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Olena Halushka: Ukrainian Reforms: Europe’s Most Transparent and Corrupt Country

Olena Halushka for Business Ukraine magazine 

Ukraine’s post-Euromaidan reforms are slowly gaining ground but a major credibility gap remains between exposure of abuses and accountability for corruption. Meanwhile, members of the old guard are mounting an increasingly bold and vigorous counter-revolution as they seek to undermine the modest anti-corruption progress made so far.

For the past three years, Ukrainian society has undergone a range of systematic changes against a volatile backdrop of post-revolutionary political instability and ongoing hybrid war with Russia. There has been widespread criticism over the pace of Ukraine’s post-Euromaidan reforms, but those involved in monitoring and implementation of the reforms will confirm that a number of highly ambitious changes have been introduced into Ukrainian society. As we look back on the progress since 2014, it would be fair to say that three years is long enough to launch a program of systematic changes, but it is not enough time to cement these changes.

The problem of pushback from members of the pre-revolutionary old guard is a major and growing problem. In recent months, reformers have found themselves expending more and more energy protecting the results they have so far achieved, while also preventing rollbacks. These defensive measures inevitably mean less time, energy and resources are available for new reform initiatives.

The threat posed by mounting opposition is certainly frustrating, but it also suggests that existing reforms are slowly but surely achieving the desired results. As implementation becomes more effective, we can expect the resistance to become increasingly harsh and innovative. The Ukrainian people won the initial battle for reform on Maidan in 2014, but the war against corruption continues. Powerful groups remain deeply invested in protecting the institutionalized corruption schemes that previously allowed them to gain almost unlimited power and vast wealth. Such forces will not go quietly into the night. On the contrary, they will oppose genuine reform efforts every step of the way. Although it is fair to say that more has been achieved in the past three years than in the previous two decades of Ukrainian independence, none of the current reforms can be considered secure or beyond the point of no return. As we pass the three-year mark of the post-Euromaidan reform drive, it is important to note what has been achieved so far, and it is absolutely crucial to identity the key challenges to further progress.

Europe’s most transparent and corrupt society

Critics of the Ukrainian reform process have widely embraced the mantra “nothing has changed”. This is simply not true. However, while the changes taking place in Ukraine are often on a fundamental level, the fruits of these reforms have yet to make themselves known to the general public. As a result, today’s Ukraine is currently stuck in a challenging transition period where painful reforms require numerous sacrifices, while the benefits they bring remain tantalizingly intangible.

Meanwhile, corruption is being exposed but not yet effectively addressed. This has led many pro-reform activists to joke that Ukraine is now both the most transparent and the most corrupt country in Europe. The transparency cited in this curious equation is one of the clear areas where post-Euromaidan Ukraine has progressed. Since 2014, Ukraine has made all manner of important information open to the public, including registers of immovable property, land, and other assets.

The largest breakthrough was the launch of e-declarations for public officials in autumn 2016. This process of electronic disclosure of income and assets is applied to everyone from the President on down. While the media and the public expressed outrage at some of the more outlandish declarations of wealth from public servants on relatively low official salaries, the e-declaration system is a progressive step towards ensuring effective control over politicians and civil servants. Ultimately, many hope these transparency measures will help to break the vicious circle of impunity among corrupt officials.

Purging procurement abuses

Another important step towards eliminating institutional corruption was the launch of the electronic procurement system ProZorro. This highly transparent system has closed loopholes for embezzlement in the sphere of public procurement, allowing the Ukrainian state to make huge savings while also opening up the entire procurement field to competition. Losses from rigged procurement tenders were previously one of the largest single drains on Ukrainian budget funds.

The success of ProZorro has relied heavily on the efforts of civil society and sympathetic government members backed by Ukraine’s international partners. This is no surprise – similar alignments of civil society, reformist government members, and international allies are behind most of Ukraine’s truly successful reform initiatives.

