BY
None of the country’s reforms can
succeed while the oligarchs still rule. Here’s how to
take them out.
Ukraine’s
oligarchs are its biggest problem. If there is a
single obstacle to establishing a functioning state, a sound economy, and true
democratic accountability, it is the tycoons who control the country.
The oligarchs
first emerged in the years following Ukraine’s independence from the Soviet
Union in 1991. They grew rich by gaining privileged access to the gas
market, expropriating companies from private
owners, trading with state
enterprises on advantageous terms, and privatizing those same
firms at pennies on the dollar. The crooked dealings that lie at the root of
their fortunes give them a vital interest in keeping state officials
corruptible, the economy rigged, and the rule of law weak. A world in which
regulators abide by the rules, prosecutors and judges behave scrupulously,
democratic procedures hold leaders accountable, and market competition works as
intended is one in which the oligarchs cannot live and work.
Calls to finally stamp
out their influence are growing ever louder and morenumerous. But few observers have offered workable plans for doing so. With that
in mind, we present a roadmap for how it can be done.
The key to the
plutocrats’ power is, unsurprisingly, their money. Claims that
they control upwards of 70 to 85 percent of the
economy are probably exaggerated. But the oligarchs are extremely rich, and
their wealth affords them a degree of influence unfathomable by the standards
of most democracies. А mere six individuals own
the bulk of the country’s television, radio, and print media. Parliament is
little more than an arena for
competing moguls. A corrupt judiciary allows them to pilfer the state and rig elections with
impunity. The executive branch is headed by President Petro Poroshenko, himself
an oligarch with a dubious past.
Real reform does
not stand a chance unless the tycoons suffer a severe blow to their wealth and
influence. For that to happen, the following four steps must occur.
First, the
political class that has ruled Ukraine since independence must fall. Its
members have maintained their grip over the country even in the face of
successful popular uprisings in 2004 and 2014 against electoral falsification
and massive executive corruption. Any government that hails from this class, including the current one, will be too
compromised by ties to the oligarchs to transform the country.
Replacing the
ruling class requires popular action at the polls. Ukrainians
must elect a parliamentary majority and a president from outside the
post-communist political establishment. Once elected, this coalition must
appoint a government dominated by reputable technocrats instead of the usual
insiders.
Such a feat,
virtually inconceivable for most of Ukraine’s post-Soviet history, now appears
increasingly possible. Since the Euromaidan revolt of 2014, civil society has flourished and even
placed a new “Euro-optimist” contingent into
parliament. If this trend continues, it could produce a political opposition
that is both credible and independent from establishment elites.
Ironically — and
quite unintentionally — Putin’s invasion of Ukraine has added further life to
this possibility. His war has united the country around the goal of
Europeanization and effectively amputated the most heavily russophilic parts of
the electorate that might oppose such a project.
Once Ukraine’s new
government is in place, the second step — replacing corrupt officials in the
state administration with motivated activists and outsiders — can begin.
Expelling the magnates’ stooges from the government is crucial to depriving the
oligarchs of their political protection and access to state largesse. The
judicial system must be the first target of this campaign.
This process will
take time. 20,000 prosecutors and 10,000 judges are not going to be replaced
overnight. But that reality must not serve as yet another excuse for inaction.
A new government could readily establish a special prosecutor’s office and
special courts staffed by reputable professionals and tasked with pursuing
high-level corruption cases.
The National
Anti-Corruption Bureau, which became operational in December 2015, seems to
provide a good start, but it is grossly inadequate in its present form. While
it can investigate and prosecute crimes, it faces serious legal restrictions and staff
shortages. It also lacks a set of special courts where it can
try cases and is stymied by
corruption in the regular courts. This situation is hardly surprising, given
the stake that Ukraine’s current leaders have in preventing the agency from
doing its job.
With the first two
steps having loosened the oligarchs’ grip on the state, the third and fourth
aim to break their hold on the economy.
The third step is
to eliminate the subsidies on which
most of the oligarchs depend. This first requires privatizing state enterprises
that the moguls use to enrich themselves. The notorious regional
power companies would be a good place to start. These privatizations must break
with tradition by being fair, honest, and open to both foreign and domestic
participants. This would weed out oligarchic suitors in favor of capable new
owners.
The new leadership
must also simplify Ukraine’s byzantine system of
regulation and taxation. This system funnels a massive subsidy to the
oligarchs by insulating them from
market competition; it is they, after all, who excel in the influence-peddling
required to circumvent the bewildering maze of rules.
Even if deprived
of their cherished subsidies, Ukraine’s crony capitalists will still have at
their disposal a formidable arsenal of cash and assets they’ve already
acquired. If their wings are to be truly clipped, the government must compel
them to relinquish a substantial part of their ill-gotten fortunes.
The fourth and
final step aims to do just that. The newly-established special prosecutors
should carry out arrests on corruption-related charges of as many oligarchs as
possible. It should then offer them a plea bargain: Either pay a giant,
one-time tax on the assets they’ve stolen or face prosecution for past
misdeeds. Such an approach worked in Georgia after the Rose Revolution of 2003.
It could work in Ukraine, too.
The main goal is
not to punish the oligarchs; it is to use the credible threat of prosecution to
force them to cough up a significant chunk of their wealth. This would undercut
their ability to buy virtually everything and everyone and thereby diminish
their fabled aptitude for stymying reforms.
True, plea
bargains would allow the tycoons to escape justice. But calls to prosecute all
the oligarchs are not realistic. Concluding plea bargains with most while
prosecuting the holdouts is more feasible. To expect Ukrainian prosecutors to
pursue complex corruption cases against the entire oligarchic class is to
presume that the rule of law already exists. It does not.
The scheme we
propose would pave the way for rule-of-law reforms by undermining those who
stand in the way. With the oligarchs sidelined, the process of establishing a
robust democratic regime and a vibrant market economy could finally begin.
Western countries
can help. First, they can deny Ukraine’s reprobate political class access to
the billions in aid that enable it to stay in power. Far from
supporting reforms, Western aid has propped up the country’s rulers and freed
them from the need to build a functioning state and market economy. Continued
aid will only prolong the elite’s hold on power. Assistance that bypasses the
government and supports civil society should continue. And all aid could resume
once genuine reformers come to power and install a government free of oligarchs
and their hirelings.
Second, the West
is home to the world’s two biggest offshore tax and secrecy jurisdictions, the United Kingdom and the United
States. These and a slew of other tax havens in Western
Europe shelter the fortunes of oligarchs and kleptocrats from Ukraine and
elsewhere. If the plea-bargain strategy is to work
Ukrainian
prosecutors must gain access to information about the oligarchs’ offshore
holdings.Western law enforcement agencies can assist their
Ukrainian counterparts in this task.
But the first step
is for the people of Ukraine to eject their political masters and replace them
with competent outsiders and professional technocrats. Without this, none of
the other measures we propose can succeed. It won’t happen this year. But
Ukrainians are seeing as never before the necessity of replacing rather than
just reshuffling their rulers. With the right leaders, a few good policies, and
a little help from the West, Ukraine’s interminable reign of rot may yet come
to an end.
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