The Zelenskiy administration has been rocked by a fresh corruption scandal at the Defence Ministry this week. Senior unnamed Defence Ministry officials and top managers at a leading arms manufacturer were busted by the Ukrainian Security Service (SBU) for running a UAH1.5bn ($40mn) scam to procure artillery shells that were never delivered. Five suspects have been issued with “suspicion of wrongdoing notice” and one was arrested trying to flee the country.

Ukraine is no stranger to corruption and despite Ukrainian President Volodymyr Zelenskiy's accession to power on an anti-graft ticket in 2019, it still has a bad corruption problem. There is a reason why Ukraine has been overtaken by nearly every other country in the Former Soviet Union (FSU) in per capita income terms and remains today the poorest country in Europe, despite its significant industrial, agricultural and human capital resources. It should be one of the richest countries in the region.

But corruption has been hard wired into the system from the start and has since also become a tool of politics. Moreover, as in Russia, a set of mega-rich oligarchs emerged from the chaos of the 1990s, but unlike Russia, where Russian President Vladimir Putin curbed their avarice and threw them out of the corridors of power in 2000, Ukraine’s oligarchs have had another quarter century of unfettered activity to deeply ensconce themselves into the bedrock of the system. Zelenskiy only launched Ukraine’s anti-oligarch drive with his oligarch speech in March 2021 before finding himself distracted by a war with Russia less than a year later.

Ukraine’s detractors have pointed to its long history of corruption and claim it is unreformed. Ukraine’s supporters point to its new history of adherence to democratic values and say its reformed. But for most of the last decade the two, democracy and corruption, have gone hand in hand.

Eural Trans Gas & RosUkrEnergo

Barely remembered these days, Eural Trans Gas and RosUkrEnergo were trading companies that had the exclusive right to buy gas from Russia’s Gazprom and sell it to the Ukrainian government.

Eural Trans Gas was set up in 2002 and is part-owned by Ukrainian oligarch Dmitri Firtash, who is now battling an extradition to the US on corruption charges. RosUkrEnergo was set up by former Ukrainian president Leonid Kuchma and Russian President Vladimir Putin in 2004 as a front for Gazprom in Ukraine.

These structures were entirely useless middlemen between Gazprom and Naftogaz, the state-owned gas company, that made hundreds of millions of dollars in profit a year. They were state-level institutionalised corruption schemes with Big Four audited accounts. For example, the director for Eural Gas was Andras Knopp, a former Hungarian communist cultural functionary with no experience of the gas business whatsoever.

They replaced even more opaque companies like Russia’s Itera gas company, a nominally independent gas trader that even aspired to IPO, to which Gazprom used to give exclusive export deals to handle and similarly made hundreds of millions of dollars in profit for doing very little. I interviewed Itera’s CEO Igor Makarov in his Moscow office, who practised putting while we talked with a golf club made out of gold.

These schemes were created to legally syphon off huge amounts of money that was then distributed between Gazprom’s management, high Kremlin officials and top Ukrainian politicians.

 

Maidan

The fight against corruption has been a perennial theme since the original Orange Revolution in 2004, when the people rose up to install Viktor Yushchenko as president after the establishment’s Viktor Yanukovych tried to fix the vote.

Tens of thousands came out onto the streets in protest and eventually Ukraine’s constitutional court ruled in Yushchenko’s favour and he was legitimately installed as president in a very rare victory for real democracy in the Former Soviet Union (FSU).

A former banker and liberal reformer, Yushchenko was not corrupt and that might have been his problem. He brought with him the promise of change, but he proved to be ineffective, before being forced into a fateful deal with the existing oligarchs that undermined his programme. But even the Orange team didn’t escape the taint of corruption.

Yushchenko appointed Yulia Tymoshenko with her trademark peasant hair braid as prime minister. In Ukraine she is better known as “the gas princess”, as after she served several years as Ukraine gas minister, during the heyday of the gas trading company scams, she allegedly left the job worth an estimated $350mn. Once asked by a journalist how she could afford Channel suits on a minister’s salary, Tymashenko shot back: “Don’t ask rude questions.”

The Orange team were ousted when Yushchenko’s Prime Minister and Ukraine’s Marianne aux barricades was narrowly defeated at the polls by Yanukovych’s second bid for the presidency in 2012, in what was again considered one of the few “free and fair” elections ever to be held in Eastern Europe.

Yanukovych’s legitimate victory in the polls ushering an era of some of the most unprecedented corruption that the FSU has seen – even by Ukraine’s low standards.

Yanukovych’s rule was more like that of a mafia boss, who took a percentage of any business of value. On one occasion legend has it he took over a restaurant in Odesa simply because he had a good meal there. He looted the government coffers for billions of dollars and when he was eventually ousted, in his palatial dacha, the astounded protesters that broke into the building found a loaf of bread cast from solid gold (which has since gone missing) amongst an Aladdin’s cave of treasures.

As president, Yanukovych arrested Tymoshenko and jailed her, his main political rival, causing outrage in the West, which linked further economic relief to her release. While Yanukovych was pilloried in the West for his corruption, Tymoshenko was held up as a liberal martyr and her gas princess past quietly swept under the carpet.

Euromaidan

Following the next Euromaidan revolution in 2014 that deposed Yanukovych, corruption was front and centre again under the new oligarch-turned president Viktor Poroshenko.

