Welcome to Ukraine: One of the 'Biggest Kleptocracies in the World'

02/15/2015 10:03 pm ET | Updated Apr 17, 2015
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With all the media frenzy centering upon hostilities in Ukraine, it's easy to lose track of the original goals of the Maidan revolution which occurred one year ago. Just what was the revolt all about in the first place? It's a somewhat tricky question to ask since rebellion against the unpopular government of Viktor Yanukovych unfolded in distinct phases with constituencies often pushing conflicting agendas. But while the crowd at Maidan may have shared distinct notions about social change, many were united in calling for more overall transparency and accountability when it comes to government.

For Ukrainians, corruption is one of the most pressing problems facing society today. According to the Economist, "weak institutions, low morale, and an underdeveloped sense of public service have made everyone from judges to traffic police liable to corruption over Ukraine's entire post-Soviet history." Such historic trends have continued very much into the present day, and recently Transparency International categorized Ukraine as one of the most corrupt countries in the world. In the study, Ukraine ranked only slightly higher than Congo, Angola and Haiti.

Welcome to Kleptocracy

Needless to say, Ukraine is reportedly the most corrupt country in Europe, even more so than Russia. Janek Lasocki, an advocacy coordinator at the European Council on Foreign Relations, notes "By way of illustration, one can point to the oft-repeated statistic that Poland and Ukraine were similarly run and sized economies in 1990; and yet today Poland's economy is three times larger." Such realities have prompted the likes of Devin Ackles to sit up and take notice. Ackles, who works as an analyst for CASE Ukraine, a not-for-profit specializing in economic research, has remarked that "Ukraine has become one of the biggest kleptocracies in the world."

In a telling article, Ackles succinctly sums up Ukraine's plight. "Shortly after independence in 1991," he writes, "a new tradition developed in Ukraine. People entered the government, whether at the local or national level, primarily to find ways to improve their financial standing by milking the system. When MPs turn up to work in Range Rovers while sporting fancy tailor-made suits and unfathomably expensive timepieces, no one is fooled for a second that they were able to pay for these luxuries on their meager state salaries." During this time, so-called "oligarchs" benefited handily from shady privatization deals pursued under President Leonid Kuchma.

Ackles adds that many Ukrainians grew disillusioned with the 2004-5 Orange Revolution, and people began to realize the country was dealing not just with a "few bad apples" but rather "the whole barrel was rotten." On a certain level, he says, "all parties in the government were... complicit in perpetuating the system of corruption." Ukrainians live with corruption in their daily lives, ranging from "small, almost unperceivable bribes given to doctors to ensure slightly better care or the crippling bribes that businesses have to hand over in order to make sure they will not be subject to a raid by the tax inspection police."

Voyage to Kiev

In light of such history, it's hardly surprising the crowd would display a decidedly anti-corruption tint at Maidan. But while rampant abuse and cronyism characterized much of the go-go 1990s, corruption reached incredible new heights under Yanukovych. In a move reminiscent of the mafia, the president created a group called "the Family" which siphoned off rents from Ukraine's many economic sectors and institutions. In a spiral to the bottom, Yanukovych bought off police, judges and even electoral officials. It is estimated that a whopping $1 billion was siphoned off every year through sheer abuse of public procurement tenders.

Summing up the overall political mood of the era, the Economist remarks, "The runaway corruption of Mr. Yanukovych's rule -- and the cynicism that it symbolized -- was one of the motors of the Maidan protests that toppled him from power." Indeed, for many demonstrators the Maidan Revolution signified the need to move toward the European Union, where people enjoy the rule of law and government institutions are ostensibly more transparent.

During a recent research trip, I touched on such questions with local political activists in Kiev. Denis Pilash, a veteran of Maidan student protest and Ukraine's independent left, had other concerns besides the European Union. Nevertheless, the activist was hardly immune to calls for greater transparency and indeed Pilash and his colleagues distributed leaflets calling for a ban on offshore money laundering.

Over time, Pilash tells me, protest on the Maidan took on a distinctly anti-authoritarian streak and it was not uncommon to hear people chanting "All politicians out!" Many protesters, Pilash adds, began to call for punitive measures against Ukrainian oligarchs and the powerful, and sought to put an end to the corrupt and incestuous alliance between business and government. Moreover, demonstrators sought to shed light on privatization initiatives so as to reveal the true extent of what had been stolen.

