Since 2014, Ukraine has made remarkable progress in laying the foundations for reducing corruption in public life. Corruption in Ukraine is long established and deeply rooted. It remains the single biggest obstacle to successful development, creating economic inefficiencies and deterring investment. The achievements of the past three years are welcome, but to build on them and make reforms irreversible will require a further step: renewal of Ukraine’s judiciary, an institution itself riddled with graft and a pillar of the systemic corruption that has plagued the country since independence. Without a breakthrough in this area, there is a danger that the anti-corruption effort will lose momentum, leaving in place substantial elements of the ‘old’ system through which the elites have diverted much of Ukraine’s national wealth for their own purposes.
Recent reforms have significantly improved transparency, and have included the establishment of new agencies for investigating and prosecuting high-level officials suspected of corruption
For the purposes of this analysis, corruption is defined here as the misuse of public institutions and office to the detriment of the common good. It does not necessarily involve financial wrongdoing, but can involve this.
In contrast to previous anti-corruption efforts, notably after the Orange Revolution of 2004–05, recent reforms have moved beyond rhetoric: they have significantly improved transparency, have begun to restrict the scope for corrupt practices to occur, and have included the establishment of new agencies for investigating and prosecuting high-level officials suspected of corruption. Since mid-2016, stalwarts of Ukraine’s ‘old’ system have increased their resistance to these measures – a sure sign that the policies are well targeted. Taken together, the anti-corruption reforms effected so far mark an encouraging start to the process of equipping Ukraine with the institutions and culture needed to discourage corrupt behaviour in government, business and wider society.
These positive changes have been bolstered by reforms in other areas. For obvious reasons of national defence, Ukraine’s national oil and gas company, Naftogaz, has stopped importing Russian natural gas – thus suspending a trade that was the single biggest source of corruption in the economy. Whether through direct gas purchases or non-transparent intermediaries, Naftogaz was at the centre of a pernicious web of corrupt practices that widely permeated the economy and political life. On a smaller but still significant scale, changes to the procurement system at the Ministry of Health have begun to address long-standing corruption within the state system. ‘E-government’ initiatives encompassing state procurement tenders, business registration and value-added tax (VAT) registration – as well as automatic VAT reimbursement – have sharply reduced direct contact between officials and businesses, in turn limiting opportunities for abuse of the system.
Banking reform, meanwhile, has led to the closure of nearly half of the country’s 180-plus banks and the nationalization of PrivatBank, the country’s largest bank (accounting for 37 per cent of retail deposits and one-fifth of all banking assets as of December 2016). In many cases, banks were used to divert money from the state through loans never intended for repayment. Seventy per cent of PrivatBank’s loans were to companies belonging to its two owners. At the same time, the concentration of wealth in the hands of a cohort of powerful businessmen is believed to have significantly declined, reducing their ability to exercise political influence. For example, Rinat Akhmetov, one of Ukraine’s leading businessmen prior to 2014, has lost control of substantial assets in the occupied territories of Crimea and Donbas.
Despite these achievements, from the viewpoint of Ukraine’s justifiably impatient population, there is so far little to show for the reforms. The Euromaidan movement’s demands that the authorities curb corruption and put high-level korruptsioneri behind bars remain unfulfilled. There have been no convictions of senior officials from the administration of former president Viktor Yanukovych, despite overwhelming evidence that many oversaw the theft of public assets on an epic scale. Nor have there been any convictions for the Maidan shootings that killed more than 75 protesters and police. Key suspects from the ‘Berkut’ elite security force have escaped to Russia. Justice has still not caught up with members of the armed forces and security services suspected of serving Russia rather than Ukraine before 2014. With the notable exception of Naftogaz, state-owned enterprises (SOEs) continue to bleed the equivalent of billions of dollars annually from the state budget through corrupt schemes.
From the viewpoint of Ukraine’s justifiably impatient population, there is so far little to show for anti-corruption reforms
In some areas, new problems have appeared: for example, in 2016, the state energy regulator set wholesale electricity prices at levels favouring domestic coal producers, in effect allowing them to receive a surcharge for their production as if they had transported it from the Netherlands (i.e. using the ‘Rotterdam +’ formula) – even though their coal is mined in Ukraine. The new anti-corruption agency is investigating possible abuses of power by officials at the regulator. At the same time, defence spending remains highly opaque, prompting speculation that the conflict in Donbas is justifying high levels of secrecy that benefit politically connected defence companies.
These shortcomings and the lukewarm support among the ruling elites for serious anti-corruption measures reinforce the widely held view in Ukrainian society that corruption levels remain as high as they were before the Euromaidan revolution and will not change. Consistent with this is Transparency International’s ranking of Ukraine in joint 131st place, out of 176 countries surveyed, in its 2016 Corruption Perceptions Index – this was down one place from 130th in 2015, and also roughly in line with the results during the Yanukovych years.
