How to plunder Ukraine
Journalist Oliver Ballou is sure that only by destroying the corruption system of Yanukovych, Ukraine has a chance for the future.
The Institute of Modern Russia, with the support of the Legatum Institute, presented in London a study by Oliver Ballou - “The looting of Ukraine: how the West and the East are plundering the country”, dedicated to corruption in Ukraine and analyzing the reasons that led to the failure of the 2004 Orange Revolution of the year.
With the fall of the Yanukovych regime, Ukraine had a unique opportunity to defeat corruption and establish the rule of law in the country, the author writes. But the failure of the recent “Orange Revolution” has shown that the political and economic ties that have taken shape over the years and the interests of the elites, both within Ukraine, Russia and Europe, hinder the modernization of Ukraine, the researcher believes.
The success of the Maidan revolution will depend not only on reforms in Ukraine itself, but also on the solid position of the West, which should stop the flow of funds from corrupt officials to accounts in Western banks and stop investment of doubtful real estate, I’m sure Ballou.
Oliver Ballou is a famous British journalist and writer. Collaborates with a variety of publications in the UK and the USA. For example, with the Guardian, The New York Times and the New Republic. Previously, he worked as his own correspondent for Reuters in Moscow. Author of the book "The last man in Russia: the struggle to save a dying nation." To prepare for the study, Ballou traveled to Ukraine on purpose.
According to Ballou, the Orange Revolution was defeated not so much because Viktor Yushchenko could not work with Yulia Tymoshenko, but because Yushchenko could not beat corruption.
“We will destroy the system of corruption in our country, we will take the economy out of the shadows,” Yushchenko promised in his inaugural speech. Since then, Yushchenko has suffered defeat after defeat. But the biggest disappointment was that during his presidency, corruption, instead of reducing, has grown significantly. Prior to Yushchenko, Ukraine was at 122 in the ranking of corruption at Transparency International, near Nigeria and Bolivia. By 2010, when Yushchenko lost the election to Yanukovich, Ukraine slid to the 134 position. Under Yanukovych, the situation worsened again - in 2013, Ukraine occupied the 144 place, while the same Nigeria and Bolivia rose to 106.
Member of the Svoboda Party, former prosecutor Oleg Makhnitsky, estimated the damage from corruption during the reign of Yanukovych at more than $ 100 billion.
According to Ballou, Russian officials who were close to the Kremlin, as well as European officials, Western bankers and lawyers who were engaged in the legalization of illegal income helped Ukrainian corruption develop.
“The most that the West can help stabilize the situation in Ukraine is to help the new government in its fight against cancer, corruption,” writes Ballou.
Yanukovych, writes Ballou, took advantage of the corruption schemes that were developed during the presidency of Leonid Kuchma. Kuchma used full control over international trade and acted as an arbiter between the various business clans of Ukraine. Yushchenko was able to ban only the most odious corruption schemes.
As a result, the Yanukovych family took control of almost all revenue streams of Ukraine, including in the gas trade. In his research, Ballou refers to the data of the journalistic investigation of the editor-in-chief of the publication “Our Few Things” Alexei Shalaysky. According to him, the "family" took control of local groups that paid a percentage of the profits from prostitution and other forms of organized crime. It also monitored the police and the courts.
“We have never seen such greed in Ukraine,” said Shalaysky.
“Large companies paid bribes to officials for permission to work and export, judges for decision-making and the prosecutor’s office to stop the investigation. If you wanted to return the VAT or buy state land, win a state tender or get planning permission, then it would be cheaper and easier to pay a bribe than to act according to the law, ”writes Ballou.
Portrait of Viktor Yanukovych at the “Codex of Mezhyhirya” exhibition at the National Art Museum of Ukraine, Kiev, April 25, 2014. Photo: Sergey Supinsky / AFP / East News
The estimated investment company Dragon Capital, from 20% to 60% of the Ukrainian economy is now in the shadows. According to Ballou, not only Russia's influence forced Yanukovich to abandon the association with the European Union in the fall of 2013. Corruptionists and "shadow" also put pressure on the president. The agreement obliges Ukraine to gradually bring its judicial, economic and financial systems in line with European norms. Elite Yanukovych these measures would have cost heavy financial losses. The agreement would also open the borders of Ukraine for European goods and services, and the “family” was not accustomed to working in a competitive environment.
How does Yanukovych's corruption work?