Anti-corruption institutions

New institutions are now in place to manage independent and impartial investigations into high-profile corruption cases. Most observers see this as a prerequisite for further systemic reforms, based on the assumption that many existing state organs are too badly compromised by corruption themselves to be able to play a meaningful role in transforming Ukraine’s institutional framework. As of March 2017, the National Anti-Corruption Bureau (NABU) is investigating 272 cases, most of which are against heads of state-owned enterprises, judges, prosecutors, and MPs.

The most widely discussed case is against Ukraine’s tax chief Roman Nasirov, who stands accused of embezzling around USD 74 million. He is the most senior official yet to face criminal charges. The case against Nasirov is a watershed moment and litmus test for Ukraine’s entire post-Euromaidan reform process. It has sparked renewed optimism in reformist circles, while also provoking what many see as fresh attempts to undermine the efficiency and credibility of NABU.

Tackling energy sector corruption

The energy sector has experienced unprecedented anti-corruption measures in the form of price hikes that have closed the gap between the prices paid previously by industrial and domestic consumers. This is a prime example of ordinary Ukrainians feeling the pinch of reforms without enjoying the benefits. Rising utilities bills have hit cash strapped Ukrainians hard, while the undeniable budget gains brought about by the end of massive subsidies have yet to make themselves felt at grassroots level. Nevertheless, the cleanup of the notoriously corrupt gas sector is a massive undertaking that has broad ramifications for the Ukrainian economy and Ukraine’s political culture.

Empowering communities via decentralization

Decentralization has been one of the buzzwords of the post-Euromaidan era, and the delegation of powers from the center to local communities is indeed continuing across Ukraine. This process has gone hand in hand with fiscal decentralization, with efforts also underway to empower communities and change the mentality of people used to delegating responsibility for municipal issues to faceless authorities in faraway capitals. More than 20% of Ukraine’s local communities have undergone amalgamation since 2014 and now benefit from greater resources. As of the end of 2016, local budgets had increased by 47% compared to 2015. This was well above the projected budget increase of 11%.

False dawns and failures

Any assessment of Ukrainian reforms must do justice to the progress made, but it must also acknowledge the failure to proceed on a number of strategically crucial fronts and recognize the alarming fact that in some areas the situation has actually deteriorated.

Electoral reform was announced as one of the top priorities for the newly established ruling coalition in late 2014, but there has been no progress since. Civil society activists have engaged in a lively and detailed debate on the subject, but the country’s politicians have almost completely ignored these efforts. Activists seek open party lists and proportional representation in order combat corruption and foster genuine democratic principles within the Ukrainian party system. These demands have met with a blanket of inactivity.

The mounting stagnation at Ukraine’s Central Election Commission (CEC) reflects this apparent lack of political will to change the status quo regarding the country’s election system. The terms of office of twelve of the fifteen serving members of the CEC expired three years ago but there has been no reboot. Meanwhile, the current head of the CEC is under NABU investigation but has not even been suspended from office.

Anti-corruption anticlimaxes

Attempts to reform the office of the prosecutor general present an equally bleak picture. Efforts to overhaul local-level prosecution teams led to changes in managerial personnel amounting to around 3% of totals, while similar processes at the regional and national level have stalled entirely. Current Prosecutor General Yuriy Lutsenko introduced the so-called “integrity declarations” as a measure to allegedly help him clean up the system. This particular experiment ended with no dismissals and just five punitive reprimands. One particularly notorious prosecutor, whose 85-year-old grandmother was on record as owning a luxury Audi Q7 automobile, also escaped dismissal and received a reprimand instead. Such high-profile failures to tackle the roots of corruption throughout Ukraine’s institutions have done huge damage to the credibility of the government’s reformist credentials while fueling cynicism.

Key battlegrounds in 2017

Protecting Ukraine’s reformist achievements looks likely to be a key objective in 2017. Recent trends strongly suggest that attacks on reform successes will intensify in the coming months as these changes begin to make themselves felt. Efforts to undermine NABU offer the most obvious example of this practice at work – efforts to question NABU’s unique jurisdiction over high-profile corruption cases at the legislative level are very common.

