Kacper Pempel, Reuters

International Reports

Ukraine: Transparent but Corrupt?

by Isabel Weininger
Ukraine is the most transparent corrupt country in Europe. Corruption, oligarchy, and some mafia-like structures continue to be part of everyday life for people in Ukraine – in healthcare, education, business, customs, or the media landscape. Nevertheless, the reform efforts of the past few years have achieved increased transparency and social awareness of corruption. The German government and the European Union are providing substantial support to Ukraine; justice reform and combatting corruption are priorities.

In Transparency International’s 2018 “Corruption Perceptions Index”, Ukraine ranks 120 out of 180, alongside African countries such as Mali, Malawi, and Liberia, with 32 of 100 points. Overall, the country ranks third among the most corrupt countries on the European continent; only Azerbaijan (152nd place) and Russia (138th place) rank lower.

If Germans are asked about their image of Ukraine, their response will focus on the four C’s: Crimea, conflict, crisis, and corruption. Ukrainians themselves also view peace in Donbas (32.1 per cent) and the fight against corruption (34 per cent) as priorities and central tasks of the new parliament, according to a survey by the Razumkov Centre published in July 2019. Only increases in salaries and pensions, and a reduction of utility costs, 38 per cent and 38.8 per cent respectively, achieve greater support among respondents. Corruption appears to be an endemic, structural problem that arises hydra-like in nearly all areas of life and society.

Nevertheless, much has been accomplished in the five years since the “Revolution of Dignity”. Of particular note is the fact that, in many areas, corrupt dealings have become more transparent and been hemmed in by preventive measures. One example is the mandatory electronic declaration of assets (e-declarations). Since 2014, all officials in public service have been required to submit an electronic list of all income and property, much more detailed than those in other European countries, and accessible online for any citizen to see. In many cases, these lists reveal that an official with a monthly salary of several hundred euros probably cannot afford fancy real estate, expensive cars, or Swiss watches with his legal income. The declarations are reviewed by Ukraine’s National Agency on Corruption Prevention (­NACP), and investigations are handed off to the National Anti-Corruption Bureau of Ukraine (­NABU). According to the United Nations Development Programme (­UNDP), the publication of income and assets via a public, directly accessible digital system was the ground-breaking instrument Ukraine has employed to prevent corruption. The system is an important step in the direction of more transparency and a springboard for a cultural shift. This instrument thus enables civil society, international organisations, and state institutions to track, monitor, and uncover corruption in many areas. But because there is a lack of consistency in the prosecution of cases of obvious corruption, Ukraine can be very accurately described as a transparent but corrupt country. Prevention and transparency are only the first step, and there is a need for independent institutions dedicated to criminal prosecution and conviction.

The Poroshenko government created the basic institutions for this effort: ­NABU and ­NACP, mentioned above, and the National Agency for the Return of Stolen Property (­NASAR), the Specialised Anti-Corruption Prosecutor’s Office (­SAPO), the National Council on Anti-Corruption Policies (­NCACP), and finally the High Anti-Corruption Court (­HACC). Unfortunately, these newly created institutions have not always functioned efficiently, and have not resulted in any convictions until this year. This was one reason for the Ukrainian population’s dissatisfaction with the former president.

The political change in early 2019 brought a breath of fresh air to the fight against corruption in Ukraine.

