Ukraine - Corruption
Between 1992 and 1998 alone, $32 billion worth of heavy weapons, small arms, ammunition and other military equipment is estimated to have disappeared from Ukraine’s post-Soviet stores, according to the Organized Crime Observatory, a Swiss-based non-profit.
Ukraine's justice minister was on the receiving end of hefty criticism on 23 November 2016 following his appointment of a 23-year-old recent law school graduate to lead the government's anti-corruption office. Minister Pavlo Petrenko insited that he has hired Anna Kalynchuk "on merit" to root out civil servants loyal to ousted President Viktor Yanukovych. The anti-corruption and nepotism purges were one of the main demands of protests which eventually led to Yanukovych's ouster in 2014. President Petro Poroshenko has repeatedly pledged to deal with the issue, though little real impact has been made.
The public reaction to the Ukrainian officials' income statements was shocked dismay at the extravagant lifestyles conjured up by many of the disclosures. An anti-corruption reform requiring senior Ukrainian officials to declare their wealth online exposed a vast difference between the fortunes of politicians and those they represent. Some declared millions of dollars in cash. Others said they owned fleets of luxury cars, expensive Swiss watches, diamond jewelry and large tracts of land - revelations that hit public confidence in the authorities in Ukraine, where the average salary is just over $200 per month. Officials had until 06 NOvember 2016 to upload details of their assets and income in 2015 to a publicly searchable database, part of an International Monetary Fund-backed drive to boost transparency and modernize Ukraine's recession-hit economy. Officials' decision to hold cash pointed to a mistrust in the banks that many Ukrainians could relate to.
Mikheil Saakashvili, the Odesa region governor, declared his resignation 06 November 2016, saying the government continues to pursue old schemes. "When we spoke about changing everything, President Poroshenko said he was hampered by Yatseniuk. We set up the Movement for Cleansing and helped get rid of Yatseniuk. What's the outcome? Yatseniuk's team was curtailed and updated with that of the president, while the looting schemes remained the same. Moreover, Avakov and Nasirov, pillars of corruption, remained in their places," Saakashvili said.
Since the fall of the USSR Western donors poured billions of dollars into Ukraine; however, the country's corrupt elite siphoned off the money to its own pockets instead of building a functioning state. Access to Western assistance has freed the Ukrainian political establishment from carrying out serious economic and political reforms in the country and only heightened its interest in maintaining the status quo.
Neil A. Abrams and Professor M. Steven Fish of the University of California at Berkeley noted: "Only in rare instances have reforms gone beyond artful pandering to Western donors. The reason is simple: Since 1991, when Ukraine gained independence from the Soviet Union, a powerful political and business establishment has wielded uninterrupted control of the Ukrainian state. Not even popular uprisings in 2004 and 2014 or changes of executive power in 1994, 2005, 2010 and 2014 managed to dislodge this elite.... For every dollar of aid that flows into the country, $6.25 illicitly flows out, according to figures from the OECD and Global Financial Integrity..."
According to Josh Cohen, a former US State Department project officer who worked on managing economic reform projects in the former Soviet Union, it is hardly surprising that Petro Poroshenko's government has not succeeded in conducting reforms and fighting corruption. "While Poroshenko's behavior is disappointing, it is not surprising — in many ways, putting an oligarch in charge of a country that desperately requires deoligarchization is akin to appointing an arsonist to head the local fire department".
By early 2016 organized graft had given way to a free-for-all where bureaucrats grab what they can, while they can. The system of corruption had become more chaotic, more haphazard. Before some issues could be resolved without money, but now these options don't exist -- everyone is on the take.
Economy Minister Aivaras Abromavicius, one of the key ministers in Yatsenyuk's government, resigned on 03 February 2016, stating corruption and pressure from the president's party among his reasons. He called on Prime Minister Yatsenyuk to step down because the country was "caught in a crisis of trust". Radical steps were needed to regain that trust - such as a change of staff on the political level. "A country can't implement successful reforms if the head of government has lousy ratings," he added.
On February 10, 2016 Christine Lagarde, Managing Director of the International Monetary Fund (IMF), issued the following statement: “I am concerned about Ukraine’s slow progress in improving governance and fighting corruption, and reducing the influence of vested interests in policymaking. Without a substantial new effort to invigorate governance reforms and fight corruption, it is hard to see how the IMF-supported program can continue and be successful. Ukraine risks a return to the pattern of failed economic policies that has plagued its recent history. It is vital that Ukraine's leadership acts now to put the country back on a promising path of reform.”
