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Ukraine must focus more on reducing opportunities for corruption

Author : John Lough

It is welcome news that Ukraine will set up a special anti-corruption court to try senior officials. Yet reducing corruption will require much more than punitive measures alone.
17:59, 20 July 2018

The Verkhovna Rada

President Petro Poroshenko finally signed the law establishing the High Anti-Corruption Court on 26 June. This is one of the key conditions for the release of the next tranche of the IMF’s $17.5 billion support programme to Ukraine and should ensure that officials indicted by the National Anti-Corruption Bureau of Ukraine (NABU) face trial.

Up to now, the unreformed lower courts have found ways to obstruct or delay cases brought by the NABU. Out of 220 indictments, there have been only 21 convictions. No senior official has gone to jail.

Related: Is it possible to fight corruption in Ukraine?

Created by reformist forces with strong backing from international partners, the NABU is a powerful example of a new institution unconnected with the past, with high professional standards relative to other law enforcement agencies.

Driven by the IMF’s determination to force through reforms, the Anti-Corruption Court has taken on totemic significance for donor countries to Ukraine and anti-corruption activists. The next challenge is to ensure that that the judges appointed to the Court undergo reliable vetting.

Related: Law on creation of Anti-Corruption Court comes into force in Ukraine

The judiciary itself is plagued by corruption and has no tradition of institutional independence. There were major problems with the recruitment process for the new Supreme Court formed last year, with a significant number of judges appointed over the objections of civil society that they were not fit to hold office.

The failure so far to convict any senior officials, past or present, speaks volumes about the condition of Ukraine’s law enforcement bodies and judiciary. However, it is important not to confuse cause with effect. The root of the problem is the degree to which the elites in Ukraine observe the principle of collective solidarity (krugova poruka), the understanding that despite their differences, no one should go to jail.

Related: Ukraine eyes €500m EU aid, while fighting corruption

The emphasis on punitive measures is understandable: one of the central demands of the 2014 revolution was to bring corrupt officials to justice. Ukrainian society is deeply frustrated with the progress of the anti-corruption reforms because of the lack of prosecutions.

The NABU’s credibility will continue to suffer if its investigations do not lead to convictions. In theory, punitive measures should also deter corruption. However, on their own, they are likely to produce only limited results in terms of reducing corruption.

This is because the current system is not just corrupt; it runs on corruption. Without deep systemic change, the problem will continue even if some senior officials end up behind bars.

Related: Corruption rate in Ukrainian companies grew by almost 20 percent in two years, - survey

A more effective approach would be to build on Ukraine’s significant achievements since 2014 in reducing the space for corrupt practices.

The clean-up of the state gas company Naftogaz, reform of the taxation system, the closure of fraudulent schemes in the banking sector and the launch of an electronic system for state procurement demonstrate real progress in reducing the impact of corruption. The Institute for Economic Research and Policy Consulting, a leading Ukrainian think tank, recently calculated that reforms of the gas sector and measures to restrict large-scale tax fraud have saved $6 billion, or 6 per cent of GDP.

Related: Income from fighting corruption in Ukraine enough to buy five divisions of anti-aircraft warfare

While this is an encouraging start, there are vast opportunities for similar measures in other areas; for example, in addressing the problem of captured rents at state-owned enterprises and conducting bolder deregulation to restrict the arbitrary powers of officials. These give officials opportunities to demand bribes in order not to enforce rules.

According to Robert Klitgaard’s classic definition, corruption equals monopoly plus discretion minus accountability. If Ukraine can take measures to reduce monopolization of politics and the economy, further restrict space for bureaucrats to exercise discretion and increase accountability, it stands a chance of making a decisive breakthrough in combating corruption.

Related: IMF welcomes creation of Anti-Corruption Court in Ukraine, - Lagarde

Electoral reform is the key battleground. At present, many members of parliament are effectively able to buy their seats and demand payment for their support in passing laws that favour vested interests. Levelling the playing field offers the prospect of opening politics to new forces prepared to build institutions to underpin governance rather than relying on ‘understandings’ among the elites.

The concentration of the country’s wealth in so few hands holds back this process. To change the situation will require strong antitrust measures of the kind introduced in the United States at the turn of the 20th century.

Related: What risk does the new amendment to Anti-Corruption Court law pose

To break this vicious circle, reformers will need the support of donor countries and better recognition on their part of the enduring source of corruption in Ukraine. Punitive measures are part of the solution, but only a small part.

Read the original text at Chatham House.

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