Thomas de Waal
“Corruption” is an inadequate word to
describe the condition of Ukraine. Since the country achieved independence in
1991, the problem is not that a well-functioning state has been corrupted by
certain illegal practices; rather, those corrupt practices have constituted the
rules by which the state has been run. Ukraine’s
political system is best described as state capture.
Since the
Euromaidan uprising in 2013–2014, the new Ukrainian authorities have made
positive changes in several spheres such as police reform and public
procurement. An alliance between the EU and Ukraine’s other international
partners, on the one hand, and civil society organizations and some reformist
members of the government, on the other, has helped facilitate this progress.
However, there is still a poor understanding in wider society of what
constitutes corruption on an everyday level. Moreover, the Ukrainian public is
increasingly frustrated and cynical, perceiving that much of the old predatory
political class has survived into the post-2014 era and that the fundamentals
of the old system remain unchanged.
The revelation in the leaked Panama
Papers that Ukrainian President Petro Poroshenko, on assuming office in 2014,
had passed
ownership of his major chocolate business, Roshen, to an offshore company
registered in the British Virgin Islands may not have exposed anything illegal.
But the move was at the very least politically insensitive on the president’s
part and will have confirmed the impression of many ordinary Ukrainians that
their leaders have managed to stay part of a global wealthy elite while the
country’s average standard of living has fallen.
Substantial progress on rooting out
corrupt practices will not be made without targeted reform of the powerful
institutions that still perpetuate corruption. Rather than trying to fix
everything at once, Ukraine’s government and international partners should
focus on reform of the justice system, especially the Public Prosecutor’s
Office and the courts. Change there needs to begin at the top. Another
important goal is to continue to clean up the rules governing Ukraine’s
parliament, party financing, and electoral regulations.
New anticorruption agencies can be
effective but should not be viewed as a panacea, and the EU’s conditionality
should not depend on their performance. The EU should make its conditionality
less reliant on technical benchmarks and more political, basing it on an
overall assessment of real progress in the fight against corruption.
Corruption in
Ukraine: A Systemic Problem
For years, Ukraine has had more in
common with states in Africa or Latin America than with other parts of Europe.
Business and politics have been fused, the rule of law has been weak, and
almost all transactions, from visiting the doctor to managing a business to
running a political campaign, have incurred informal taxes or rents. Formal
political and bureaucratic offices are held on a basis of dependence on
powerful masters, who exact rents and pay incomes to members of their
networks—thereby robbing the state of revenue at every stage.
The result has been a weak public
service culture, while ordinary Ukrainians have learned skills of self-reliance
and see the state more as a predator than as a supplier of public goods. At the
same time, the public has a poor understanding of where corruption begins and
ends. Many Ukrainians accept that everyday bribery is a way to get things done.
This system was shaken but not
broken by the 2013–2014 Euromaidan revolution and the fall of the Viktor
Yanukovych regime. Much public anger that might have been directed at oligarchs
was deflected toward Russia after its military intervention in Ukraine. The two
Western-oriented politicians who became Ukraine’s president and prime minister,
Petro Poroshenko and Arseniy Yatsenyuk, had one foot in the old system and one
in the Euromaidan movement.
A comprehensive poll by
the Kyiv International Institute of Sociology at the end of 2015 showed the Ukrainian population was
confused about corruption: many people believed it was getting worse, while
ordinary citizens were also less inclined than in the past to give voluntary
bribes.
These paradoxical findings can be
explained partly by a climate of greater transparency, which has enhanced
public knowledge of corruption. “Ukraine is the most open country in Europe,”
said the prominent anticorruption activist Daria Kaleniuk in an interview, in
reference to media coverage of corruption issues. Investigative journalists and
civil society organizations such as Kaleniuk’s Anticorruption Action Center have taken the lead in the public battle against
corruption and have partnered effectively with a few reformist figures in
government and with Ukraine’s Western partners, an effect that has been called
sandwiching.
At the same time, there is not much
to celebrate in the fight against grand corruption—defined as the abuse by
leading officials of their public positions for personal enrichment—and
therefore no demonstration effect that will inspire confidence in wider
society. Even senior members of the discredited Yanukovych regime have so far
succeeded in avoiding prosecution.
