In spring 2014, immediately after the EuroMaidan Revolution that ousted President Viktor Yanukovyych and Russia’s invasion of Crimea and eastern Ukraine, the international community prepared an important comprehensive package of financial support to Ukraine.
The main donors were the International Monetary Fund and the European Union, who made such support highly conditional to the implementation of real reforms in Ukraine, with a big focus on anti-corruption initiatives.
In addition, the European Union renewed a dialogue on granting Ukraine visa-free travel, which was also linked to a set of very precise anti-corruption commitments taken by the Ukrainian government.
Now that the visa-free regime has been granted to Ukraine, billions of dollars and euros were poured into the Ukrainian economy by the EU and the IMF.
However, the question remains: How did Ukraine perform in fighting corruption?
The IMF committed to provide Ukraine with $17.5 billion in loans during four years, ending in 2019, out of which $13.2 billion has already been dispersed: ($4.5 billion in 2014; $6.7 billion in 2015; $1 billion in 2016; and $1 billion in 2017.
The EU granted direct financial support through two key mechanisms: state building contract and macro-financial assistance. In addition to financial bonuses, Ukraine received visa-free regime with the EU.
The IMF has already lent Ukraine about two-thirds of the $17.5 billion in the program, while the EU has spent 355 million euros in state building and 1.2 billion euros out of 1.8 billion euros planned for macro-financial assistance.
There are four main group of documents where anti-corruption conditionalities are elaborated in detail: the IMF memorandums with the Ukrainian government, the EU-Ukraine visa liberalization action plan, the EU state building contract and EU macro-financial assistance agreements.
Some of the conditionalities are specific for a certain donor, but there are many which are required in synergy by both the EU and the IMF and were reflected in all the agreements.
The anti-corruption conditionalities could be generally grouped into two areas: the first, those requiring Ukraine to tackle immunity of senior officials who are committing corruption crimes; and, secondly, those granting public access to the information of state expenditures and assets of public officials.
The first set of obligations was focusing on the establishment of new independent institutions with the power to investigate and prosecute corrupt conducts of public officials, which also include the opportunity to recover their ill-gotten assets.
The second group of anti-corruption obligations aimed more to bring to light how the state spends taxpayers’ money and what is the real wealth of public officials.
In practice both groups of the demands should work all-together: journalists and civil society should get better tools to reveal and report publicly about corruption, while new law enforcement agencies should independently investigate such corrupt conducts of public officials with the aim to put such people in jail and confiscate their assets.
Corruption investigation and prosecution
Establishment of NABU: All donors required Ukraine to establish a separate independent agency empowered to conduct criminal investigations of senior public officials. The agency was designed to end the problem of impunity of senior officials, who are abusing their office and powers to rob the country. This is what IMF wanted in the spring of 2014 when the Ukrainian interim government sought financial help after learning that the nation’s state treasure was broke — emptied by Yanukovych and his associates.
To prevent state funds from being embezzled again, the IMF decided to link $17.5 billion of its loans to the establishment of the “independent anti-corruption agency with broad investigative powers” to bring state officials to justice. The anti-corruption investigative agency became also the key to the EU conditions.
In October 2014, the Ukrainian parliament passed a law establishing such an agency – the National Anti-Corruption Bureau of Ukraine. Both the EU and the IMF also required proper implementation of the law. Moreover, the EU and IMF were regularly assessing implementation and were regularly updating requirements involving NABU.
While all donors emphasized the need to make the agency independent, the IMF was the most specific in clarifying what they mean by “institutional and operational independence from any external influence” of NABU. In particular, the IMF required:
NABU director selection procedure: “Institutional and operational independence from any external influence will be guaranteed and realized through appropriate procedures for appointment”
STATUS: IMPLEMENTED.
LAW: The Director of NABU should be selected by a selection committee, which consists of nine members. Three are delegated by Parliament, three by Government, and three by the President. Members of the selection committee must have an unblemished reputation, high professional and moral standing, including recognized public standing.
