In a damning report, the The New York Times (NYT) detailed institutional corruption in the Zelenskiy administration, where the government has systematically undermined checks and balances to appoint its placemen in charge of key companies and institutions.

President Volodymyr Zelensky’s government systematically dismantled independent oversight mechanisms in key state-owned enterprises, undermining anti-corruption safeguards even as billions of dollars in Western aid flowed into Ukraine, NYT reported on December 5.

The investigation, based on interviews with about 20 Ukrainian and Western officials and reviewed documents, found that Kyiv stacked supervisory boards with loyalists, left seats vacant, or delayed their formation altogether. These boards—mandated by international donors to monitor procurement, executive appointments and spending—were often rendered powerless through political interference and revised company charters.

“They understood that as soon as they start the activities of the supervisory board they can lose control,” Oleksii Movchan, a member of parliament from Zelensky’s own party who has supported stronger oversight mechanisms to the NYT. “They didn’t want to lose control.”

The report comes in the midst of the mushrooming Energoatom corruption scandal that has already claimed the heads of two ministers and head of Ukraine’s presidential office, Andriy Yermak, who was forced to resign on November 28 after the National Anti-Corruption Bureau of Ukraine (NABU) raided his office and home.

The scandal centres on Timur Mindich, Zelenskiy former business partner and close personal friend, who ran a $100mn kickback scheme using his influence. He skipped the country only hours before NANU searched his home and offices, where a solid gold toilet was discovered as well as bundles of hundreds of thousands of dollars and euros in cash. He is reportedly sheltering in Israel, which does not extradite its citizens.

Zelenskiy has sanctioned Mindich for three years, but no arrest warrant has been issued. Zelenskiy’s reputation has taken a severe blow as a result of the scandal and comes just as the EU is battling to raise an additional €140bn to fund Ukraine’s war with Russia with the highly controversial Reparation Loan.

The EU is highly displeased and warned Kyiv that it won’t be allowed to join the EU unless it eradicates corruption from the government.

Ukraine’s reputation as a feisty David to Russia’s Goliath is now being dragged in the dirt. The NYT report centres on Energoatom, the state nuclear energy company. The administration has blamed the company’s supervisory board for failing to prevent the corruption, and Zelenskiy has ordered a shake up of the management of the entire energy sector. But NYT found that the board was deliberately hobbled by delayed appointments and unfilled seats, in moves to consolidate Bankova (Ukraine’s equivalent of the Kremlin) control over the company.

A former British financier and incoming board member, said he had planned to scrutinise a controversial $600mn reactor deal but was blocked from taking office. “The whole thing was just a complete rat’s nest,” Dr Stone told the paper.

At Ukrenergo, the state power grid operator, the administration allegedly bypassed the EU-vetted shortlist of board candidates to appoint Roman Pionkowski, a Polish expert deemed unqualified by Western partners. Pionkowski later voted to remove Ukrenergo’s chief executive, Volodymyr Kudrytskyi, despite the remaining foreign board members resigning in protest and calling the move “politically motivated”.

Kudrytskyi is responsible for bringing in $1.5bn of foreign investment into the power sector and used it to build 60 concrete defences to protect Ukraine’s key energy assets from Russian missiles, to great effect. The same defensive constructions were due to be built for Energoatom, but when Kudrytskyi complained to the then Energy Minister Herman Halushchenko, the government opened an corruption investigation Kudrytskyi, who was sacked and the defences were never built. Halushchenko is one of the two ministers implicated by NABU and has since been sacked by Zelenskiy. The hundreds of millions of dollars of foreign aid for the energy sector that Kudrytskyi brought into Ukraine has since dried up to a trickle.

Supervisory boards were just window dressing according to experts interviewed by NYT. And blatant meddling by the state to get its representatives appointed caused many respected foreign independent directors to resign their board seats.

European officials have long been aware of the corruption problem but have shied away from punishing Ukraine. Ukraine was downgraded to B in the last EU accession progress report released in November from A due to the corruption issue. While EU officials went out of their way to scold Kyiv for its lack of progress on making reforms in the “Fundamental cluster” that includes judicial reforms, no concrete actions to limit aid were taken.

A European Commission-commissioned report this year, obtained by NYT, warned of “persistent political interference” in Ukraine’s energy sector and identified the undermining of supervisory boards as a key vulnerability.

A spokeswoman for the European Union said there was no evidence that EU funds were misused but did not comment on the report’s findings regarding corruption.

Eight individuals, including a former deputy prime minister and a business associate of Zelensky, have been accused of charges including embezzlement and money laundering in the Energoatom case. NABU has said that some 40 high government officials may be implicated in the scandal.

Corruption is the system

As bne IntelliNews reported, corruption is not a problem of the Ukrainian system, corruption is the system. Since the 2014 annexation of the Crimea, Ukraine’s supporters have tried to play down the corruption issue, but in the last months, the international coverage has turned increasingly negative as the warts and blemishes of Ukraine’s government have become increasingly hard to ignore. Zelenskiy has been accused of showing increasingly authoritarian traits, but came to a head when he attempted to gut Ukraine’s anti-corruption organs with Law 21414 that sparked the first anti-government protests since the war began. Things have only gotten worse since then, culminating with NABU’s investigation into the Energoatom kickback scheme.

Weak institutions and a dysfunction and venal judicial system means checks and balances do not work. Political power becomes the ability to give underlings lucrative jobs where they can skim off the top. Power is the ability to take those jobs away.

Under the first post-Soviet president Leonid Kuchma, corruption was on an industrial scale with scams coordinated by the original Gazprom management where officials from both Russia and Ukraine skimmed off billions of dollars from the gas transit business between Russia and its EU customers, via vehicles like RosUkrEnergo.

After a brief hiatus under the Orange Revolution government of Viktor Yushchenko, but where no progress in the fight against corruption was made, his replacement Viktor Yanukovych set up what has been dubbed as a “mafia state” who is accused of stealing billions of dollars of state money, leading to this ousting in the 2014 EuroMaidan revolution. He was replaced by oligarch turned politician former President Petro Poroshenko, but even this pro-Western administration was knee-deep in corruption.

Aivaras Abromavičius, a Lithuanian fund manager and naturalised Ukrainian, was appointed Minister of Economic Development and Trade in December 2014 by Poroshenko and also put in charge of cleaning up corruption of Ukroboronexport, the state-owned arms agency. However, he sparked a small political crisis when he gave a press conference and publicly resigned in early 2016, saying corruption in the government made his job impossible. He told bne IntelliNews at the time that Poroshenko tried to force appointments on him in an effort to gain control over revenue streams.