A war on smuggling declared by Ukraine’s top officials could bring Ukraine a quick profit, if the war was real.
But some doubt the authenticity of the effort, saying that the proclamation is just a sign of two political camps fighting for a cash flow.
In June, Ukrainian Prime Minister Volodymyr Groysman and Interior Minister Arsen Avakov declared war on smuggling and corruption in the customs service.
The stakes are high. Corruption in the customs service costs Ukraine $4.8 billion yearly, or 5 percent of its gross domestic product, according to an investigation report by German newspaper Süddeutsche Zeitung published on Aug. 6.
Plugging just this hole, for example, could almost fully cover the enormous deficit of the State Pension Fund, which is eating a hole in the state budget with its $5 billion yearly subsidy.
But experts and critics say the war against smuggling is in fact a fight between Groysman and Avakov on one side, and Ukrainian President Petro Poroshenko’s camp on the other for influence and control over financial flows in the state.
“This is a fight of the president against Groysman and Avakov for resources and power,” ex-Finance Minister Oleksandr Danylyuk, who left the post in June over a conflict with Groysman after two years in office, told the Kyiv Post.
Groysman and Poroshenko did not respond to repeated requests for comment on this story.
Avakov acknowledged distrust over his effort with Groysman.
“Experts write that we’re redirecting financial flows. The smugglers say they’ll make fresh deals with (corrupt) law enforcers,” Avakov said in a Facebook post. “But I would say we are starting an adult conversation in order to solve a problem that is undermining Ukraine.”
The effort earned criticism from the presidential camp, spearheaded by Prosecutor General Yuriy Lutsenko.
Declaring war
Customs duty revenues to the budget are expected to be a hefty Hr 343 billion ($12.8 billion), or 34.5 percent of Ukraine’s Hr 990 billion budget in 2018, Avakov said on June 25.
According to the interior minister, Ukraine is losing almost $4 billion a year, or 25 percent of all customs fees, due to corrupt schemes in the customs services, which is close to the Süddeutsche Zeitung’s estimation.
The Cabinet of Ministers proclaimed the start of the anti-smuggling campaign on June 20, calling it “Ukraine Without Smuggling.”
The idea was that smuggling comes from the lack of the law enforcers’ control over the customs officers, who take bribes from smugglers, and the border. So the cabinet invited Avakov’s police and National Guard to oversee the customs and stop smugglers.
Nataliya Nepryakhina, the spokesperson of the State Fiscal Service of Ukraine spokesperson, said the service has authority only at border checkpoints and can’t stop a suspicious vehicle on a road, Nepryakhina said. However, smugglers go around the checkpoints, through forests, across rivers, and even under the ground and through the air, she said.
The war with smuggling has already brought some results, according to Myroslav Prodan, the acting head of the Fiscal Service of Ukraine and a close ally of Groysman.
He said that in July, the first month since the start of the anti-smuggling campaign, the customs service brought Hr 29.7 billion, which is Hr 3.7 billion more than in July 2017. He attributed the difference to the police control at the customs.
But the fight with smuggling has brought pressure, searches, and notes of suspicion to top managers of the State Fiscal Service who are close to Groysman.
Preparations
Earlier in May, Groysman took control over the State Fiscal Service, to which the customs service belongs, from the Finance Ministry and subordinated it directly to the cabinet. Then-Finance Minister Danylyuk called the decision illegal. The parliament fired Danylyuk at the request of Groysman on June 7.
The move was preceded by the change of leadership in the Fiscal Service.
The State Fiscal Service of Ukraine until early this year was de jure headed by Roman Nasirov, a former member of the Bloc of Petro Poroshenko faction in parliament. In 2017, Nasirov was accused of corruption in several tax cases and taken into custody, but was released on bail of $3.7 million in March 2017.
But the cabinet only on Jan. 31 officially dismissed Nasirov, whose case is still in the court.
Soon after Nasirov was arrested, Groysman appointed Prodan as acting head of the State Fiscal Service of Ukraine. Prodan is the former head of a regional fiscal service office in Vinnytsya, Groysman’s hometown and political powerbase.
Radio Liberty’s investigative show Schemes has reported that in 2016 Prodan was investigated for allegedly carrying out tax avoidance schemes on walnut exports, which he denies. The case against Prodan was closed after his appointment to the State Fiscal Service.
Ukraine’s Prime Minister Volodymyr Groysman(R) speaks with Ukraine’s President Petro Poroshenko(L) during the National Security and Defense Council meeting in Kyiv on May 2. (UNIAN)
Reactions
Soon after Groysman and Avakov declared their “war on smuggling,” the Prosecutor General’s Office of Ukraine, headed by Lutsenko, an ally of Poroshenko, together with the SBU, launched several searches in the State Fiscal Service offices across Ukraine.