IMPLEMENTATION: under pressure from civil society authorities have appointed a trustworthy selection commission, which included even one foreigner – Giovanni Kessler, head of OLAF (EU Anti-fraud office). The selection process was very open and competitive – broadcasted online; all documents, including the asset declarations of the andidates were public. The participation of a foreign prosecutor at the selection panel was crucially important to guard the smooth process of the selection and to prevent political influence and interference.
Separate funding & high salaries: “Institutional and operational independence from any external influence will be guaranteed and realized, through….special procedures for budgetary allocations; and competitive remuneration for the head and staff of the agency.”
STATUS: IMPLEMENTED
LAW: high salaries of NABU staff are directly guaranteed by law.
IMPLEMENTATION: NABU receives the proper budget allocation and its staff receives salary guaranteed by the law.
External annual audit: “The oversight will be conducted by a panel of respected experts with international experience in the work of specialized anti-corruption investigative agencies. The Law will ensure that panelists: (1) have recognized ethical standards and experience in anti-corruption investigations in other countries that can bring to bear their international experience; (2) act independently and are not subject to instructions from any source; and (3) have the ability to obtain from the NAB any information on investigations, if relevant for the performance of its functions and without interfering in the conduct of investigations in progress (prior action)”
STATUS: Not implemented.
LAW: The law prescribes annual and independent assessment of the efficiency (an external audit) of NABU activities, its operational and institutional independence, this assessment includes a partial audit of criminal investigations that the Bureau has completed. The audit should be conducted by a three-member commission. The President, Parliament and Cabinet of Ministers each nominate a member among a pool of those with experience in investigative authorities, prosecution, foreign courts, or international organisations. Candidates are required to have both sufficient expertise and the skills required to conduct the audit, and should also have a respected reputation. Commission members should act independently, and should not perform orders or act on advice given by others. Negative findings of the NABU audit form legal grounds to dismiss NABU Director prior to the ending of the Director’s seven-year tenure. The law is not reflecting the key requirement of the IMF to NABU auditors – a need of experience of corruption investigations abroad.
IMPLEMENTATION: since February 2017 there are ongoing constant attempts by authorities to appoint loyal NABU auditors, which will likely issue a negative audit report leading to NABU Director dismissal.
Public reporting: “The agency will prepare semi-annual public reports of its activities, including summary and data on its investigations and their outcomes”
STATUS: Implemented; NABU regularly publishes semi-annual reports available on its webpage
Exclusive jurisdiction: “The NABU will be able to investigate all high-level officials, including former Presidents (prior action);” and “Looking ahead, we will maintain NABU’s exclusive authority to investigate acts of corruption by high-level official”
STATUS: Serious risks in implementation – constant attempts to roll back.
LAW: The law grants NABU exclusive investigative jurisdiction in cases of corruption of senior officials.
IMPLEMENTATION: There are regular attempts to introduce legislative changes, that allow other law enforcement agencies to investigate cases of grand corruption of senior officials. Prosecutor General Office regularly violates the principle by triggering bribery/extortion cases against top officials and conducting some investigative steps instead of NABU. This causes inadmissibility of evidence gathered by PGO in such cases leading to ruining the criminal cases.
Criminalization of illicit enrichment: “The respective provisions of the Criminal Code of Ukraine pertaining to illicit enrichment will be brought in line with the UN Anticorruption Convention”
STATUS: risks in implementation: lack of track record of successful prosecution of such cases
LAW: Illicit enrichment is a criminal offense which is defined as “acquisition of assets the legality of the origin of which is not proven by evidence of the transfer of such assets to any other person by a person authorized to perform functions of the state or local government.” Illicit enrichment is punishable by imprisonment for up to two years, disqualification from holding certain positions or engaging in certain activities for up to three years, and the confiscation of property
IMPLEMENTATION: NABU already started a few criminal investigations of alleged illicit enrichment. The first cases was already sent to the court for trial. In the case Mr. Kostyantyn Kulyk, a military prosecutor from PGO indicted for illicit enrichment, was afterward awarded a medal by the president of Ukraine instead of being suspended from his duties. Therefore, the political pressure on courts is likely to be very high
Wiretapping right: “We will submit legislation to parliament, for adoption by end-November 2016 to ensure that (i) the NABU has the use of a wide range of investigative techniques, including intercepting communications, without having to rely on other agencies’ infrastructure”
STATUS: not implemented – there is no law granting such a right
LAW: At present, NABU can intercept communications only through engagement with the Security Service of Ukraine, or SBU, or the National Police in its investigation. This causes leaks of information about NABU investigations to other law enforcement agencies, which are influenced by politicians.
