Ukraine - Corruption
Between 1992 and 1998 alone, $32 billion worth of heavy weapons, small arms, ammunition and other military equipment was estimated to have disappeared from Ukraine’s post-Soviet stores, according to the Organized Crime Observatory, a Swiss-based non-profit. President Volodymyr Zelenskyy vowed in December 2022 that Ukraine would fight both high-level corruption and Russia's invasion at the same time.
Ukraine has numerous laws to combat corruption by public officials, and following the Revolution of Dignity in 2014, the government launched new anti-corruption institutions, including the National Anti-Corruption Bureau (NABU), to investigate corruption by public officials, the Special Anti-Corruption Prosecutor’s Office (SAPO), the National Agency for Prevention of Corruption (NAPC), and the High Anti-Corruption Court (HACC).
In 2023, officials of the Ministry of Defense devised a super-profitable scheme and transferred more than a billion hryvnias [a bit more than $25 million] from the Ukrainian budget to a shadow account. According to the law enforcement officers, the company "Lviv Arsenal" received full state payment for ammunition, which it later transferred to a foreign company. Ukraine did not receive a single projectile. Instead, the funds were transferred to a shadow account in the Balkans. The Ministry of Defense calls this case "particularly cynical". There were five suspects in the case. Among them are the former head of the Department of Military and Technical Policy of the Ministry of Defense Oleksandr Liev, who, by the way, was captured while trying to cross the border, the current head of this department Toomas Nakhkura, as well as the commercial director of the Lviv Arsenal company Yuriy Zbitnev, and a representative of a foreign company. All of them faced up to 12 years behind bars with confiscation of property.
The IMF's requirement is to create a single body in Ukraine to combat economic crimes. Will the Economic Security Bureau of Ukraine be up to the task? One of the few MPs' amendments supported by the Verkhovna Rada during the first reading of the draft budget for 2024 was a proposal to reduce funding for the Economic Security Bureau of Ukraine (ESBU) by UAH 409 million and limit the maximum number of its employees from 4000 to 1400. And this is not the only unpleasant news for ESBU employees: it seems that there are more and more supporters in the political and business communities for the idea of rebooting the law enforcement agency that was created only the year before last.
The need for a reboot is explained by the fact that the Bureau has not become a primarily analytical structure that prevents and counteracts economic crimes. Instead, it operates by force, no different from the former tax police with its pressure on business and "mask shows." According to the supporters of the new reform, one of the key reasons for this is the formal approach to personnel competitions (or even their complete absence for many vacant positions), which resulted in the backbone of the new Bureau being former officials of the same liquidated tax police.
At the same time, the agreements with the IMF provide for the creation of a single body in Ukraine that will combat economic crimes against the state and tax evasion. By definition, it should be the ESBU. But will the Bureau in its current form be able to perform this function? Many doubt it.
Claims to the activities of the Economic Security Bureau of Ukraine began to appear almost from the very first days of its work. Even the appointment of the former head of the State Fiscal Service as the first head of the Bureau was taken with a grain of salt by many, despite the fact that Vadym Melnyk had won an open personnel competition.
However, there were also those who believed in the future success of the new structure, which, according to the law, should focus primarily on analytical work. So they expected quick results from the ESBU. When this did not happen, the army of critics naturally began to grow rapidly.
"The ESBU is the most important body in controlling the use of the funds they (the partners) are providing us now and will provide for the recovery. It is the number one authority. And it is impossible to leave this area in the state it is in now. Tax police officers should not make up 80% of the staff," explained Danylo Hetmantsev, Chairman of the Parliamentary Committee on Finance, Tax and Customs Policy.
In particular, the topic of ESBU is reflected in the Letter of Intent and the Memorandum with the IMF on Economic and Financial Policies on a new Extended Fund Facility for Ukraine of March 24, 2023. As noted, the fight against tax evasion and strengthening of governance in the tax system require a powerful supervisory authority that can not only investigate financial and economic criminal offenses against the state, but also provide independent analytical support to identify tax evasion schemes and facts.