The Ukrainian parliament recently witnessed absurd scenes when MPs attempted to appoint their delegate to a future NABU external auditing commission. This is the only body with theoretical grounds to dismiss NABU Director Artem Sytnyk, making the position of auditor a politically charged appointment. There was considerable international pressure to adhere to principles of transparency and support the candidate selected via open competition and backed by the Ukrainian parliament’s own anti-corruption committee in December 2016, US prosecutor Rob Storch. However, MPs from the People’s Front and Petro Poroshenko blocs voted for previously unknown British candidate Nigel Brown, who seemed as confused as everyone else by his appearance on the scene. The farce ultimately ended in failure, with the mysterious Mr. Brown unable to attract sufficient votes.

This episode highlighted the Ukrainian political system’s improved ability to resist stage-managed political charades, but it also pointed to the continued readiness of many in power to abuse their positions in order to obstruct reforms. The future of the NABU remains central to Ukraine’s reform efforts – if it is able to consolidate its authority, further successes in the fight against institutional corruption will be possible. However, the pantomime surrounding efforts to appoint a NABU audit team suggests that political opposition will intensify as long as NABU continues to prove itself genuinely effective and independent.

Targeting NGOs

This is not the only field where the old guard appears to be taking revenge. At the end of March 2017, parliament adopted amendments to the law “On Corruption Prevention” aimed at obliging members of anti-corruption NGOs to submit electronic asset declarations in the form established for civil servants, as well as introducing criminal liability. Since the provisions of the law are vague and define neither anticorruption activities nor the scope of persons to which the law is applicable, it creates clear discretion for law enforcement agencies and courts to interpret the clauses as they wish. Many fear they could now prosecute participants of anti-corruption rallies and contractors of anti-corruption NGOs for the non-submission of e-declarations. In addition, placing an obligation on the members of anti-corruption NGOs is clearly discrimination in violation of article 24 of the Ukrainian Constitution.

Wanted: independent anti-corruption courts

Perhaps the most important reform objective for the coming months will be the creation of independent anti-corruption courts. Deep judicial reform is central to the national transformation first envisaged on Maidan, but the process will necessarily take a few years before implementation is complete. This is time that today’s Ukraine simply does not have. The country urgently needs to deliver tangible results in the fight against high-profile corruption. Existing courts are already blocking NABU cases on a regular basis. Without functioning and uncorrupted courts, there can be no meaningful reform of the country’s justice system or successful prosecution of existing corruption cases involving influential figures.

The solution favored by activists, reformists within government, and Ukraine’s international partners is the establishment of special anti-corruption courts designed specifically to handle landmark cases investigated by NABU against high-profile public servants and state officials. It is critically important to manage the selection process for these bodies in order to safeguard judicial independence and impartiality. A selection panel should represent a range of interests, including having one-third of its members recommended by Ukraine’s international partners who will then be able to form a blocking minority. These anti-corruption courts would help close the circle of independent anti-corruption institutions, providing Ukraine with the untainted foundations necessary to move forward with reforms without relying on the corrupted institutions inherited from the post-Soviet era.

Long reformist road ahead

The past three years have been a very challenging time for everyone involved in Ukraine’s reform process, but there have been bright moments among the many setbacks. One lesson is clear – success is only possible when civil society, agents of change within the state apparatus, and Ukraine’s international partners come together to create tangible results. These three forces have repeatedly demonstrated the ability to achieve their goals by working together. It is vital that this effective alliance continues to function. Since the Euromaidan Revolution, Ukraine has become one of the world’s most transparent societies, but it also remains among the most corrupt. Further resilience and vigilance will be required before we can move from merely exposing corruption to actually removing it from the heart of Ukrainian society.

Olena Halushka for Business Ukraine magazine