In early March 2017, the Solomyansky district court in Kyiv was the scene of a compelling crime drama. Inside the courtroom, the nation’s top tax inspector, Roman Nasirov, appeared on a stretcher behind bars, wrapped in a checkered hospital blanket for a hearing to determine whether he would be jailed or go free while under criminal investigation.
The taxman was suspected by the nation’s anti-graft authority of causing $75 million in damages to the state by abusing his authority. Just prior to being served with an order of suspicion, effectively a pre-indictment notice, Nasirov reportedly suffered a heart attack. Then there was a further delay as authorities could not immediately find an available judge to preside over the court proceedings. On top of all that, the courtroom received a bomb threat.
Outside the court, hundreds of activists gathered anxiously in the cold, fearing that, once again, a top official would escape justice, despite the best effort of the new anticorruption body, the National Anticorruption Bureau of Ukraine, to enforce anti-graft legislation. The crowd even briefly created a human barricade around the court to prevent Nasirov from evading the hearing on a technicality.
It was a watershed moment for President Petro Poroshenko’s administration. By then, he had been in power for almost three years. His tenure had started amid widespread public hopes and expectations, generated by the Euromaidan Revolution in 2014, that the Ukrainian government could finally tame the rampant official corruption that had bedeviled the country since it gained independence in 1991.
Observers at the time saw the Nasirov case as a litmus test of the strength of new state anticorruption institutions: these fledgling agencies were pitted against the old guard and the old system in a real-life tug of war.
Ultimately, the court ordered that Nasirov remain in custody and anticorruption crusaders began celebrating what they hoped was a decisive victory.
Subsequent events, however, would show that such celebrations were premature.
Ukraine in the weeks and months following Euromaidan was a nation on the brink of catastrophe. Russia, alarmed that Euromaidan would steer Ukraine away from the Kremlin and towards the European Union, quickly annexed Crimea and stoked a separatist conflict in the Donbas region. Decades of corruption had left the Ukrainian military ill-equipped to defend the country’s sovereignty. Meanwhile, the president ousted by the Euromaidan movement, Viktor Yanukovych, fled to Russia and left behind an empty treasury.
While campaigning during the special presidential election, Poroshenko promised that things would change. “Living the new way” was his campaign slogan. It struck a chord with Ukrainian voters and enabled his triumph at the polls.
But the slogan was at odds with his biography.
Known as the “chocolate king” because of his ownership of a prominent confectionary firm, Poroshenko had amassed an estimated $1.3 billion fortune by the time he ran for the presidency. Throughout his business career, he had repeatedly proven his insider credentials within Ukraine’s powerbroker-driven system.
He started his business career in the 1990s, when, freshly out of university, he realized that the confectionery industry was suffering from a shortage of chocolate beans amid the collapse of the Soviet economic system. He started importing them, and his clients soon ran up debts for supplies, which over time allowed him to buy up chocolate factories cheaply and build an impressive candy empire, known as the Roshen Group. Over the years, he branched out to other sectors – agriculture, automotive, banking and real estate, to name a few. But at his core, he was a candyman.
As he built his business empire, he held political jobs under three out of his four presidential predecessors. He was a parliament member under Leonid Kuchma and a founding father of the powerful Party of Regions, the vehicle that Yanukovych used to gain power. He also served in top governmental posts: he was the National Security and Defense Council secretary, and then foreign minister under Viktor Yushchenko; and later became economy and trade minister under Yanukovych.
Poroshenko faced accusations of profiting from being in power, either by obtaining lucrative supply contracts, lobbying for his firms, or using the justice system to his and his partners’ benefit.
For example, an investigative team at Radio Free Europe/Radio Liberty discovered that in 2003 an array of Poroshenko’s offshore firms were under criminal investigation by the Ukrainian police for large-scale tax evasion. The case was inexplicably closed in 2004. Another investigation by the same team uncovered that a probe into Poroshenko’s alleged destruction of a historical landmark in Kyiv in 2012 to build a private residence also was closed down.
He brushed off such criticism and continued growing both his businesses and his political clout.
