Ukraine: Insider Oligarchs Derail Maidan Revolution

02/27/2015 11:53 pm ET | Updated Apr 30, 2015

In the midst of war and heightened nationalism in Ukraine, many demonstrators who participated in protests at Maidan Square just one year ago are gripped with a profound sense of shock and wonder what has happened to their country. During the revolt in Kiev which eventually ousted the unpopular government of Viktor Yanukovych, the crowd called for a thorough overhaul of elite corruption, cronyism and the incestuous business-government revolving door. Yet, if anything, recent developments have only served to bolster tycoons [commonly referred to in Ukraine as "oligarchs"] and their position, thus torpedoing hopes that Maidan might have led to a more socially equitable and level playing field.

Like many of his peers, Yegor Stadny is disillusioned with the political trajectory in Kiev. A veteran of student protest on the Maidan, he hoped to bring about a hopeful new era of transparency in government. Instead, powerful oligarchs such as current president Petro Poroshenko no less have assumed power. "I don't think students aimed to bring the current government into power," he tells me in a local Kiev cafe. In an ironic chuckle, Stadny asks rhetorically, "We fought on Maidan just to allow these right-wing people to form their own political parties and achieve representation? For me this is like...really?"

Ukraine's Foremost Oligarch

Indeed, the ascendance of Poroshenko is a bitter pill for activists to swallow. A chocolate magnate worth a whopping $1.3 billion, Poroshenko owns Ukraine's TV Kanal 5 and has assets in real estate, insurance and the banking sector. In the words of the Economist magazine, the current oligarch president made a large fortune through "opaque deal-making" in the 1990s. Hardly afraid to throw his weight around, the oligarch has donated money to MP's and moreover makes use of his TV station to push his own agenda.

A living testament to the revolving door, Poroshenko made his way up as a businessman but later served as trade minister under Yanukovych himself. When his boss fell out of favor, however, the "King of Chocolate" enhanced his public standing by doing a 180 degree turn and siding with protesters on the Maidan. In this sense, Poroshenko proved more flexible and independent than other oligarchs who preferred to stay out of the power struggle.

Nevertheless, Foreign Policy magazine writes that Poroshenko "probably would have never risen to his current position had it not been for the lack of credible leaders among the revolutionaries." In his rise to the top, Poroshenko also benefited from sheer political vicissitudes of the moment. When Russia banned products of Poroshenko's Roshen candy company, the Ukrainian public rallied to the homegrown oligarch and Poroshenko's credibility amongst voters was solidified. Scared and panicked amidst increased hostilities with Moscow, Ukraine rallied to Poroshenko on election night and currently the oligarch heads his own bloc representing the largest party in parliament.

Meet the Oligarchs

Though perhaps the most prominent oligarch, Poroshenko is joined by a host of other tycoons. To a great extent, the rise of the oligarchs was tied to the wave of privatizations and acquisitions of large industrial firms in the wake of the 1990s breakup of the Soviet Union. Many Ukrainian oligarchs are invested in the industrial east of the country, home to Soviet-era mines and factories. Most of the oligarchs, notes Foreign Policy magazine, "amassed their wealth by exploiting their closeness to those in power rather than through efficient management."

In the words of the New York Times, "the ultra-wealthy industrialists wield such power in Ukraine that they form what amounts to a shadow government, with empires of steel and coal, telecoms and media, and armies of workers." By securing positions in government for themselves or buying off politicians, oligarchs obtain valued political influence. Moreover, by buying up media outlets the oligarchs hope to forestall or preempt any efforts to undermine their position.

Unfortunately for the oligarchs, Yanukovych began to squeeze the elites and promote his own group, nicknamed the "Family." Forced to compete against such incestuous interests, and leery of Yanukovych's plans to move Ukraine closer into Russian orbit, the oligarchs began to splinter. To be sure, most of the oligarchs' exports, which emanate from outdated and outmoded factories, were directed toward Russia. On the other hand, the oligarchs feared jeopardizing Ukraine's ties to the west, as well their easy access to fancy vacation homes and London's financial center.

