, the Party of Regions has built its current power on its roots in the Soviet system. The Soviet Union for years cultivated the Donbas region's Russian identity as the industrial engine of both the Soviet Union and of Russia.
After the Soviet collapse, Donbas’ heavy industries crumbled and shrank, partly because the corruption of Yefremov and other Party of Regions officials diverted the investments they needed. As Yefremov, Yanukovych and other party leaders grew rich, the region’s poverty deepened. Official statistics show that, during Yefremov’s seven years as Lugansk governor (1998-2005), the province’s death rate led its birth rate by a ratio of three to one. Lugansk led the country in wage arrears and, with Donetsk, formed the poorest region in Ukraine.
True to its name, the Party of Regions directed popular frustration over the east’s deepening poverty toward the Ukrainian central government. When democracy movements emerged in Kyiv – the 2004 Orange Revolution and the 2013 Maidan movement – the Party of Regions aggressively repudiated them. In response to each, the party summoned a congress in eastern Ukraine to demand that the region secede and create an independent state.
Last winter’s separatist congress was followed two months later by Russia’s occupation and annexation of Crimea, and then by its war in the Donbas region.
After Yanukovych’s flight from Kyiv and the outbreak of war with Russian proxy militias, the Party of Regions has fractured a bit, but not broken. Some of its legislators formally quit the party’s bloc in parliament. Others openly sided with the insurgents. Last month, parliament member Oleg Tsaryov took a position in the rebel-declared government, leading Kyiv to issue a warrant for his arrest.
This week’s criminal charges announced against Yefremov underscore that, separate from the military combat of Donbas, Ukraine’s government faces a critical political battle against the eastern Ukrainian power structure that helped bring on the current war.
Irena Chalupa covers Ukraine and Eastern Europe for the Atlantic Council.