The record of anticorruption efforts
in Ukraine is a mixed one, and public expectations in this area are certainly
too high. But both the EU and the Ukrainian government have a poor history of
communicating what they have done and plan to do. A failure to communicate well
with the public carries the risk of ceding the anticorruption agenda to
populist politicians with their own priorities.
The public’s perceptions and
behavior will change slowly. A shift in attitudes will happen faster if
assisted by educational initiatives and more media discussion of everyday
corruption, especially in Ukraine’s regions. Oleksiy Chornyy, who opened a new
anticorruption agency in Odessa, described in an interview how much needs to
change among the wider public as well as at an elite level. “People don’t
understand what corruption is,” Chornyy said. “
At first people came [to our
agency] with any old complaints, such as problems with their neighbors or
unjust court judgments. After two months we understood it wasn’t working. We
realized that the key issue is the abuse of public office.” Chornyy then tried
to enlist members of the public into exposing bribe taking by officials.
However, people were reluctant to do so, and “95 percent didn’t want to get
involved personally.”
Chornyy’s new agency tried to bring
two allegedly corrupt officials to justice, but both cases collapsed, despite
strong evidence. In one instance, the anticorruption activist said, a regional
transportation manager was purportedly allocating routes for public minibuses
in exchange for bribes worth $1,000. The manager drove a sports car despite
receiving a salary of 4,500 hryvnia ($170) a month. After being confronted with
evidence of wrongdoing, the manager resigned from the provincial administration—but
ended up being rehired to do a similar job by Odessa city hall.
The advice of this ground-level
anticorruption fighter is something that Ukraine’s Western partners should keep
in mind as they consider the bigger picture: a long-term change of culture is
required to fight corruption, and in the shorter term the more responsible
parts of the media can serve as a weapon that is just as important as the
courts. Chornyy said, “We’ve decided to change strategy again and identify
cases of corruption and advertise them through the media.”
Post-Euromaidan
Successes
Since 2014, Ukraine has scored
several successes.
Ukrainian Deputy Interior Minister
Eka Zguladze (who previously held the same post in Georgia) has led police
reform and been credited with an influx of new recruits into the police force
who refuse to take bribes. Police reform is popular with the public, although
some concerns have been voiced about the accountability
of the police force.
Zguladze is one of several Georgians recruited into
the Ukrainian government who worked with Mikheil Saakashvili when he was
Georgian president. The hope is that they can replicate the first phase of
Saakashvili’s reforms in 2004–2007, when much positive change was achieved,
without repeating the mistakes of the later Saakashvili period, when power was
abused and the public was disengaged from elite-level decisions.
Public procurement in Ukraine has
also undergone a radical overhaul. Previously, it had been a means to reward
political favorites. For example, in 2011, Oleksandr Yanukovych, a dentist and
the son of the then president, was allowed to buy the
Ukrainian Bank of Development, which then acquired the right to
pay the salaries of officials in several government departments. These kinds of
abuses should be much harder to perpetrate with the introduction of a new electronic procurement system named
ProZorro, which will make Ukraine’s government tenders some of the most
transparent in the world. ProZorro is supposed to be mandatory for all public
tenders from August 1, 2016.
Another reform that it is hoped will
deliver results in the longer term is the creation of the position of a business
ombudsman who can report businessmen’s
complaints about pressure to pay bribes and can tackle issues such as
value-added-tax fraud.
Reform has also begun of some of
Ukraine’s more
than 3,000 state-owned enterprises, which have enriched and empowered
corrupt state officials. The managers of the companies have traditionally been
beholden to politicians who used the businesses to generate semilegal or
illegal revenue streams. For example, under a kind of reverse money-laundering
process known as obnal,
the companies deposited legally earned money into specially created funds or
paid other businesses for fictitious services rendered—and the money was
thereby made available for personal and political uses.
The process has begun of breaking up
and giving new management to some of these monster companies, including the big
state-owned oil and gas distributor Naftogaz, which was a notorious source of
corruption. Responsibility
for appointing the management of Naftogaz and of 60 other state-owned enterprises
passed in 2015 from the energy ministry to the economic development ministry.