Not least due to this, the people opted for fresh faces and different rules in politics, electing Volodymyr Zelensky to the presidency, and electing a parliament, the Verkhovna Rada, composed of 80 per cent political neophytes. The new government is proceeding rapidly and has already ratified a number of changes to laws in the anti-corruption area. For instance, criminal liability for unlawful enrichment was re-introduced, the national anti-corruption offices were rebooted, improvements have been made to the Code of Criminal Procedure, and a reform of the public prosecutor’s office has been set in motion. The new appointments of the heads of the justice and anti-corruption offices, the participation of international experts in the selection of judges, and a new ethics commission indicate a great deal of potential for finally making substantial progress in the fight against corruption. The replacement of the old political elites by progressive, new, young political actors appears to be an opportunity for Ukraine. The political pressure to combat corruption effectively is high – also on the part of civil society and international partners. Decision-makers in Ukraine must tackle this problem – not only to comply with the conditions of the Association Agreement with the European Union, but also to increase the standard of living for Ukrainian citizens, and restore their faith in institutions. Most Ukrainians trust neither the executive, legislative, nor judicial branches, but instead the church, volunteer organisations, and the army. This is a big problem that endangers the long-term functioning of what is still a very young democracy. The previous governments failed to win back this trust. In 2018, the average income was 340 ­euros per month (gross), which is only about 20 per cent of the European average, making Ukraine the poorest country in Europe, although positive trends are emerging. However, the population’s socioeconomic conditions can only improve sustainably if the investment climate becomes more attractive, and that, too, is largely dependent on reducing corrupt dealings and ensuring a functioning, independent justice system.

During her visit to Ukraine in November 2018, German Federal Chancellor Angela Merkel emphasised that the struggle against corruption was one of the most important reforms, along with decentralisation and privatisation. During the 21st EU-Ukraine summit in July 2019, the European Union explicitly listed combatting corruption as one of four priorities for the new government, and warned of the danger of a rollback in that struggle. The German government and the European Union are thus supporting Ukraine on its path to reform. Recent figures from the Organisation for Economic Co-operation and Development (­OECD) in autumn of 2019 confirm that Germany is Ukraine’s third largest donor after the US and the EU. Of the 15 billion ­euros that the EU has mobilised for Ukraine since 2014, 15 million ­euros went to an anti-corruption initiative in each of the years 2016 and 2019. The following article shows why this substantial support is needed, especially in the fight against corruption, and why it is in line with European values.

The Fruits of the Euromaidan

In its Revolution of Dignity (Euromaidan or Maidan revolution, named after the Kyiv’s central Independence Square) in 2014, Ukraine decided to take the European path. The people fought hard for this choice, and many even paid for it with their lives. “Maidan has united and strengthened civil society. Even though we did not know what will happen afterwards, we felt this empowerment,” said Anastasia Kozlovtseva, Head of the International Relations department at Transparency International Ukraine. She emphasises that transparency can only be the first step, and that the implementation of reforms must follow.

Since Maidan, one of the primary achievements of the reforms has been in the area of public procurement: the “ProZorro” online portal is an excellent example of transparent handling of public funds. This online platform for awarding public contracts was set up by an alliance of civil society and the private and public sectors, and ensures free access to all public contracts. “ProZorro” is considered “one of the most innovative public procurement systems delivering government services in a stakeholder-­focussed, transparent, effective, fair, and low-cost way”. Anyone can view the public calls for tenders online, so the portal not only ensures open competition between companies that provide goods and services to the state, but also improves civil society’s capability of monitoring contract awards. It is estimated that “ProZorro” has already saved up to ten per cent in public expenditure.

In addition, successful reforms have been carried out in the banking and gas sectors, where large-scale money laundering used to be the order of the day. The mandatory electronic asset declarations for public officials and employees also ensure transparency and traceability for money flows, allowing civil society and international organisations to report abuses and uncover cases of corruption. Despite this transparency, there has so far been little systematic prosecution of reported cases. For instance, ­NABU and ­SAPO announced in August 2019 that 751 criminal investigations were under way, involving 133 suspects and 369 indictments. It is, thus, all the more conspicuous that there have so far been no final convictions. The new anti-corruption offices are having a difficult time, especially in their investigations of high-ranking members of government and administration. The ­NABU was created in 2014, also with the aid of EU funds. However, the investigators are making slow progress, hindered at times by old structures and powerful interest groups. The ­SAPO has so far suffered from mismanagement, as has the ­NACP. Moreover, there has until recently been no special court – the ­HACC was founded in 2019 and only began work in September. It is now hoped that the first convictions will occur in spring 2020. The appointment of the ­HACC judges was a great success, since an international council of experts was able not only to advise on selection, but also to have a say in it. Upon adoption of the law in the Rada, then President Petro Poroshenko, said that there is no comparable anti-corruption legislation in any other country in the world. The new appointments of President Zelensky have initially confirmed positive signals. Anastasia Krasnosilska, who previously worked for the  Anti Corruption Action Centre (AntAC), assumed the chairmanship of the newly founded Anti-Corruption Policy Council in parliament. Ruslan Riaboshapka, a respected reformer and anti-corruption expert, was appointed Attorney General. In addition to creating transparency via monitoring and prevention mechanisms, the necessary institutions for criminal prosecution were set up, and a new start was made in terms of personnel.

