Ukraine - Corruption - 2001-2010
The country ranked 134 out of 180 on the 2008 Transparency International Corruption Perception Index scoring 2.5, which was 0.3 bellow the previous year (10 = zero corruption level). Transparency International's 2009 Corruption Perceptions Index listed Ukraine as 146th out of 180 surveyed countries; in other words, Ukraine was perceived to be more corrupt than 145 other countries around the world).
When compared to other Eastern European cities, the criminal threat in Kyiv did not appear to be significantly different. Kyiv was a big city with attendant big city problems. The crime situation in Kyiv - and throughout the country - was aggravated considerably by widespread government corruption and inadequate law enforcement support. Due to corruption and the Ukrainian government's inability to provide a Western-level police force, foreign visitors and residents must be prepared to exercise an increased level of awareness, implement precautions which would be appropriate for any large city in the United States or Europe, and review their personal and residential security measures regularly.
Ukraine can be categorized as a closed insider economy -- a country strongly influenced by elite cartels. Top political and business figures collude behind a façade of political competition and colonize both the state apparatus and sections of the economy. Immediately after independence, these influential elite and their organizations grew into major financial-industrial structures that used their very close links with and influence over government, political parties, the mass media and the state bureaucracy to enlarge and fortify their control over the economy and sources of wealth. They used ownership ties, special privileges, relations with government and direct influence over the courts and law enforcement and regulatory organizations to circumvent weaknesses in governmental institutions to their own private advantage. Their tactics and their results can be viewed as a clear exercise of state and regulatory capture. At the same time, there was a high tolerance for corrupt practices throughout society, facilitating a trickle-down effect that allows petty, administrative corruption to flourish.
This corrupt environment was a clear obstacle to future sustainable economic growth and integration into the European Union and world economy. It hinders fair competition, encourages under-the-table deals and collusion between state officials and business, promotes rent-seeking behaviors, discourages foreign investment, and decreases adaptability over time.
The fight against corruption in Ukraine received a welcome boost in November-December 2004 as a result of the Orange Revolution. The trend of Ukraine?s national and democratic development changed dramatically in 2004 and 2005. After a massive public protest against manipulation of early Presidential election rounds, the Ukrainian people chose Viktor Yushchenko and his reform-minded government in a runoff election deemed by the international community to be free and fair. Ukrainian civil society and the independent media had taken a brave stance against the corrupt practices of the previous administration of Leonid Kuchma. Following the election, civil society clearly demonstrated greater activism, and a much freer independent media landscape emerged. A year after the change in administration, some positive rhetoric had been heard and some reform activities have been accomplished, but a strong and clear national policy and strategic direction against corruption, with accompanying programs to increase transparency, strengthen accountability and build integrity, were still absent.
Contrary to the Orange Revolution's promise of anti-corruption reform and the rhetorical fealty of its leaders to the rule of law, official corruption continued to infect all levels of government, including its highest reaches. Corruption in the office of the Ukraine's President (the Presidential Secretariat) appeared no different qualitatively than the corruption which reportedly permeated President Kuchma's Office of Presidential Administration.
Investment continued to be severely limited by the perils of Ukraine's lawless investment environment. Foreign investors were reluctant to invest there because of the hazards of its notorious corruption, while those which were already in the country must regularly adapt their business practices to the abnormal market circumstance of constant vulnerability to official lawlessness.
Over time, several of these Ukrainian cartels/clans have grown and subdivided, increasing the number of clans that compete with one another for wealth and power. Sometimes, for convenience, these clans coalesced on political issues. After the Orange Revolution, the network of "bosses" within the government bureaucracy that could "make things happen" for the cartels/clans was partially dissembled, resulting in some uncertainty and a slowdown for major businesses.
Corruption in Ukraine remained one of the top problems threatening economic growth and democratic development. Administrative corruption was widespread and visible in the everyday lives of citizens and businesspeople, and grand corruption was also widespread, though not as visible, in the higher levels of government where large sums of money and political influence were at stake.
Ukrainian law enforcement agencies were often part of the problem rather than a part of the solution. A 2009 public opinion poll sponsored by the US Agency for International Development (USAID) noted that the "traffic police," "all other police," and "the judiciary" were considered the top three least trusted/most corrupt government institutions. Low salaries, inadequate training, poor working conditions, and shortages of basic equipment contribute greatly to systemic internal corruption and general ineffectiveness. As previously noted, police ineffectiveness and negligence in response to countering or investigating hate crimes was especially troubling. Police units also rarely have English-language capability, even among officials working in units designated to combat crimes against foreign nationals. As a result, reporting a crime to the police was often a difficult and lengthy process. Subsequent follow-up to determine the status of a case often requires lengthy visits to police stations.
On November 18, 2009, in San Francisco, CA, Pavel Ivanovich Lazarenko was sentenced to 97 months in prison, ordered to pay a $9 million fine and forfeit $22,851,000 and various specified assets resulting from his money laundering convictions. The court deferred decision on restitution. Lazarenko was convicted on June 3, 2004, on 29 counts of money laundering, wire fraud and interstate transportation of stolen property.