Oligarchs Grasping for Power

With the exception of Poroshenko, the oligarchs chose to remain neutral in the end --- unwilling to support Maidan protesters but equally wary of Yanukovych's pro-Kremlin crackdown. Once Yanukovych ceased to be useful, the oligarchs simply abandoned him. Without key top-level support the president was forced into exile and today, in the wake of Maidan, oligarchs are nervously looking around, wondering what the new shakeup in Kiev will mean for them. The safe bet is that plutocrats will try to play ball with government because making waves would be bad for business.

Reportedly, the oligarchs are "hedging their bets politically" and trying to secure a kind of comfortable status quo in which their assets will be protected. At the very least, the oligarchs no longer have to worry about the sinister sounding "Family," which imploded in the midst of Yanukovych's fall from power. The government meanwhile is keenly aware of the perils in taking on oligarchic interests too intensely, since tycoons control eighty to eighty five percent of overall GDP.

The Activist Perspective

What the rest of civil society thinks is another matter. Activists who I spoke with felt somewhat disillusioned in the wake of Maidan, which in their words had failed to usher in a more progressive or anti-authoritarian political ethos. In November, 2013 amidst a riot police crackdown in Maidan square, students became radicalized. "We started to think about systemic change," Yegor Stadny tells me. "Students realized that merely shaking up top figureheads wouldn't result in wider societal change."

Nataliya Neshevets, another young activist affiliated with Direct Action student labor union, chimes in. "We not only wanted to change faces in power but the inherent power structure itself," she says. "We hoped to get away from leaders and promote more genuine, democratic participation." In line with such thinking, Neshevets and fellow activists formed egalitarian decision-making assemblies on the Maidan.

Another student veteran of Direct Action, Denis Pilash, did his utmost to inject a bit of radical, anti-oligarchic politics at the Maidan. He distributed leaflets, for example, calling for improved healthcare and education and a ban on offshore money laundering. On the Maidan, Pilash tells me, it was common to hear people chanting, "All politicians out!" The grassroots, it seems, had become more anti-establishment. Many protesters, Pilash adds, started to become radicalized and to call for punitive measures against Ukrainian oligarchs and the powerful. For instance, demonstrators sought to end the corrupt and incestuous alliance between business and government. Moreover, they hoped to shed light on privatization initiatives so as to reveal the true extent of what had been stolen.

Initially at least, Pilash says many people on the Maidan were receptive to a more progressive social agenda, though over time "you saw a lot less of this kind of rhetoric," and such ideas were entirely lost amidst all the "mainstream, pro-market neo-liberal politics." What is more, the crowd became less assertive in its demands and lost its momentum, solidarity and sense of unity. "When protests ended," Pilash declares, "ordinary people weren't involved in making decisions anymore and left such tasks to the establishment." In the wake of Poroshenko's electoral victory, civil society retreated and "there is very little political engagement." The oligarchs, Pilash declares, "are still in power both politically and economically. Maidan showed we could challenge politics, but economically we have the same guys in charge."

Appeasing the Oligarchs

On the other hand, Kiev is officially at least taking activists' concerns seriously. In fact, the Poroshenko government has been engaged in a raft of anti-corruption initiatives designed to forestall the power of "rent-seeking oligarchs" and a new government team "is largely free from the control of the country's super-rich, who dictated policy in the past." To a certain extent the president is under the gun, since western financial assistance is contingent on the government enacting reforms designed to curtail the tycoons' power. In the short-run, oligarchs too may wish to cooperate with reform since the specter of the International Monetary Fund withholding funds could torpedo the Ukrainian economy, and that in turn would harm their interests.

Despite these developments, grassroots activists may have a big battle on their hands in the long-term. Poroshenko himself has been dogged by corruption allegations in the past and has ties to one Dmytro Firtash, another oligarch who faces bribery charges in the U.S. Recently, Firtash was arrested in Vienna at the request of the F.B.I. Washington has charged the oligarch with violations of the Foreign Corrupt Practices Act, and a grand jury has ruled that Firtash, a gas, banking and minerals magnate, paid bribes to secure titanium for one of his U.S. affiliates.

