COMMENT: Ukraine’s the Old Rotten System is alive and well

COMMENT: Ukraine’s the Old Rotten System is alive and well
Ukraine's Old Rotten System is alive and well. It consists of four pillars: corrupt judiciary; powerful oligarchs; corrupt MPs; and a nationwide network of graft.
By Robert Homans in Washington September 17, 2020

In the nearly 18 months since Volodymyr Zelenskiy was inaugurated President of Ukraine, it has become increasingly clear that he, like all his predecessors, is willing to accept, and even support, the Old Rotten System that has existed, essentially intact, since Ukraine became an independent country in 1991.

The Old Rotten System consists of 4 pillars: a corrupt and unreformed judiciary; oligarchs who control a large portion of Ukraine’s GDP, either directly, through control of major state-owned enterprises; a parliament, a large portion of, which is made up of deputies who are controlled by oligarchs, or belong to parties that do Russia’s bidding; and a network of graft that operates throughout Ukrainian society. All four pillars are intact, and they are complementary to each other. If one collapses, especially the judicial system, the other three will either be substantially weakened, or they will also collapse.

While there has been admirable progress and reforms, the Old Rotten System seems to be relatively impervious to the impact of major progress and reforms that have taken place in Ukraine, especially since the Revolution of Dignity in 2014, including freedom of the press, free elections, increased transparency in Government, reduction in graft, a strong civil society, transformation of the military and, at least until recently, the transformation of the National Bank of Ukraine. Perhaps Ukraine’s progress and significant reforms explains why Western institutions, including the International Monetary Fund (IMF) and EU, appear to have tolerated the continuation of the Old Rotten System, in spite of Ukraine’s repeated promises to dismantle the Four Pillars on which the Old Rotten System rests.

The reason why Zelenskiy was elected in April of 2019 with 73% of the vote, and his Servant of the People (SOTP) party was given an outright majority in parliament in the July 2019 parliamentary election, was the expectation on the part of the voters that he and SOTP would weaken and eventually dismantle the Old Rotten System, as Ukraine has come to know it. In all fairness to Zelenskiy, he shares the unmet expectations with two of his predecessors, Viktor Yushchenko and Petro Poroshenko. Both Yushchenko and Poroshenko were elected with the same expectation, that they would dismantle the Old Rotten System. Neither were successful and, partly as a result, both lost bids for re-election.

Corrupt and un-reformed judicial system

In almost all of its time as an independent country, Ukraine has never really had a fair and impartial judicial system, where judges are expected to render decisions free of bribes, prosecutors do their jobs in an impartial manner, and Ukrainian businesses and individuals are secure in their property rights. This is in spite of the fact that Ukraine now has a National Anti-Corruption Bureau (NABU), that can investigate corruption but it cannot bring charges, and the High Anti-Corruption Court, that is limited to cases involving senior government officials, leaving it powerless to address cases such as filing bogus tax cases against small businesspeople.

Instead, the primary purpose court system, as presently constituted, seems to be to shield the business activities of major oligarchs and government officials. The Kyiv District Administrative Court, headed by Pavlo Vovk, is the primary means by, which oligarchs and corrupt government officials protect their interests. And Vovk is symptomatic of the problems the system faces.

The authority of the Kyiv District Administrative Court is similar to that of the United States Court of Appeals for the Federal Circuit. In both cases, these bodies serve as the   primary venue where cases in which the respective national governments of Ukraine and the United States are parties, are adjudicated.

By applying this comparison, one can understand the implications arising from the Kyiv District Administrative Court being headed by someone who, allegedly, sells the court’s proceedings and decisions to the highest bidder. Ukrainian president Volodymyr Zelenskiy is failing to pursue the badly needed judicial reforms in Ukraine and that is going to be a problem.

These are two excellent articles about some of the recent proceedings and accusations involving the Kyiv District Administrative Court and Vovk. The first article goes into great detail on the level of power and influence wielded by Vovk, not just in the Court System, but throughout the national government as well as the private sector.

Poroshenko promised to replace all the judges of the Kyiv District Administrative Court, but he failed to do so. Given his performance to date, it is unlikely that Zelenskiy will take any action. In fact, the recent appointment by President Zelenskiy of Zenovy Kholodnyuk, Chief of Ukraine’s Judicial Administration, to be Vice Prime Minister of Euro Integration, seems to suggest he’ll do exactly the opposite.

Zelenskiy’s appointment last March of Iryna Venediktova as Prosecutor General hardly suggests that her office will be impartially initiating cases. That was the expectation when Ruslan Riaboshapka was appointed Prosecutor General after last year’s Parliamentary elections. Last March 7, Riaboshapka was forced out by a Parliamentary no-confidence vote. Since then Venedyktova has initiated some 50 cases against Poroshenko, similar to the politically motivated prosecution of former Prime Minister Yulia Tymoshenko, by former President Viktor Yanukovich, something that, at the time, caused the EU to suspend negotiations on a free trade agreement with Ukraine.

In the past, the IMF has placed conditions on Ukraine, insisting on the independence of NABU and the establishment of the High Anti-Corruption Court but, even so, the judicial system remains essentially as it has always been. Without a fair and impartial judicial system, it seems difficult for the IMF to be confident that Ukraine’s economy can get to the point where it no longer needs IMF assistance, or for businesses large and small to have confidence in property rights. This is especially true for individuals and small businesses, which cannot rely on the High Anti-Corruption Court to obtain redress.

