Corruption in Ukraine: has anything changed since Yanukovych?
03 May 2017

In last year’s Transparency International (TI) Corruptions Index, Ukraine ranked at 131 out of 171 countries (with number 1 as the least corrupt). TI’s article expanding upon the index specifically mentions then President Viktor Yanukovych’s alleged theft of $7.5 billon as a “kind of systemic grand corruption [that] violates human rights, prevents sustainable development and fuels social exclusion”. In a 2012 Ernst & Young report, Ukraine was classed as one of the world’s three most corrupt countries, alongside Colombia and Brazil. Even in public goods, such as higher education, corruption is and has long been pervasive: in 2001, during the administration of Leonid Kuchma, post-Soviet Ukraine’s second President, 80% of voters agreed with the statement that the government had no real interest in punishing corruption, and in 2008, TI found that bribes had been demanded from 47% of university students. In 2012, the Deputy Head of Ukraine’s Security Service Volodymyr Rokytski was with US government representatives at an event dedicated to fighting crime, of all things, when he was spotted wearing a watch worth $32,000—his entire official annual income.

There is a beguiling article by Alexander J. Motyl, in which he argues that it is a myth that corruption is an obstacle to economic growth. He cites the BRIC economies as examples of success despite corruption. But take Brazil as an example. As one might expect of a country with a big, young, mostly urban population, vast natural resources, and under favourable international economic conditions, its economy boomed between 1994 and 2010. Now Brazil is suffering a drawn-out recession. The economy has contracted for eight consecutive quarters, and not just any old contractions: big chunks of output are being lost – 3.8% in 2015, 3.6% in 2016.

Corruption is of course not the only factor at play. In fact the most significant is a fall in the prices of the commodities on which Brazil’s economy relies. However, in 2014 a bribery scandal emerged at Petrobras, Brazil’s state-run oil giant. Initially several top politicians and businessmen were indicted, then President Dilma Rousseff was implicated and forced from office. As Paulo Sotero, director of the Brazil Institute at the Wilson Center think tank told CNN: “the investigations revealed to the country the systematic nature of corruption in Brazil. Brazilians knew intuitively that the problem existed but did not understand how extensive it was.” Sotero suggests that corruption eroded the confidence of the average Brazilian in his or her economy, and this was a significant contributing factor to the current recession.

Ukraine has had an even more severe economic downturn, after strong growth during most of the noughties. GDP fell by 6.8% in 2014 and 12% in 2015. In 2014 Russia annexed Ukraine’s Crimea region, while pro-Russian separatist forces took control of its eastern Donbass regions, a key area for the country’s industry. Russia, previously Ukraine’s largest trading partner, imposed strict border controls, causing a sharp decline in Ukrainian exports.

But corruption was another factor driving the severity of the recession. Before the events of 2014, the Ukrainian economy had a major structural problem. Foreign direct investment (FDI) had already been falling year-on-year since 2010. FDI is important for developing countries like Ukraine—as an IMF report puts it, to “add to investible resources and capital formation” and as “a means of transferring production technology, skills, innovative capacity, and organizational and managerial practices between locations, as well as of accessing international marketing networks.” As a recent OECD report explains: “by reducing its profitability, corruption tends to reduce the volume of FDI.” Daniel Bilak, chief investment adviser to the Ukrainian Prime Minister, told Bloomberg this year that “investors see three main problems in Ukraine: corruption, corruption and corruption.”

There are indications that—for all the trumpeted talk of hope and change at the Maidan in 2014, as President Viktor Yanukovych’s pro-Russian kleptocracy left power—corruption still flourishes under the new order. Many Ukrainians feel that, as Igor Lutsenko, former Maidan activist, told the The Kyiv Post, Yanukovych and Poroshenko “have a symmetrical, mirror-like image in many ways. The difference is that Poroshenko is more sensitive to Western demands and Western support. But in all other things, he is just the same.”

The precise extent of corruption under Yanukovych is hard to gauge. But after he left power in 2014, the Prime Minister of the new national unity government Arseny Yateniuk said that Yanukoyvch’s government had stripped the Ukrainian Treasury of funds: $37 billion (£29 billion) had been moved in an “unknown direction”, and $70 billion (£55 billion) had been transferred to offshore accounts. Meanwhile, the funds that did stay in the country were egregiously misappropriated through Yanukovych’s “regional cronyism”. Nearly half of the entire budget for social and economic development was allotted to just two administrations, Donetsk Oblast and Luhansk Oblast, within just one region of the country: Donetsk, Yanukovych’s pro-Russian power base in the east.

Poroshenko is diametrically opposed to Yanukovych on Ukraine’s geopolitical orientation. He proposes that the country look west to the EU and US, not east to Russia. But at the same time, as a recent Forbes article puts it, “Poroshenko is similar to other presidents insofar as those who don’t support him get investigated or prosecuted, and often see their businesses victims of hostile takeovers, some people claim.”

Perhaps the most significant recent event in the history of corruption in Ukraine is the resignation of Valeriya Gontareva as Governor of the Central Bank. A Bloomberg report described her as the country’s “No. 1 reformer”. She was behind the cleansing of the nation’s banking sector, shutting down eighty dodgy lenders in the country’s harmfully oligarch-dominated financial services industry. Having suggested repeatedly that the government was not doing enough to tackle corruption, she received death threats and resigned.

To give the Poroshenko government some credit, corruption is entrenched in Ukraine. It took root in local, everyday post-war Ukrainian life, simply because of the exigencies created by the ludicrous inefficiencies of the Soviet economic system. As the academic Rasma Karklins puts it in The System Made Me Do It: Corruption in Post-communist Societies: “If a regime is perceived as illegitimate and exploitative, its inhabitants are unlikely to feel the objects of good citizens to pay taxes and obey the law, and they themselves are much more likely to engage in illicit practices”. Corruption in turn “undermines public spiritedness and commitment to serving the public good,” so the effect is compounded in a vicious circle.

There have also been some positive developments in Ukraine. A National Anti-Corruption Bureau (NABU) was set up in 2014 with 700 officers. It has an evidence-sharing deal with the FBI, which sponsored the training of its detectives. Yet as it stands the NABU cannot indict suspects, and should urgently be given the power to do so.

Moreover, the Poroshenko government should introduce broader governance reforms. TI cites Romania as modelling a good approach in this area because of its “promotion of institutional integrity”, which is crucial in relation to the Ukrainian judiciary. As another OECD report points out, “the level of judicial integrity” in Ukraine “remains low”; judges are underpaid to an extent that strongly incentivises corruption. As such it makes sense to increase their pay significantly, but the tools for political bodies to exert undue influence on the judiciary, noted by the OECD, must also be eliminated, with amendments to the constitution to ensure full separation of powers in this respect.

Meanwhile, Ukrainian civil society should have better access to information in order to call out corruption. The OECD rightly recommends “publishing in open formats information of public interest (e.g. asset declarations of public officials, [a] state company register, normative legal acts).” This should be backed up by an implementation committee—similar to Pakistan’s—in which government, media and civil society representatives review strategy and guide its implementation. With a diverse range of representatives overseeing Ukraine’s anti-corruption strategy, this would bolster an independent judiciary in ensuring that the government’s feet are always held to the fire.

Tom Wheeldon is a freelance journalist and political commentator at Radio France Internationale.

You can claim CPD minutes for reading this article, by signing up to our CPD Wallet

FREE CPD Wallet
No Responses to “Corruption in Ukraine: has anything changed since Yanukovych?”