A former minister under the Yanukovych administration, Poroshenko was also a billionaire businessman with holdings in media, banking and confectionery amongst other things.

While not known as overtly corrupt, Poroshenko was a product of the system and vigorously resisted Western pressure to crack down on corruption. However, under his first term in office he was the only oligarch to see his wealth increase while the others went down, and he pointedly refused to put his media assets into trust while he was president.

For someone like Poroshenko, who doesn’t need the money, corruption is not a problem for the system, corruption is the system. Without free and fair elections, functioning courts or overseeing independent institutions, it is corruption that gives a leader his power: the ability to dish out lucrative sinecures at the head of some agency or other, and the power to take them away again.

The problem was highlighted when Ukraine's then-economy minister, Aivarus Abromaviciusm, quit in spectacular fashion in February 2016, accusing Poroshenko’s government of unbridled corruption.

A Lithuanian-born naturalised Ukrainian and former highly successful investment banker, Abromavicius was attempting to battle corruption and making inroads. But in a conversation with bne IntelliNews at the time, he complained that the president was assigning his deputies to key jobs that controlled major flows of public cash. Abromavicius and his entire team eventually quit, lambasting the government’s ingrained corruption, causing a political crisis.

“Neither I nor my team have any desire to serve as a cover-up for the covert corruption, or become puppets for those who, very much like the ‘old’ government, are trying to exercise control over the flow of public funds,” Abromavicius said at the time of the Poroshenko administration, which if anything, was even more lionised in the West than the Orange government of Yushchenko.

Nevertheless, under Poroshenko, at the West’s insistence, bodies like National Anti-Corruption Bureau of Ukraine (NABU) and Specialized Anti-Corruption Prosecutor’s Office (SAPO) were set up, although the third element, the independent Anti-Corruption Court (ACC), was only created in the same week Zelenskiy beat Poroshenko in the presidential elections.

The appearance of independent investigators, entirely autonomous from the government, under Poroshenko made little difference. NABU arrested Roman Nasirov, the government’s financial controller and Poroshenko's right-hand man, charging him with embezzling millions of dollars in March 2017.

At the time, Nasirov’s arrest was hailed as the first big fish ever to be hooked by the law enforcement agencies and the courthouse was surrounded by demonstrators to make sure Nasirov didn’t get away over the weekend. But after his wife appeared on the Monday with a million dollars in cash to post bail, he was released and never tried. Indeed, he later ran against Zelenskiy in the 2019 presidential race. Despite working for nearly a decade, NABU has never managed to convict a single high-level politician for corruption, although more recently lower level officials are starting to be arrested and sent to jail.

Is Zelenskiy corrupt?

Power corrupts and absolute power corrupts absolutely, said British historian Lord Acton, and Zelenskiy has been accused of graft.

His name came up in the Panama Papers (as did Poroshenko’s), a leak of offshore holding companies that raised suspicions. Zelenskiy is a wealthy man, estimated to be worth some $44mn at the time of the leak.

But looking at the details a little more closely and his wealth seems to be legitimate. Although $44mn is a huge sum by ordinary Ukrainian standards, Zelenskiy was a highly successful comedian and owner of an equally successful TV production company that syndicated its shows in the cash-rich Russian market. In this context, $44mn is a relatively modest sum and the fact that he chose to keep some of his wealth in offshore companies and not all in a Ukrainian bank is entirely normal.

More recently, Zelenskiy was accused of skimming millions of dollars off fuel acquisition allocations made by international donors – similar in nature to the defence ministry's artillery shell scam – but no solid evidence has been presented and the rumour is as likely to be Russian disinformation as true.

In his mandatory declaration of income and assets, released on January 28, Zelenskiy declared an income of $285,198 in 2021, owns seven apartments and two cars, a Range Rover and a Mercedes – hardly oligarch levels of opulence.

Unsure of himself in his first two years in office, since the war started almost no one in Ukraine doubts his courage and patriotism in the face of the Russian invasion. He summed up this defiance with a now legendary video post in the first days of the war in the streets outside the president’s on Bankova in central Kyiv: “We’re here,” he stated, surrounded by all the leading ministers in his cabinet, to reassure the people he was remaining in the centre of the fight against Russia.

To Zelenskiy’s credit he had already started to clean out the rot in the Defence Ministry, having fired the previous minister, Oleksii Reznikov, in September, who was not personally accused of corruption but oversaw a ministry plagued with repeated scandals. The same month Zelenskiy also sacked all the heads of regional military recruiting centres, who were widely known to be selling medical exemption from service for several thousand of dollars a pop.

But despite the progress, Zelenskiy still has to pass his own Nasirov-test. At the end of last year, the SBU, which was under the direct control of the president, arrested Ihor Kolomoisky on fraud charges. Kolomoisky is one of Ukraine richest and most notorious oligarchs who looted his PrivatBank of $5.5bn worth of deposits and is also widely credited with putting Zelenskiy into office thanks to the backing of his media empire.

Kolomoisky remains in jail, but he has not been sent to trial yet, and according to local reports he is trying to use his businesses to put pressure on the government to drop the charges. If Kolomoisky is convicted and jailed then that really would be a revolution: a Ukrainian president who is both democratically elected and honest.