Old power structures and influential interest groups remain present in Ukraine, slowing the fight against corruption.

Yet, why do rankings still show Ukraine to be one of the most corrupt countries if so much has been done? The examples above show that Ukraine has had very successful reforms since Maidan. But endemic corruption is still pervasive, and some of the anti-corruption initiatives have been implemented only partially, according to a Freedom House report, which indicates that the country is only “partially free” (60 of 100 points). But there has been one more achievement: the education and lobbying work in the area of anti-corruption financed by the West has contributed to increasing public pressure on the government to carry out anti-corruption reforms effectively. The more corruption is uncovered, the greater the social awareness of the problem. This became obvious again during the weeks of public discussions, both in Ukraine and internationally, about the leaked telephone conversation between US President Donald Trump and Ukrainian President Zelensky – but the consequences for Ukraine are still unclear.

 

Fig. 1: The Ten Most Important Reforms Following a Survey in June 2019 and the Opinion of the Population on the Success of Reforms in June 2019 (in Per Cent)

https://www.kas.de/documents/259121/7681178/weininger_grafik_01_EN.svg/a7e61329-fcea-1338-05cf-2bdcb1337c99?t=1574942062882

Source: Own illustration based on Razumkov Centre 2019: “Ukraine after Elections: Social Expectations, political priorities, development prospects” (author’s translation), pp. 74 / 79, in: https://bit.ly/2OtKqMc [21 Nov 2019].

 

It would be a terrible mistake to overlook the public discourse on corruption, and the many years of work on the part of grass-roots initiatives in this area, which are signs of democratic development in the country and among its inhabitants. This shift in people’s thinking thus happened even before Zelensky was elected. The free and democratic elections in 2019 that led to a peaceful change of power are also a good sign. Such a development has so far been possible in not many other post-Soviet countries outside the EU.

Economic Success or Roll-Back?

The quick and numerous reform efforts on the part of the newly elected Zelensky government are, first of all, a confirmation of Ukraine’s westward orientation. Despite numerous hazards, there is at least reason to hope that the right reform priorities will be pushed forward with political will and an absolute majority in parliament. Since parliament plays an important role in implementing reforms by passing the necessary legislation, the president has a unique opportunity to push through these reforms with his own party, Sluha Narodu (“Servant of the People”, named after a television series of the same name in which the president, a former actor, once starred) without resistance from parliament. Earlier struggles between coalition partners and between the government and parliament can no longer be used as an excuse. The government party holds 254 of 450 seats, giving it an absolute majority in the Verkhovna Rada. The president and his team have announced important reforms in the area of justice and anti-corruption, but are also striving to achieve a better climate for investment. There is to be privatisation of the 3,500 or so state-owned companies; monopolies are to be broken up and access facilitated for international investors. The repeal of the moratorium on sale of agricultural land, which international donors demand, passed the first reading on  13 November and is supposed to enter into force on 1 October 2020. In October, the Cabinet of Ministers decided that the “ProZorro” platform would, in future, also be used to offer the assets of insolvent companies for public sale. There have already been economic successes: in the second quarter of 2019, Ukraine’s economic output rose by 4.6 per cent, and the hryvnia (Ukrainian currency) gained significant value. The markets developed positively at the beginning of the second half of the year; the reasons for this were the new government, the good agricultural harvest, rising wages, and remittances from emigrants. The International Monetary Fund (­IMF) emphasised in a press release at the end of September that the solid fiscal and monetary policy of the last few years, the correction of the deficit in the energy sector, and the restructuring of the banking system have pulled the economy out of the 2014 crisis back to growth and restored macroeconomic stability. But the current growth rate (between two and three per cent) is still too low to close the income gap between Ukraine and its European neighbours. Greater sustainable growth will be achieved only through the implementation of ambitious reforms. “This includes most of all firmly establishing the rule of law – including through judicial reform – and decisively tackling corruption,” the ­IMF said.

