Here’s one of many reasons why Ukraine is struggling financially and dependent on Western loans: Its government is losing $4.8 billion a year due to corruption in the customs service alone, according to a report by German newspaper Süddeutsche Zeitung published on Aug.6.
Since 2015, Ukraine has received $8.7 billion in low-interest loans under the $17.5 bailout program it signed with the International Monetary Fund that year. It has used the money to reduce the budget deficit, boost international reserves and other authorized spending.
Moreover, Ukraine’s government repeatedly states that the IMF money is crucial for maintaining the stability of the national currency and giving positive signals to investors.
But Ukraine wouldn’t need any outside financial assistance if it would just eliminate corruption in the customs service, which regulates tariffs on imports and exports. Ukraine has lost about $14.4 billion since 2015 due to corruption in this area, according to the German newspaper’s investigation.
Süddeutsche Zeitung journalists probed the customs operations at the Kyiv and Odesa regional services and uncovered the most popular corruption scheme, which allows thousands of tons of goods to be transported through Ukraine at prices much lower than they should.
The schemes are based on firms mislabeling their goods in the customs declarations so that they qualify for much lower customs duties. SZ journalists obtained examples of falsified customs declarations from their sources.
In one case, an unnamed firm based in Dnipro from mid-May until the beginning of June transported 103 containers through Odesa Customs Service to Kyiv. The containers were first driven to Odesa and declared at customs as containers of “bicycle parts, garden scissors, umbrellas, and shoes.”
But on their way to the Kyiv customs service, more than 20 tons of umbrellas transformed into “mirrors, carton boxes, and brushes,” according to the firm’s customs declarations obtained by SZ. By doing this, the firm from Dnipro was required to pay only some $4,875 in customs duty instead of the $17,000 sum that should have been paid.
The newspaper said the Ukrainian government has put some effort into fighting corruption in Ukraine, but that only minor measures have been taken.
Since the 1990s, customs duties have been one of the main sources of revenues for Ukraine’s budget, but they have also fanned widespread corruption in the country.
However, only in June did the Ukrainian government finally start overhauling Ukraine’s customs service, along with the State Fiscal Service – the body responsible for customs.
Prime Minister Volodymyr Groysman declared on June 20 that the Cabinet of Ministers has started a massive anti-smuggling campaign dubbed “Ukraine Without Smuggling.”
Earlier, in May, the cabinet took over control of the State Fiscal Service from the Finance Ministry and started reforming customs controls at the Ukrainian border with the help of the National Police of Ukraine.
From June, the National Police joined the border guards and customs officers at all the international border checkpoints in order to monitor the flow of goods in and out of Ukraine.
Along with that, the State Fiscal Service purchased the customs scanners in order to check whether goods in containers correspond to what is written on customs declaration.
Interior Minister Arsen Avakov wrote on Facebook on June 25 that Ukraine has indeed been losing billions of dollars due to corruption at customs.
“According to the most modest estimates of experts that the prime minister and I collected, Ukraine has been losing more than Hr 105 billion ($3.8 billion) a year because of smuggling schemes,” Avakov wrote. “Just think it over! It is more than the 2018 Defense Ministry budget (Hr 82 billion) or the Interior Ministry budget (Hr 60 billion). The IMF is twisting us around its finger to provide $1.9 billion in loans! And we keep losing almost four billion (dollars)!”
