AntAC Newsletter

Dear friends!

Your are interested in Ukraine and willing to follow the most recent anti-corruption developments in the country?

Then subscribe to our regular (weekly) updates.

We are covering:

1. The most burning successes and challenges of the anti-corruption reform in Ukraine

2. State of implementation by Ukraine of international obligations and commitments in the area of the anti-corruption

3. The most crucial and fresh cases of corruption investigations and revelations from journalists and law enforcement agencies of Ukraine

More news and publications in English are available at our webpage; the most recent and burning anti-corruption news in English we tweet here.

Yours, Anti-corruption Action Centre

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Караємо зашкварених мажоритарників

Holding those responsible for syphoning money from procurements.

Map Ukrainian Politically Exposed Persons (PEPs)

Foreign partners condition Ukraine to fight corruption. We are monitoring how Ukraine implements these obligations.

Exploring corruption and learn to fight it.

Helping to return the money stolen by corrupt officials back to Ukraine.

Ukraine as an investment: how anticorruption reforms repaid

Corruption and lack of trust in judiciary are still affecting the investment climate in Ukraine more than the conflict with Russia. This conclusion was given by the study of obstacles to foreign investments to Ukraine in early September 2017. To improve business climate, investors expect Ukraine to concentrate on fighting corruption, including bringing to justice allegedly corrupt top officials and judges, ensuring independence of the judiciary and timely implementation of IMF program.

Expectations of investors coincide with those of international partners of Ukraine, who conditioned financial support of their taxpayers to reform in the country. And the financial support is considerable: only by the end of this year Ukraine hopes to receive 600 mln Euro of macrofinancial assistance from the EU and 1 billion dollars of next IMF loan.

Although Ukraine reported of successful implementation of all the conditionalities, as of fourth anniversary of the Revolution of Dignity actual anticorruption results leave much to be desired.

As Ukraine approaches presidential and parliamentary electoral campaigns, reforms process is stalling. However, upcoming elections also serve as a leverage for international partners to prevent rollbacks in anticorruption reforms, as politicians become even more sensitive to negative statements from abroad than to absence of money.

Is there a threat to visa-free regime with the EU?

Affluent lifestyles of Ukrainian politicians and public servants has long been a first signal of widespread corruption for potential foreign investors. EU-conditioned anticorruption reform  intended to disclose and verify assets declarations of public servants and to bring to justice for illicit enrichment those whose assets are not justified.

Launch of electronic assets disclosure system for all public officials was the  key accomplishment of the Visa Liberalization Action Plan. The system functions and special registry now contains more that 1 million of assets declarations. However, every yearly declaration campaign puts the registry (with all the declarations in it) on the verge of disappearance due to severe technical problems. The registry is controlled by the state company under the influence of the State Security Service (SSS).

Instead of regaining control over the registry, the Agency for Corruption Prevention (NACP)  allowed officials of the SSS to avoid public asset disclosure and to submit declarations into their own parallel secret system. As a result, SSS officials are immune against liability for illicit enrichment, because even National Anticorruption Bureau (NABU) has no access to these declarations.

Disclosure of assets is not yet followed with verification not only for the SSS officials. Of more than 1 million declarations only up to 100 has been verified after one year of efforts by NACP. 600 mln Euro worth conditionality – enactment of the system of automatic verification of e-declarations – remains unimplemented.

Ukrainian authorities try to excuse the absence of automatic verification of e-declarations either with legislative gaps or absence of problems with certificates of data protection for the system (same issue, with which the authorities attempted to disrupt launch of e-declarations system).

However, none of these excuses look persuasive after whistle-blowers from NACP revealed political dependence of the Agency. Hanna Solomatina, head of NACP financial control department, blew a whistle on NACP leadership, who were giving her illegal orders to issue positive or negative results of asset declarations verification on certain officials. In addition, Solomatina claims she was asked by Presidential Administration to approve with them every single result of such a  verification.

Moreover, the whistleblower argues she suggested to NACP leadership a solution for quick  launch of automatic system of e-declarations verification, however, Ms. Korchak refused to accept it, because allegedly it is easier to intervene into the manual system of verifications.

Failure to launch verification of e-declarations may cost Ukraine not only loss of investment and financial assistance. Decision on visa-free travel to EU came in a package with monitoring mechanism through which the EU follows on sustainability of Ukrainian reforms.  Rollbacks in reforms way lead to suspension of visa-free regime. Although politically probability of this may seem vague, legal procedures for suspension are already adopted and first monitoring report on Ukrainian reforms will be published in December 2017.