However, a degree of realism must accompany these assessments. Expectations of a rapid and genuine breakthrough in the fight against corruption in Ukraine were always destined to be disappointed, given entrenched cultural and structural factors.
The cultural dimension includes the widely engrained and still visible practice, inherited from the Soviet era, of petty bribery (blat) dressed up as ‘thank you’ payments to doctors, teachers, local officials and the like, as well as the widespread theft of public property. In Ukraine, as elsewhere in the former USSR in the 1990s, the breakdown of public services and chronic wage arrears encouraged bribery, theft and an active shadow economy. The legacy of this is a view in society, persistent to this day, that everyone engages in some form of corruption and that it is simply a way of life.
Ukraine has also inherited a structural corruption problem, the origins of which lie in the fire-sale privatizations that started in the mid-1990s and created a set of disproportionately wealthy business owners. To protect their interests, these arrivistes often brought their influence directly into government, parliament, the media and the judiciary. They quickly established networks that instrumentalized public institutions to work on their behalf rather than for the country itself. Their associates bought their way on to parliamentary lists, both to secure immunity from prosecution and to continue to enrich themselves through privileged access to state resources.
To a greater or lesser degree, this usurpation of power or ‘state capture’ has affected the majority of countries transitioning from the Soviet command-administrative system to market-based economic models. However, Ukraine has been a ‘high-capture’ state in the sense that its size and regional diversity spawned a wide range of interest groups in competition with each other for influence over state enterprises and budgets.
This has placed a considerable brake on Ukraine’s development. As the economists Joel Hellman and Daniel Kaufmann have noted, ‘state capture’ is a form of grand corruption that weakens the state and undermines its ability to provide basic public goods. The enfeebling of the state in turn limits the development of politically unconnected businesses, particularly small and medium-sized enterprises (SMEs), because of the difficulties they face in upholding property rights or enforcing legal claims. It is also a powerful disincentive for businesses to invest because of the heightened risk premium associated with politically subservient courts and a generally unpredictable legal environment. In other words, state capture benefits those who do the capturing but distorts the economy as a whole and impairs national development. Ukraine provides a perfect case study of these problems. Corruption on a grand scale has not only cost the country’s citizens dearly over more than 20 years, but has cemented in place a system that is impossible to dislodge without deep changes to the operating environment.
Ukraine suffers from an inherited Soviet-era legal system and law enforcement structures that were originally designed to uphold the authority of the government rather than the rule of law
Ukraine also suffers from a problem common in transition countries that have inherited Soviet-era legal systems and law enforcement structures originally designed to uphold the authority of the government rather than the rule of law. In most such countries, these structures have proved highly resistant to change. In Ukraine’s case, the judiciary is accustomed to being politically dependent and the Prosecutor General’s Office (PGO) to having levels of influence not associated with a prosecutorial service in a developed democracy. In a system of this kind, the PGO can easily become a tool used for selective application of the law.
These factors, taken together, explain how the ‘old’ system in Ukraine has proved so resilient, and how it continues to resist the introduction of foreign concepts associated with preventing corruption and investigating misconduct. The Euromaidan removed Yanukovych and his associates from power and put an end to their attempts to centralize control of the country’s assets, but it did not break the underlying system. Instead, elements of Ukraine’s ‘deep state’ have regrouped with the clear goal of blocking or diluting reforms that threaten their interests. President Petro Poroshenko’s lack of commitment to establishing an independent judiciary and overhauling the PGO – even though it is his responsibility to oversee reforms in both institutions – offers a striking example of the difficulties of anti-corruption reforms.
Anti-corruption policy is thus a battleground pitting, broadly speaking, ‘reformist’ forces against the inherited system. The real impetus for anti-corruption reforms has come not from the government but from a small group of progressive government officials and members of parliament (MPs), and from an emboldened set of civil society organizations (CSOs) that carry the moral banner of the Euromaidan. Backed by the strong desire among Ukrainians for action to rein in high-level corruption, and supported by assistance from Western governments, CSOs were the driving force behind the 2014 anti-corruption law and its implementation. This move created two new agencies and featured an unprecedented effort to improve transparency and change cultural attitudes towards corruption in public service.
At the same time, representatives of the ‘old’ system in the government – including the security service, parliament, the PGO and the judiciary – have been fighting hard to limit the scope of these measures. Allied with elements of big business, these groups remain a powerful force with potentially much to lose and significant capacity to hinder anti-corruption reforms.