Poroshenko was inaugurated as president on June 7, 2014. By then the post-revolution provisional government and parliament had made strides in creating mechanisms for a cleaner and fairer Ukraine.
Among the higher-profile reforms that followed Euromaidan was a management reorganization of Naftogaz, the state energy behemoth and gas transit monopoly. In 2014, Naftogaz lost the equivalent of 6.2 percent of Ukraine’s GDP, but became profitable in 2016, as reforms started to bear fruit. In addition, a law on public broadcasting was adopted, aiming to create a strong and independent voice in the media sector, which had for years been dominated by oligarch-owned conglomerates.
After becoming president, Poroshenko started off strong, generally adhering to the provisional government’s course. He appointed an all-star team of financiers to run the National Bank, tasking it with cleaning up the banking system. He also brought in a mostly technocratic Cabinet.
Meanwhile, civil society organizations began to organize, creating influential coalitions, such as the Reanimation Package of Reforms. These groups acted in some ways like think tanks, helping to draft and advocate for laws and anti-graft regulations.
Some reforms were driven fully by civil society activists and entrepreneurs – most notably the introduction of ProZorro, a groundbreaking electronic, open-source procurement system. Mimicking a tech startup, the system was built over two years and fully rolled out in 2016. ProZorro promoted a greater level of transparency in the state tender process, achieving 10-percent savings per year in the annual volume of public spending on procurement.
After assuming power, Poroshenko faced pressure to maintain reform momentum from civil society groups on the one hand, and Ukraine's foreign partners and lenders, such as the IMF and World Bank, on the other. This phenomenon was dubbed “the sandwich effect,” and it helped to bring about key changes, including the creation of new national agencies to fight graft.
Poroshenko and his governing coalition were pushed to create the National Anticorruption Bureau (NABU) that was tasked to investigate crimes by the nation’s top officials – former and current presidents, prosecutors, judges, ministers and governors.
Another law compelled public officials to fill out detailed electronic declarations about their assets and sources of income. When these declarations became available online, the nation discovered it had scores of relatively poor public servants with incredibly rich wives who earned millions, and owned impressive amounts of land and property. For instance, while Military Prosecutor Anatoliy Matios earned $17,000 in 2014, his wife’s income was over $2.2 million in the same year.
Others turned out to own property and cash in bulk. Parliament member and businessman Yaroslav Dubnevych and his brother Bohdan together in 2016 declared ownership of 682 properties and over $20 million-worth of cash in different currencies kept by family members.
A special body, the National Agency for Prevention of Corruption, was created to review declarations. A Special Anticorruption Prosecutor’s office was set up to prosecute graft.
Tug of war
Progress in the fight against corruption never came easily in Ukraine. Each reform met with stiff resistance and required a massive, well-coordinated effort on the part of civil society groups to keep anticorruption measures on track. Savvy individuals exploited weak oversight and judicial frameworks to find ways to tap into the cash flows of state-connected entities – government bodies at all levels, courts and law enforcement agencies, customs and state-owned companies – and siphon off public funds.
For example, Yaroslav Dubnevych allegedly controlled proxy companies that won lucrative contracts to supply the national railway monopoly, Ukrzaliznytsia, with spare parts. The National Anticorruption Bureau started investigating the business in 2016, alleging that an intermediary company inflated prices, causing multimillion-dollar losses to the state.
Beneficiaries of the system resisted change by allegedly using their insider influence to sabotage or hollow out laws via parliamentary maneuvering. They likewise reportedly worked behind the scenes to influence courts to close criminal investigations, to lobby the government for new privileges and protections, or exploit loopholes in newly established systems.
Over time, despite the fierce resistance, fundamental changes started to take root. In 2017, Health Minister Ulana Suprun, a Ukrainian-American, took on pharmaceutical companies and transferred the function of national drug procurement to independent agencies, cleaning it up and kicking off a comprehensive reform of the healthcare system.
A similar process started in education. Elsewhere, civil service reform promoted an infusion of fresh personnel and more efficient operations within the governmental bureaucracy. And with the help of experts from the Republic of Georgia, traffic police got a makeover. Decentralization reforms granted additional authority to local municipalities over public spending, and the Finance Ministry opened up data as part of the reform of public finances.
