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Corruption In Ukraine: The Trickle-Down Effect – OpEd

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Nearly four years after the beginning of the Euromaidan, Ukraine is not on the brink of another revolution. But a new campaign that has drawn droves of supporters is set to become the first major street movement since that time. The issue? Over his three-plus years in office, President Petro Poroshenko has done precious little to address corruption, which continues to cost the country 2% of its GDP every year. And at the centre of this web of corruption is Poroshenko himself. True to the saying that a fish rots from the head down, the President, a powerful oligarch in his own right, has set the tone for state capture in a country already known as hotbed of skullduggery.

Most recently, with the latest leak of millions of files related to the global elite’s offshore accounts, Poroshenko has once again been caught in an awkward situation regarding his ties to Roshen, his candy empire. Following the release of the Panama Papers in 2016, which exposed how Poroshenko failed to fulfil his promise to put his businesses in a blind trust, the “Paradise Papers” shed more light on the president’s efforts to maintain his grip on Roshen despite conflicts of interest and his own promises on the campaign trail. Rather than selling his assets, the ‘chocolate king’ has used labyrinthine methods to strengthen his business empire by focusing on a holding company called Prime Assets Capital, in which he has a major stake. He also holds a 60% stake in International Investment Bank, which has financial ties with a wealth of other companies and investments.

Unsurprisingly, many of the firms where Prime Assets Capital has a stake have enjoyed a long lucky streak when it comes to winning state tenders. What remains of Poroshenko’s Ukrprominvest industrial empire, for instance, now mostly runs on government orders, especially for military equipment. Although financial records are murky, the evidence suggests that the president also retains interests in the Bogdan car plant, the country’s biggest carmaker – which, after posting losses of $32.6 million in 2015, is now seeing its fortunes looking up after switching its focus to building military vehicles. The president’s vast agricultural stakes are also reaping the benefits of state orders. Last year, the newly appointed agriculture minister – who was handpicked by the president – handed two Poroshenko-owned plants far larger quotas for sugar production orders than their rivals.

Yet it was Poroshenko’s handling of PrivatBank’s forced nationalization in 2016 that was the culmination of the president’s score-settling mentality. The move was long in the making: in 2015, in an effort to set the stage, rein in overly powerful businessmen, and bring key private companies under his own control, Poroshenko sponsored a bill allowing state-owned firms to ignore the wishes of minority shareholders. The bill was widely seen as a direct swipe against Ihor Kolomoisky, the former governor of Dnipropetrovsk and co-founder of PrivatBank, among other firms. As it turned out, it was only the first step of what would become a power struggle between the president and Kolomoisky, which came to a head when Poroshenko and National Bank of Ukraine (NBU) Governor Valeriya Gontareva collaborated to take over PrivatBank. Yet the nationalization was not only a personal dispute but also a classic example of state overreach.

Under the guise of reforming Ukraine’s banking sector, the government declared the bank insolvent on grounds that have now been revealed as erroneous. At the time, the NBU stepped in because the level of related-party loans allegedly hovered at unsustainable levels of 90%. Yet Ernst and Young, which audited PrivatBank in late 2016, said that the true level was less than 5%. And in the latest development to cast doubt on the government’s nationalization of PrivatBank, former shareholder Gennadiy Bogolyubov warned this week he might file claims for compensation for what he calls “unlawful expropriation”, challenging the authorities’ evaluation of the health of the bank’s loan portfolio and claims of misconduct.

But it is not only the NBU on which Poroshenko counts to do his bidding, however. Ukraine’s Secret Service (SBU) is routinely used to intimidate opponents and crack down on dissent. Earlier this year, for instance, the SBU started a targeted harassment campaign against a number of activists, including the reporter and anti-corruption campaigner Oleksandra Ustinova. She blamed two recent events – the decision by the Anti-Corruption Action Center, where she is a board member, to file a complaint asking SBU staff to file financial disclosures, and a recent article she wrote on the SBU’s implication in corrupt drug tenders.

Meanwhile, the chief prosecutor’s office is deployed in equally questionable ways. The new prosecutor general, Yuri Lutsenko, was appointed only hours after the president passed a law that would have prevented him from taking office because of his lack of legal background. The appointment of Lutsenko – a close ally of the president – has raised serious questions about institutional independence and about the integrity of a position seen as a key bastion against corruption.

Given the fact that corruption continues seeping throughout nearly every branch of government, then, there is little surprise that Poroshenko has exploited his position to both settle scores and strengthen his wealth and power. The main question now is whether running up against a wall of civil anger with the status quo will be a catalyst for change..


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Theodoros Papadopoulos

Theodoros Papadopoulos is a consultant and researcher based out of London, specialized in the institutional evolutions of Eastern Europe and Africa.

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