Anti-corruption efforts: the starting point
To assess Ukraine’s progress in tackling corruption over the past three-and-a-half years, it is important to consider the starting point for reforms. Society in Ukraine became angry at the excessive self-enrichment of Yanukovych and his associates after the presidential election in 2010, and demanded justice for the perpetrators and action to limit corruption. Paradoxically, sociological research since the Euromaidan has shown continued high acceptance of corruption in daily life, and a willingness to engage in such practices to solve problems. According to the research data, over 65 per cent of Ukrainians across all age groups believe that corruption is a fundamental part of the Ukrainian mentality.
A further problem – given the wide extent of corruption in the police, the healthcare system and the education sector, where salaries are very low – is that the number of beneficiaries of illegal blat payments remains very large. In many cases, this extra cash is vital for supporting families and extended communities. The result is that there is little appetite in these parts of society for a war on petty corruption. The expectation instead is that the state should stamp out excessive high-level corruption. For Ukraine’s reformers, this poses a dilemma: tackling low-level corruption is easier than trying to eradicate high-level graft, yet this risks being socially disruptive if not accompanied by salary increases for poorly paid public-sector workers. At the same time, the lack of progress in addressing entrenched high-level corruption increases social discontent and support for populist forces.
A Ukrainian government diagnostic study of high-level corruption, prepared with the assistance of the IMF in 2014, put in sharp relief the problems for Ukraine’s reformers. It noted the ‘pyramidal’ nature of state capture permeating the government system, featuring ‘powerful well-known elites at the top, heads of agencies in the middle and agency staff at the base’. The report described how these groups were able to control appointments in the public sector, ensure the application of regulations in line with their interests, and restrict public access to information.
Analysing the structure of corruption, the study also noted ‘a strong view that corrupt public officials often work in concert across public agencies to intimidate, harass to conduct corporate raiding and to extract bribes’. Among the agencies perceived as most corrupt, it singled out the tax administration, the police, the PGO, the State Enforcement Service and the judiciary. Among the courts, it identified the commercial courts as the worst offenders.
It is clear that the fusion of money and power since independence in 1991 transformed the role of Ukraine’s law enforcement institutions, so that their original task of protecting the Soviet system from within became one of supporting criminal activity by the new economic and political elites. Organized crime became synonymous with the functioning of the state.
This pattern extended into the judiciary, as external influence over the appointment of judges became prevalent. In some cases, positions were offered for sale by those involved in state capture. Representatives of such interest groups also sold prosecutorial appointments and other roles in the state system.
Although other transition countries in the region have encountered similar problems, there is no precedent for managing them in a country as large as Ukraine. At regional level, organized crime is deeply enmeshed with political and business interests, encouraging politicians and businesspeople to buy influence in Kyiv that can help them to assert control locally. A regional prosecutor – through close cooperation with the chairman of the regional court and the chief of regional police – is often the real source of power at regional level, rather than the regional governor.
As in other former Soviet states, over-regulation offers government officials rich opportunities for predatory behaviour. Business licensing requirements, for example, are often excessively onerous; enforcement is selective because no company can meet all the requirements. This ensures that an official can invariably find a reason to spot a regulatory violation and impose a fine or order an investigation. Small businesses have long suffered an endless procession of visits by officials, from sanitary inspectors to agents from the tax police, seeking to extort money. In the absence of a judicial system in which they can defend their rights, there is little they can do to prevent such abuses.
The adoption by the Verkhovna Rada of the Anti-Corruption Strategy for 2014–17 in October 2014 marked a breakthrough in efforts to address corruption. Heavily influenced by civil society and Georgian reformers recruited into government, the document outlined an approach for preventing corruption in several areas, including the public sector, public procurement and the judiciary. It placed heavy emphasis on raising transparency in government and developing new law enforcement institutions. However, the strategy has faced criticism for its lack of clear performance indicators or coordination with reforms in areas such as healthcare and decentralization.
A battle for control of the new body responsible for developing and managing anti-corruption programmes, the National Agency for Prevention of Corruption (NAPC), established a pattern of contest over the pace and depth of the reforms – involving, on the one hand, the government and parliament and, on the other, reformers, CSOs and international donors. The NAPC is effectively a branch of government that reports to the Cabinet of Ministers.
As a tool for exposing enrichment among officials, Ukraine’s e-declaration system is without parallel in the countries of the former Soviet Union
After considerable foot-dragging and signs of political interference, the NAPC in September 2016 launched an ‘e-declaration’ system for the assets of public-sector officials. The system initially required 100,000 senior officials in government, including the president and prime minister, to disclose their income and assets and those of their family members. The results generated outrage among the public. The level of cash holdings of officials surpassed all expectations, totalling UAH 26 billion (around $946 million). Based on the declarations, the news agency Reuters estimated that 24 members of the cabinet held nearly $7 million just in cash. Prime Minister Volodymyr Groysman declared $1.2 million and €460,000 in cash, as well as a collection of luxury watches. The head of the tax service, Roman Nasirov, reported that he held $2 million in cash. Around 30 judges with annual salaries ranging from $10,000 to $13,000 owned Porsches, and many declared large cash deposits.