"With this in mind, we are preparing amendments to the Law and reorganization of the ESBU to clearly define its functions in line with the best practices in this area, strengthen its analytical component and make it subordinate to the Ministry of Finance. To begin with, we will revise the legal framework for the ESBU and develop transparent processes for selecting staff and management on a competitive basis. We will also tighten the requirements for the selection committee and introduce a clear competitive selection process, as well as streamline the activities of the Public Control Council at the ESBU. We will develop a mechanism for staff certification and introduce a contractual system for employees," the Letter of Intent states.
The dismissal of the first head of the ESBU, Vadym Melnyk, on 11 April 2023 and the appointment of first one and then another acting director of the Bureau did not help much either. This did not affect the agency's personnel policy: vacant positions were filled sluggishly and mostly by people from the "system" - former tax police and other security officials. The ESBU management did not ensure timely formation of the staff, which is staffed by only 20.6% of the staff (as of September 1, 2023, the staff consisted of 827 employees out of the required 4000).
"Contrary to the position of the President of Ukraine that all "economic" offenses should be investigated by a single pre-trial investigation body, 80% of criminal proceedings under the ESBU's jurisdiction continue to be investigated by other bodies, which discredits the main idea of the Bureau's creation," the MPs conclude.
The European Business Association is in favor of the adoption of the ESBU's draft law: "The EBA supports the main idea of the draft law that ESBU employees should be selected on a competitive basis in several stages without giving any preference to candidates who are currently working in law enforcement. To achieve this goal, it is necessary to ensure proper representation of the public in the ESBU competition commissions and to provide for effective mechanisms of public control over the selection and dismissal of ESBU employees, including integrity checks."
Similar assessments are contained in the appeals of other influential business associations - the American Chamber of Commerce in Ukraine, the Ukrainian Business Council, the Association of Taxpayers of Ukraine, the Ukrainian Chamber of Commerce and Industry, and the All-Ukrainian Agrarian Council. The same support is promised by the leading economic think tanks - CASE Ukraine, Institute for Tax Reforms, Center for Economic Strategy, Institute for Social and Economic Transformation, Center for Economic Strategy, Institute for Economic Research and Policy Consulting, Institute for Analysis and Advocacy, DiXi Group and others.
President of Ukraine Volodymyr Zelenskyy announced the holding of a "broad meeting" with representatives of law enforcement and anti-corruption agencies, the Verkhovna Rada of Ukraine, the Cabinet of Ministers and the Prosecutor General. "Similarly, there are other challenges in our state - we have to implement all other elements of justice for our citizens, because this is our promise to Ukraine both in the fight against the external enemy and internal daily threats and challenges. This concerns both the protection of our national security and the final cleansing of oligarchic and corrupt influence in Ukraine. And preventing any establishment of new oligarchic or similar clans. Therefore, we need a concept of fundamental measures, measures of state policy, which will allow to ensure a real sense of justice, not even a sense, but the realization of justice in Ukraine," he said in a video released in Telegram.
On 27 August 2023, President Zelenskyy proposed to equate corruption in Ukraine with high treason and transfer all cases of top corrupt officials from the and the National Anti-Corruption Bureau of Ukraine [NABU] and Specialized Anti-Corruption Prosecutor’s Office [SAPO] to the the Security Service of Ukraine [SBU]. "I have set a task. Legislators will be presented with a proposal to equate corruption with state treason during times of war. I understand that this cannot be a permanent measure, but during wartime, I believe it will be beneficial... I don't know if lawmakers will support it, but I will certainly put it forward. Because we are developing a democratic society, and it's crucial not to tighten the screws each time in response to specific, sensational cases but to implement systemic changes".
