KYIV BLOG: Manafort caught in Ukrainian web

KYIV BLOG: Manafort caught in Ukrainian web
A Trump rally.
By Ben Aris in Berlin August 17, 2016

The embarrassment that US presidential candidate Donald Trump has been feeling following revelations that his campaign manager, Paul Manafort, worked for disgraced former Ukrainian president Viktor Yanukovych and may have accepted illegal cash payments is symptomatic of the shifting sands that is foreign relations between east and west these days.

There is no doubt that Manafort worked for Yanukovych, being part of the team that helped him win the 2010 presidential election. Yanukovych actually first ran for president in 2004, but was extremely unpopular. On one famous occasion onlookers pelted him with eggs in the regional town of Ivano-Frankivsk.

After the establishment attempted to fix the result, the people took to the streets in the Orange Revolution of 2004-05 and installed Viktor Yushchenko instead as president. However, Yushchenko proved to be a huge disappointment and the government so incompetent that Yanukovych managed to very narrowly defeat Orange Revolution leader and former premier Yulia Tymochenko in the 2010 presidential run-off.

The Ukrainian people made a bad choice. Amongst numerous crimes, Yanukovych and his cronies went on to embezzle a reported $35bn, equivalent to the country's entire hard currency reserves. As the economy sank and Yanukovych snubbed the EU offer to sign a free trade and association deal in November 2013, instead accepting a $3bn loan from Russia, part of $15bn promised, the Ukrainian people took to the streets again in their second revolution in ten years. The Euromaidan revolution ended with President Petro Poroshenko taking over the helm while Yanukovych fled into exile in Russia.

Manafort is actually the perfect manager for Trump, as "The Donald" shares a lot in common with Yanukovych – starting with his basic un-electability.

A boor of a man, Yanukovych was arrested and jailed as a young man on GBH charges. His thuggish nature is always close to the surface. He is a poor public speaker, who barely speaks Ukrainian, and is prone to crass and offensive comments. He was widely ridiculed when he misspelt “professor” on the form required to stand for president. In short, like Trump, he was a nightmare for a campaign manager trying to craft an image and a message that might get their candidate elected.

The reported $150mn campaign war chest goes a long way in Ukraine, where once again the election was rife with vote buying and vote rigging, although the final result was given a clean bill of health by international election observers. Yanukovych eventually beat Tymoshenko in the runoff with 48.95% of the vote to her 45.47%.

Manafort has been sold as someone who worked for the “pro-Putin” Yanukovych, but right up until the violence on Kyiv's Maidan in the first months of 2014, he remained “a man we can do business with” for the West, who wanted him as a bulwark against Putin’s attempts to extend his Eurasian Economic Union (EEU) westwards into Ukraine. When the Russians offered Kyiv a $15bn loan in the form of a Eurobond, US diplomat Victoria Nuland travelled to Kyiv and offered $20bn of credits in a last-ditch attempt to win him over, as bne IntelliNews reported at the time.

Reports of American advisors working on the Yanukovych 2010 campaign surfaced at the time of the election, but the campaign worked hard to play them down, as it was afraid of being seen as a proxy for the US and not Russia.

Yanukovych had a natural affinity for Russia, as he hails from the Russophile east of the country and grew up in the Soviet Union, but he was never Putin’s man; he always had only his own best interests at heart. He went a long way down the EU integration path that ended at the Vilnius summit, but he balked at the last fence simply because the Russians offered him more cash up front than Europe did. The whole “values” thing that was part of the EU package slid off him like water off a duck's back.

Cash on the barrel

Yanukovych’s regime was deeply corrupt, as has been the entire Ukrainian political establishment for all its 25 years of independence. Just how badly the country has been run is manifest in the fact that there are now only two of the former 15 Soviet republics that made up the USSR where income levels are still below their 1991 levels: Ukraine and Kyrgyzstan.

Manafort has been fingered in a “black ledger” found in the headquarters of Yanukovych’s parliamentary proxy, the Party of Regions. The ledger reportedly contains 12 itemized payments to Manafort worth a total of $7.6mn that supposedly were paid in cash, although there is no evidence Manafort actually received any or all of this money. Cash payments made to a US citizen would clearly break US tax rules, as citizens have to pay tax on their worldwide income, and probably also fall foul of the foreign corrupt practices act. In addition, US law requires anyone that works in politics for a foreign power to declare the details of their activity to the US authorities – something Manafort reportedly failed to do.

However, that is how politics works in Ukraine and always has done – cash payments. At the time in 2010, no one paid much attention to these payments or even the reported vote buying, as Western partners were happy to see the election take place on more or less democratic lines, thus setting a precedent for both Ukraine and the entire region. 

“Throughout this period, Ukraine's political elites largely operated through cash payments to their entourages... this was the norm, ie. Typically paid via brown envelopes. I guess they operated through this route to avoid questions as to the sources of their own financing (eg. Questions as to how come politicians with seemingly limited official means were able to make such large payments, running into millions of dollars), and I guess also helping to avoid taxes for some of the recipients,” Tim Ash, head of CEEMEA strategy at Nomura, said in a note.

The ledger was used to record $2bn allegedly handed out “under the table” to political consultants, election commissioners, ministers, parliamentarians, judges and journalists from 2007 to 2012, according to Ukrainian investigators. Manafort’s name appears in the ledger for payments made between 2009 and 2012. The Ukrainian National Anti-Corruption Bureau said additional evidence brings the total amount of payments designated for Manafort to $12.7mn. The Ukrainian authorities have now approached the FBI to help in cross-checking Manafort’s bank accounts to see if he actually received any payments.

The ledger contains line items with Manafort’s name against them including $3,468,653 in June 2012, $1,075,000 in January 2010, two $750,000 payments in September 2010 and October 2009 and one for $500,000 in November 2010, according to reports.

So far, all Manafort has said in response to the New York Times report that broke the story was that the suggestion he had accepted off-the-books payments was “unfounded, silly and nonsensical”.

The NYT report claims that Manafort remained a close adviser of the former president until the point he fled the country in February 2014, even attending security briefings in an “anti-revolution situation room” during the Euromaidan uprising.

Sidelining Manafort

Maybe it is not a surprise that Russia has played such a prominent role in the US presidential election, as Russia and Putin have become convenient bogeymen to tar an opponent. The Manafort allegations have already been linked to separate allegations that the Kremlin hacked the Democratic Party emails ahead of its convention. It has also been suggested, without any details or evidence, that Manafort may have some outstanding connection or business in the east that Russia can use to blackmail him.

Whatever the truth of the allegations, these criticisms seem to have hit home with the real estate billionaire for the first time. Trump has already moved to sideline Manafort as the scandal surrounding his previous jobs gathers momentum

In a move to take Manafort out of the spotlight, Trump has appointed Kellyanne Conway, a Republican pollster, as his campaign manager, and Stephen Bannon, executive editor of Breitbart News, the conservative site, as chief executive, the Financial Times reports.

The change of campaign leadership will be a blow to Manafort, who has essentially been running the campaign since the ousting of Corey Lewandowski as campaign manager two months ago.

Trump has gone from a narrow lead over Clinton to a 7-point deficit in the last few weeks.