Anticorruption law-enforcement

Now that new independent institutions are established to investigate and prosecute grand corruption, the EU and IMF expects Ukrainian authorities to restrain from any pressure on Anticorruption Bureau (NABU) and Specialized Anticorruption Prosecutor’s office (SAPO) and to secure independent powers of these bodies. Ukraine frequently fails to meet both of these expectations.

Powers of NABU and SAPO are challenged with recent amendments to the Code on Criminal Procedure, known as the “Lozovy amendments”. According to the amendments, decision to either prolongue or to terminate NABU investigations will depend on decision of an investigative judge instead of a prosecutor. We have witnessed many instances how investigative judges from non-reformed courts are blocking and delaying NABU investigations, and here comes new tool for them for this. New draft laws restricting NABU powers frequently appear in the parliament and might be passed any moment.

Authorities demonstrate no commitment to preserve independence of NABU.

For months EU leaders are making statements of deep concern regarding attempts to take NABU external audit under political control.

Still, after NABU announced suspicions in corruption crimes to the son of Arsen Avakov, the Minister of Interior,  and deputy Minister of Defense with investors from the “Trade Commodities” company linked to close associated of President Poroshenko,  the attacks against NABU intesified Prosecutor’s General Office opened a criminal case against the NABU Director. Moreover, the  NACP initiated administrative proceedings against Artem Sytnyk probing him for alleged “conflict of interests”. initiated an administrative one.

Justice is still UNfair

Zero verdicts in cases of grand corruption and 35% of NABU cases pending in courts without consideration convinced the EU and IMF that Ukraine needs an anticorruption court. The EU is expecting to see the draft law on anticorruption court to be submitted by the President of Ukraine without further postponement or unnecessary working groups, as the EU Ambassador to Ukraine Hug Mingarelli recently confirmed. The IMF conditioned establishment of the anticorruption court as a prior action before next loan disbursements. The Venice Commission issued its opinion back in early October making it clear that the draft law on the separate High Anticorruotion Court has to be introduced by the President of Ukraine.The Commission emphasized the importance to engage foreign donors and experts in the selection of anticorruption judges.

However, instead of expeditions drafting the law based on the Venice Commission opinion, the President is spending second month on a “table tennis” game with the Parliament in attempt shift responsibility for development of the bill.

Fake asset recovery

Ukraine was rather successful in implementing asset recovery conditionalities: information on public spending is available online, registries of real estate property, land cadaster and beneficial ownership are also public. Special agency for asset recovery was created and already manages assets, arrested in the case against former Minister on Taxation Oleksandr Klymenko.

However, actual work of the Prosecutor’s General Office (PGO) on recovering assets raises concerns.

In Spring of 2017 the PGO reported on recovery of USD 1,5 billions of so-called “Viktor Yanukovych’s money”. Assets were recovered upon guilty verdict for nominal director of one of the companies affiliated with Sergey Kyrchenko, but the verdict itself is classified as state secrecy. The same scheme  has been applied three times already to recovery of huge amounts of money or strategic enterprises. PGO in these confiscations is relying on laws adopted by parliament back on February 2016 within Visa Liberalization Action Plan. However, the implementation of these asset recovery laws seem to be against European standards.

This unprecedented  approach creates strong grounds for third parties – formal owners of confiscated assets – to regain the money through the European Court of Human Rights.

Disclosure of beneficial ownership

Following obligation before the EU, Ukraine introduced mandatory disclosure and publication of information on beneficial owners of all companies.

Still, one important element is lacking – verification of information on beneficial owners. Without verification companies with false beneficiaries, such Aganemnon Anonimous, legally win millions of public bids and leave behind European companies interested in providing services to Ukraine.

In the meantime, the Prime Minister Volodymyr Groysman needs  additional funds for increasing social welfare and keeping energy prices under control for pre-electoral year. The Cabinet hopes to be able to raise funds on international borrowing market instead of implementing anticorruption conditionalities and receiving cheaper loans from the EU and IMF.

However, the President  strives for new eurointegration perspective for Ukraine and aspires it to become key message of his campaign for the second term in office. No such perspective may be given to Ukraine without full implementation of reforms, especially in the rule of law sector.

As no real EU  investors will come to Ukraine without guarantees they could protect themselves in the non-corrupt courts. And tiny Cyprus will remain to be the key source of foreign direct investments to Ukraine, which in fact are not real foreign investments creating jobs, but return of suspicious often ill-gotten capital siphoned from Ukrainian taxpayers by oligarchs tied to corrupt politicians.

By Anastasia Krasnosilska, international affaisr expert at AntAC for KyivPost