Corruption in Ukraine is so bad, a Nigerian prince would be embarrassed
United States Vice President Joe Biden has never been one to hold his tongue. He certainly didn’t in his recent trip to Kiev. In a speech before Ukraine’s Parliament, Biden told legislators that corruption was eating Ukraine “like a cancer,” and warned Ukrainian President Petro Poroshenko that Ukraine had “one more chance” to confront corruption before the United States cuts off aid.
Biden’s language was undiplomatic, but he’s right: Ukraine needs radical reforms to root out graft. After 18 months in power, Poroshenko still refuses to decisively confront corruption. It’s time for Poroshenko to either step up his fight against corruption — or step down if he won’t.
When it comes to Ukrainian corruption, the numbers speak for themselves. Over $12 billion per year disappears from the Ukrainian budget, according to an adviser to Ukraine’s National Anti-Corruption Bureau. And in its most recent review of global graft, anti-corruption watchdog Transparency International ranked Ukraine 142 out of 174 countries on its Corruption Perceptions Index — below countries such as Uganda, Nicaragua and Nigeria. Ordinary Ukrainians also endure paying petty bribes in all areas of life. From vehicle registration, to getting their children into kindergarten, to obtaining needed medicine, everything connected to government has a price.
The worst corruption occurs at the nexus between business oligarchs and government officials. A small number of oligarchs control 70 percent of Ukraine’s economy, and over the years have captured and corrupted Ukraine’s political and judicial institutions. As a result, a “culture of impunity” was created, where politicians, judges, prosecutors and oligarchs collude in a corrupt system where everyone but the average citizen benefits.
While there are numerous examples of high-level corruption in Ukraine, a few stand out for their sheer brazenness. In one case, $1.8 billion of an IMF loan to Ukraine meant to support the banking system instead disappeared into various offshore accounts affiliated with PrivatBank in Ukraine, which is owned by Ihor Kolomoisky — one of Ukraine’s leading oligarchs.
Thanks to the anticorruption group Nashi Groshi (“Our Money”) the details have come to light. Forty-two Ukrainian import firms owned by 54 offshore entities borrowed $1.8 billion from PrivatBank. The offshore firms then used the IMF money to order goods from fictional “suppliers,” with the $1.8 billion in loans from PrivatBank secured by the goods on order.
However, when the fictional suppliers inevitably did not fulfill their end of the bargain, PrivatBank was left holding the bag with its $1.8 billion gone offshore. As a Nashi Groshi investigator noted, “this transaction of $1.8 billion abroad with the help of fake contracts was simply an asset siphoning operation.” Unfortunately for Ukrainians — as well as Western taxpayers who fund the IMF — neither Kolomoisky nor anyone else in Ukraine has been held accountable and the case faded from public view in Kiev.
Powerful politicians and businessmen in Ukraine can also count on Ukrainian officials to protect them from European prosecutors. After a two-year investigation, Swiss prosecutors recently opened a criminal case against Mykola Martynenko — a close Parliamentary ally of Ukrainian Prime Minister Arsenyi Yatsenyuk — for allegedly accepting a $30 million bribe through a Czech company and attempting to launder the money through Switzerland. However, despite repeated requests from the Swiss for assistance, Ukrainian officials are protecting Martynenko, according to a report in the Kyiv Post, and Ukraine’s prosecutor general publicly refuses to pursue the case.
Switzerland is not the only country with whom Ukraine declines to cooperate. As part of an investigation into suspicions that Ukraine’s former Minister of Ecology Mykola Zlochevsky laundered $23 million, Britain’s Serious Fraud Office requested assistance from Ukrainian authorities. However, Ukraine not only refuses to provide assistance to the British, but prosecutors actually wrote letters exonerating Zlochevsky, forcing the British to unfreeze Zlochevsky’s accounts and dismiss the case.
To contain rising populist sentiment and preserve Western support, Poroshenko should take the following steps:
First, Poroshenko needs to immediately fire current Prosecutor General Viktor Shokin. The United States’ Ambassador to Ukraine recently called out Shokin’s office for “openly and aggressively undermining reform,” and leading reformers in Ukraine’s parliament and civil society continue to demand Shokin’s ouster.
Despite this pressure, though, Shokin remains in place. Since he is a close ally of Poroshenko, it’s not hard to see why. Poroshenko is himself a wealthy oligarch, and in a system where prosecutors are used as weapons against opponents in business or politics, Poroshenko remains determined to maintain control over this critical lever of power. However, while Poroshenko’s seeming motivations for protecting Shokin are understandable, it’s time for the Ukrainian president to place his country’s interests above his own.
Second, Poroshenko needs to sell all of the assets in his multi-billion dollar business empire. When campaigning for president last year Poroshenko promised to do just that, saying “As president of Ukraine, I only want to concern myself with the good of the country and that is what I will do.”
Poroshenko is the only one of Ukraine’s 10 richest people to see his net worth actually increase in the past year, and his bank continues to expand while others lose their licenses. One of his industrial companies also won a large shipbuilding contract — a clear conflict of interest with Poroshenko’s role as president.
Moreover, while no evidence exists that Poroshenko uses his position to promote his broader business interests, Ukrainian television recently reported that Poroshenko shut down an investigation into damage to a protected historical site stemming from illegal construction on land Poroshenko owns.
Third, Poroshenko must take a hands-on role in the war against corruption. While a new National Anti-Corruption Bureau and anti-corruption prosecutor are in place, they have not started work yet. Anti-corruption activists in Kiev fear both of these organizations will be “eaten by the system,” according to Daria Kaleniuk, executive director of the Anti-Corruption Action Center, a Ukrainian civil society organization. Poroshenko must provide these organizations with high-level political support to ensure this does not occur. With Ukraine’s citizens becoming angry and restless, one of Ukraine’s leading anti-graft watchdogs believes a third Maidan revolution may occur if the Ukrainian people don’t begin to see powerful people prosecuted and jailed.
Finally, Poroshenko should replace Yatsenyuk as Prime Minister. Although Yatsenyuk deserves great credit for pushing through painful economic and energy sector reforms — a task he proudly called “political suicide” — he sloughs off responsibility for fighting graft, noting that “I am not responsible for the prosecutor’s office… nor for judiciary.” Yatsenyuk faces corruption investigations as well, which is not something Poroshenko needs from the second-most powerful official in the country.
To be clear, Ukraine has not completely ignored the fight against corruption. Besides the new National Anti-Corruption Bureau and anti-corruption prosecutor, government procurement tenders moved online and major civil service reform just passed. The key drivers of these measures, though, are not government officials or politicians — many of who fight these changes tooth and nail — but leading civil society organizations such as Transparency International and Ukraine’s Anti-Corruption Action Center. These reformers demand radical change, and given the billions of dollars stolen each year by powerful people, they are doing so at great personal risk.
Poroshenko must join Ukraine’s reformers in pushing for this change — and if he refuses to do so, he should resign.