During the trial, evidence showed that starting in the early 1990s, when he was the governor of an industrialized region in Ukraine, Lazarenko abused his official authority to extort Ukrainian businessman Peter Kiritchenko of 50 percent of his profits. Over time, and as Lazarenko rose in office to become the Prime Minister, Kiritchenko paid Lazarenko $30 million, which was half of Kiritchenko's $60 million in profits. At Lazarenko's direction, Kiritchenko assisted him in laundering the proceeds of that extortion through accounts in Poland, Switzerland, Antigua, and, ultimately, the United States, where Lazarenko used a shell company to conceal his purchase of a multi-million dollar residence in Marin, Calif.
Kiritchenko pleaded guilty to one count of receipt of stolen property and testified against Lazarenko. After trial, the court dismissed fifteen counts and sentenced Lazarenko on fourteen counts. The Ninth Circuit Court of Appeals later affirmed all of Lazarenko's money laundering convictions (eight counts) dismissed the other charges and vacated the original sentence. This sentencing was on the eight counts of money laundering. This case was the first prosecution of a foreign leader for laundering the proceeds of extortion through financial institutions in the United States.
Ukrainians need techniques for surviving their country's red tape, in addition to the bribery, corruption, and crime that were rising during the late Brezhnev era and have escalated since independence. (Only during Stalin's reign was bribery less of a problem, and that was out of fear.) The Soviet concept of blat roughly translates as "access, pull, or connections" that was always more powerful than currency, which in any case can only be spent once. A related term was svyazy meaning "connections and strings," which was not the same as vzyatka, meaning "kickback or bribe." Today, blat and svyazy remain enormously valuable and vzyatka, enormously pervasive.
Ukraine’s tax system remained cumbersome due to rapid and unpredictable changes. Frequently revised tax laws were poorly worded, and thus, ambiguous. In a study by Pricewaterhouse Coopers and the World Bank, Ukraine was deemed one of the most complicated countries in which to pay taxes.
Ukraine has a sizable shadow economy that developed due to excessive tax pressures, non-transparent and frequently changing legislation, and the lack of law and contract enforcement. Crisis developments resulted in a gradual growth of the shadow economy share in 2008-09. Experts estimate the size of the parallel shadow economy to be between 50 and 60 percent of the official economy. Widespread corruption became a serious problem in the late 1990's.
Anti-corruption efforts introduced in Ukraine in subsequent years were predominantly imposed from the outside. They had been vague, all-inclusive and lacking in political and public support. What was more, they have been fairly insensitive to the cultural context into which they have been introduced. While targeting corrupt behaviour, they have largely ignored its root causes. The impact of Ukrainian anti-corruption reform has therefore been limited. Changing deeply ingrained political and cultural habits was difficult and, as yet, there has been disappointingly little meaningful anti corruption reform. Corruption has not discernibly abated and continues to burden foreign businesses in Ukraine, and to inhibit inflows of new investments from abroad.
In a meeting with law enforcement heads to mark the 09 December 2009 "National Day of Fighting Corruption," President Yushchenko accused Prime Minister Tymoshenko of misappropriating billions of hryvnias in state funds and bribing local officials to manipulate the January 17 presidential election. He claimed that the "Prime Minister systematically arranges for the misuse of billions of hryvnias of state budget funds," and blamed the Prosecutor General's office for failing to investigate the alleged corruption. Yushchenko blamed law enforcement heads for Ukraine's slide down the ranking of Transparency International's Survey of Perceptions of Corruption to 146th place, the lowest of the Newly Independent States. He told the assembled agency heads "You are good for nothing as government Ministers. You are incompetent and your sloppy work is a disgrace to the nation!" This unedifying spectacle was a somewhat spicier version of the discouraging daily fare in Ukrainian intra-governmental discourse.
President Yanukovych prioritized investment and economic growth in his Economic Reform Plan and repeated publicly that he wanted to make Ukraine more attractive to foreign investors. However, conditions for doing business and the overall investment climate remained very difficult. Complex tax and customs codes, byzantine laws and regulations, poor corporate governance, weak enforcement of contract law by courts which allow and sometimes protect corporate raiding, and official corruption have made Ukraine a difficult place to invest.
In fact, although the Government of Ukraine (GOU) had listed improving the investment climate as a top economic policy goal since 2004, the overall investment and business climate remains poor, as evidenced by its low ranking-- 145 out of 183 economies -- in the World Bank's Doing Business Report for 2011 and by anemic figures for Foreign Direct Investment (FDI) in recent years. Due in part to conflicts in the body of laws that govern investment and commercial activity in Ukraine, and a high level of corruption in the country, foreign investors have found it difficult to pursue cases in Ukrainian courts and often seek arbitration outside of the country.
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