Access to information: “The Law will empower the NABU to obtain all relevant information to perform its functions, from public authorities and private persons, including information covered by banking secrecy, without restriction or court order requirement”
STATUS: Implemented
Cooperation with Financial Intelligence Unit: IMF requires Ukraine’s FIU, which is designated anti-money laundering agency, to closely cooperate with NABU and to reform the way it performs identification of suspicious transactions of top politicians
STATUS: partly implemented
LAW: the law introducing 3 tier approach in reporting suspicious banking operations is not adopted yet. Such a law will allow FIU to collect more effectively and focused information on potential money laundering transactions of politically exposed persons. Unlike in other countries (the USA) the law does not permit investigative agency (NABU) with access to the FIU databases
IMPLEMENTATION: FIU provides regular statistics of cases it sends to NABU on the request of the detectives
Establishment of SAPO
After successful selection of the NABU director and staff, and its launch, it became obvious that NABU can’t be really independent without independent prosecutors overseeing all cases of NABU and prosecuting them in courts. Therefore, in 2015, the IMF and EU required the establishment of a Specialized Anti-Corruption Prosecutor’s Office. Formally, such prosecutions should be part of the Prosecutor’s General Office. However, it should have strong autonomy and guarantees of independence. Both the EU and the IMF were focusing hugely on the procedure of selection of the head of specialized anti-corruption prosecution.
The IMF memo to this regard was specific and contained detailed language: “To ensure a timely, fair, and balanced appointment process, we will make the following amendments to the law on the prosecutor’s office: At least five members of the selection committee for the head of the anti-corruption prosecutor’s office and his/her deputies will be nominated by a decision of parliament, in order to eliminate the risks of challenging the results of the selection. These persons will be of impeccable reputation, high professional and moral qualities, and authority in the society…”
The Specialized Anti-Corruption Prosecution was established by the law dated April 25, 2015. The law on prosecution was amended in order to make the SAPO more independent from the General Prosecutor’s Office on Feb. 18, 2016.
The selection commission to choose SAP management was formed in August-November 2015.
However, there was a lot of public distrust to the selection committee, which contained notorious prosecutors from the PGO. Under pressure from the EU and the civil society, the composition of the commission was partly changed in November 2015. The commission selected the head of SAPO on Nov. 30, 2015 and, since then, NABU obtained the legal right to start criminal investigations as there were appointed prosecutors assigned to oversee the work of detectives and prosecute cases in courts.
With first cases investigated by NABU and prosecuted by SAPO which were brought to courts it became obvious that existing corrupt judicial system is not willing and capable of delivering justice in high-profile corruption cases and, therefore, the anti-corruption court is needed in Ukraine.
The NABU and SAPO big mission to hold liable senior officials for corruption is unachievable without independent and professional judges, who could hear their cases.
Therefore, the first requirement to Ukraine to establish the anti-corruption court appeared in the IMF documents on 1 September 2016, which evolved into the benchmark reflected with more detailed language in March 2017. The IMF is again focusing on the selection process of the anti-corruption judges and has put a deadline for Ukraine to finish with anticorruption judges selection by January 2018.
The EU joined the IMF in calling on Ukraine to establish the Anti-corruption court, however, such an expectation was not transformed to the formalized conditionality.