However, a balanced approach is
needed. There is a danger of proceeding too quickly with privatizing
state-owned enterprises if a proper legal framework is not in place. Ukraine
risks repeating the kind of inequitable privatizations that took place in
Russia and Ukraine in the 1990s, when state companies were sold off too cheaply
to politically powerful businessmen.
The Legal
System
Judicial reform is pivotal to
anticorruption initiatives in Ukraine. Corrupt practices in the country have
often been sanctioned by crooked court judgments and are therefore technically
legal. This problem hangs over many ongoing legal disputes. For example, the
Swiss aviation company Swissport, which formerly ran ground services at Kyiv’s
Boryspil International Airport, says that in 2013 it was the victim of a corporate
raiding attack when it was forced to sell its 70
percent stake in the airport to its minority
shareholder, Ukraine International Airlines, for a fraction of the price it was
worth. This was all done in a way that was nominally legal in the courts.
Reforming the whole judicial system
will take years. It makes sense to start at the top and replace the 20-member
High Council of Justice, the body that appoints judges. Although the council is
ostensibly independent, its
integrity has been questioned. In the same fashion, if new
appointments are made to the Supreme Court of Ukraine and the highest-level
appellate court, then final judgments can be made by judges at the top who have
authority in society.
Traditionally, the main power in the
legal system has lain with the Public Prosecutor’s Office, heir to the
Soviet-era prokuratora.
Afforded a section of the constitution to itself, Ukraine’s prosecutor’s office
could call on an army of officials. In 2013, it still had more
than 18,000 prosecutors (compared with 10,000 judges), with
the number set to fall to a more reasonable 10,000 by 2017.
At the top of the prosecutor’s
office hierarchy, Ukraine’s two most recent prosecutors general, Vitaly Yarema
and Viktor Shokin, both had the reputation of having been the president’s men.
As researchers William
Pomeranz and Oksana Nesterenko note, “on close examination, the right
to appoint the [prosecutor general] represents one of the few substantive perks
assigned to the Ukrainian president outside the area of foreign affairs.”
Both Yarema and Shokin are faulted
for having failed to carry through important prosecutions of notorious figures
from the Yanukovych regime. Whether the issue is primarily structural or
personal, it is certainly true that respected senior prosecutors such as Davit
Sakvarelidze (another Georgian appointee) and Vitaly Kasko have, in the words
of one international official dealing with Ukraine, been “sandboxed.”
Kasko had
pursued cases against two
high-level colleagues, who became known as the “diamond prosecutors” after
diamonds were seized from their offices, but the case was suspended. Kasko
resigned on February 15, 2016, saying that he
no longer wanted to work for a “dead institution.” On March 29, Shokin fired Sakvarelidze,
shortly before being voted out of his job by the Ukrainian parliament.
A recently appointed special anticorruption prosecutor,
Nazar Holodnitsky, although respected for his integrity, is judged by experts
to have less professional experience in this field than either Kasko or
Sakvarelidze and will face similar big challenges in getting major prosecutions
moving.
The case of one of Yanukovych’s most notorious cronies
illustrates the scale of the problem. Yuriy Ivanyushchenko, a parliamentarian
close to Yanukovych whose wealth was estimated by Forbes to be $122 million in 2014,
fled Ukraine after the fall of Yanukovych and was the subject of an Interpol Red Notice for internationally wanted persons. In
December 2014, Ivanyushchenko was formally accused of embezzling 72 million Swiss
francs ($75 million)
earmarked for energy efficiency measures. Assets belonging to him were frozen
in Switzerland. However, the prosecutor’s office stopped pursuing the case
against him in December 2015.
Why would Ukraine’s new prosecutors not bother to prosecute
one of the most despised figures from the previous regime? There are different
explanations. Some experts cite sheer incompetence and say that the case may
still be reopened. Others say that this proves that senior figures responsible
for pursuing these cases are either being paid off or fear that, if he came to
trial, Ivanyushchenko could incriminate current senior members of the elite.
Whatever the truth, the case augurs badly for the pursuit of grand corruption
and strengthens the argument for institutional reform of the prosecutor’s office
to ensure that personal loyalties can no longer be so influential.