But a functional, independent justice system and success in the struggle against corruption is also necessary for economic prosperity. Only when they are in place will foreign donors be willing to make long-term investments. In 2014, Ukraine signed an Association Agreement with the European Union – including a free-trade agreement (Deep and Comprehensive Free Trade Agreement, or ­DCFTA). Amongst other things, the EU supports Ukrainian economic reforms, and has invested 110 million euros since 2014 in the development of the private sector, especially promoting small and mid-sized companies. Since the ­DCFTA came into force in January 2016, bilateral trade between the EU and Ukraine has increased by 49 percentage points, making the EU Ukraine’s largest trading partner (accounting for 42 per cent of Ukraine’s total trade).

So, what are the hazards that could hamper economic reforms, and that Ukraine, together with its international partners, must face?

Even among the new “Servant of the People” members of parliament, there are connections to the Ukrainian oligarchy.

Among those often cited are lack of party discipline, oligarchy, and concentration of power. Party discipline is not particularly well developed in Ukrainian political culture. In ­Zelensky’s team, too, various interest groups within the parliamentary faction “Servant of the People” have emerged from the outset. The elected officials, some of whom are young and inexperienced, form a very diverse group of reformers and young businesspeople – some of them with ties to Igor Kolomoisky, a well-known Ukrainian oligarch who is often associated with President Zelensky. Many members of the Sluha Narodu party in parliament were elected via direct mandate, and may have issued local promises ahead of the election, or entered into shady relationships, or may be pursuing their own interests. There is little doubt that some of the new members of parliament are backed by oligarchs, who still dominate politics, business, and media. In addition to the rich, who will not give up their influence without a fight, there is resistance from the system itself. The necessary reforms are not always popular, and administrative capacities at the local and national levels are still limited – not only with respect to good governance, but also concerning complex transformations and reform legislation. The greatest hazard, however, is the concentration of power, which the president wields jointly with his absolute majority in parliament. The weak system of checks and balances in the Ukrainian political system – the parliament is supposed to check the president – has de facto been negated. Both the media and civil society appear to have a difficult situation with the new government. Mykhailo Zhernakov, a lawyer and head of the ­DEJURE Foundation, said at the beginning of the legislative period in the late summer of 2019 that the preparation process for the first reform initiatives and legislative proposals by the new government team could unfortunately not be described as open or inclusive. The situation improved slightly in autumn, when the parliament began to concern itself more deeply with reform legislation. With the Poroshenko government, this was a well-practiced consultation process in which civil society and experts were involved. Precisely because of the hazards that have been indicated, it is important to counter any backsliding from the Maidan democratisation process, and to refuse to countenance any authoritarian or populistic tendencies. The G7 countries should continue to display a united front and agree with Ukraine’s civil society on joint priorities for the reform agenda. Both economic and reform successes are necessary if a slide back into an authoritarian scenario is to be avoided.