EU Commissioner Hahn stated on 1 September 2016 that “Work on the establishment of anti-corruption courts should also start as soon as possible in order to put in place also this important missing element of the overall anti-corruption reform.”, The Head of EU delegation, Hugues Mingarelli emphasized the importance of creating an Anti-Corruption Court in Ukraine in March 2017.
Implementation status
Achieved: independent, transparent and fully operational NABU investigating cases against senior officials, including the head of State Fiscal Service, heads of state-owned companies, judges, MPs, senior prosecutors; specialized anti-corruption prosecution was set up.
To be done: anticorruption court (IMF benchmark), wiretapping right for NABU (IMF benchmark), 3-tier approach in anti-money laundering reporting, track record of successful prosecution of illicit enrichment cases.
Backsliding attempts: NABU audit, NABU exclusive jurisdiction.
Corruption prevention
The establishment and launch of proper work of the NABU, the SAPO and the Anti-corruption Court has a punitive nature and allows to catch and bring to justice senior officials for committing corruption crimes.
In addition to such a punitive measure, key donors of Ukraine altogether conditioned the government to adopt a crucially important corruption preventive measure – an effective asset disclosure mechanism.
Both the EU and the IMF conditioned its support to the need to set up a public registry of electronic asset declarations of Ukrainian public officials.
There was however, slight differences in approach of the EU and the IMF:
IMF required to oblige all public officials who are under NABU investigative jurisdiction to submit electronic asset declaration in public registry; the EU did not focus such a requirement only to senior officials under NABU jurisdiction;
IMF required to allow NABU to verify and investigate asset declarations of senior officials under its jurisdiction; while the EU was requiring Ukraine to establish a separate agency to maintain the electronic registry and to verify the e-declarations.
In addition, the EU required Ukraine to set up a mechanism for verification of the conflict of interest of public officials and to develop a new system of political party financing.
Implementation
On Oct. 14, 2014, the Ukrainian parliament adopted legislation establishing National Agency for the Prevention of Corruption with authority to set up a national registry of electronic asset declarations. A new extensive form of asset declaration was prescribed in the law, as well as stricter administrative and criminal liability for non-submitting asset declaration and for false statement was introduced.
The first wave of e-declarations of senior public officials took place in September-October 2016 and it included asset declarations of the president, the ministers, the MPs, judges, prosecutors, heads of state-owned enterprises and other top officials.
The proper e-declarations system was supposed to be operational in December 2015, when the European Commission issued a positive report regarding implementation of the visa liberalization Action Plan by Ukraine.
However, this report contained a few anti-corruption commitments which were still not ready as of December 2015, including e-declarations regulation and launch.
Ukraine received three more months to deliver needed legislative changes and four months for senior officials to submit e-declarations: “Implement asset disclosure requirements for high-level officials. By the end of December 2015, the Ministry of Justice will ensure that applicants and newly appointed officials to high-level positions under the (National Anti-Corruption Bureau of Ukraine) jurisdiction file their asset disclosures electronically. The disclosures will be directly and freely available to the public on a single website shortly after the submission. In line with the legislation, all high-level officials will report their assets electronically by the end of April 2016” (IMF).
However, the actual deliverable was again postponed until October 2016, which in turn caused the significant delay with IMF tranche.
The postponement of e-declarations system launch happened because of the problems with the establishment of the National Agency for the Prevention of Corruption, which has the mandate to maintain the e-declarations registry. The management of the agency was selected by the special commission only in December-March 2016. Such a delay was caused by improper work of the selection commission, some of which members appeared to be weak, biased, loyal and worked very slow.
The weak commission selected compromised and weak management of the NAPC. Specifically, since October 2016 until February 2017, the NAPC failed to verify a single asset e-declaration, while the effective mechanism of e-declarations verification was one of key EU requirements before granting visa-free regime to Ukraine.
Improper work of NAPC in verification of e-declarations undermines possible criminal investigations of illicit enrichment cases by NABU.
NAPC is already conducting verification of conflict of interests of public officials – another EU requirement, however, without proper legal regulation, which is causing selective approach for such verifications.