In the aftermath of a banking crisis in 2014, the National Bank implemented two reforms of the financial sector. Corrupt practices had been responsible for precipitating the crisis: At the time, the country had 180 banks, but the majority of them turned out to be “zombies” – shells that were used to attract deposits, then direct the assets to bank-connected businesses via the extension of what were essentially unrecoverable loans. As a result of the sectoral cleanup, only 75 banks are functioning today in Ukraine.
Reforms did not put a complete stop to nefarious dealings. Many of the new schemes involved the energy sector. The most notable operation was dubbed Rotterdam+, and it exploited a new method for setting the price for coal-fired energy generation. Established by the state regulator in 2016, it was designed to compensate for the loss of access to coal mines in the Donetsk region due to the war, while assisting the operations of thermal power plants that produced about a third of the nation’s energy.
The new formula allowed thermal power plants to sell power at a rate that accounted for the price of coal equal to that in the port of Rotterdam, plus the cost of transportation to Ukraine. This was significantly more expensive than domestically produced coal, but producers gained the right to charge consumers the difference. However, instead of importing coal from abroad, producers continued to buy cheap coal in Ukraine, allegedly including illegal supplies from non-government controlled territories in the Donbas. Such dealings enabled massive profits for producers, while costing the state money. The NABU eventually launched a criminal investigation, alleging that the arrangement incurred over $750 million in inflated costs for the Ukrainian government.
The Rotterdam+ scandal led to a criminal investigation of Dmytro Vovk, who headed Ukraine’s Utilities Regulatory Commission at the time. Vovk had worked as a senior manager in President Poroshenko’s Roshen Group before his appointment to the regulatory position, and this connection prompted much public speculation that the president may have allegedly benefitted from the Rotterdam+ scheme as well.
Other scandals enmeshed those close to Poroshenko. For example, the name of one of Poroshenko’s business partners and a long-time political ally, Ihor Kononenko, figured prominently in an alleged scheme to skim profits from partially state-owned oblenergos, or regional energy distribution monopolies.
Beyond coal trading, contraband goods reportedly continued moving across the border to non-government controlled territories and authorities continued to turn a blind eye to the illicit trade. Meanwhile, top ranks in law enforcement agencies were declaring multimillion-dollar assets. And, with increasing frequency, they were allegedly hiding those assets.
Thanks to new anti-graft institutions, investigative journalists and plenty of open-source data, the names of people who continued to get rich through questionable means were no longer a secret. But corruption in the judicial and law enforcement systems helped stymie efforts to hold alleged perpetrators accountable, according to watchdogs.
After being held in 2017, Nasirov, the former tax service chief, spent years in courts challenging his dismissal from his job, and won on appeal in February 2020. His abuse of power criminal case is still making its way through the courts. It has been moved to the new Anticorruption Court, which was created in 2019.
By 2017, the majority of Ukrainians considered corruption to be the nation’s biggest problem. Their concerns only multiplied in subsequent years: these days, perhaps the most sensitive area of illicit activity concerns the military.
“Nothing has happened with systemic changes in the defense industry,” investigative journalist Denis Bigus wrote on liga.net in March 2019. He asserted multiple “groups of influence” existed in the defense sector, especially in the area of procurement. A major problem, he added, is that defense contracts remain a state secret and do not go through a transparent tender process.
Highlighting lingering conflict-of-interest issues concerning military procurement, an investigative journalistic team headed by Bigus uncovered information involving multi-million-dollar army supply deals engineered by the son of National Security and Defense Council Secretary Oleh Hladkovsky, who also happened to be another of Poroshenko’s long-time business partners.
Though scandalous, that investigation ended up having little influence over Ukraine’s political course: It was already clear by then that Poroshenko was set to lose his reelection bid that same spring. While Ukraine made significant strides under Poroshenko in putting mechanisms in place to promote clean governance, the result of the 2019 presidential elections showed that the president’s team fell short of fulfilling the expectations of many Ukrainians in the immediate post-Euromaidan years.