In a week that saw a tsunami wave of corruption sleaze crash into Ukrainian President Petro Poroshenko, two authors of a comprehensive report about government crookery said it was not all bad news and important inroads against financial impropriety had been made since 2014 by Ukrainian authorities.
Yevhen Anhel, a research fellow at Kyiv’s Institute for Economic Research and Policy Consulting think tank, and Karl Volokh, a businessman and long-time civic activist focused on fighting corruption, co-authored a report entitled “Ukraine’s Fight Against Corruption: The Economic Front. Economic Assessment of Anticorruption Measures Implemented 2014-2018.”
The IER was founded in 1999 by Ukrainian experts and politicians with the help of the German government.
Volakh, who proposed the IER study, said: “Most people judge the extent of corruption only by the conduct of Ukraine’s law-enforcement agencies and the judiciary. My idea was to look at what had happened overall in narrowing the opportunities for corruption.”
Volokh said he had considerable insight into the problem because of his roles as owner of a Kyiv-based medical clinic and also a columnist and blogger who had reported on corruption.
He said: “As a businessman I knew about the various schemes by officials to steal from the state budget and I saw very significant improvements with regard to corruption since 2014.”
The two presented their report to the U.S. State department, members of Congress, think tanks and business groups.
Different types of corruption
Talking to the Kyiv Post in Washington on March 6, they said that to make an accurate overall assessment about the government’s success or otherwise, it was necessary to separate how it tackled corruption into two broad methods: Narrowing corruption opportunities through reforms in different sectors, and the creation of efficient corruption-fighting institutions.
The latter is the sort, said Volokh, that gains most publicity and causes the greatest outrage because people feel that a small section of the “elite” can break the law with impunity while the majority of the population pays for their enrichment.
That sort of corruption has been dramatically illustrated by recent scandals including an alleged scam involving Poroshenko’s close friend, business partner and former deputy chief of the National Security and Defense Council, Oleh Hladkovskiy, his son Ihor Hladkovskiy, and the head of the state-owned Ukroboronprom arms industry.
Also, a decision by the Constitutional Court castrated a law about illicit enrichment – which asked people to explain how they accrued perplexingly high amounts of wealth. The National Anti-Corruption Bureau of Ukraine said that means it will have to abandon 69 investigations about individuals allegedly acquiring wealth illegally.
Yet another allegation charges that anti-corruption prosecutor Nazar Kholodnytsky coached suspects on how to avoid prosecution.
The U.S. Ambassador to Ukraine, Marie Yovanovitch, referred scathingly to all these examples in a speech at the Ukrainian Crisis Media Center in Kyiv on Mar. 5.
“It is increasingly clear that Ukraine’s once-in-a-generation opportunity for change, for which such a high price was paid five years ago on the Maidan, has not yet resulted in the anti-corruption or rule of law reforms that Ukrainians expect or deserve,” the ambassador said.
‘Honest’ computers
Anhel said: “When we started this project we looked at work in other countries about corruption and we found there was no single established methodology that would accurately enable us to measure all aspects of the economy with respect to corruption.
“Therefore, we decided to concentrate on selected various sectors of the economy and measure how the scope for corruption was narrowed in each of these areas.”
The report, completed in 2018, is published in Ukrainian and English and delves deeply into the statistics of corruption in various sectors and contains much in the way of tables and graphs.
The two men said some of the greatest improvements, for instance, had been made by transferring much budgetary decision-making to temptation-free, transparent and verifiable computer programs.
Public procurement was traditionally one of the most lucrative areas for corrupt practitioners. Bids for contracts were conducted typically between politicians and officials from the government side who agreed vastly inflated prices for goods or services in return for huge kickbacks from the “successful” bidder.
Ukraine’s SBU State Security Service estimated such corrupt schemes stole between 10-15 percent of the annual state budget.
A computer program, created in Ukraine called ProZorro, took the decision-making out of human hands and allowed a dispassionate digital brain to calculate who had offered the best bid. The program has slashed corruption in tenders for government contracts.
The IER report cites deregulation as another government policy area “which has reduced corruption opportunities for bureaucrats by removing excessive administrative burdens on business and reducing excessive control over entrepreneurial activities through simplification of regulatory procedures.”
For example, the measures have reduced the number of mandatory licenses and permits, especially in the construction industry, and the smaller the number of rules to be followed, the less chances for corrupt officials to find a reason to slow a process until a bribe is paid.
Volokh said that 110 databases have transformed many time-consuming, often opaque, government procedures, where individuals had previously been forced to deal with potentially corrupt bureaucrats, into relatively simple, transparent processes.
Registration of such things as property or vehicles used open online systems and could be done using private notaries employed by the property or vehicle owner rather than having to deal with and possibly pay a bribe to a bureaucrat. Obtaining a passport, a time-consuming process which often required a bribe, is now much more transparent and largely done online.
Referring to regulations making it mandatory for politicians and public officials to reveal, in publicly accessible data bases, their incomes and other sources of wealth, Volakh said he did not know of any other country which had such stringent requirements.
He asked: “How can you reconcile this sort of transparency with descriptions by Ukraine’s detractors that it is a failed state and the government has no political will to fight corruption?”
The report states that reforms and computer technology have cracked systemic crooked tax evasion, money-laundering and other sophisticated schemes which left huge “tax holes” that deprived the treasury of huge amounts of revenue.
VAT scams by crooked companies making false claims for rebates or corrupt tax officials hanging on to rebates or holding them to ransom were notorious in Ukraine before the 2014 EuroMaidan Revolution, which chased out the former deeply-corrupt, pro-Kremlin President Viktor Yanukovych.
The situation has been greatly improved, says the IER report, by the introduction of electronic administration of VAT collection and refunds.
Poster child Naftogaz
Since Ukraine’s 1991 independence, the natural gas market and the state-owned natural gas and oil enterprise Naftogaz formed probably the most corrupt sector of Ukraine’s economy.
The report lists among the most important changes: the establishment of a gas market based on free pricing, import sources for gas were diversified to break Russia’s monopoly, Ukraine ceased buying Russian gas directly, and domestic gas prices were raised to prevent illicit manipulation of varying tariffs.
As with other sectors, the company’s governance system was overhauled and supervisory boards installed. Incentives for good behavior were provided by increased salaries, which also enabled the recruitment of high-quality executives.
Such measures, says the report, in the case of Naftogaz, made it possible to turn annual $3 billion government losses caused by corrupt dealings, into a similar amount filling treasury coffers.
Volokh said that the IER were scrupulous about their research and had not skewed the study to make it favorable to Poroshenko or those in government since 2014.
Ten Ukrainian researchers from various disciplines authored the 85-page report and an international editorial board of prestigious scholars and economists provided oversight. The latter included expert on Ukraine’s economy, Anders Aslund, and John Lough of Britain’s Royal institute of International Affairs.
Volokh said: “These people [the editorial board] endorsed our conclusions that in comparison with 2013 the losses to the state budget from corruption have fallen by $6 billion a year.” The sum, he said, represents savings of around 15 percent of the state budget or six percent of Ukraine’s gross domestic product.
But he said the real savings have probably grown by much more because it was impossible to accurately calculate the full extent of revenues previously lost from all the sectors IER studied.
Volakh said Ukraine perhaps deserves criticism for not pushing reforms faster and institutions such as the customs service, law-enforcement, judiciary; many individual powerful crooked players still need to be tackled.
But he said: “Perceptions that nothing has been done are incorrect and without a factual basis. A lot has been achieved in the fight against corruption and this report is intended to present a more balanced picture of the situation.”