Deputy Prosecutor General Vitaliy Kasko quit on 15 February 2016 in protest over corruption. "Today, the General Prosecutor's office is a brake on the reform of criminal justice, a hotbed of corruption, an instrument of political pressure, one of the key obstacles to the arrival of foreign investment in Ukraine," Deputy General Prosecutor Kasko said in a televised statement.
Crime rates had risen in Ukraine while law enforcement’s ability to investigate them had dropped, the country's first deputy prosecutor general said on 19 March 2016. In the capital Kiev only one in ten reported crimes leads to a court trial. Overall in Ukraine crime detection rate has dropped to about 20 percent, Deputy Prosecutor General Yuri Sevruk said in an interview on with TV channel 112. He voiced the numbers to disprove speculation that the situation was even worse, as some experts in Ukraine claim as few as three or five percent of crimes were solved. “The crime rates have risen over the past five months and the rise was gradual, while crime detection rates have fallen. This is especially true for crimes against property – burglaries, robberies, car thefts,” he said.
Sevruk added that the drop in performance was caused partly by ongoing reforms disrupting the police force, which involved evaluating all serving officers for their fitness to serve in their positions. “They are more interested in finding out whether they would keep their jobs or not," Sevruk said.
Several other factors in addition to reform in law enforcement contribute to the crime hike in Ukraine, experts say. One is the influx of illegal firearms and explosives from the war zone in the East, where Kiev maintains a heavy military presence in the standoff with rebel fighters. Soldiers demobilized from the front line often have difficulties in adapting to civilian life, as evidenced by regular reports of veterans resorting to violence to solve conflicts.
A major challenge for Ukraine’s new tax system was to uncloak the 40 to 60 percent of the economy that avoided government regulation, taxation or observation each year. The Economy Ministry estimated that 42 percent of the nation’s economy, or about $18 billion, was unaccounted for in the first six months of 2015. Since 2008, an average of 44.5 percent of the nation’s gross domestic product had gone unregistered, according to Friedrich Schneider, an economics professor at the Johannes Kepler University in Austria.
Ukraine was rated 134 (out of 178) on Transparency International’s 2010 Corruption Perceptions index (down from 99th place in 2006). The global anti-corruption watchdog Transparency International ranked Ukraine 144th out of 177 countries in its 2013 Corruption Perceptions Index. According to Transparency International's Corruption Perception Index, Ukraine ranked 142 out of 174 countries in 2014 - below countries such as Uganda, Nicaragua and Nigeria. Ukraine had showed little progress since the ousting of Yanukovich, according to the index, with its perceived level of public sector corruption in 2014 unchanged from its level in 2012.
Donald Bowser, an adviser to Ukraine's National Anti-Corruption Bureau, said in 2015 that "easily over a dozen billion US dollars a year" continue to be stolen from the Ukrainian state through corruption. Transparency International estimated that Ukrainians pay between 10-20% of income on bribes, and that 80% of Ukrainians pay for services they are entitled to receive free of charge (higher than in any other country surveyed).
Bribery and cronyism were widespread throughout all areas of public life since Kyiv gained independence with the collapse of the Soviet Union in 1991. The situation only worsened during the last four years under Yanukovych, when $11 billion was siphoned yearly through the abuse of public procurement tenders alone, Justice Minister Pavlo Petrenko said at a 09 September 2014 news conference. Ukraine's culture of cronyism, bribery and other forms of graft is largely responsible for the flight of Western investors who have abandoned the cash-poor country in the five years since 2010.
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 is always more powerful than currency, which in any case can only be spent once. A related term is svyazy meaning "connections and strings," which is not the same as vzyatka, meaning "kickback or bribe." Today, blat and svyazy remain enormously valuable and vzyatka, enormously pervasive.
Ukraine’s tax system remains cumbersome due to rapid and unpredictable changes. Frequently revised tax laws are 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.