New Agencies
Under Western pressure, the Ukrainian government has set
about forming a series of anticorruption agencies and positions. They are the
Specialized Anti-Corruption Prosecutor’s Office, headed by Holodnitsky; the National Anti-Corruption Bureau
of Ukraine, an agency with investigative and certain law-enforcement
powers but whose mandate does not cover past cases; the National Agency for
Prevention of Corruption, tasked to expose corruption by senior officials by
monitoring their asset declarations and other data; and a National Asset
Recovery Office and Asset Management Office, still in the process of formation
as of April 2016.
An act creating a new agency for identifying, tracing, and
managing assets derived from corruption and other crimes, with a
mandate to pursue stolen assets both in Ukraine and abroad, was signed into law
in December 2015 by the president, but the body has yet to start operating.
In other countries, the fight against corruption is handled
by existing institutions. In Ukraine, the advantage of forming new bodies is
that they can be staffed by freshly appointed professionals untainted by the
old system. However, these new agencies have overlapping mandates and will need
to coordinate very professionally with one another to get things done. More
worryingly, civil society activists and some Western officials fear that
creating special agencies makes anticorruption policy somebody else’s
responsibility—that the policy focus revolves around the functioning of these
agencies rather than the government’s overall duties in this field.
Certainly, a European Commission progress
report on the reforms
needed for Ukraine to obtain visa liberalization, published in December 2015,
suggests that the EU has accepted this logic to a large extent. While
justifiably observing that “progress made on legislative and institutional
aspects can only bring significant end results if fully implemented,” the
report concludes that “based on these commitments, the anti-corruption
benchmark is deemed to have been achieved.”
The dynamic under which the new agencies were formed also
raises serious questions, with foreign partners apparently showing a greater
commitment to these institutions than the Ukrainian government does. While
Western governments pressed for the new agencies to be created as quickly as
possible, well funded, and staffed with well-paid professionals, Ukraine’s
government and parliament showed no signs of haste, allocated insufficient
funding for them, and did not select top professionals to fill positions in the
new bodies.
For example, the government wanted the annual budget of the
National Anti-Corruption Bureau of Ukraine to be 100 million hryvnia ($4
million), according to a source in the bureau, before the figure was increased
to 800 million hryvnia ($31 million) under international pressure. The bureau
has been properly staffed and equipped with computers only thanks to the
persistence of Western donors.
Asset Recovery
No issue in Ukraine is more politically explosive than
recovering stolen assets. In a country where per capita income is
around $3,000, the fact that members of the previous regime shipped billions of
dollars abroad angers the public, while anticorruption campaigners express
frustration that almost nothing has been recovered since 2014. It was reported
that as of July 1, 2015, a mere 7,865 hryvnia ($356) had been returned from abroad
to the Ukrainian budget. In November 2015, a more respectable sum—almost $250
million—was reported to be frozen in foreign bank accounts but had not been recovered.
Asset recovery is a challenging business as stolen assets
are concealed in elaborate ownership structures across multiple jurisdictions.
Criminals exploit gaps in coordination between different countries with
different legal systems.
In the apparently clear-cut case of former Ukrainian prime
minister Pavlo Lazarenko, who
was given a ninety-seven-month jail sentence in 2009 by a U.S. federal court on
money-laundering charges, no stolen assets have so far been returned to
Ukraine. That is despite the fact that several governments are trying to recover approximately $250
million dollars frozen
mainly in accounts in the offshore jurisdiction of Guernsey.
More recently, another notorious case of corruption, the
huge private estate named Mezhyhirya that Yanukovych had built outside Kyiv,
has also proved hard to investigate. After the downfall of the former
president, ordinary Ukrainians were granted access to the grand mansion as well
as its yacht club, zoo, and garage full of luxury cars. However, despite the
publicity the site received, it has so far been impossible to make a case for
the legal handover of Mezhyhirya, as its trail of ownership leads through multiple owners registered in
Austria and the UK.
This is a challenge to the EU, as many of the shell
companies used to hide stolen assets are based in EU countries. Moreover,
several banks in Latvia are said to have been weak links and
entry points for illegally earned money to get into the EU banking system. In
2015, Latvian and Ukrainian investigators froze more than $80 million that had entered Latvian banks from
Ukraine. According to the Organized Crime and Corruption Reporting Project, a
billionaire named Serhiy Kurchenko who was accused of illegal enrichment and
large-scale tax evasion through gas sale schemes channeled millions of dollars
into two Latvia-based banks.