After being hauled into a local police station, Firtash agreed to post bail to the tune of $190 million (such a whopping sum may seem crippling but for a gas oligarch whose net worth may be more than $10 billion, the payment was a mere drop in the bucket). Firtash can't leave Austria, and he's currently fighting extradition to the U.S. From Vienna, the oligarch loudly proclaims his innocence and audaciously argues that his entrepreneurial spirit is vital to his country.

Meeting in Vienna

Despite his previous connections, Firtash now finds himself in a difficult bind. In light of the oligarch's previous ties to Yanukovych, not to mention links to Russia's reviled Gazprom, the native son may find it difficult to recruit influential allies. Nevertheless, Firtash remains a power-broker and is hedging his bets, even from afar. Indeed, he and other oligarchs such as Rhinat Akhmetov [see below] are behind the so-called Opposition Bloc, an anti-Poroshenko political party.

Even though Firtash represents the old guard oligarchic circle around Yanukoych, Poroshenko can't afford to alienate this larger than life figure. Prior to Maidan, Firtash was one of the most powerful people in Ukraine. As a result of such influence, Poroshenko himself has sought to curry favor with the gas and minerals magnate. Just before the presidential election, Ukraine's Chocolate King flew to Austria to meet with Firtash. Reportedly, Poroshenko was eager to garner his fellow oligarch's support, and in particular to secure favorable media coverage on Inter, Firtash's own TV channel.

Old Guard Challenged

As if the task for reformers could get no more challenging, other oligarchs add to overall political complexities. Take, for example, Rinat Akhmetov, Ukraine's richest man. A steel magnate with a deluxe penthouse home in London, Akhmetov owns a business empire consisting of mobile phone companies, banks, real estate and even a media company. In Donetsk, he has interests in heavy industry, coal mines and metallurgy, and is considered by some to be the "de facto ruler of Donbass."

A tycoon worth a staggering $12.5 billion, Akhmetov has --- in the words of the Guardian --- "smoothed over an early reputation for mixing with tough street operators." Nevertheless, some reports suggest the oligarch acquired his wealth during the "lawless early 1990s." When Akhmetov's mentor, an alleged mobster, was killed in an enigmatic bombing, the Donetsk metal king inherited a huge financial empire. Though investigative journalists have sought to link Akhmetov to the shadowy underworld, the oligarch steadfastly denies such charges and has even sued over the allegations, all the while claiming he simply made some fortuitous and lucky gambles over the course of his business career.

Welcome to "Donetsk Clan"

Akhmetov is currently down but not yet out of the game, and the oligarch could still exert an impact on Ukrainian political life. During the Yanukovych era, the oligarch was a key supporter of the disgraced president as well as his political organization, the Party of Regions. In a leaked cable published by whistle-blowing outfit WikiLeaks, U.S. ambassador to Ukraine John Herbst refers to the Party of Regions as a "haven for Donetsk-based mobsters and oligarchs" and names Akhmetov as a "godfather" of the Donetsk clan.

According to an article in Vice media, Akhmetov "is reported to have used a system of patronage to exert considerable influence over several deputies in the house," and the oligarch's businesses "flourished exponentially." A recent piece in Der Spiegel adds that Akhmetov --- along with key ally Firtash --- controlled about half of Yanukovych's party between them. Indeed, the magazine adds, the two tycoons controlled their country's political scene "as though it were a business joint venture."

The eruption of unrest on the Maidan placed Akhmetov in a quandary. When demonstrations occurred, Spiegel notes, both Firtash and Akhmetov "began to distance themselves" from Yanukovych. "It was clear to both of them," the article adds, "that if worse comes to worst, and the West imposed sanctions on Ukraine, their businesses would be the first to be affected." When confrontations turned bloody, "both Akhmetov's and Firtash's TV stations changed their coverage of Independence Square: Suddenly the two channels, Ukraina and Inter, were reporting objectively on the opposition. The message of the oligarchs was clear: We're letting Yanukovych fall."