As a tool for exposing enrichment among officials, Ukraine’s e-declaration system is without parallel in the countries of the former Soviet Union. Those required to fill out e-declarations must also register within 10 days any income or acquisition of property of a value in excess of 50 months’ wages (UAH 80,000 as of 1 January 2017). In the view of the UN Development Programme, which provided technical and financial support, the new e-system is far from perfect but represents a major improvement on previous paper versions.
To little surprise, attempts to roll back the scale of the system came quickly: in November 2016, a caucus of 48 MPs filed a claim with the Constitutional Court arguing that compelling officials to publicize details about the assets of family members was unconstitutional. The resistance continued in March 2017 when President Poroshenko signed into law controversial requirements for anti-corruption campaigning organizations themselves to submit e-declarations. This fightback suggests that parts of the Ukraine elite are deeply uncomfortable with the new system of asset disclosures, viewing it as a measure that they can neither ignore nor respond to dishonestly. To this extent, anti-corruption reformers have scored a significant victory. On the other hand, anecdotal evidence indicates that even some officials supportive of the anti-corruption effort think the e-declaration system too intrusive, and thus counterproductive for efforts to elicit cooperation from public officials.
Despite the initial success of the e-declarations, the NAPC was heavily criticized by civil society and international donors for attempting to delay the process and prevent the timely checking of data, needed for potential criminal investigations by the newly formed agency for investigating high-level official corruption, the National Anti-Corruption Bureau of Ukraine (NABU). There are strong indications that the NAPC’s work is vulnerable to interference from lobbies in government and parliament that wish to restrict its activities. There is little doubt that the e-declaration system would have remained on the drawing board for much longer had it not been for pressure from the EU and others. The NAPC has also attracted ridicule for its attempts to investigate suspicions of fraud on apparently trivial grounds against individuals such as Serhiy Leshchenko, an MP and prominent anti-corruption campaigner, and Yulia Marushevska, the former head of Odesa Region Customs. The latter faced investigation over a bonus equivalent to $18 that she had allegedly awarded herself.
Within two months of the filing of the e-declarations, the NABU had started 13 criminal investigations into the financial affairs of MPs, judges and prosecutors. A further 2 million officials filed e-declarations in the spring of 2017. While the scale of the effort is laudable, it is not clear how the Ukrainian authorities will be able to screen, let alone act on, such a vast volume of information. Nonetheless, the process marks a turning point in terms of increasing accountability and establishing a culture of openness from which officials cannot hide.
The widely praised ProZorro platform has placed government tendering online, ending the old practice of rigged auctions
Achievements in raising transparency have been notable in four further areas. The first is public procurement. The widely praised ProZorro platform (see Chapter 6, in particular) has placed government tendering online, ending the old practice of rigged auctions. Prime Minister Groysman has estimated that in 2016 the system saved the state budget UAH 8 billion.
The second is a new law on the financing of political parties, which came into effect in 2016. It requires parties to disclose their revenue sources and file quarterly reports, which should be publicly available. The law also provides for public financing of political parties, in an effort to limit the influence of business groups that might seek influence through representation in parliament.
Third, the law ‘On Open Use of Public Funds’, adopted in February 2015, requires all government bodies, including SOEs, to publish online their budgets and details of their spending. Although only 20 per cent of eligible organizations had published the required information by the end of 2016, the law marks a significant step towards public oversight of government spending. It also lends itself to integration with the wider decentralization reforms seeking to bring decision-making in government closer to citizens. However, large numbers of SOEs argue that they are not obliged to report to the public, and in any case the fines for non-compliance are tiny.
The fourth achievement is a law on public information in open data formats, which obliges all government organizations to make their datasets available on the government’s web portal. Ukraine also requires all legal entities to disclose their beneficial ownership in the government business registry.
New law enforcement bodies
Civil society and foreign donors strongly backed the creation of the NABU and the Specialized Anti-Corruption Prosecutor’s Office (SAPO), an independent entity within the PGO. Formed in 2015 with staff appointed in an openly competitive process – and paid significantly more than the average government wage for their positions – the two new structures represent an effort to establish ‘clean’ agencies that can investigate and prosecute high-level corruption without political interference. In September 2016, Nazar Kholodnitsky, the SAPO’s prosecutor, announced that his office was indicting an average of four top officials a month. However, he did not mention any successful convictions. The SAPO’s independence is open to question given the widely held view in Ukraine that the top leadership only pays lip service to fighting corruption and is prepared to sabotage investigations where necessary. Kholodnitsky reports to the prosecutor general, although the SAPO is housed in a separate building.