The agency is regular conducting selective administrative investigations against officials, who are criticizing senior authorities.
For example, a few cases against member of parliament Sergii Leshchenko for purchasing an apartment and for obtaining a $300 fee for lecturing at the university or a case against Yulia Marushevska, the former head of Odessa tax regional administration, for issuing $20 bonuses for herself. Meantime, the head of NAPC Natalya Korchak fails to declare the car she uses.
Finally, the NAPC regularly fails even to maintain the proper work of the e-declarations registry, blaming foreign donors who provided assistance to the agency. Additionally, the NAPC did not react properly to the failure of the entire Security Service of Ukraine, or SBU, management to submit e-declarations to the united public registry.
The SBU, in direct violation of the law on corruption prevention, set up a parallel asset disclosure system and considered it as a state secret.
AntAC submitted a lawsuit against the SBU requiring the management of the agency, which does not include undercover agents, to submit asset declarations to the registry maintained by NAPC, which did not have concerns in this regard. Moreover, the NAPC closed public access to the e-declarations of some military prosecutors, again violating legal requirements. AntAC is challenging such a decision of NAPC in courts as well.
On Feb. 10, the government assessed negatively the work of the NAPC and asked its head, Natalia Korchak, to resign. However, she refused. Therefore, the government introduced in the parliament a draft law which changes the management and its structure and called MPs to support it.
On June 9, Rouslan Ryaboshapka, one of four NAPC managers, resigned asking parliament to support the change of the NAPC management and its structure.
Implementation status
Achieved: advanced system of electronic asset disclosure with more than 1 million declarations of public officials submitted, open and accessible in the internet;
To be done: e-declarations verification, conflict of interest verification;
Backsliding: e-declarations for anti-corruption activists; NAPC conducting selective investigations and political persecutions; closing public access to e-declarations of officials from certain agencies.
Access to information & public procurement
Access to the information about who owns what in Ukraine and how state funds are being used was one of key requirements from the EU to Ukraine. Most of these requirements, except an effective mechanism of beneficial ownership verification, which is also a condition of the IMF, are well implemented.
During 2014-2015, Ukraine made extensive public access to the state company house, including company beneficial ownership information.
In addition, public access was granted to the ownership information in land cadaster and in the registry of immovable property. Moreover, there was adopted and implemented the law on public access to information about all spending of the state treasury. Such transparency significantly increased tools for journalists and civil society to expose and report about corruption.
Both the EU and the IMF were requiring Ukraine to reduce exemptions from the public procurement law, which was successfully done in 2014. This uncovered spending of about Hr 250 billion annually. Afterwards, Ukraine implemented the comprehensive public procurement reform called Prozorro which so far has saved Hr 26.9 billion.
Finally, the IMF required Ukraine to outsource procurement of medication from the state to reputable independent international organizations, including the United Nations Development Program.
Ukraine successfully implemented such a requirement, which leaded to savings $28.6 million in procurement of medications for patients and decrease of delays in medicines delivery. The reform helped to eliminate corruption schemes, which were for decades existing in the procedure of the procurement of medications by state. However, there are attempts to discredit this reform and return to the state the power to conduct procurement of medications.
Implementation status
Achieved: Ukraine achieved an unprecedented level of transparency by granting public access to the company house registry including beneficial ownership information, land cadastre, the registry of immovable property, e-declarations. Moreover, through ProZorro reform there was significantly increased level of transparency of public procurement
To be done: Beneficial ownership verification mechanism (MFA)
Backsliding: attempts to rollback the outsourcing of procurements of medications to international organizations.
Asset recovery
The EU required Ukraine to update its seizure and confiscation legislation, which should put Ukraine in line with United Nations Convention against Corruption and the EU Directive 2013/42/EU. These international standards permit seizure and confiscation of criminally obtained assets owned by third parties.
In addition, the EU required Ukraine to set up an asset recovery agency, which should effectively manage seized and confiscated assets and trace assets on the request of national and foreign law enforcement agencies. Finally, the EU expected Ukraine to deliver track record in asset recovery.