Influence of Oligarchs

Oligarchs continue to control large portions of Ukraine’s GDP, either directly, or indirectly through controlling the affairs of certain state-owned industries, and they exercise outsized influence by controlling members of parliament and agencies within the government. The Revolution of Dignity has turned out to have had limited impact on their business operations.

One example of the continued influence of oligarchs is the introduction of “Green Tariffs,” offering developers of wind and solar facilities preferential utility rates. A major beneficiary of the Green Tariffs is DTEK, Ukraine’s largest energy holding company is owned by Ukraine’s biggest oligarch by net worth, Rinat Akhmetov.

One of the most effective institutions in blunting the influence of oligarchs in Ukraine appears to be the US Justice Department. The Justice Department has recently filed an Asset Forfeiture Petition against another notorious oligarch Ihor Kolomoisky and his associates, in connection with real estate assets in Cleveland and Dallas that the Department of Justice believes was financed by money belonging to retail depositors of PrivatBank, at the time Kolomoisky was a co-owner of the bank. The NBU was forced to nationaise PrivatBank in 2016 when it was discovered there was a $5.5bn hole in its balance sheet. A subsequent investigation found that the money had been funneled out of bank using fake loans and shell companies connected to Kolomoisky and his partners. A Justice Department criminal indictment may be forthcoming, in, which case Kolomoisky may have to leave Ukraine and return to Israel, where he is a citizen and thus protected from extradition to the US.

Dmytro Firtash is an oligarch that controlled much of Ukraine’s retail gas distribution system. He is currently in Vienna, fighting extradition to the US in connection with charges of bribery, extortion and racketeering. The charges centred on a $18.5mn bribe offered to government officials in India related to titanium mining licenses, with the minerals destined for sale to Boeing, thus the US claim of jurisdiction.

Parliament

After SOTP won an outright majority in Parliament, the perception was that there was going to be changes in how Parliament was run. Instead, there appears to be little or no change. Since obtaining an outright parliamentary majority, SOTP has broken up into at least four factions, effectively ending their majority. One faction consists of about 40 MP’s loyal to Kolomoisky. Their “loyalty” is likely cemented by monthly payments by a “Gray Cardinal,” an MP doing Kolomoisky’s bidding, amounting to perhaps $50,000/month, per MP. This is identical to the manner in which previous parliaments were organized.

The “Opposition Party – For Life,” a pro-Russian Party with 43 Seats, is the second largest party in parliament. It is headed by Viktor Medvedchuk, whose daughter is Putin’s goddaughter, and Yuriy Boyko, a former minister in Yanukovich’s government. I cannot think of another instance in the West, where a political party loyal to a country that has invaded and occupied its territory, is in a position to undermine that same country in whose parliament they serve. Recently MP’s in the Opposition Party – For Life visited Moscow, as the guests of United Russia, Putin’s political proxy in the Duma.

Graft

Although Ukraine has made major progress in curtailing some of the channels through, which graft in Ukraine flows, some of the progress is in danger of being reversed, including, on a national basis, customs and the civil service. Various schemes that exist in the regions and locally continue bringing riches to those who control these schemes. Graft poses a danger to Ukraine’s future, because as long as graft exists to the extent it does today, it saps the confidence that the public has in Ukraine’s public institutions.

Graft, especially at the regional and local levels, does not get nearly the attention it deserves from Western institutions that, instead, focus primarily on large-scale graft. As we have seen recently, this lack of attention to local graft often puts local anti-graft activists under dire physical threat, with the death of Katerina Handziuk and the beating and forced exile of Ihor Stakh being only two examples.

Anders Aslund, a Swedish economist and a Senior Fellow at the Atlantic Council, once said that he’s surprised at the fact that one the one hand the Ukrainian government is becoming increasingly transparent, with the ProZorro Government public procurement system, the required asset declaration co-existing with continued graft, and improved transparency in the civil service system but, on the other hand, corruption continues to exist. According to Aslund, it is hard for corruption to co-exist with transparency. However Old Rotten System continues to be largely intact over the 29+ years of Ukraine’s existence as an independent country.

Of the Four Pillars that make up the Old Rotten System, knocking out the Court system, and thereby reforming Ukraine’s judicial system, could well result in the undermining and eventual collapse of the other three. This probably explains why reforming the judicial system has been so difficult to accomplish.

As stated earlier, both Presidents Yushchenko and Poroshenko lost bids for re-election partly because they didn’t live up to their promises to break down the Old Rotten System. Will the same fate await Zelenskiy and, if so, will this show that Ukrainian voters have finally elected someone whom they trust to comply with their wishes? So far, the answer to the latter question is “no.”

That is not to say that there are many prominent Ukrainians who, if elected, would be serious about toppling the Old Rotten System and constitute a threat to those who benefit. Will they run, and will one of them be elected? As we have seen, trying to topple the Old Rotten System can be hazardous to one’s health. Just ask reformers like Valeria Gontareva, former Governor of the National Bank of Ukraine, Vitaliy Shabunin and Daria Kaleniuk, Co-Founders of the Anti-Corruption Action Center, and many others.

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Robert Homans is an independent political commentator based in Washington DC and tweets at @rhomansjr

 

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