14/06/2023

Ukraine’s anti-corruption battle: latest updates

Ukraine is battling two fights – one against the Russian invasion, and another against corruption. This problem has long plagued the country, causing difficulties with attracting foreign funds and reducing international investors’ trust. However, since 2019, Ukraine has made significant changes, carrying out important anti-corruption reforms to improve its record. While these efforts continued from February last year, the war has slowed down and complicated the progress. Aperio Intelligence’s Central and Eastern Europe team constantly monitors the situation around anti-corruption reforms in Ukraine, including the role of civil society, new legislation, major investigations, and significant reforms.

Civil society’s capacity to monitor corruption risk

Civil society has been a major driving force behind democratic change in Ukraine, including efforts to combat corruption. Civil society projects and independent journalists have been instrumental in the creation of greater transparency and the exposure of corrupt practices. Since the beginning of the war, Ukrainian civil society and journalists have been reluctant to criticise the government in order not to undermine its war efforts. However, a number of scandals relating to defence procurement and the lavish wartime lifestyles of officials in early 2023 brought renewed attention to the issue.

The war has transformed Ukraine’s anti-corruption landscape, as many investigative journalists and civil society activists have either joined the frontline, turned to investigating Russian war crimes, or left the country, decreasing the number of those focusing on corruption. Further, an increasing number of civic activists are among the thousands of Ukrainians who have died in the fighting since Russia’s full-scale invasion in February 2022. As of 10 May 2023 at least 59 journalists and media workers had been killed in Ukraine since the beginning of the war, according to the National Union of Journalists of Ukraine.¹

One of the first activists to be killed was environmental and civil rights campaigner Roman Ratushnyi, the leader of the non-profit group Let’s Protect Protasiv Yar, which was campaigning against illegal construction in Kyiv park.² Ratushnyi was killed near Izyum in June 2022 at the age of 24. Other examples include Oleksandr Tsakhniv, an investigative journalist at the Vchasno news agency from Donetsk Region, who was killed fighting Russian forces near Bakhmut in March 2023. Before the full-scale war, Tsakhniv had been covering corruption in the Donetsk Region and worked on major anti-corruption investigations.³ These examples demonstrate how the war is depriving Ukraine of journalists and civil society activists who could further Ukraine’s efforts to fight corruption.

Income declarations and Prozorro

Prozorro is Ukraine’s public electronic procurement system which ensures open access to public tenders.^{4 5} Due to its transparency, Prozorro has been internationally recognised as being Ukraine’s greatest achievement in combating corruption and saving public funds.^{6 7} However, due to Russia’s full-scale invasion of Ukraine and the imposition of martial law in February 2022, the use of Prozorro has been significantly limited. For instance, throughout 2022, Ukrainian authorities adopted several resolutions allowing public entities to procure outside of Prozorro to speed up the procurement process, to avoid the disclosure of sensitive information, or to address issues such as internet problems and power shortages caused by the ongoing war.^{8 9 10} However, the impact of events that took place in late 2022, such as major scandals that occurred regarding public procurements outside Prozorro during the war, showed that the use of Prozorro is the best solution to restore transparency in Ukrainian public procurement and avoid corrupt practices.^{11 12 13}

As a result, Ukrainian authorities have begun a gradual return to the mandatory use of Prozorro in public procurements. For instance, in January 2023, the Ukrainian Parliament adopted a bill obliging the Ministry of Defence and other defence customers to publish on Prozorro information regarding the prices of goods, works, and services (except for weapon and secret purchases).^{14 15} In February 2023, the Cabinet of Ministers of Ukraine (“CMU”) issued a decree which made changes to the resolution adopted in October 2022 aimed at regulating public procurement in Ukraine under martial law. The decree reduced the scope for conducting public procurements without using Prozorro and required procuring entities to publish more information on direct procurements.¹⁶ In May 2023, the CMU invalidated a December 2022 resolution which temporarily cancelled the mandatory three-round auctions in Prozorro and replaced them with a first-price sealed-bid auction or blind auction.^{17 18}Accordingly, since 19 May 2023, open bidding on Prozorro has been held via a three-round auction again.^{19 20}

The ongoing war in Ukraine has impacted transparency and anti-corruption efforts, as seen in February 2022 when authorities allowed public officials to skip filing electronic asset declarations and blocked public access to past declarations. In February 2023, a bill was registered by an MP to resume the requirement for state officials to file electronic asset declarations after a petition on the matter had collected the necessary 25,000 signatures^{21 22} However, as of May 2023, the mandatory electronic asset declarations had still not been reinstated, although Transparency International Ukraine, together with other representatives of the public sector, have repeatedly urged the Ukrainian Parliament to reinstate the requirement to file declarations.²³

Asset seizures and related legislation in Ukraine (TM)

In March 2022, Ukraine adopted a law allowing for the confiscation of Russian assets on Ukrainian-controlled territory, with these being used as compensation for war damages.²⁴ Since then, the country has attempted to seize both state-controlled and privately controlled Russian assets.

