When the New Year arrived in Ukraine, few of its citizens expected 2016 to be a happy one. The post-Euromaidan government’s ineffective reforms and slow progress in eliminating corruption have disillusioned the population, and put into question further financial assistance from the International Monetary Fund (IMF) and desperately needed foreign investment.
In his annual New Year speech, Ukrainian Prime Minister Arseniy Yatsenyuk admitted that, “during the previous two years nothing has changed”, reiterating his position that “next year judicial reform will be a national priority”.
But is the prime minister’s promise enough to appease Western governments and international donors?
According to Bate Toms, chairman of the British-Ukrainian Chamber of Commerce, there are some initial positive trends indicating that corruption in the country is on the wane. “People are generally more afraid to ask for bribes. There are more people looking around to catch people involved in corruption. So, in general, there has been a positive direction,” Toms said in an interview with bne IntelliNews on the sidelines of a December event in London organised by Adam Smith Conferences.
But people question the dedication of the elites to clamp down on the country's endemic graft. President Petro Poroshenko, who took the helm after his predecessor Viktor Yanukovych was ousted in February 2014, has yet to fulfil his campaign promise to sell off his businesses to avoid any conflict of interest. In addition, he is the only member of the country's ultra-wealthy to see his net worth increase since the Euromaidan revolution. Sergei Leschenko, a well-known local journalist, claims that the president and prime minister, who have routinely been accused of shady dealing involving state-owned companies, “have divided up spheres of influence and responsibility so they don't get in each other's way and come into conflict.”
Corruption in the political upper echelons might stop further funds from the IMF and Western governments, but for foreign investors the main disincentive is the lack of reforms in the judiciary. “There are things that can be done to make things better that are not being done,” claims Bate Toms. “The biggest problem that still exists is that there are still many decisions that have no genuine legal basis whatsoever – and that needs to stop.”
Ukraine will not get investment as long as investors fear that their assets will be lost to someone who is bribing the court. “You never catch the people who are paying the bribe, but you always know when there is a corrupt decision, when there is no genuine legal basis,” says Toms.
Given this, the British-Ukrainian Chamber of Commerce has proposed a legal ombudsman that would keep an eye on court verdicts in Ukraine. In cases of obvious misconduct, the ombudsman could initiate the dismissal of a particular judge, which is permitted under the country’s constitutional law. “You don’t need to catch the judges taking bribes,” argues Toms. “You can look at the decisions they are rendering and you can videotape the judges now and see how they are behaving. And if they are behaving improperly and are rendering decisions that visibly do not correspond to the law, then you can dismiss them. Dismiss two judges for abuses of justice and you won’t find a third. The system will clean itself up.”
Just as importantly, according to Toms, judges who are assigned to very important cases must have adequate salaries. “Instead of wasting much of the foreign aid money that is coming in on projects that do not matter much, it’d be better to take some of that money and put it into a fund to supplement the amount that the Ukrainian government presently pays to judges in direct payments,” he suggests.
Political risk insurance
Many foreign investors who have retained their assets in Ukraine hope that the creation of a specialized prosecutor's office in early December under the chairmanship of Nazar Kholodnytsky will intensify the fight against corruption and lead to concrete results.
While hoping that it will make a difference, Toms, who has spent over 20 years in Ukraine, is sceptical about the appointment of the new ‘Corruption Tsar’. “The job of catching people in corrupt transactions is for the police, and is very, very hard,” Toms asserts. “If people have dinner in their private dachas and exchange large amounts of money, it is almost impossible to catch them.”
Toms reiterates that for Ukraine to prosper the country must not only eradicate or at least reduce corruption, but insure against the potential risks for investors. “Even after the conflict [in the east of the country] stabilises, people will be afraid for a long time, and board directors don’t like to invest in areas that are prone to conflict,” Toms says. “The solution for this is to give political risk insurance, so that people can invest and not have to worry about residual risk. If something happens, they will be paid back.”
Usually, corruption is most rife in poorer countries, so it is generally assumed that it is the result of weak institutions. However, one could argue that graft exists not just due to a lack of a functioning bureaucracy, but rather because of a lack of accountability. In addition, ever-changing and obscure legislation often gives low-level bureaucrats considerable power to grant or reject applications and licenses for individuals and companies, thereby directly influencing economic activity.
As a consequence, in Ukraine many businesses choose to pay off higher-ranking state officials in order to secure fast-track approvals and achieve what both parties perceive as a win-win scenario. One of Ukraine’s best-known proverbs states: “If you don't grease the wheels, you won't drive.”
Transparency International ranked Ukraine 142 out of 174 countries on its Corruption Perceptions Index — flanked by Uganda and Bangladesh. Paying petty bribes for nearly all services provided by the government, including education, childcare or healthcare, has become an intrinsic part of life in Ukraine.
However, it is the arrangement between big business, politicians and the courts that has brought about a “culture of impunity”. According to Ukraine’s National Anti-Corruption Bureau, graft deprives the state budget of at least $12bn each year, allows a handful of oligarchs to control 70% of the country’s economy, marginalises the average citizen and, in the words of US Vice President Joe Biden, eats Ukraine “like a cancer”.
With politicians and business magnates reaping huge personal benefits, American and European aid initiatives, however well intended, capitulate to the entrenched status quo, while Ukraine's economy remains in shambles. In Ukraine, too, the fish rots from the head down.