Rooting Out Kleptocracy

In the wake of Yanukovych's fall, the new government in Kiev carried out a number of high profile arrests, seized property and put the former president's house on show, which included no less than an ostrich zoo and a vintage car collection. In short order, Kiev passed a raft of anti-corruption laws and even created a new investigative body called the National Corruption Bureau. In an effort to rein in shell companies and hidden financial interests, all enterprises except for state-owned entities would be required to open their books and disclose who, precisely, benefited from their business.

Meanwhile, a reform group comprised of experts and activists has managed to pass laws which will change the process of public procurement, reportedly a huge source of corruption. Under the new system, the process will be opened up and subject to scrutiny, while state purchases linked to connections on tender committees will be halted. In another win for reform advocates, access to information on salaries and benefits of state employees will be publicized.

The spirit of Maidan has even led to changes within the educational realm. Indeed, the new Minister of Education has committed to a "road map" of educational reform including increased accountability and transparency within the agency. Some former progressive protesters from Maidan have cheered such developments. Take for example Nataliya Neshevets, a young activist who has worked with Direct Action, a local student labor union. "Now," she tells me, "the Ministry of Education has all its finances up on the web site so you can check that."

Other former Maidan activists have entered the NGO (non-governmental organization) sector, where they seek to monitor governmental corruption. Vadym Gud, another student veteran of Direct Action, works at Kiev's Center UA within the organization's parliamentary division. In a local café, Gud says the political left views the issue of corruption with slight ambivalence since such developments have traditionally been more of a liberal concern. Nevertheless, he adds, there are plenty of leftists working at his organization and during his free time the Direct Action veteran "wears an activist hat."

Working at Center UA has proved to be an eye-opening experience for Gud, who monitors Ukrainian MPs. "We look at where they get their money; their corruption cases and so on," he remarks. Gud adds that he's encouraged political parties have pledged to disclose their finances, a process which would have been "unimaginable" just a few years ago. Again, however, not all parties have been equally transparent or forthright.

Foreigners In...

In the fight against corruption, politicians have even implied that foreigners may be more trustworthy than local Ukrainians. Indeed, incoming president Poroshenko has called for the appointment of foreigners to head the new anti-corruption bureau. Hoping to reassure jittery western investors in the Wall Street Journal no less, Poroshenko boasted of his new cabinet, including a former U.S. citizen at the helm of the Ministry of Finance; a Lithuanian at the Ministry of Economic Development and Trade, and a Georgian tapped to oversee Ukraine's health system.

Corruption, Poroshenko remarked, was a "tumor" which had sapped the Ukrainian economy for far too long. Indeed, analysts claim that Ukraine's kleptocracy has caused western investors to take flight and abandon Ukraine over the past several years. "The new approach of hiring foreign professionals," Poroshenko continued, "will be practiced throughout the government. We are welcoming representatives of other nations, from the private and public sectors, who are experienced with enacting reforms in their own countries and are ready to accept Ukrainian citizenship."

And (Certain) Ukrainians Out

Even as the government moves to promote foreigners, it has cracked down on supposedly questionable Ukrainians. Under the so-called law on lustration, former members of the Communist Party, KGB, Komsomol [communist youth league] and those who previously worked under Yanukovych are to be excluded from office. The legislation is designed to promote more accountability within the state apparatus.

On the surface the law sounds like it could be a good thing, but conveniently legislation fails to apply to Poroshenko himself, nor to most officials currently elected to office. That would seem somewhat inconsistent, since Poroshenko previously served as Yanukovych's trade minister. Moreover, in the words of the Economist, the current oligarch president made a large fortune through "opaque deal-making" in the 1990s.

In other respects, the law on lustration has been labeled "murky and overly sweeping" and has the "potential for political score-settling." Somewhat ominously, radical protesters have already conducted their own vigilante-style justice by throwing supposedly corrupt politicians into trash bins and even beating them. Reportedly, law enforcement has failed to halt such incidents.