A final point why Europe has to continue to support the fight against corruption in Ukraine is that corruptly gained money is often spent in European countries – whether in Austria, the United Kingdom, or the Baltic States. Ukrainian corruption is thus also perceptible in Western Europe, where dirty money is most often spent. Olena Galushka of the AntAC office argues as follows: Europe is partially responsible when no questions about the origin of large sums of money are asked; such practices contribute to the success of money laundering for Ukrainian oligarchs and enhance their influence in Western Europe.

Finally, Germany and Europe have interests in the sustainable economic development of Ukraine, a country whose land area is almost as great as that of France, with around 45 million inhabitants in the immediate neighbourhood. This great economic potential and the achievements to date provide hope for the continued positive economic development of Ukraine.

Corruption Under Conflict Conditions

A position paper for the ­CDU/­CSU parliamentary party in Germany’s Bundestag written in November 2018 begins as follows: “The future of the European Union will be decided in Ukraine: if Russia’s increasing anti-Ukrainian activity allows it to destabilise the country or even return it to the Russian sphere of influence, there would be grave consequences for European security, the attractiveness of Western values as a model, and the effectiveness of the European Union as an agenda-setting power.”

The ongoing conflict in eastern Ukraine continues to be a significant component of regional political and societal relationships.

From a Ukrainian point of view, this argumentation requires no further explanation. However, not many Europeans are aware that since the beginning of the conflict in eastern Ukraine, more than 13,000 people have been killed, a quarter of them civilians, or that borders are once again being shifted and mines laid in Europe. Just as worrisome is the Russian annexation of Crimea in 2014 in violation of international law, which often recedes into the background in the discussion on Ukraine. Ignoring international law is a threat not only to the international liberal world order and system of justice, but also very concretely to Europe’s security. The plausible challenge to the Russian system of power posed by Ukraine and its free elections was recognisable in the summer of 2019. At first, the Russian media peered almost enviously at their neighbouring country, where there were various candidates during a presidential election and the results of elections were not pre-determined. It was unthinkable for many Russians that in their own country a well-known actor without political experience could not only become president, but also win the majority in parliament. According to Russian experts, this was one of several reasons for the demonstrations in the summer of 2019 for free and fair elections in Russia.

One of Zelensky’s campaign promises was a solution to the conflict, and there have been minor advances in relations between Kyiv and Moscow in the past half year. The disengagement process started at a bridge on the contact line and a fragile but effective cease-fire in the summer of 2019, and the so-called Steinmeier Formula was signed in Minsk. A meeting of Normandy Format heads of state has been scheduled, and disengagement in other zones on the contact line are intended. A special concern of Zelensky’s is improving the living conditions for those on both sides of the contact line. The grey zone on the contact line is a breeding ground for new sources of corruption, such as black-market operations and trade with coal from the occupied areas. In March 2019, a new corruption scandal came to a boil in the defence sector. In 2018, Ukraine spent around five per cent of its ­GDP on defence. The state-owned Ukrainian defence company, Ukroboronprom, was accused of embezzling Ukrainian arms and equipment worth around eight million euros. The call for tender was not public, and ­NABU investigated. But the scandal has had a positive effect: in this sector, too, preventive measures are being taken against corruption. Prime Minister Oleksiy Honcharuk has also made the fight against corruption in the defence sector a part of his government programme. This is not the only case of corruption in the area of security and defence policy, and the EU has given the European Union Advisory Mission (­EUAM), which has been active in Ukraine since December 2014, a comprehensive mandate for security sector reform. The aim is the support of Ukrainian agencies in implementing reforms in the civil security sector according to international standards. Primary among these reforms is ensuring efficiency and rule of law, and enhancing public trust in state institutions. In the period from June 2019 to May 2021, 54 million euros will be available to the ­EUAM for completing this task. The struggle against corruption is part of these reforms as well, and is being pursued in the interest of winning back the people’s trust in public institutions, especially the security agencies. The military struggle in eastern Ukraine could also be won by non-military means if Ukraine reforms its domestic policy in a manner that is attractive to all Ukrainians on both sides of the contact line.