Targeting the Parliament
In the 2015 survey by the Kyiv
International Institute of Sociology, respondents called the
Verkhovna Rada, Ukraine’s parliament, the most corrupt political institution in
the country, with 60.6 percent of those surveyed saying it was a center of
corruption.
Despite the Euromaidan demonstrations and a new
parliamentary election in 2014, most old parliamentarians have kept their seats
and the Rada remains a millionaires’ club in which powerful business tycoons
enjoy immunity and use their offices to shape the political process. Several of
Ukraine’s so-called gray cardinals, who
exercise huge informal power, are parliamentary deputies. They include Ihor
Kononenko (accused by former economy minister Aivaras Abromavičius of trying to
impede his work) and Mykola Martynenko, an ally of former prime minister
Yatsenyuk who is being investigated by the Swiss
state prosecutor for
allegedly accepting a large bribe from the Czech company Škoda JS.
A central task of the new National Agency for Prevention of
Corruption is to provide data on asset declarations that will reveal the true
wealth of deputies—including many whose assets are considerably higher than
their modest salaries. However, the Rada has tried to prevent the agency from
achieving this goal.
Legislation setting up the agency dates back to 2014, but
the body began operations only in January 2016. Then the Rada passed a
controversial bill in February 2016 evidently with the intention of protecting parliamentarians
from the agency’s attention. The bill postpones until 2017 the date
when public officials become criminally liable for submitting false information
in their electronic declarations. The law also contains other loopholes,
including one in the rules for submitting declarations that will enable corrupt
officials to pass illegal assets to family members.
The parliament can be reformed only if the electoral
legislation by which parliamentarians are elected is changed. As researcher Anders Åslund has noted, “Ukrainian election campaigns
are among the most expensive in the world.” A total of 675 million hryvnia ($52
million) was spent on the 2014 parliamentary election.
New legislation passed by the Rada in October 2015 is a big step forward as it makes party financing much more
transparent. It puts a limit on private donations to political
parties and makes parties that receive at least 2 percent of the popular vote
eligible for state funding. The fact that the passage of the law was one
condition of an EU package of visa liberalization for Ukrainians traveling to
EU member states helped the bill succeed by a narrow margin, despite strong
opposition.
However, another piece of legislation will make the
parliament less transparent, not more. On February 25, 2016, Poroshenko signed
into law a bill that allows parties elected to the
Ukrainian parliament to
select after the election, not before, which members from the party list will
take seats in the Rada. In effect, this takes much of the power of electing
deputies from the public and gives it to party leaders. Several civil society
organizations as well as the International Foundation for
Electoral Systems have
condemned the new legislation. The foundation noted that the new law “can open
the door to political corruption.” The EU should speak up strongly to have this
legislation amended or overturned.
Conclusion
Corruption in Ukraine is a system that was wounded by the
Euromaidan protests but has survived and, to some extent, retrenched. Curing a
culture of corruption across society is necessarily a long-term process and
requires the inculcation of confidence in the rule of law in the wider public.
That will happen as the judiciary and the public administration change and
through education of the younger generation.
In the nearer term, more success is needed in tackling grand
corruption committed by top officials, to create a demonstration effect. The
judiciary, the prosecutor’s office, and the parliament in particular are still
centers of old corrupt practices. Top-down reform of these institutions should
be a priority. The EU is a key player in moving this process forward and should
be robust in applying conditionality. If a culture of corruption is allowed to
survive and even flourish, this could discredit the reformist project as a
whole in Ukraine and its pro-European sponsors.
The formation of special anticorruption agencies has both
pluses and minuses. Now that such an approach has been taken, it is important
to ensure that these bodies become key institutions in the system, not just
appendages to it. But an EU strategy should not rely too heavily on the new
agencies. To help tackle a pervasive culture of corruption, the EU should
resist the temptation to make its policies dependent on technical benchmarks
and should resolutely keep in mind the big political picture.
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