Changing the Culture of Corruption

One can only hope that reform efforts will succeed, but there are severe reasons to doubt that corruption will ever be eliminated. Indeed, Ukraine has long possessed anti-corruption measures, but the state has repeatedly failed to halt cronyism. By the time Yanukovych fled the country, he and his cronies had allegedly siphoned off billions of dollars, thus leaving Kiev in a de facto state of bankruptcy. As a result of such depleted finances, Russia was easily able to take advantage of the situation by annexing Crimea and sparking a separatist war.

As if such troubles weren't challenging enough, the incipient National Corruption Bureau has encountered a number of problems. Some point out the entity is solely dependent on state revenue, and as a result the agency could be "subject to the whims of those in power" and mere vicissitudes of the moment. Furthermore, members of parliament have moved to assert control over the bureau and parliament now has the right to take a no-confidence vote against the agency's head.

It seems natural that nervous MP's would seek to forestall any independent oversight over their own potentially illicit activities, and watchdog groups have been quick to slam such developments. Meanwhile, the bureau hasn't actually gone into action yet, though Poroshenko hopes the agency will be up and ready by August. Even if the new bureau gets off the ground, however, Ukraine's judicial system including police, prosecutors and judges has been untouched by the reform process. As a result, any action by the new agency could be blocked or derailed by corrupt officials.

Oligarchs and War

One of the paradoxes of Ukrainian political life is that so-called "oligarchs," who themselves corrupt the political system, have garnered great power. As if Poroshenko himself weren't proof enough of such trends, one need look no further than Igor Kolomoisky, an oligarch appointed to run the region of Dnipropetrovsk near conflict-ridden Donetsk. Kolomoisky is worth approximately $1.6 billion and has reportedly conducted business deals for twenty years under successive administrations. Lasocki of the European Council on Foreign Relations remarks, "in exchange for keeping his province stable and defended from separatists, [Kolomoisky] has had his businesses interests left untouched."

In Ukraine, oligarchs have become so powerful that they even exert a great degree of control over the media. But even as oligarchs plunder the state budget, ordinary Ukrainians are left to fend for themselves and living standards have stagnated. It's politically challenging, however, to question the oligarchs in the midst of war. When asked if he thought politicians intentionally focused on the war as a means to deflect attention from the need for greater transparency, Gud of Center UA forthrightly replies, "yes, sure."

Oligarchs like Koloimoisky have wrapped themselves in the flag so as to pre-empt unwelcome criticism of their business dealings. Indeed, the oligarch even funds the Dnipro Battalion, a paramilitary outfit. By funding pro-Kiev groups fighting in the east, Kolomoisky has done wonders for his own public relations brand. "These bands of half-trained volunteer warriors," writes the New Yorker magazine, have done much of the fighting in the current conflict, operating largely independently of the government, and often without adequate coordination."

One may ask: why has the Ukrainian war effort been so haphazardly organized? According to the New Yorker, the Ministry of Defense is notoriously corrupt and can't be trusted with state money. In another passage worth quoting at length, the magazine adds, "The Western press often portrays Ukraine's volunteer-led war effort as a feel-good story of solidarity and ingenuity. But behind this volunteerism is a state whose institutions are so dysfunctional that they cause more harm than good. The state's failures could have dangerous consequences. The Maidan movement, Poroshenko, and those in favor of arming Ukraine have referred, again and again, to Ukraine's commitment to 'European values.' But a country full of privately funded battalions looks more like pre-modern Europe than like a potential E.U. member."

Just what kind of impact will corruption have upon the overall course of the war? Recently, U.S. Vice President Joe Biden reportedly warned Poroshenko in Kiev that corruption could prompt western backers to withdraw their support from Ukraine. Indeed, it could be difficult for western allies to justify arms shipments when a large proportion of materiel simply winds up on the black market. In a sign of the times, NATO has announced five trust funds to finance reform of the Ukrainian military even though soldiers don't have uniforms let alone adequate food.

"Trust funds?" Fiscal Times asks rhetorically. "NATO members, it turns out, are so wary of the Ukrainian command that they refuse to provide money directly." Surveying the political landscape, Kyiv Post remarks rather aptly, "The West has stepped on the rake of Ukrainian corruption one too many times to be fooled again. Ukraine should not get more billions in loans or millions more in aid until it changes."

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