Corruption in Ukraine has several forms. The most common - fraud with VAT. The scheme was well studied during the investigation of the case of the food processor manufacturer Archer-Daniels-Midland (ADM). ADM confessed to paying bribes in Ukraine in the period from 2002 to 2008. This case was investigated by the US Department of State, and the company was eventually fined $ 54 million. ADM paid bribes to Ukrainian officials who were involved in the illegal refund of value added tax, which reached $ 46 million.
Oliver Ballou, 2011 year. Photo: David Levenson / Getty Images / Fotobank.ru
According to a statement by the US Securities and Exchange Commission (SEC) from December 2013, bribes were typically from 18% to 20% of VAT recovered. VAT fraud cost the budget of Ukraine more than $ 15 billion annually.
A more complicated form of corruption, which Bullow describes, is the “cutting” of budget funds. Most often this was done from the state procurement budget ($ 50 billion). According to estimates by SEC researchers, 30% of the amount of each purchase is stolen. As a result, the waste amounted to about $ 15 billion per year.
The law from 2010 of the year obliged to publicly advertise tenders and results, however, this obligation under Yanukovych easily managed by state-owned companies.
“The government agency announces a tender for $ 200 million; six large companies want to participate in the competition. Four ordinary and two from the "family". Representatives of these four firms will be called and told that if they take part in the competition, tomorrow they will be checked by the tax and will be closed forever. Someone refuses himself, and those who are not frightened, officials remove for artificial reasons - errors are found in the documents. For example, there was a case that the document was printed in 13 font, not 14. The remaining two firms receive a tender. And when we ask why the government paid for contracts twice as much as it was announced, officials say that everything was done in accordance with the law, ”said the journalist Shalaysky. This scheme was identified in 2013 year in a study of the medical procurement market of the Anti-Corruption Center of Ukraine (AntAC).
The AntAC study claims that $ 4,9 million of $ 21,9 million in 2012 was “sawn”, and also that in 2013, only six companies from 6500 registered pharmaceutical suppliers in Ukraine won all tenders for the provision of antiretroviral drugs.
The third popular corruption scheme in Ukraine is “mediation.” As the most famous case, Ballou leads history with the sale of gas to Ukraine through the structures of businessman Dmitry Firtash.
Dmitry Firtash, 2009 year. Photo: Press service of the TV channel "Inter" / ITAR-TASS
The corruption component, according to the researcher, is also in the contract of Royal Dutch / Shell and Ukraine (signed in January 2013) for the exploitation of shale gas reserves in the Donetsk region. According to the contract, the amount of $ 10 — 50 billion is planned to be spent on exploration and drilling. 50% will be received by Shell, 45% by the state-owned oil company, and 5% will be transferred to three unknown geologists from SPK-GeoService. Ballou notes that all parties insist: the deal is fair and there is no corruption component in it.
Another common form of corruption is participation in the illegal privatization of state property. As the most famous example of this phenomenon, Ballou leads the Palace of Yanukovich in Mezhyhiria. Yanukovych illegally seized the reserve’s lands and turned it into a private estate complete with a golf course, a yacht club, a zoo, a tennis court and a giant palace.
Mezhyhirya belonged to the Ukrainian company Tantalit, which was owned by the Austrian company Euro East Beteiligungs GmbH, which, in turn, was owned by the British company Blythe (Europe). The latter was owned by a lawyer, a Liechtenstein-born Austrian citizen Reinhard Proksch.
What is Ukraine planning to do?
Now Ukrainian officials are concerned about the collapse of the country, problems in the east, they are not up to the fight against corruption, the researcher notes. However, the new authorities are taking some steps to prevent the re-establishment of the Yanukovych system. In April, the Parliament launched a review of procurement legislation.
Parliament is also considering a new anti-corruption strategy, which will include the creation of an anti-corruption agency, a new way of monitoring officials' incomes and expenditures, further simplifying the procurement system, and tougher penalties for corruption. The parliamentary anti-corruption committee believes that the country also needs new property registries and the beneficial ownership registry.
“The main task for Ukrainians now is to correct those things that did not work out after the Orange Revolution.” They will have to do more than just arrest people who took bribes. The corrupt system that Yanukovych supported and tried to change Yushchenko must be destroyed. If this does not work, then Ukraine will be again infected and will not take place as a state, the situation will be even worse. This is alarming, ”writes Oliver Ballou.
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