Zelensky’s Presidency And The Anti-Corruption Merry-Go-Round

  • Zelensky’s Presidency And The Anti-Corruption Merry-Go-Round

    Zelensky’s Presidency And The Anti-Corruption Merry-Go-Round

    Ukraine is entering a crucial period in the country’s efforts to tackle corruption. In April 2019 Volodymyr Zelensky became President promising to tackle the country’s long-entrenched corruption problems. Is he succeeding? 

    For a political novice like Zelensky, eradicating corruption was always going to be an ambitious undertaking, and so it is proving.

    Zelensky’s initial appointments indicated a serious intent to address corruption, particularly the appointment of Ruslan Ryaboshapka as Prosecutor General. That optimism has been dented by Ryaboshapka’s recent sacking amid claims that his investigations were being blocked by Ivan Bakanov, head of the National Security Service. Ryaboshapka’s replacement, Iryna Venedyktova, is a former Director of the State Bureau of Investigations. She has been criticised in some quarters following a number of controversial appointments within her former organisation, and her critics regard her as less likely than her predecessor to take an independent investigative line. Indeed, she has opened investigations into former President Poroshenko, a depressing throwback to the practice of the current administration selectively targeting its predecessor. It will be interesting to see how this plays out, given Zelensky’s reliance upon Poroshenko’s votes to pass the “anti-Kolomosiky” legislation – see below.

    Zelensky’s March reshuffle also removed youthful Prime Minister Oleksiy Honcharuk and replaced government ministers with a team including former appointees of deposed former President Viktor Yanukovich or oligarch-linked individuals. The latter reportedly includes new Prime Minister Denys Shmyhal, who worked for metals magnate Rinat Akhmetov’s DTEK (though he denies ever having met Akhmetov, having merely worked for the company). The sacking of Honcharuk’s government after only six months in office seems a precipitate reaction to Zelensky’s own falling approval ratings. The composition of the new Shmyhal government is a cause for concern for anti-corruption campaigners troubled by the background of some ministers and the perceived pro-Russian sentiments of others.

    Those concerns are compounded by the recent sackings of Max Nefyodov, Head of Customs, and Serhii Verlanov, Head of the Tax Service. Each has the reputation of being reform-minded. Three of Nefyodov’s senior lieutenants have also been dismissed. In a clear signal that Nefyodov and Verlanov have fallen out of favour, Finance Minister Serhiy Marchenko has called for investigations into the conduct of the two men, citing concerns over potential wrongdoing. Verlanov has now been replaced by Oleksiy Lyubchenko, a former Yanukovich-era tax official, without any form of competitive hiring. The Finance Ministry insists, however, that Lyubchenko’s appointment is only temporary, pending the end of emergency pandemic measures. Time will tell.

    A separate scandal is brewing closer to the heart of Zelensky’s own team. His former Chief of Staff (COS), Andriy Bohdan, a former legal adviser to leading oligarch Ihor Kolomoisky, was replaced by the politically inexperienced Andriy Yermak. Recently, however, Yermak and his brother have been implicated in accusations of taking money in return for official appointments. Geo Leros, a legislator from Zelensky’s own Servants of the People party, has blown the whistle on these activities but now finds himself the subject of investigations by state agencies for revealing them. Investigation of the Yermak brothers has been transferred from the National Anti-Corruption Bureau (NABU) to the police, in a move which Leros describes as an attempt to bury the investigation. Yermak has threatened to sue Leros, but other alleged collaborators in the office-for-cash scheme have pointed the finger at Yermak.

    Of arguably much greater import, Ihor Kolomoisky’s battle to regain control of Privat Bank rumbles on, a feature of public life ever since the 2016 nationalisation of the bank. Now, however, it threatens to damage the Ukrainian economy, given the IMF’s conditions for extending further loans to Kiev (and the willingness of other lenders to contribute, based upon any decisions of the IMF).

    State-owned PrivatBank has lodged claims in London and in Cyprus against the bank’s former owners. In a setback for Kolomoisky, the London court has ruled that a significant chunk of his assets be frozen pending the outcome of the hearing. Likewise, the claims of the Surkis brothers against PrivatBank have been put on hold in the Ukrainian courts, which cite media pressure for the decision to delay. Physical attacks upon staff at the National Bank of Ukraine (NBU) indicate the nasty nature of the fight being waged over PrivatBank, causing NBU to blame Kolomoisky personally. The latter is now reportedly using his influence among legislators to dismiss a senior National Anti-Corruption Bureau of Ukraine (NABU) official, Artem Sytnyk, who has been conducting investigations into Kolomoisky and associates. Moves against Sytnyk have led the IMF to issue a warning not to interfere with the work of NABU, widely regarded as the last bastion of independent investigation of corruption.

