Grand corruption and state capture are still widespread in Ukraine despite EU action, according to a special audit report published by the European Court of Auditors (ECA) on Thursday.
For more than 20 years, the EU has been supporting Ukraine in its reform agenda. Ukraine is EU’s biggest neighbour and with more than € 12 billion in assistance, including macro-financial assistance and bank guarantees, EU is also its largest donor.
“Despite varied support the EU has offered to Ukraine, oligarchs and vested interests continue to undermine the rule of law in Ukraine and to threaten the country’s development”, said Juhan Parts, the Estonian ECA member responsible for the report and a former Prime Minister and Auditor General.
“Ukraine needs a focused and efficient strategy to tackle the power of oligarchs and diminish state capture. The EU can play a much more significant role than it has done so far.”
The new audit was preceded by a preview a year ago. At a press conference (23 September), Juhan Parts explained that ECA has been following Ukraine for several years. An audit was carried out also in 2016. Also then, ECA concluded that EU assistance to Ukraine has had little impact and that the results achieved remained fragile.
This time, ECA carried out an in-depth investigation of the situation in the country and EU’s support to fight corruption, in particular corruption on a large scale and “state capture”, a type of systemic political corruption where private interests significantly influence a state’s decision-making processes to their own advantage. This is much worse than just wide-spread corruption in a country.
ECA recognises that the EU has long been aware of the connections between oligarchs, high-level officials, politicians, the judiciary and state-owned enterprises in Ukraine. However, ECA says, it has not developed a real strategy for targeting grand corruption. For instance, illicit financial flows, including money-laundering, are addressed only at the margins.
EU has supported many anti-corruption reforms and activities in Ukraine. In most cases, the degree of support depends on a number of conditions being met. But the Commission has often interpreted such requirements too loosely, leading to over-positive assessments, the auditors say and refer to the visa-free system as an example.
“EU needs to rethink its strategical approach to fighting corruption in Ukraine. Too many actions were supported in too many areas. The EU can play a much more significant role than it has done so far.”
Does this imply that measures to fight petty corruption (civil servants, doctors etc taking bribes for their services) are ineffective as long as Ukraine is the victim of state capture and grand corruption?
“As regards petty corruption, it is important to solve it too but considering the amounts at stake, the focus has to be on grand corruption,” the audit team replied. “E-governance is good and we do recommend for example to increase the digitalisation of public registers. But overall, we consider that it’s much more effective to focus on the root causes rather than on the symptoms.”
The current president of Ukraine, Volodymyr Zelenskiy, was elected in April 2019 after a landslide victory on an anti-corruption agenda against the incumbent president Poroshenko, who himself was an oligarch. Zelenskiy chose Brussels as the destination of his first visit broad, a step that was welcomed by the EU.
An EU-Ukraine summit in Kyiv in July 2019 was described as a success by both sides. “The EU remains committed to supporting Ukraine and hopes that the Zelenskiy presidency can advance the reform agenda, particularly in the area of anti-corruption,” commented John Lough, an Associate Fellow with the Ukraine Forum at Chatham House in London, to The Brussels Times.
This approach will hardly change because of the audit report. EU continues to regard Ukraine as an important strategic partner which is fighting a war against an insurgency supported by Russia. While EU is deeply concerned by the oligarchic system in the country, it remains committed to support Ukraine’s anti-corruption efforts by all available means. It admits that it is struggle which will take time.
According to Lough, Ukraine has taken some important steps since 2014 to raise levels of transparency and reduce the space for corrupt practices.
“There is a strong demand in society for further progress. To do so requires addressing the fundamental question of how the country is governed and for whom. It’s essential to create greater accountability of officials at all levels and improve the functioning of the courts. Transitions of this kind happen over decades as we have seen elsewhere in Central Europe.”
Has there been any improvement since Zelenskiy became president in 2019 or is the conclusion that state capture by oligarchs is so entrenched that it is practically mission impossible for the EU to help the country to get rid of it?
“While we took into account developments in Ukraine until the publication of the report, its time-scope was the period 2016 – 2019,” the audit team replied. “EU has continued to support reforms under Zelensky but there has not been any breakthrough. There have been some improvements like the set-up of the High Anti-Corruption Court, but also some reversals like the Constitutional Court rulings.”
“To address grand corruption, it is important to have a well-designed strategy. There were mistakes done in the past by starting the evaluation of judges by persons whose integrity was not checked. That said, it is not mission impossible. But it’s also certainly not business as usual.”
The European Commission welcomed ECA’s audit on reducing grand corruption in Ukraine and took note of its recommendations. The report ends with seven recommendation – described by ECA as “a combination of efforts”. Almost all of them were accepted by the Commission. ECA has given the Commission a timeframe of only one year to implement them.
A spokesperson for the Commission highlighted some of the positive development in Ukraine. “The country has undertaken significant reforms to eradicate corruption since 2014, adopting measures to limit the space for corrupt practises in public procurement, administrative services, energy, banking and other sectors and we have seen lately encouraging developments.”
“In some areas, EU-supported anti-corruption reforms have been very successful, notably through closing the space for corruption to occur by introducing competition and transparency in a number of sectors.”
“New anti-corruption agencies were created, and with the launch of the High Anti-Corruption Court, the anti-corruption architecture in Ukraine is complete. An unprecedented transparent electronic asset declarations system, requiring public officials and politicians to disclose information about their private assets, was introduced.”
The challenge is to continue the reform efforts and ensure that the anti-corruption agencies are operating efficiently and independently, the spokesperson underlined.
That is still a tall order. “Further anti-corruption efforts also have to be made in order to improve the business and investment climate in Ukraine. It is notably essential to reduce corruption in such sectors as customs and healthcare, to further strengthen corporate governance of state-owned enterprises and to ensure respect of property rights.”
According to the audit team, tens of billions of euros are lost annually as a result of corruption. Has EU taxpayers’ money been misappropriated in Ukraine?
“That’s not a correct description, “ECA member Juhan Parts replied. “The money funding EU-supported projects hasn’t been going to any oligarchs. The projects were well-performed though the outcomes were poor. It’s another matter with the macro-financial assistance to Ukraine. There are figures showing that up to €32 billion might have been lost to Ukrainian taxpayers. Indirectly, this is also a loss for EU and EU businesses.”
The Brussels Times