The NABU reported in September 2017 that it had 398 cases under investigation, involving the loss of UAH 87 billion in state funds and resulting in 131 indictments. There are signs that the NABU has started with cases involving suspects at lower levels of seniority, but that it is extending its investigations to those at higher levels. The arrest of the head of the tax service in March 2017 marked a watershed (he has denied the allegations against him, which he complains are politically motivated, and has been released on bail). This was followed shortly afterwards by the arrest and subsequent release (without bail) of Mykola Martynenko, reportedly the main sponsor of one of the ruling coalition parties, who remains under investigation. The NABU had not previously acted against an individual of ministerial level.
The NABU also reported in September 2017 that of the 86 cases sent to the courts by the SAPO, only 17 had resulted in convictions. One-third of its cases were still waiting to be heard.
Not surprisingly, the agency has come in for criticism for failing to produce faster results, and there have been orchestrated attacks on its reputation and the leadership of its director, Artem Sytnyk. However, foreign donors’ commitment to the NABU’s success has helped it to withstand attacks by detractors who appear to have much to lose from its power to investigate. It has also, at times, found itself in a turf war with the PGO and the Security Service of Ukraine (SBU). Reliance on the SBU for wire-tapping during investigations is widely seen as a factor seriously inhibiting the agency’s effectiveness, because of the danger that information about surveillance targets will be leaked.
Box 3: Ukraine’s new anti-corruption agencies
Three new bodies were established in 2015–16 to implement state anti-corruption policy:
National Agency for Prevention of Corruption (NAPC)
The NAPC is responsible for developing and implementing the anti-corruption strategy. One of its main tasks is verifying the asset declarations of state and local government officials. It is also responsible for enforcing rules on political party financing, including the use of state-allocated support that is provided to political parties.
National Anti-Corruption Bureau of Ukraine (NABU)
The NABU is responsible for investigating corruption committed by senior officials, members of parliament, judges and managers of large state-owned enterprises. It operates independently of the Prosecutor General’s Office (PGO). The NABU’s director was selected in an open competition with the involvement of civil society. With the exception of its first deputy and deputy directors, all NABU positions are filled by open competition.
Specialized Anti-Corruption Prosecutor’s Office (SAPO)
The SAPO is an independent sub-division of the PGO. The SAPO oversees the NABU’s investigations to ensure that they are legally compliant, and determines whether there is sufficient evidence for the state to prosecute. All SAPO prosecutors’ appointments are made by open competition.
At the time of writing, two other new anti-corruption institutions are in the process of being established. One is the State Bureau of Investigation (SBI), which will assume most of the PGO’s investigative functions for serious crimes, including corruption, but with the NABU’s role preserved for investigating corruption by high-level officials. The SBI will also be responsible for investigating crimes committed by SAPO and NABU representatives, as well as military crimes. The other new institution is the Asset Management and Recovery Office (AMRO), tasked with managing seized property and tracing assets acquired by corrupt means, including those laundered abroad. Both are due to become operational before the end of 2017. A dispute about the selection procedure for the SBI has delayed its formation. The proposed selection panel was drawn heavily from interests connected with the two main parties in the ruling coalition, and did not include any CSO representatives.
The framework law ‘On Judiciary and Status of Judges’, passed in June 2016, foresees the establishment of a third institution: a High Anti-Corruption Court. However, the court’s formation awaits the enactment of an additional specialized law, albeit without a deadline. Civil society groups are pushing hard for the establishment of this new court, which is expected to have national jurisdiction to try cases brought by the NABU. A key requirement is that it should have impartial judges free from political interference.
Setbacks have continued, however. In 2016, it became clear that first-instance courts were blocking efforts to address high-level corruption, and that the delays risked undermining the credibility of the NABU and the SAPO. As Mykhailo Zhernakov, one of Ukraine’s top specialists on judicial reform, has noted, the new framework law provides for a first-instance anti-corruption court but not a special anti-corruption court of appeal. This raises serious questions about how to prevent appeals against decisions in the new court passing back into the regular – and, so far, unreformed – court system. One option, as Zhernakov argues, is to create an anti-corruption panel in the new Supreme Court as the second-instance court for high-level corruption cases.
In July 2017, the EU appeared to accept the arguments of opponents of a separate anti-corruption court. The president of the European Commission, Jean-Claude Juncker, stated during a visit to Kyiv that the establishment of an anti-corruption chamber within the existing judicial system would be sufficient. The NABU and anti-corruption NGOs contest this view. However, in a surprise move in early October 2017, President Poroshenko indicated that Ukraine would establish a separate anti-corruption court but with an appellate chamber within the new Supreme Court. The announcement came a day before the Council of Europe’s Venice Commission called on Poroshenko to submit a draft law on the establishment of a high specialized anti-corruption court with judges selected by an open procedure with international involvement.
