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Thursday, 27 March 2014

Guest post: the fast-track fight against Ukraine’s corruption | beyondbrics

Guest post: the fast-track fight against Ukraine’s corruption | beyondbrics:

By Oleg Batyuk

The barricades are still being dismantled in the Maidan but we are already witnessing a significant step-change in how business is done in Ukraine. While the world is watching events in Crimea with fearfully bated breath, Kiev is not losing any time in implementing serious and rapid changes to its business landscape.

A key risk of doing business in Ukraine, particularly in the past five years, has been the spreading culture of corporate raiding. This process is already being reversed.

For years, factories and other assets have been forcibly taken from their owners by people enjoying the protection of Ukraine’s former leaders. Corporate raiding can only exist in countries where corruption is widespread and the legal system is weak. A familiar example is the TVi case, where the ownership of a TV channel frequently critical of former president Viktor Yanukovich and his regime was suddenly transferred. Remarkably, there are strong indications that this culture is coming to an end, with legitimate owners actively seizing the moment to progress previously-stagnant court cases or to seek help in enforcing court decisions previously made.

The Nemiroff vodka company, source of one of Ukraine’s better-known exports, was raided by one of its minority shareholders and taken from its legitimate owners in a classic case of corporate raiding. Just last week, the factory was taken back after years of battling in Ukrainian and international courts.

We are also seeing endemic change in Ukraine’s legal system, previously well known for its unpredictability and widespread corruption. A process of replacing corrupt judges has started in earnest. The number of criminal cases against former judges is rising quickly and surely, demonstrating that senior judicial figures are no longer outside the law. Courts are reviewing cases carefully rather than making quick, selective decisions. There is no doubt that many rulings issued in the last couple of years will be revisited and overturned in the near future.

If Ukraine is to stand a chance of economic and social recovery, the fight against corruption must be systematic and long-term. The new head of Ukraine’s anticorruption unit is Tetiana Chornovil, a well-known investigative journalist and activist. She is known for her fearless and unrelenting pursuit of corrupt officials since the Kuchma era, and was one of the first to penetrate the fortress of Yanukovich’s residence. She has won respect by continuing her work despite personal threats and a serious beating last year, accidentally filmed by her in-car recorder. Needless to say, such in-car recorders were in huge demand in Ukraine this winter. Chornovil is under pressure to ensure any accusations of corruption are well-evidenced and taken through to their just legal conclusion. Her unit is already engaging with business leaders and lawyers to investigate a variety of schemes and published its first findings this week.

One may ask whether the seismic change we are seeing is legitimate and irreversible, particularly in view of the long history of corruption and mismanagement. We cannot deny that the changes are happening breathtakingly fast under what is essentially an interim government.

Widespread corruption, cronyism, selective justice and incompetence in government created an enormous strain on Ukrainian society and brought the previously politically lethargic people onto the streets. Ukraine paid dearly for its ousting of Yanukovich, both in the protests and in the loss of Crimea. At least in the near future, the civil society that emerged on the Euromaidan will no longer tolerate corruption. This civil society is new but it is also mature – it includes not only the intellectuals, the middle class and ordinary workers but also the oligarchs, many of whom effectively – openly or not – assisted the Euromaidan movement. Instead of dealings behind closed doors, Ukraine’s strong and wealthy are now coming out into the unforgiving limelight. Petro Poroshenko, the ‘chocolate king’ whose confectionery is enjoyed by young and old across eastern Europe, is now an active political figure strongly in the running for president.

There is a clear consensus among all layers of Ukrainian society that change is vital and that we do not have much time to bring it about. It is this civil society that is the ultimate ‘quality control’ driving the country to a more accountable legal system, which will create a safer business environment.

This is not to say that corruption will disappear overnight. Old habits die hard and there is no doubt the country’s new officials are already being approached with ‘mutually beneficial propositions’, many from figures empowered by the previous regime. As in any country, corruption will exist wherever it can continue unpunished. For Ukrainians, it is a question of scale. In the Yanukovich era the kickbacks in public procurement exceeded 50 per cent – an incredible half or more of state contracts were effectively stolen. Even if we only bring this down to 10-15 per cent, it would be an excellent start and would save the state billions of euros. The fight against endemic corruption will be slow and painful but it has started with a bang and the key is to continue at speed, eliminating it altogether from the courts and law enforcement agencies.

Oleg Batyuk is one of Ukraine’s most prominent corporate lawyers and business experts.

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