In 2013, shadow turnover of the funds made up UAH 280 billion in Ukraine. This figure exceeds annual tax revenues. Those data were made public by First Deputy Revenues and Duties Minister of Ukraine Ihor Bilous at a meeting of the Public Council of the Revenues and Duties Ministry 09 April 2014, a Ukrinform correspondent reported. “We have almost accurately calculated turnover on tax “gaps” in 2013. It was UAH 280 billion,” Bilous said. According to him, about 40% of the shadow capital turnover amount includes the funds, withdrawn from state enterprises. “More funds were eroded from the budget than received. “Tax gaps” are our main tax reserve. Having stopped systemic embezzlement of VAT, we will be able to prevent a catastrophic outflow of cash from the country's economy,” Bilous noted. At the same time, he assured that rising of the tax pressure on business, which honestly pays taxes, is not planned in the country. Bilous also said that activity of so-called “exchange centers” gradually reduces.
The country ranked 134 out of 180 on the 2008 Transparency International Corruption Perception Index scoring 2.5, which is 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).
Corruption in Ukraine still remains one of the top problems threatening economic growth and democratic development. Administrative corruption is widespread and visible in the everyday lives of citizens and businesspeople, and grand corruption is also widespread, though not as visible, in the higher levels of government where large sums of money and political influence are at stake.
Ukrainian law enforcement agencies are often part of the problem rather than a part of the solution. A 2009 public opinion poll sponsored by the U.S. 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 is 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 is often a difficult and lengthy process. Subsequent follow-up to determine the status of a case often requires lengthy visits to police stations.
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.
When compared to other Eastern European cities, the criminal threat in Kyiv does not appear to be significantly different. Kyiv is a big city with attendant big city problems. The crime situation in Kyiv - and throughout the country - is 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 is a high tolerance for corrupt practices throughout society, facilitating a trickle-down effect that allows petty, administrative corruption to flourish.
This corrupt environment is 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.
In more recent years, 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 coalesce 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.
On November 18, 2009, in San Francisco, Calif., 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 is the first prosecution of a foreign leader for laundering the proceeds of extortion through financial institutions in the United States.
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 continues to be severely limited by the perils of Ukraine's lawless investment environment. Foreign investors are reluctant to invest there because of the hazards of its notorious corruption, while those which are already in the country must regularly adapt their business practices to the abnormal market circumstance of constant vulnerability to official lawlessness.
Anti-corruption efforts introduced in Ukraine in subsequent years were predominantly been imposed from the outside. They have been vague, all-inclusive and lacking in political and public support. What is 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 is 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.
President Yanukovych has prioritized investment and economic growth in his Economic Reform Plan and has repeated publicly that he wants to make Ukraine more attractive to foreign investors. However, conditions for doing business and the overall investment climate remain 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) has 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.
Dmytro Salamatin, a Kazakhstan-born Ukrainian, was an MP representing the Party of Regions (President Viktor Yanukovych's party). He had no past connection to the arms trade. Salamatin was appointed in 2010 to be head of Ukrspetsexport. His tenure as chairman of Ukroboronprom was marred by a scandal around disruption in the supplies of armored vehicles to Iraq under the contract worth 457m dollars signed in 2009.
On 8 February 2012, Yanukovych issued decrees dismissing Defence Minister Mykhaylo Yezhel and replacing him with Dmytro Salamatin, who was dismissed from the post of director -general of the state-run arms trading company Ukroboronprom.
On 10 February 2012, MP Andriy Parubiy of the Our Ukraine – People's Self- Defence asked the Security Service of Ukraine to check the information on Salamatin's possible collaboration with the Main Intelligence Department of the General Staff of Russia's Armed Forces. Salamatin served as defense minister until December 2012. Then he served as an advisor to president Yanukovych. Salamatin faced losing his posts due to the recent scandal when he was exposed of giving false information about the year when he got his citizenship before the 2006 parliamentary elections.
Police detained Yevhen Bakulin, the CEO of the national oil and gas company Naftogaz, Ukrainian acting interior minister Arsen Avakov said 21 March 2014. He said the CEO was detained “as part of an investigation into corruption schemes in the oil and gas industry.” Avakov said that only three separate corruption episodes currently being investigated by police may have cost the state about $4 billion. Bakulin is suspected of heading a "criminal group" whose members include other senior officials, Avakov said.
Ukrainian investigators said former Energy Minister Eduard Stavytsky amassed a stash of cash, gold, jewels and expensive watches. The Interior Ministry said a series of raids on Stavytsky's homes and offices uncovered 42 kilograms of gold and $4.8 million in cash. All the valuables were seized. Stavytsky, who was in charge of negotiations on oil and natural gas with Russia, fled the country.