The next challenge: judicial reform
Since 2014, the pace of anti-corruption reform has substantially outstripped that of judicial reform. The continued slow progress in establishing competently staffed courts free from interference threatens to undermine the entire anti-corruption effort.
In the World Justice Project’s Rule of Law Index 2016, Ukraine ranked 78th out of 113 countries for adherence to the rule of law. In the same year, it ranked 99th out of 105 countries for judicial independence in the Index of Public Integrity, an EU-supported project. A 2017 poll of public attitudes towards Ukraine’s institutions indicated that fewer than 6 per cent of respondents had any trust in the courts. In the autumn of 2014, a Judicial Reform Council was established as a consultative body reporting to the president. Judicial reform began with a presidential decree in 2015, and in June 2016 the Verkhovna Rada adopted important constitutional amendments concerning the judiciary and the professionalization of judges. However, the overall process of renewal was put in the hands of the judiciary itself, to little effect. Judges’ salaries are being raised significantly, although not all legal experts in Ukraine believe low salaries to be the reason for corruption. At the same time, their immunity from prosecution, which used to be unconditional, is now only partial. A new law has established a High Council of Justice. To limit political influence, the law provides for the Ukrainian president to appoint senior judges on the recommendation of the council, but does not give him or her the right to reject its nominees. Only the council can dismiss judges. Senior judges will be appointed for an initial term of five years. After this, they must submit to a re-attestation of their qualifications and integrity; only based on this result can they then be appointed for an indefinite term. However, many apparently corrupt judges have been reappointed. Moreover, the change in the law resulted in many court presidents being re-elected for a third or even fourth time, despite the prohibition on their holding office for more than two consecutive terms. Meanwhile, more than 2,000 judges have retired early, many of them potentially in order to avoid submitting online wealth declarations.
A 2017 poll of public attitudes towards Ukraine’s institutions indicated that fewer than 6 per cent of respondents had any trust in the courts
An entirely new Supreme Court is being set up. It will replace three specialized courts and the current Supreme Court, and will thus reduce four levels of justice to three. Obtaining a final judgment in a case should become quicker as a result. In 2016–17, under the auspices of the High Qualification Commission of Judges (HQCJ), over 1,400 applicants competed for selection on to a shortlist of 120 candidates to fill at least 65 Supreme Court positions. The candidates were screened by the Public Integrity Council (PIC), which includes members of authoritative CSOs. Although parts of the process were remarkably transparent, others were less so. It is hardly encouraging that numerous sitting judges failed the multiple-choice examination set, even though the questions were published in advance. Anti-corruption activists reported in July that over 70 per cent of the PIC’s recommendations had been ignored. However, the HQCJ later said that 80 per cent of those who received negative assessments from the PIC did not make it to the final stage (the High Council of Justice nominated 111 candidates for appointment to the Supreme Court on 29 September 2017 – 25 of the appointees had been rejected by the PIC). The lower tiers of judges will have to take similar tests as part of their re-attestation. It is estimated that the re-attestation of appeal judges, with whom many cases will end up, could take three years.
The likelihood remains that, at best, Ukraine will create a more efficient Supreme Court, but one only marginally less politically dependent than its predecessor
No country has embarked on a judicial renewal process on this scale, and with sustained political will on the part of the authorities and foreign donors, backed by continued pressure from civil society, it should be possible to make progress. However, resistance from vested interests remains strong, and the likelihood remains that, at best, Ukraine will create a more efficient Supreme Court, but one only marginally less politically dependent than its predecessor. Ukraine’s challenge is to develop a new generation of judges with a culture of independence and objectivity. Inevitably, this will be a long-term project.
In the PGO, reform is also progressing slowly, with a new cadre of prosecutors needed. In 2015, more than 3,330 external candidates applied for 155 positions as heads of local courts. Not one was successful. The institution is widely regarded as the last bastion of vested interests, and it is significant that the president nominates the candidate for prosecutor general. In a first step, the PGO has established an Inspectorate General, whose head was appointed with input from civil society, to start weeding out corrupt officials within its own ranks. However, the PGO remains a largely unreformed institution and has retained wide-ranging powers, inherited from Soviet days, of both investigation and procedural oversight of cases. These powers make it easier to bring cases to court because the organization deciding whether there is a realistic prospect of conviction is the same one carrying out the investigation. The ability to politicize an investigation and then pass it to a compliant judiciary is a recipe for embedding the corrupt practices of those in power. While the investigative functions of the PGO are due to pass to the new SBI, there are signs that the PGO’s protectors in government and parliament wish to slow down the process.