For Akhmetov, the demise of Yanukovych raised the unsettling possibility that the new government might soon investigate oligarchic assets. On the other hand, both Akhmetov and Firtash maintain influence within the Opposition Bloc, thus ensuring that political change may be slow in coming.

New Oligarchs Fill Vacuum

Within such a Byzantine political milieu, just who wins or loses? On the surface at least, the removal or at least eclipse of Firtash and Akhmetov seems to suggest a popular victory for reformers and the spirit of Maidan. However, a power vacuum has led to the rise of yet more oligarchs who are keen to take advantage of political and economic opportunity. Take, for example, Igor Kolomoisky, an oligarch with a net worth of about $1.6 billion who reportedly likes to feed sharks in his own office aquarium as a favorite pastime.

An oil and banking magnate, Kolomoisky gained a reputation during the early 2000s as a "corporate bandit" after carrying out hostile takeovers. Vice media reports that such tactics gained the oligarch and his business partner the familiar nickname of "The Raiders." At least some of the takeovers, the publication notes, "were physically enforced." In one case, hired hands reportedly wielded "baseball bats, iron bars, chainsaws, and rubber bullet pistols" which eventually helped Kolomoisky and his partner secure ownership over a local steel plant. In addition to his other assets, Kolomoisky has invested in the prominent 1+1 Media Group, which controls eight Ukrainian television channels.

"Over the past two decades," notes Foreign Policy magazine, Kolomoisky "has always found a way to cooperate with whoever ruled over the country." During the Yanukovych era, for instance, the oligarch was allowed to maintain a stake in the state oil company. Unlike Firtash and Akhmetov, however, Kolomoisky proved more flexible once protesters hit the Maidan. Kolomoisky in fact offered political support to demonstrators on his television channel, and he has emerged as a clear winner in the Kiev power reshuffle.

Rising Star Kolomoisky

Needless to say, Kolomoisky has wasted no time in taking on his oligarch competitors, and 1+1 TV channel recently ran an inflammatory report on Firtash claiming the oligarch was a Kremlin puppet [Firtash has struck back in turn by seeking to blacken Kolomoisky's reputation on Inter]. Perhaps mindful of rising star Kolomoisky, the Poroshenko government has appointed the oligarch as governor of Dnipropetrovsk near conflict-ridden Donetsk. Tablet magazine notes, "Many Ukrainians assume that he had taken up the position mostly to protect his myriad business interests from being expropriated by the new regime."

In the short-term, Poroshenko may benefit from having a powerful oligarch on his side, but in the long run Kolomoisky could prove difficult to handle. "Kolomoisky is certainly poised to capitalize on the current weakness of the central government," notes Foreign Policy. "Many Ukrainians are eagerly casting about for a strong leader, and for some it's Kolomoisky who fits the bill."

Maidan's Legacy and the Oligarchs

Watching news reports emanating from Kiev, many westerners surely came to believe that the most crucial power struggle taking place on Maidan pitted Yanukovych against popular demonstrators in the square. Yet just beneath the surface, another equally important feud was taking shape: the conflict between Ukraine's political and economic tycoons. While Maidan succeeded in ridding the country of some oligarchs, the revolution failed to root out the elites, and if anything the political shakeup has only served to enhance the prospects of new and up and coming players.

While Poroshenko talks about cleaning up corruption, it's not clear if he can succeed or even has the willingness to go up against his own oligarchic class. In such circumstances, it's interesting to speculate how the Ukrainian public will respond to the oligarchs in the not too distant future. On the one hand, many Ukrainians admire Poroshenko and trust him to protect the country in a time of peril. On the other hand, the spirit of Maidan could turn against the president if he is perceived as going soft on the oligarchs.

Will there be another Maidan against oligarchic interests? In Kiev, I put the question straight to activist Denis Pilash. "Things have tilted so far to the right that disillusionment is inevitable," he says. Pilash adds that perhaps in time "this small Ukrainian left will undertake actions closer akin to Occupy Wall Street." He then muses, perhaps prophetically, "I don't think this last Maidan was the last."

Nikolas Kozloff is a New York-based writer who recently conducted a research trip to Ukraine.