The IMF in its conditionalities emphasized on the need of NABU to have proper legislative regulation of assets seizure and confiscation.
In 2015-2016, Ukraine adopted a set of asset recovery legislation which brought Ukraine in line with the European directives.
The legislation established the Asset Recovery and Management Agency. The head of the agency was selected in December 2016.
Currently, ARMA has not started its operations yet and didn’t adopt “operational guidelines, including a framework for inter-agency cooperation,” which are required by the EU Microfinancial Assistance Agreement.
Conclusions
The leverage of the EU and IMF was crucial in driving for the anti-corruption reform in Ukraine and important positive steps were achieved as a result.
Especially, the most visible result is in the sector of access to information and government transparency, which transformed Ukraine into one of the most transparent country among Eastern Partnership countries and a heaven for investigative journalism reporting.
This increased the amount and quality of corruption reporting in Ukraine. However, there is still a lack of proper law enforcement reaction into such kind of public reports.
A set of IMF and EU anti-corruption conditionalities aimed to target impunity of senior officials and therefore focused on establishment of new anti-corruption infrastructure with powers to investigate and prosecute corrupt conducts of senior officials, whose ill-gotten funds should be timely traced, seized and later confiscated.
While there is success with NABU operations, there is still lack of convictions and confiscations for grand corruption.
The anti-corruption court is not established yet and remains to be key IMF and the EU anti-corruption priority for the upcoming months.
NABU resists constant attacks from other law enforcement agencies and parliament, which is willing to limit the agency’s powers and undermine its independency.
The history of NABU auditors appointment is itself a vivid illustration of such attempts of politicians to take over control on NABU. The process of the selection of auditors started in late 2016. However, due to political pressure, the ordinary bureaucratic procedure was postponed for more than a year.
On Dec. 21, the parliament committee on combating corruption selected, as the result of the transparent and independent selection procedure, recommended Robert Storch as NABU auditor.
On Feb. 23, on the day of parliamentary confirmation of Robert Storch as NABU auditor, some MPs suggested unknown UK citizen Nigel Brown as an alternative candidate. Brown strangely appeared in the parliament at the day of the hearing in parliament. During the month, MPs tried to overcome public pressure and appoint Brown as an auditor.
As a result, the Parliamentary Committee on Anti-Corruption announced a new round of selection of NABU auditor, which is still ongoing.
In addition, there are constant problems with work of the NAPC, which still did not conduct a single e-declarations verification, disregarding it was one of key EU requirements prior granting a visa-free regime to Ukraine.
Asset recovery and management agency is formally set up, but didn’t start actual operations and it is unclear when it will deliver first results.
The IMF has already disbursed the largest part of promised loans and the negotiations regarding the next $1 billion loan are ongoing.
There were significant delays of the last two IMF tranches, specifically because of weak implementation of some crucial anti-corruption conditionalities.
The EU already granted a visa-free regime, which was linked to the set of anti-corruption conditionalities with a particular focus on the proper e-declarations system, including verification mechanism. There is, however, only partial implementation of this and other requirements by the Ukrainian government.
The EU delivered almost all promised “carrots” to Ukraine and is losing its leverage.
There is still an EU commitment to transfer 600 million euros in micro-financial assistance to Ukraine by the end of 2017.
In order to receive support, Ukraine has to show results in:
a) e-declarations verification;
b) beneficial ownership information of companies verification, and
c) operationality of ARMA.
The EU has also decided to introduce post-visa liberalization monitoring mechanism, which has to ensure proper implementation and continuity of reforms by tracing and preventing rollbacks, especially in anti-corruption sector.
The detailed regulation of such a mechanism is under development now by the European Commission.
Meantime, AntAC has launched its own civil society mechanism of monitoring on Ukraine’s implementation of anti-corruption conditionalities. It can be found here.
Daria Kaleniuk is the executive director of the Anti-Corruption Action Center in Kyiv.