Under internal and external pressure – mainly from reformist forces in civil society and parliament on the one hand, and from the EU and IMF on the other – Ukraine has taken its first serious steps since independence to address high-level corruption. These achievements are considerable, indeed remarkable, by the standards of reforms over the 20-odd years before the Euromaidan. However, they are far from sufficient to anchor in place over the long term the institutions and practices required to reduce corruption significantly.
To make further progress, Ukraine must demonstrate results by ensuring the convictions of high-level figures previously regarded as untouchable. It must develop as its top priority an independent judiciary. The establishment of anti-corruption courts, or an anti-corruption chamber, staffed with judges who have undergone a rigorous selection process (also involving CSOs and foreign specialists) would provide a way to achieve rapid results, and could serve as a prototype that reformers could replicate and extend across the judicial system. Progress so far on judicial reform has been limited and could take years to reach the appeal courts and first-instance courts. The judiciary’s desire for self-preservation has coincided with the desire of the Presidential Administration (the government body responsible for judicial reform) to retain influence over the courts. The formation of a new Supreme Court, the expected influx of a new generation of judges to replace the large numbers who have left the profession since 2014, and the requirement for judges to declare their assets and income nevertheless hold promise that the culture of the judiciary may start to change and that it will adopt higher professional standards.
In addition, the remaining parts of the criminal justice system are in urgent need of overhaul. Any further deceleration of judicial reform, if accompanied by delays to efforts to scale back the functions of the PGO, is likely to leave the NABU and the SAPO politically isolated and at risk of losing credibility with the public. The Ukrainian public urgently needs to see criminal convictions. To consolidate progress, CSOs and international donors will need to stand their ground. The politically active part of Ukrainian society will need to remain mobilized against the ‘old’ system’s efforts to retain power, and will need to challenge the latter’s efforts to allow only partial ‘Europeanization’ of Ukraine’s institutions.
Further progress in reducing corruption will ultimately depend on the interaction of several factors. To begin with, it will be essential to maintain the momentum for preventing and deterring corruption by strengthening the culture of transparency and prosecuting those who have defrauded the state. To do this will require, as noted above, the establishment of anti-corruption courts or, at the least, a new part of the judicial system competently staffed and free from external interference. The security of judges and whistle-blowers will need serious consideration.
At the same time, the overhaul of the law enforcement agencies needs to continue. The culture of the NABU and the SAPO will have to be gradually transplanted into the new investigations agency, the SBI, and eventually into an entirely revamped PGO shorn of its investigative functions and resistant to political interference. Police reform must continue along the lines that led to the creation of the patrol police. This will require establishing a new ethos within the police service and raising salaries.
Clearly, parts of this agenda will depend on successful civil service reform and the development of a new culture within public administration. This will not be possible without raising salaries, in order to reduce the necessity for officials to extract bribes. Reforms must extend to the healthcare and education sectors, where corrupt practices are the norm. Improvement in these sectors is particularly important for the credibility of the anti-corruption agenda because public-sector health and education professionals have the most frequent contact with the public.
Properly conducted privatization of SOEs as well as deregulation and simplification of the business environment will further reduce the space for corruption, and will contribute significantly to the ease of doing business. Business, for its part, must improve corporate governance and increase transparency. This is particularly necessary in state-owned companies, which stand to benefit from the appointment of foreign non-executive directors.
The biggest unknown in this process is the future development of Ukraine’s ‘deep state’, the powerful interests that captured so much of its politics, government machinery and economic life before 2014. Bloodied and weakened by Euromaidan, it has retreated and partially regrouped. Its economic model is no longer sustainable, and logic dictates that the development of a larger and more powerful lobby of SMEs will cause its influence to diminish further. The prospect of new political parties appearing that are not business projects, and that genuinely connect society with its representatives, has the potential to further empower democracy, transforming the political process and the conduct of government.
For the moment, the anti-corruption effort is at an embryonic stage. It could be slowed down or partially reversed. The deeper the reforms start to penetrate, the more resistance they are likely to encounter, making it essential that civil society remains engaged and that foreign donors continue to apply conditionality to their support of the government.
The results of anti-corruption reforms in Romania and Bulgaria provide two contrasting examples that Ukraine’s reformers should consider
The results of anti-corruption reforms in Romania and Bulgaria provide two contrasting examples that Ukraine’s reformers should consider. In Romania, following the collapse of communism, it took more than 22 years for the authorities to imprison the first senior government official for a corruption offence. Since that time, the picture has improved: the Romanian anti-corruption agency has energetically pursued hundreds of high-level officials, many of whom have gone to jail. Yet resistance within the system remains, and as the demonstrations of early 2017 showed, Romanian society remains deeply dissatisfied with the ruling party’s attempts to insulate itself from anti-corruption investigations. By contrast, the situation in Bulgaria is far bleaker. Powerful economic interests, allied with organized crime, have strangled efforts to reduce corruption, deterring investment and slowing economic growth. The speed and effectiveness of anti-corruption reforms in the 1990s in Estonia, as compared with the much less successful efforts in Latvia, also provide important lessons that are applicable to Ukraine.