For Russian state-owned assets, Ukraine has used this mechanism only twice in May 2022 to confiscate the assets of the investment bank Prominvestbank, owned by the Russia’s state development organisation VEB.RF and the Ukrainian subsidiary of Russian state-owned Sberbank, International Reserve Bank on Ukrainian territory. This nationalisation of assets is a complicated process which requires approval from five separate Ukrainian government bodies.

To confiscate privately owned assets, the Ukrainian Government must file lawsuits on the basis of criminal or civil charges against Russian individuals, which are considered by the Interagency Working Group on the Imposition of State Sanctions (IRW). This body publishes lists of sanctioned individuals on a weekly basis, and the lists are subject to approval by the Ukrainian Security Service and National Security and Defence Council before they can be signed off by the President. Following his signature, a petition is made by the Ukrainian Justice Ministry to the High Anti-Corruption Court for the confiscation of the assets. A total of thirteen rulings for confiscation of private assets were made between June 2022 and March 2023. However, in recent months, investigative outlets have noted that the issuance of sanctions has slowed down.²⁵

Nevertheless, international media continues to report on efforts by the Ukrainian state to seize assets belonging to Russians in the country. For example, a court ruling passed in March 2023 gave the green light to confiscate shares owned by the Russian oligarch Arkady Rotenberg and his associates in companies that own one of Kyiv largest shopping centres, Ocean Plaza.²⁶

Ukraine’s moves against oligarchs

The so called “de-oligarchisation” is one of the conditions set by the European Commission for Ukraine’s accession to the European Union, and for overcoming the systemic corruption that the country is seeking to eliminate. In 2021, President Zelenskiy signed a law known as the “oligarch law” which introduced a legal definition of oligarchs and prevented them from financing political parties or participating in large privatisation schemes.²⁷ However, in February 2023, the Ukrainian Cabinet of Ministers postponed the implementation of the law, including the launch of a register of individuals meeting the criteria that characterise an oligarch, as the Venice Commission had yet to deliver conclusions on Ukraine’s anti-oligarchic legislation.^{28 29} The Venice Commission provided preliminary remarks on the de-oligarchisation laws in March 2023.³⁰

Nevertheless, the country’s security services continue to prosecute the oligarchs in the public eye. One of the more recent developments in the field was a statement published by the Ukrainian state security agency, the Security Service of Ukraine (“SBU”) on 15 May 2023. The SBU reported that it had served Ukrainian businessman and former politician Dmytro Firtash, as well as senior managers of companies under his control with “notices of suspicion”. The notices relate to suspected embezzlement of up to USD 485 million between 2016 and 2022 from payments made by Firtash’s companies for gas from Ukraine’s gas transit system.³¹ It is reported that the regional gas suppliers owned by Firtash have paid a mere 30% of the gas they have taken from the system.³² In a statement published on its website on 15 May 2023, Firtash’s conglomerate Group DF stated that it “firmly and categorically denies all allegations” put forward by the SBU.³³

This is not the first time that Firtash has faced scrutiny by his home country. In June 2021, he was sanctioned by the National and Security and Defence Council of Ukraine for selling titanium products that were then used by the Russian military.³⁴ Firtash reportedly has close connections with the former pro-Russian Ukrainian president, Victor Yanukovych, and he is considered by some to be an accomplice in the Russian annexation of Crimea in 2014.³⁵

Some of Ukraine’s richest businessmen have tried to distance themselves from Russia, including Ukraine’s richest man, Rinat Akhmetov. In April 2023, he began arbitral proceedings against the Russian Federation to claim compensation for losses that he has endured as a result of the seizure of his assets in Russian occupied territories between the years 2014 and 2017. In 2022, he sued the Russian Federation in the European Court of Human Rights for violations of his property rights during the Russian invasion of Ukraine.³⁶

Arrest of Supreme Court chief justice

On 16 May 2023, Ukraine’s National Anti-Corruption Bureau (NABU) and Specialised Anti-Corruption Office (SAPO) officially announced in a joint press conference that the head of Ukraine’s Supreme Court, Vsevolod Kniaziev, and another unnamed individual had been detained on suspicion of receiving bribes.³⁷ Kniaziev was reportedly suspected of receiving a USD 3 million bribe from individuals linked to controversial Ukrainian oligarch Konstantin Zhevago.³⁸