Lutsenko called it a “Fiscal Service cleaning” in several Facebook posts on the matter in June-July.
Then, during a briefing on July 16, Lutsenko announced that the prosecutors’ office had issued charges against Prodan’s successor, current Vinnytsya Oblast Fiscal Service Head Ruslan Osmolovskiy, accusing him of tax evasion, abuse of power, and running a criminal group. Osmolovskiy’s lawyer denied the accusations.
Moreover, several Ukrainian media reported the rumors that Prodan himself was facing an arrest for abuse of office. Lutsenko partly confirmed the rumor in an interview with Ukrainska Pravda published on Aug. 21, saying that his office was looking into a case involving Prodan and gathering evidence against him.
Prodan reacted saying the following day that the rumors about his arrest are an attempt of pressure and blackmailing.
Lutsenko was quick to say his going after Prodan had nothing to do with the prime minister.
“It doesn’t mean I’m attacking Groysman,” Lutsenko said. “I don’t have a war with Groysman.”
But at the same time, Lutsenko denounced the Groysman-Avakov initiative in customs, saying on Aug. 21 that the first month of police cooperation with customs service had been disappointing and “there was no breakthrough result.”
Lutsenko said that Groysman blamed the smuggling epidemic in Ukraine on the law enforcement agencies, while the problem lied in the customs offices.
“Law enforcers can’t replace customs officers — it won’t work,” Lutsenko said, adding that the whole customs service had to be reformed, and the customs office heads in the regions must be held responsible and be replaced through an open competition.
Lutsenko did not respond to a request for comment for this story.
In one of the latest manifestations of the tensions between the Fiscal Service and Lutsenko’s office, the two argued over who was behind the recent arrest of a customs officer.
On Aug. 8, Prodan announced that the special department of the State Fiscal Service had arrested Odesa Oblast customs officer Denis Aminev on suspicion of embezzling 37 containers of goods worth Hr 154 million. A Kyiv court later placed Aminev in custody for two months in a pre-trial detention center, and set a bail of Hr 30 million.
But Lutsenko tried to steal Prodan’s thunder, saying that his office participated in the arrest, and it wasn’t done by Prodan’s people alone.
Political context
Both Groysman and Prodan have denied there are any political motivations for their sudden declaration of war on smuggling, but claim they have been under constant political pressure since the start of the campaign.
Groysman, who took the prime minister’s post as Poroshenko’s protégé, since 2017 has been gravitating towards the president’s frenemies in the People’s Front party, Avakov and ex-Prime Minister Arseniy Yatsenyuk.
It started speculations that, with the presidential and parliamentary elections approaching, Groysman was picking the side to join — or maybe even play his own hand by starting a party or running for presidency.
In that light, the joint anti-smuggling initiative by Groysman and Avakov, and Lutsenko’s backlash, has been seen by some as a confirmation that Groysman turned against the camp of Poroshenko, his former political patron.
However, political consultant Volodymyr Fesenko doubts that Groysman ment to challenge Poroshenko personally with the customs initiative.
“This is more of a fight to pump up the budget and for control over the customs service, which means the control over financial flows in Ukraine,” Fesenko told the Kyiv Post on Aug. 14.
But this still entails a confrontation between Groysman’s people in government and people close to Poroshenko, he added.
Smuggling not a crime
The amount of smuggling in Ukraine is huge: 5 billion cigarettes and more than 477,000 tons of timber were smuggled to the European Union in 2017 alone. Billions of tons of semi-legal clothing and goods are illegally transported into Ukraine. However, if caught, a smuggler can expect a fine and confiscation of the smuggled goods at most.
“Ukraine is one of the few countries where one only gets an administrative punishment for smuggling goods,” Fiscal Service’s spokeswoman Nepryakhina said.
She added that at the moment the customs can arrest only individual shipments of smuggled goods. To help identify the top figures behind the schemes, the government should make smuggling a criminal offense — at the moment it is only an administrative offense, she said.
If smuggling were a crime, law enforcement would have the legal right to conduct wiretapping and to track suspected smugglers in the same way as the police currently target organized crime groups, Nepryakhina said.
But it seems that Ukrainian lawmakers are still not ready to make smuggling a criminal offense.
In July, Groysman sent parliament a bill criminalizing the smuggling of goods, but lawmakers failed even to put it on the Rada’s agenda. However, they did support another bill, authored by the Radical Party Leader Oleh Lyashko, that increased the fines for timber smuggling.
Groysman praised Lyashko’s bill, but Poroshenko vetoed it, claiming it violated Ukraine’s Free Trade Agreement with the European Union because it banned exports of firewood.
Lyashko defended the ban, saying that smugglers often falsely declare timber as firewood to sell it abroad.