Ukraine does not have the luxury of time. Without a perceptible breakthrough in reducing corruption, investors will continue to stay away, social discontent will rise, and the country risks becoming politically and economically unstable. With political will, anti-corruption reforms need not be a Sisyphean task and can make this scenario avoidable.
188 See IMF (2017), Ukraine: Selected Issues, Country Report No. 17/84, April 2017, . The authors note: ‘Corruption appears to be widespread throughout most of the country, being particularly severe in Kyiv. Firms located in the West seem instead to face lower corruption levels, even though 65.8 percent of them still consider corruption as a major constraint for business.’
189 Kobolyev, A. (2015), Naftogaz CEO Statement, http://www.naftogaz.com/www/3/nakweben.nsf/0/73D1AED5C31D4608C2257F3800310E97?OpenDocument&Expand=1&.
191 Ponomarenko, W. (2017), ‘Secrecy Blankets Corruption In Ukraine’s Defense Sector’, Kyiv Post, 15 September 2017, https://www.kyivpost.com/ukraine-politics/secrecy-blankets-corruption-ukraines-defense-sector.html.
192 Transparency International (2017), ‘Corruption Perceptions Index 2016’, 25 January 2017, https://www.transparency.org/news/feature/corruption_perceptions_index_2016#table.
193 Hellman, J. and Kaufmann, D. (2001), ‘Confronting the Challenge of State Capture in Transition Economies’, Finance & Development, 38:3.
195 In a 2015 survey, 49.8 per cent of the adult population admitted that they might become involved in corrupt activity if they saw benefit in doing so, while only 37.4 per cent said this was unacceptable. Kyiv International Institute of Sociology (2016), Corruption in Ukraine: Comparative Analysis of National Surveys: 2007, 2009, 2011, and 2015, Kyiv: Kyiv International Institute of Sociology,
197 The establishment of the new patrol police demonstrates this. This part of the police force is generally viewed as not being corrupt.
199 Ibid., p. 4.
200 Ibid., p. 10.
202 Georgian officials had implemented anti-corruption reforms in Georgia after the 2004 ‘Rose Revolution’, achieving impressive results.
205 Prentice, A. (2016), ‘Ukrainians shocked as politicians declare vast wealth’, Reuters, 31 October 2016, . There are strong suspicions that some members of the elite may have overstated their cash holdings in order to disguise later enrichment. The figures may also be further evidence of the size of the ‘shadow’ economy.
209 The e-declaration system required the disclosure of assets held by family members because of the practice on the part of state officials of distributing assets among family as a means to disguise ownership and, ultimately, to protect them. However, the definition of family does not apply to relatives (excluding spouses) who live apart from other members and who do not have a joint household. Kotlyar, D. (2017), ‘Druha khvylya. FAQ dlya novykh e-deklarantiv: shcho i yak deklaruvaty?’[The second wave. FAQ for new e-declarants: what and how to declare?], Ukrainska Pravda, 31 January 2017, .
212 Cited in Marusov (2017), Anti-corruption Policy of Ukraine: First Successes and Growing Resistance, p. 10.
213 Reanimation Package of Reforms (2017), Richnyy zvit 2016, p. 10.
215 See, for example, Hromadske international (2017), ‘New Arrest Exposes Ukrainian Money Laundering in Western Europe’, 23 April 2017, https://en.hromadske.ua/posts/new-arrest-exposes-ukrainian-money-launde…; and Kruk. K. (2017), ‘KRUK REPORT: Ukraine’s anti-corruption agency shows its teeth with new detentions’, bne IntelliNews, 21 April 2017, http://www.intellinews.com/kruk-report-ukraine-s-anti-corruption-agency…. Martynenko has denied the allegations.
218 The lack of CSO oversight of appointments to the NAPC is viewed by reformers as the main reason for its institutional weakness.
220 Ibid., p. 4.
222 World Justice Project (2016), World Justice Project Rule of Law Index 2016, Washington, DC, https://worldjusticeproject.org/our-work/publications/rule-law-index-reports/wjp-rule-law-index%C2%AE-2016-report.
224 Sofia Centre for Social Research (2017), ‘Crisis of Trust in Power’, June 2017 http://sofia.com.ua/page226.html.
226 President Poroshenko was able to appoint Yuriy Lutsenko as prosecutor general only after parliament cancelled the requirement for the holder of the position to have a legal education and 10 years’ professional experience in the PGO.