On 30 August 2023, the European Parliament’s Foreign Affairs and Budget Committees met to discuss the European Commission’s proposals to support Ukraine. Michael Gahler, rapporteur on Ukraine in the European Parliament, said: "I think it is inappropriate to shift responsibility for fighting corruption from existing institutions, such as NABU and SAPO, to the SBU during the war by renaming corruption as high treason. On the other hand, it is good that the complexity of the problem of corruption in time of war is recognized on a par with high treason, but it is up to the existing authorized institutions to overcome this challenge. We must avoid the impression that the purpose of such an initiative is to enable the authorities to control corruption cases and determine their fate, especially when it comes to cases involving high-ranking officials".
Ukrainian state security officials named powerful businessman Ihor Kolomoisky as a suspect in a fraud and money laundering case, the SBU security service said 02 September 2023. President Volodymyr Zelenskyy, who rose to prominence as a comedian and played the role of president on a show aired on a Kolomoisky-owned TV channel, has denied having personal ties to Kolomoisky, one of Ukraine's richest men.
Casey Michel wrote 13 March 2022 in The Specatator that Volodymyr Zelensky "would not be where he is today without Kolomoisky. As an actor and entertainer, Zelensky had worked for Kolomoisky’s media network — which then gave him form support when he stood as a candidate. Zelensky was seen as the Kolomoisky candidate: he appointed one of Kolomoisky’s lawyers as an adviser, and held meetings with the controversial oligarch even as he campaigned as the ‘anti-oligarch’. In early 2021, Zelensky reportedly breached his own Covid lockdown rules to have a birthday party in Kolomoisky’s Kyiv apartment."
In the 1959 film Ben-Hur, Messala, a Roman officer, condemns his childhood friend Judah Ben-Hur to the galleys, and Ben-Hur's mother and sister were also imprisoned. Messala explains that "By condemning without hesitation an old friend, I shall be feared." He says, "I asked for your help Judah, and now you've given it to me". Or as Machiavelli asked “ whether it be better to be loved than feared or feared than loved? One should wish to be both, but, because it is difficult to unite them in one person, it is much safer to be feared than loved.”
Kolomoisky was a former owner of leading Ukrainian bank PrivatBank, which was nationalized in late 2016 as part of a major clean-up of the country's banking system. He also owned an array of assets in the energy, banking, and other sectors, including one of Ukraine's most influential television channels. "It was established that during 2013-2020, Ihor Kolomoisky legalized more than half a billion hryvnias (roughly $13.5 million or €12.5 million at the current exchange rate) by withdrawing them abroad and using the infrastructure of the controlled banks," the SBU said in a statement on the Telegram messaging app.
In August 2020, the United States filed two actions in the Southern District of Florida alleging that commercial real estate in Dallas and Louisville, Kentucky, was acquired using funds illegally obtained from PrivatBank in Ukraine as part of a multibillion-dollar fraudulent loan scheme. It filed a third suit in the same district in December 2020 alleging a property in Cleveland, Ohio, was similarly involved.
The four complaints allege that Ihor Kolomoisky and Gennadiy Boholiubov, who owned PrivatBank, one of the largest banks in Ukraine, embezzled and defrauded the bank of billions of dollars. The two allegedly obtained fraudulent loans and lines of credit from approximately 2008 through 2016, when the scheme was uncovered and the bank was nationalized by the National Bank of Ukraine.
The United States sanctioned Kolomoisky on 05 March 2021. "In his official capacity as a Governor of Ukraine’s Dnipropetrovsk Oblast from 2014 to 2015, Kolomoyskyy was involved in corrupt acts that undermined rule of law and the Ukrainian public’s faith in their government’s democratic institutions and public processes, including using his political influence and official power for his personal benefit." US authorities also alleged Kolomoiskiy and a business partner laundered stolen funds through the United States. Kolomoisky steered one of the biggest Ponzi schemes in world history. Kolomoiskiy has denied any wrongdoing.