Ukraine’s Verkhovna Rada voted 07 October 2014 for a package of anti-corruption bills submitted for consideration by Ukrainian President Petro Poroshenko and the country’s government, in doing so fulfilling one of the main requirements of the Maidan movement and the West to have a legal basis for the purging of the Ukrainian elite. Ukraine would gain two anti-corruption bodies – the National Commission and the National Anti-Corruption Bureau. The creation of these bodies is largely a forced move by the Ukrainian authorities. This is a requirement of international donors, who have warned that money will be given only if reform is undertaken. The problem may become the very character of the fight against corruption chosen by the Ukrainian authorities, as by creating new official structures, it has become bureaucratic. Another drawback of Ukraine’s legislation is the lack of specific mechanisms for winning the systematic anti-corruption battle. The new authorities may not be so much tools in the struggle against corruption as in the struggle for power.
The fight against "corrupt mafia" in Ukraine will not stop, even if political opponents hope for this. Prime Minister of Ukraine Arseniy Yatseniuk said this 20 April 2015 in an interview with TV Channel TRK Ukraina. "All these arrests and fight against corrupt mafia continued, continue and will continue. Nobody can mislead me, including political opponents, who arrange all kinds of political scandals," the head of government said.
Financial and technical assistance of the United States to Ukraine depends on Kyiv's success in the fight against corruption, US Ambassador to Ukraine Geoffrey R. Pyatt said 05 September 2015. In all matters of financial and technical assistance to Ukraine, the key to which the assistance will be at the next stage of work in this area is the success achieved during the previous stages. The greater the success in the fight against corruption, the better American partners will be ready to invest in Ukraine, Pyatt told reporters in Kharkiv.
Implementation of a 2014 law on lustration resulted in dismissal of large numbers of state officials in some institutions during the year, in particular 42 percent of the employees of the State Fiscal Service (SFS) central office and 15 percent of regional SFS offices in October 2015.
It took over a year and a half for Ukrainian President Petro Poroshenko to even begin implementing his most important campaign promise: On 01 December 2015, a new head of the anti-corruption prosecution agency was finally appointed, and now the office is ready to start working. US officials think this took far too long, and they are losing patience with Ukraine's government, especially since Prosecutor General Viktor Shokin, a Poroshenko confidant, has delayed filling the anti-corruption position. In September 2015, Geoffrey Pyatt, the US ambassador to Kyiv, took an unusual step. He tweeted - albeit in a convoluted, diplomatic manner - his demand for Shokin's dismissal. But Poroshenko was holding on to Shokin, a man who had been accused of leading an extremely corrupt state apparatus.
The prosecutor general himself, Viktor Shokin, serves at the behest of President Petro Poroshenko. Since he was appointed as prosecutor general by Poroshenko in February 2015, Shokin has not brought any cases of corruption to court involving Yanukovich or his partners. Nor has he prosecuted the hundreds of high-level corruption cases that have been brought to his office by Ukraine's parliamentary committee on preventing and combating corruption.
Prime Minister Arseniy Yatsenyuk's confidant Mykola Martynenko remained chairman of the energy committee in Ukraine's unicameral parliament, or Rada, although Switzerland has been directing investigations into him for at least half a year. Martynenko is suspected of transferring bribes worth millions to a Swiss account. It is doubtful that the Ukrainian prosecutor general provided the Swiss with satisfactory support.
All in all, many Ukrainian leaders use the conflict with Russia as an excuse for their failure to act. Instead of building democratic structures, the country seems to be stabilizing the old system of oligarchy, cronyism and corruption. Russian President Vladimir Putin has thus achieved his goal of halting Ukraine's establishing stronger bonds with the United States and EU.
On March 15, 2016 Ukrainian lawmakers approved an anticorruption bill establishing public oversight over the assets of both senior and lower-level officials and their relatives. Under the legislation, they now have to file electronic declarations of their income and holdings, and face criminal liability for any inaccurate or falsified information. The data will be open online to anyone's scrutiny. The European Union has been pressing Ukraine to complete anticorruption reforms, and Kyiv hoped the move will pave the way for visa-free travel to EU countries.
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