Outlook

So far, the oft-mentioned “sandwich” of international partners and Ukrainian civil society have joined forces to fight for reforms in the areas of justice and corruption. The visa liberalisation agreement between Ukraine and the EU was considered a major success and a reward for the reforms. Since it came into force in June 2017, around three million Ukrainians have travelled to the EU on biometric passports. A specific prerequisite for this measure was progress in anti-corruption legislation. This “carrot and stick” policy has so far led to the biggest reform successes, and should continue to be applied in future. The EU mentioned at its summit in July 2019 that Ukraine needs to do more to fight corruption and to reform justice if it is to ensure the full implementation of the Association Agreement. No repeal of the visa liberalisation measure has so far been considered. Macrofinancial assistance from Europe and the ­IMF, but also from the World Bank, is similarly dependent on progress in Ukraine’s reform process. The fight against corruption has been repeatedly brought up as an especially important condition for further financial aid. When reforms in this area ground to a halt at the end of Petro Poroshenko’s presidency, and the law on illicit enrichment of officials was struck down by the Constitutional Court, instalments were held back and a termination of cooperation announced. These alliances and incentives should continue to be used to push forward pending reforms.

The Razumkov Centre survey also addressed voter intention with respect to particular elec­tion programme positions. It showed that most respondents support introduction of mandatory confiscation of the property of corrupt officials (90.9 per cent) and limits on the ability of oligarchs to monopolise sectors of the economy, appoint their people to public office, and control the media (91.8 per cent). Moreover, 64.5 per cent favoured the introduction of a system for financial compensation for citizens who uncover corruption. A draft bill “On the Protection and Financial Compensation of Whistleblowers” was introduced to parliament in September 2019. 87.3 per cent thought that rebooting all courts and completing the reform of the justice system was important. Vita Dumanska of ­CHESNO, an ­NGO, said that Zelensky paid attention to socio­logical surveys during the campaign and made the popular societal demands part of his platform. After the elections, however, it became clear that some promises, such as lowering gas prices, could not be kept. Voters were also still waiting for the campaign slogan to be realised: “Spring will come, and we will put corrupt officials behind bars.”

The greatest risk for the new Ukrainian government is disappointing the public. Zelensky’s promises to end the war in eastern Ukraine, and create a country without corruption cannot be accomplished within five years. Corruption can never be stamped out completely, and the end of the conflict is also dependent on Russian President Vladimir Putin.

What can Europe do? Unlike the period after Maidan, Ukrainian civil society currently has no common reform agenda, as it has diversified and works in different sectors. This situation thus requires new coordination among actors in civil society, and with international partners in Kyiv, and the establishment of new tangible goals to constructively support the new Ukrainian government in the full implementation of the Association Agreement. Reforms will proceed only if international partners continue to work together with Ukrainian civil society so as to maintain pressure on the Ukrainian government. Current reform laws, that the new government ratified so fast over recent months that experts have named it the “turbo regime”, must be in line with the obligations under the EU Association Agreement. The international partners should clearly communicate what has already been achieved, what steps remain to be taken, and what advantages they will mean for the country. The EU must also continue to emphasise its values of territorial integrity and the freedom of sovereign states. The annexation of Crimea, which violated international law, must be continuously condemned, as must Russian support for the so-called people’s republics in eastern Ukraine. As long as there are no constructive steps from the Russian side, the EU must credibly underscore its position by extending sanctions.

Europe can and will contribute and provide support, but the Ukrainians themselves must reform their country. This window of opportunity is now open in the fight against corruption as well. This is the only way for Ukraine to permanently escape the constraints of post-Soviet cronyism, become a beacon of democracy, rule of law, and European values, and radiate these values to the entire region, including to its neighbour, Russia.

– translated from German –

 


 

Isabel Weininger is Trainee at the Konrad-Adenauer-Stiftung’s office in Ukraine.

 


 

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