Scepticism abounds after Ukraine's officials declare assets and earnings

Scepticism abounds after Ukraine's officials declare assets and earnings
Ukrainian President Petro Poroshenko with Prime Minister Volodymyr Groysman.
By Sergei Kuznetsov in Kyiv November 4, 2016

Ambassadors of the G7 countries regard Ukraine's new electronic system of income declaration by state officials as “a reliable source of data” for law enforcement authorities, according to a statement by the envoys published by the Japanese Embassy in Kyiv on November 3.

The approval marks a major step for Ukraine in achieving other goals, including the release of billions of dollars in frozen Western credits and the possible removal of travel visa requirements for Ukrainian citizens. However, critics say declaring wealth alone is not enough and people must now explain its source.

Completing the first phase of declarations submission to the system is “a milestone” toward increasing transparency and accountability among public officials, the statement said after the October 30 deadline passed for filing asset and earnings declarations. “We recognise and appreciate broad compliance throughout the government despite technical glitches that initially complicated the process,” the ambassadors added.

Ukrainian officials were obliged to file their 2015 declarations by October 30, using the new system. Its introduction this year was a key condition for providing Ukraine a further $1bn tranche from the stalled $17.5bn support package of the International Monetary Fund (IMF), and the long-negotiated granting of visa-free travel for Ukrainians to the European Union.

However, the visa issue is still under review by EU authorities, with unconfirmed reports that  some members states are reluctant to remove travel restrictions until Ukraine tackles corruption more resolutely.

The system was originally launched in mid-August but shut down again due to numerous flaws, and re-launched on September 1 under mounting pressure from Ukraine's Western backers who have made the fight against endemic corruption a key condition for financial aid.

But despite approval of the e-system flagged by the G7 and other observers, there have been shocked public reactions to revelations of declared wealth of officials, given the huge contrast with the meager finances of most Ukrainians, whose per capita gross domestic product is just $7,449 - one-seventh of the US level.

Many officials declared millions in foreign currency in cash, property also worth millions, control over numerous Ukrainian and offshore companies, luxury property and cars, Swiss watches and jewellery. One MP even declared ownership of a private church.

According to the country’s non-governmental civil research network Opora, Ukrainian  lawmakers in the Verkhovna Rada parliament between them declared UAH12bn ($470mn) both in bank acounts and in cash.

Given the entrenched corruption in the country and creative solutions for concealing wealth and assets, including use of offshores, most citizens are also unlikely to be convinced that declarations filed by MPs and other officials are comprehensive, or that scrutiny of declared wealth and assets will be exhaustive.

“The declaration campaign answered society's question, ‘How much’,” corruption-fighting legislator Mustafa Nayyem wrote on Facebook. “Now, a public campaign must begin that will answer the question, ‘Where does it come from?’ Bureaucrats and politicians who worked for years in the public sector must explain the provenance of the declared property and cash. Otherwise it’s just the legalisation of what’s been stolen.”

“Right to know”

Meanwhile, President Petro Poroshenko is taking a forthright stance on the issue. “People declared cash assets, thinking it would be tantamount to a zero declaration in order to avoid checks. But the aim of the e-declaration system is to put an end to what these people have been doing for the past 25 years, so that they could explain where they got their assets,” Poroshenko said during an international forum in Lviv on November 3. “People have a right to know. And it’s necessary not to fight against rich people, as some think, but to fight against criminals.”

The criminals in this case are the people who are “acquiring apartments, cars, summer houses, villas, planes while working as public servants”, added the president, who filed his own e-declaration an hour before the deadline.

The Ukrainian leader said he owns UAH540,000 ($21,155), $26.3mn and €14,300 held in bank accounts, as well as UAH900,000 ($35,260) and $60,000 in cash. His revenue from interest was UAH12.3mn ($481,900) and investment revenue totalled UAH59.2mn ($2.3mn) in 2015.

“As for my e-declaration, I’d like to note straight away that all the valuable movable and immovable property: housing, estates, cars, paintings, women's jewellery - all had been purchased (not leased) before my presidency,” Poroshenko wrote on his Facebook page on October 30. “In addition, the property was mainly acquired when I was not a public servant.”

An established businessman before his ascent to high office, Poroshenko also declared control over more than 100 companies registered in Ukraine and in foreign jurisdictions. According to his declaration, he controls non-diversified corporate investment fund Prime Assets Capital, which is an umbrella for numerous assets belonging to him.

Among Ukraine-registered companies, Poroshenko is a beneficiary owner of Roshen Europe B.V. (the Netherlands), Bonbonetti Choco Confectionary Factory, Bonbonetti, Choco Bonita (Hungary), ROSHEN (Lithuania), Roshen Food (Shanghai), Lipetsk Confectionary Factory and RoshenTrans (Russia), Roshen-Polska (Poland), Feruvita S.L. and Centris (Spain), Eray-System, Telaview and CII Confectionary Investments (Cyprus), Prime Assets Partners (British Virgin Islands).

According to the declaration filed by Prime Minister Volodymyr Groysman, he has UAH2.4mn ($93,660), $870,000 and €460,000 in non-deposit cash. The PM also has deposits of UAH2.1mn ($82,380) in Credit Agricole Bank, UAH21,775 ($854) and €16,200 in Privatbank, and UAH3,499 ($137) in Prominvestbank. He also owns two apartments, two houses and four plots of land, as well as 20 declared works of art, mainly watches and jewellery.

The cash sums declared by many top officials fuelled scepticism among observers: “The declaration of the central bank governor, Valeriya Gontareva, shows that she keeps most of her savings - $1.8 million - in US dollars, though she does entrust it to a state-owned bank. That should be a signal to anyone holding Ukrainian currency to dump it,” Bloomberg commentator Leonid Bershidsky wrote.

What next?

“Going forward, it is crucial that the Ukrainian authorities continue to ensure the sustainability and independence of the system through external validation and by supporting anti-corruption legislation and bodies,” the G7 ambassadors added in the statement.

According to the diplomats, this includes the National Agency for the Prevention of Corruption (NAPC) having the capacity, resources, and independence to review the declaration data appropriately and administer the e-declaration system. The National Anti-Corruption Bureau of Ukraine (NABU) and the Special Anti-Corruption Prosecutor (SAPO) should similarly be fully empowered, staffed, and funded to fully investigate and prosecute corruption cases.

The three organisations should function as envisioned in Ukrainian law and “to meet the expectations of the Ukrainian people”, the Western diplomats emphasised. “Finally, the establishment of an Agency for Asset Recovery and Management of Assets, should be completed as soon as possible.”

Regardless of the exhortations, the agencies do not have the staff to go after everyone at once, and again, scrutiny of accounting and the application of justice is expected to be selective.

“There's another reason that Groysman and others probably won’t be asked [where their wealth came from],” Bloomberg’s Bershidsky added. “They are too powerful and too close to President Petro Poroshenko. If anyone is investigated, it will only happen after they fall out of favor. At least, previous Ukrainian practice shows that officials and politicians only get into trouble once they lose the protection of the nation's high and mighty.”

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