The Grand Chamber of the Supreme Court had ruled in favour of Zhevago in April 2023 in a contentious case to determine the ownership of 40.19% of the Ferrexpo Poltava Mining and Processing Plant, a high-grade ore mining company majority owned by Zhevago (50.3%). In September 2022, Ukraine’s Northern Economic Court of Appeal had invalidated the 20-year-old sale of the company’s shares to Ferrexpo in favour of offshore companies tied to rival oligarch Igor Kolomoisky, a move described by media as an economic raid on a large industrial asset.³⁹ In a separate case, an arrest warrant was issued by Ukraine against Zhevago and some of his assets seized in March 2023 on suspicion he had embezzled USD 113 million from the Finance and Credit Bank, an Ukrainian financial institution he owned.^{40 41}

Following NABU and SAPO’s joint conference on 16 May 2023, a plenary meeting of Ukraine’s Supreme Court held the same day voted in favour of dismissing Kniaziev as their head. He was immediately replaced by acting head Dmytro Luspenyk but remains a Supreme Court judge until a final decision is taken by the Supreme Council of Justice, the only body that can strip him of his status.⁴²

On 19 May 2023, Ukrainian media reported that the NABU was suspecting at least ten judges of the Supreme Court of receiving bribes in connection to Zhivago’s case.⁴³ Furthermore, SAPO claimed it had uncovered the activities of a criminal group acting as a middleman between businessmen and courts to secure favourable decisions under the guise of providing legal services. The group was alleged to be the facilitator in Zhivago’s bribery case.⁴⁴

The investigation into Kniazev has been described by the NABU and SAPO as its most high-profile case to date, demonstrating its determination to fight corruption at the highest levels of power.⁴⁵ Kniaziev was indeed one of Ukraine’s highest-ranking civil servants, having presided over the highest judicial body in the country’s general jurisdiction court system. The case is currently ongoing.

If you have any questions about Ukraine, please contact Veronika Konecna, Head of our Central and Eastern Europe Practice.

Footnotes

1 Arman Soldin Becomes 14th media worker killed performing professional …, National Union of Journalists of Ukraine, 10 June 2023

2 Fallen activist Roman Ratushnyi and his battle for a better Ukraine, The Kyiv Independent, 23 June 2023

3 “Vchasno” journalist Oleksandr Tsakhniv killed in action near Bakhmut imi.org.ua,

4 Public Procurement Reform, Ministry of Economy of Ukraine, accessed 15 February 2023

5 About, Prozorro, accessed 2 March 2022

6 United States Strategy on Countering Corruption, The White House, December 2021

7 Post-war procurement: How Ukraine can ensure the reconstruction is transparent and…, Open Contracting Partnership, 26 May 2022

8 Since the start of war, 94,000 tenders for UAH 120 billion held on Prozorro, Government Portal, 28 December 2022

9 Kабінет Міністрів України Постанова від 12 жовтня 2022 р. № 1178, Government Portal, 12 October 2022

10 Kабінет Міністрів України Постанова від 30 грудня 2022 р. № 1495, Government Portal, 30 December 2022

11 Тилові пацюки Міноборони під час війни «пиляють» на харчах для ЗСУ більше, ніж за мирного життя, Zn.ua, 21 January 2023

12 EXPLAINED: What We Know About Two Major Corruption Scandals in Ukraine’s Ministries, Kyiv Post, 23 January 2023

13 Defense minister Reznikov under fire as corruption probes rock Ukraine, Politico, 23 January 2023

14 Anastasia Radina, Facebook, 24 January 2023

15 Цены закупок для армии будут публиковать в Prozorro: Рада приняла законопроект, Novini.Live, 24 February 2023

16 Government reduces scope of grounds for procurement without Prozorro, Government Portal, 24 February 2023

17 Kабінет Міністрів України Постанова від 30 грудня 2022 р. № 1495, Government Portal, 30 December 2022

18 Within a first-price sealed-bid auction or blind auction, the participants cannot reduce the price, the winner is chosen immediately based on the initial price proposals. Within the three-round auctions, participants have three rounds to reduce the price, and the winner is chosen the one who provided the lowest price at the end.

19 Kабінет Міністрів України Постанова від 12 травня 2023 р. № 471, Government Portal, 12 May 2023

20 Відсьогодні відкриті торги на Prozorro знову проходитимуть з аукціонами, Prozorro, 19 May 2023

21 Відновити декларування статків посадовців та депутатів, Government Portal, accessed 23 May 2023

22 Zelensky: Bill registered to resume asset declarations for officials, The Kyiv Independent, 22 February 2023

23 Allowed does not equal forbidden: why it is time to restore mandatory electronic…, Ukrainska Pravda, 10 May 2023

24 Закон україни про основні засади примусового вилучення в Україні, Verkhoivna Rada of Ukraine, accessed 25 May 2023