    Zelensky remains confident that he can finally pass the so-called “anti-Kolomosiky” law on bank ownership in the coming weeks, but the oligarch has mustered strong support among some legislators, who have moved no less than 16,000 amendments to the proposed legislation. The passage or otherwise of the bill will be a telling moment for the prospects of Zelensky’s rooting out corruption at the highest levels, and indeed for the economic credibility of Ukraine.

    That said, Zelensky’s reformist efforts have not been without success. He has now signed the new law on sale of agricultural land, which will come into effect in July next year, creating a market in land sales against the wishes of vested interests (but backed by the IMF). 

    Public procurement is also making progress toward greater transparency with the improved functioning of the pro-Zorro procurement platform. Draft laws on tax legislation and anti-money laundering were adopted in 2019. The scandal-prone state-run UkrOboronProm, responsible for overseeing defence manufacturing, is to be broken up and replaced by a more streamlined structure as part of a corruption cleanup effort.

    Finally, Mikhail Saakashvili looks set to make a comeback to Ukrainian politics, charged by Zelensky with overseeing a broad programme of reform, including a brief to negotiate with the IMF. The appointment as Deputy Prime Minister is yet to be finalised and is controversial, given that Saakashvili is wanted for questioning in his native Georgia in connection with corruption matters, though he maintains that this is a move by his political enemies. His appointment and subsequent performance will provide another test of political muscle for Zelensky, who may yet offer Saakashvili a role in the presidential administration if he cannot have him appointed Deputy Prime Minister.

    However, it is Zelensky’s relationship with the country’s oligarchs which provides the acid test of his ability to tackle corruption. To mark a year in office, he recorded a film listing his achievements, which was broadcast on channels owned by three of Ukraine’s leading oligarchs, Rinat Akhmetov, Viktor Pinchuk and Kolomoisky. There is something of a mutuality of interests in oligarchs broadcasting a favourable account of the President. In the case of Akhmetov, for example, his personal fortune has suffered a severe downturn, according to Forbes. He will doubtless take great comfort from the recent decision of the Energy Ministry to place greater reliance upon coal and renewables at the expense of nuclear power.

    The assessment of Zelensky’s anti-corruption campaign in his first year in office is therefore one of mixed success. Against a background of pressure from the IMF, there have been small measures such as rewards for information, together with progress in other areas, as above. However, there has been no significant progress yet on so-called “de-oligarchisation”, the real measure of sustainable success in this endeavour. That is what makes the passage of the “anti-Kolomoisky” bill such a crucial measure. If an oligarch can, in effect, hold the entire country to ransom by thwarting the bill’s final reading, and indirectly therefore the will of international creditors, it will be Ukraine and its people who will suffer as a result. In these circumstances, Zelensky’s promises to tackle corruption will ring hollow. Equally, if a President with a parliamentary majority cannot effect the appointment of a key, if controversial, figure like Saakashvili to take forward his reform agenda, he will be seen to be a weakened and ineffectual leader. The next few days and weeks will provide a better sense of where Ukraine’s novice President and his anti-corruption drive are going, all of which will have a direct bearing on the country’s business life and economic prospects.

    Since this article was written, an investigation has been opened into former Prosecutor-General Ruslan Ryaboshapka’s conduct in office. Also, the IMF has announced that it will offer Ukraine a short-term loan to combat Covid-19 rather than a longer term loan conditional upon structural reforms; it appears to have lost patience with the pace of reforms and has downgraded the loan amount. Finally, Mikhail Saakashvili has been nominated to head a new Presidential advisory body, the Executive Reform Committee. His terms of reference are not yet clear.

    Mark McGuigan is TSG’s geopolitical risk advisor specializing in the CEE region. An Executive-in-Residence at the Geneva Centre for Security Policy, he is a former financial sector intelligence consultant and an ex-RAF officer. He writes here in a personal capacity. TSG is a research (including due diligence) specialist, also offering Ethics Compliance and Advisory services to its clients. TSG offers expertise in Eastern Europe, as well as East Asia.