President Volodymyr Zelenskyy said 05 August 2023 " our work on cleaning public institutions from those who tried to drag from the past all those old habits, old schemes that weakened Ukraine for a very long time, for decades, will continue. There will be no more old formats in our country – those formats when some defended the state and people, and others tried to put both the state and people at the service of their own benefit. No matter, who this person is – whether he is a "military commissar," whether he is a deputy, or whether he is an official – everyone must work only for the sake of the state. So be it."
The Ministry of Defense of Ukraine got into a corruption scandal by purchasing jackets for the Armed Forces of Ukraine at a price that was three times higher. According to the documents, it was about the supply of winter jackets, and summer jackets were sent to the places of deployment of the military. It was also reported that the supplier company turned out to be not Turkish, but owned by a Ukrainian and associated with one of the deputies from the Servant of the People party. Ukrainian Defense Ministry, Oleksiy Reznikov, said he would resign if reports about the purchase by the department of summer jackets instead of winter ones for the armed forces of Ukraine were confirmed.
On 16 May 2023, Supreme Court Chairman Vsevolod Kniaziev and another unnamed court representative were convicted of corruption amounting to $2.7 million (around €2.5 million) by the National Anti-Corruption Bureau of Ukraine (NABU) and the Specialized Anti-Corruption Prosecutor's Office of Ukraine (SAP).It could be the largest case of bribery that Ukraine's judiciary has ever seen. Both were arrested and faced eight to 12 years in prison if found guilty.
According to NABU Director Semen Kryvonos, the case involves judges, the leadership of the Supreme Court and intermediaries from the Finance and Credit group of companies owned by billionaire and former parliamentarian Kostiantyn Zhevago, who was currently abroad. Zhevago's press office said that he had nothing to do with the case. But the anti-corruption watchdog said in a statement that "as a result of complex operational and technical measures, NABU obtained information about the contacts between a businessman, the owner of the Finance and Credit group, and a lawyer, the head of a bar association. During the investigation, it was revealed that the bar association was used to conceal criminal activities. Under the guise of legal services, members of the group arranged with judges about rulings in favor of their "clients" (individuals or legal entities) for a certain 'reward'."
Defense Minister Aleksey Reznikov, who became mired in a scandal over purchases of overpriced food for troops, was widely expected to be sacked at the time, but he survived the purge. Various sources began speculating about the possible resignation of Reznikov on 0 February 2023. They claimed that the current Chief of the Main Directorate of Intelligence of the Ministry of Defense of Ukraine, major general Kirill Budanov, would become Reznikov’s successor. The reports appeared against the background of a large corruption scandal at the ministry linked to food procurement for front-line troops.
Ukrainian publication Zerkalo Nedeli disclosed the details of a 13 billion hryvnia ($353 million) contract between the Ministry of Defense of Ukraine and Aktiv Company LLC for the purchase of food supplies at extremely inflated prices. The deal didn’t involve the purchase of any special equipment, but rather basic food supplies such as potatoes, onions, and eggs. Secondly, the document was signed with a company whose authorized capital amounted to just 1,000 hryvnia ($27). The outrageous prices constituted the third and central reason for the scandal. The “wholesale” cost stated by the Ukrainian Defense Ministry was several times higher than the retail cost of the same products in a premium-class supermarket.
"The supplier mistakenly indicated the price not per piece, but by weight when he transferred data from one table, where everything was measured by weight, to another,” Reznikov assured the press, claiming that taking this correction into account, the cost “fully corresponds to the market price.”
On January 24, Deputy Minister of Defense Vyacheslav Shapovalov resigned, and, on February 3, the Security Service of Ukraine (SBU) detained two businessmen for selling food at inflated prices. Two other high-ranking officials also came under suspicion – Bogdan Khmelnitsky, former Deputy Head of the Department of Public Procurement and Supply of Material Resources, and Vladimir Tereshchenko, Deputy Head of the Department for the Coordination of Foreign Economic Activity.
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