KYIV BLOG: Ukraine’s corruption battle will decide its economic future

KYIV BLOG: Ukraine’s corruption battle will decide its economic future
By Sergei Kuznetsov in Kyiv April 28, 2017

“Corruption needs to be tackled decisively. Despite the creation of new anti-corruption institutions, concrete results are yet to be achieved,” the International Monetary Fund (IMF), Ukraine’s main donor, said in its country report published in early April. The report reflected the disappointment among Western backers at the pace of reforms in the post-Soviet nation.

Indeed, although several high-level officials and politicians have been detained by the National Anti-Corruption Bureau of Ukraine (NABU), the prospects that they will be found guilty of any actual crimes committed and duly punished are dubious. Among the main obstacles are a rotten judiciary and a tangle of powerful vested political interests in the country.

For example, Mykola Martynenko, one of the most influential Ukrainian politicians and a close associate of former prime minister Arseniy Yatsenyuk, was recently arrested on suspicion of embezzling funds from a state-owned company. But on April 22 Martynenko, a former parliamentary deputy representing the People’s Front parliamentary faction, was released by a court on bail guaranteed by a formidable group of ministers, officials and lawmakers.

The arrest followed a request made by the Specialised Anti-Corruption Prosecutor’s Office (SAPO), another newly-created anti-graft agency, to detain Martynenko for 60 days unless he posted a UAH300mn (€10.5mn) bail.

Among those who provided personal guarantees and support to the politician in court were four incumbent ministers – Youth and Sports Minister Ihor Zhdanov, Ecology Minister Ostap Semerak, Education Minister Liliya Grynevich, Infrastructure Minister Volodymyr Omelyan – as well as Deputy Head of the Central Election Commission Andriy Mahera and many lawmakers from the People's Front parliamentary faction.

According to local media, this weighty demonstration of political support was personally masterminded by ex-PM Yatsenyuk, who was responsible for communication with the IMF and other Western donors in 2014-2016.

In March, NABU detained the head of Ukraine’s State Fiscal Service, Roman Nasirov, who had allegedly provided restructuring of rent payments for gas production companies associated with fugitive Ukrainian lawmaker Oleksandr Onyshchenko. Nasirov was accused of issuing an order that cost the state budget UAH2bn (€70mn). On March 3, the government suspended him from his duties, pending the results of the probe.

Later, Nasirov was released from custody in Kyiv after his wife posted the UAH100mn (€3.5mn) bail. At the same time, the SAPO asked instead to appoint a bail of UAH2bn (€70mn) for the suspended official.

Meanwhile, the IMF is warning the Ukrainian authorities that their failure to tackle endemic corruption could undermine the prospects of the country’s economic growth. According to the multinational lender's research paper published in April, if Kyiv is unable to decrease the level of corruption, per capita GDP will be only about 30% of the EU average in 2040.

At the same time, if Ukraine is able to reduce corruption to the EU average, per capita GDP is projected to exceed 50% of the EU average in the same year.

The multinational lender is also pressurising the Ukrainian leadership to make the newly-created anti-graft agencies more efficient. “Tangible results in prosecuting and convicting corrupt high-level officials and recovering proceeds from corruption are yet to be achieved,” the IMF’s latest country report reads.

Specifically, the multinational lender insists that NABU’s investigative powers should be strengthened further and an independent anti-corruption court should be set up. These measures would address existing problems in the judiciary, which has a reputation as one of the most corrupt institutions in Ukraine.

In September 2016, NABU’s chief Artem Sytnyk repeatedly stated that the situation with the judiciary is very worrying. “Firstly, we do not want to lose the results of our work. Secondly, Ukrainian society expects more than just detentions and initiations of criminal cases; it wants to see court verdicts,” Sytnyk told bne IntelliNews.

According to the latest agreements between the IMF and Kyiv, the Ukrainian authorities should provide NABU with the right to wiretap by the end of May, and safeguard “its exclusive jurisdiction for high-level corruption cases”. Moreover, they should secure the passage of legislation necessary for creating a new anti-corruption court by mid-June.

The court should become operational by early 2018, the multinational lender insists. However, some Kyiv-based experts are afraid that continuing infighting among the political elites in Kyiv, mixed with upcoming elections, could undermine these plans.

Meanwhile, according to this year’s bribery and corruption survey conducred by the EY consulting company, the number of respondents who believe bribery and corruption to be widespread in Ukraine is “unacceptably high” at 88%.

“These are very alarming figures for the leadership of the country,” Alexei Kredisov, managing partner at EY Ukraine believes. “Representatives of the legislative, executive, and judicial branches of government should observe such feedback from the business community and significantly increase measures to deter corruption.”

The expert added that the “tone at the top” may not be enough. “Visible actions and, most importantly, the ‘lead by example’ principle must be applied. Establishing an independent court system and the avoidance of conflicts of interest between politics, public administration and business will be important components in fighting corruption,” Kredisov added.