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Why Ukrainian oligarchs are not only Ukraine’s problem, but the West’s too.

During the modern Ukraine era, several high-level international conferences were held in the country. However, none of them were organized without oligarchic money The first high-level forum to buck the trend was Democracy in Action, which was set up and run solely by civic society. There, the topic of Ukraine’s de-oligarchization was finally discussed at a prominent level as a real issue. And this not only from Ukraine’s perspective, but also from the point of view of the significant influence that the Ukrainian oligarchs wield in the West.

The conference which took place in Kyiv on 7-8 June was organized by the Anti-Corruption Action Center, a leading Ukrainian NGO fighting corruption, was chaired by Hanna Hopko from the National Interests Advocacy Network ANTS, and involved more than 30 Ukrainian and international NGOs and media.

How Ukraine intends to define oligarchs

On the eve of the conference, president Volodymyr Zelenskyy made a significant step in the fight against oligarchs by presenting a corresponding draft law titled “On the prevention of threats to national security associated with the excessive influence of persons of significant economic or political importance in public life (oligarchs).”

According to the bill, a person can be deemed an oligarch if at least three of the following four criteria are met:

  • Involvement in political life;
  • Significant influence over the media;
  • Being the ultimate owner of a company that is a subject of natural monopolies or a monopolist in one of the markets;
  • Having assets exceeding UAH 2.27bn ($83m.

Daria Kaleniuk , executive director of the Anti-Corruption Action Center NGO, stressed that it is crucial to distinguish oligarchs from entrepreneurs because oligarchs usually claim they are entrepreneurs and the draft law is the first step in making that distinction. While the expert praised the very fact of having a discussion on de-oligarchization and the president calling oligarchs a national threat, she also shared numerous concerns civil society has regarding the president’s draft law on de-oligarchization.

As mentioned above, after meeting three out of four conditions, a person can be classified as an oligarch. Kaleniuk explains that as the next step, Zelenskyy suggests that the National Security and Defence Council, which is subordinated to the President) be tasked with deciding which of the persons claiming to be entrepreneurs will in fact be placed on the register of oligarchs.

Civil society representatives including Kaleniuk see serious risks in allowing such a broad right of selection to be placed in the hands of the National Security and Defence Council — namely, that Zelenskyy is given too much influence in applying measures against oligarchs, which can be used as a political tool against opponents, one of whom is former President Petro Poroshenko.

“For example [the richest oligarch of Ukraine] Rinat Akhmetov, whom I consider an oligarch, publicly says ‘I am an investor.’ But will Akhmetov appear on the register? I think that President Zelenskyy will likely first put Petro Poroshenko on this list of oligarchs. Probably, [Poroshenko] has to be on the list if all oligarchs have to be. But it will be up to President Zelenskyy to decide who will be first and who will never be on this list.”

Kaleniuk also shared concerns because the president’s legislative initiative does not involve the Anti-Monopoly Committee of Ukraine, the state body which provides for state protection of competition in business and in the field of public procurement.

How Ukrainian oligarchs gain access to western financial and political circles

While Ukraine is attempting to launch this attempt to deoligarchize the country, the country’s oligarchs keep their money in Western banks and buying influence in western financial and political circles.

Casey Michel , investigative journalist and author of the book American Kleptocracy, explained the oligarchs’ plan to gain access to the western financial system.

In particular, they are driven by the desire to get their money out of Ukraine and make it safe. Professionals in various fields help oligarchs hide their money in the West. The oligarchs’ key instrument is anonymity, and lawyers have a key role in achieving this.

Snapshot from the Casey Michel’s presentation

Kasey provides examples of two famous Ukrainian oligarchs – Ihor Kolomoiskyi and Dmytro Firtash.

“Kolomoiskyi is still not sanctioned by the Ukrainian government, but he is sanctioned by the US for massive corruption while running Privatbank. He allegedly stole $5.5bn. He could not keep that money in Ukraine. So much of this money went to the US. Much of this was done by him perfectly legally. His money went to American states. These American states had no idea that the money was connected to Kolomoyskyi.”

Firtash is currently in Vienna, Austria. He is wanted by American authorities for large-scale bribery and is facing extradition to the US. Kasey explains that one of the ways Firtash intended to spend his money was on American lawyers.

“He identified two key American lawyers who could help him get access to the highest levels of American political power and to access the White House under president Donald Trump . And you’ll see he used two lawyers — Victoria Toensing and Joseph DiGenova , two of whom are very close to Rudy Giuliani [Trump’s lawyer].”

How oligarchs keep their money in the West. Shapshot from Casey Michel’s presentation.

Michel went on to say that Firtash used the two lawyers to access Giuliani and say that if Trump lifted the investigation into Firtash, the latter would provide information on Joe Biden .

“Firtash had other areas as well, other figures to gain access to president Trump. And he also had access to pro-Trump media. To push these messages, to push this idea that he had damaging information on Joe Biden which Trump could use.”

It ended up not working out, with Donald Trump being impeached.

Michel underlines that the oligarchs are no longer just accessing financial systems in the West; they are increasingly accessing the political systems in countries, including the US.

Law enforcement agencies are where the fight against oligarchs gets stuck

Karen Greenaway , a former FBI special agent and a supervisory special agent in an International Corruption Unit, voiced a key problem in tackling oligarchs in Ukraine — the influence the oligarchs still have over the country’s law enforcement agencies.

Greenaway said that as an FBI agent, she did not have partners in Ukraine to collect necessary materials for many cases. According to her, the US law enforcement agencies could not rely on Ukrainian partners because the latter did not have the political support to perform their duties in a proper manner.

“By the time we got to the early 2000s, there was almost no appetite in my own country and the EU to address this problem as a law enforcement matter or, frankly, to address this problem at all. As a result we ended up with trying to work through individual law enforcement officers in different agencies who were willing to put the resources into doing that type of work to try to address what was really a crime problem.”

But, as noted by Greenaway, law enforcers in those countries who worked well and who wanted to make a difference were often removed from their positions. And that was the best case scenario. Some of them were fired; others even murdered.

As Greenaway observes, on some days Ukraine’s Prosecutor General Office is successful in investigating cases against top officials and oligarchs, and on other days it is not. To work independently, the Prosecutor’s General Office has to be totally politically independent, but according to Greenaway it is not.

Moreover, the National Anti-Corruption Bureau, launched in 2015 to investigate top-corruption cases and in contrast to other Ukrainian law enforcement agencies considered successful, is facing constant attacks as confirmed by its director Artem Sytmyk during the conference.

Deep roots of oligarchism and a counterweight to it

Matthew H. Murray , Adjunct Professor at Columbia University School of International & Public Affairs sees the solution to the problem of oligarchs in a system that will include both better law enforcement and better rewards for legal behaviour.

The professor says that when the Soviet Union collapsed and the transition from communism to capitalism commenced, the West did not recognize that capitalism is not some monolithic entity, but that there are different types of capitalism, one of which being oligarchic capitalism.

“And oligarchic capitalism again took root in both Russia and Ukraine in the early 1990s, not only because of the legacy and the central planning and state control of the economy from the Soviet Union, but because of tsarist traditions. Under the Tsars private property was not legalized. The tsars and their boyars basically extracted rents from the serfs, the peasants in the region, and they developed what are now called extractive institutions rather than inclusive institutions.”

According to Murray, it is based on the idea that governments design policies to protect the interest of a narrow few to actually encourage informal economic activity and create high barriers of entry to honest, genuinely entrepreneurial, and competitive competence.

Also, establishing the rule of law in these regions became a real challenge and private property became a relative rather than an absolute concept.

“On top of that we have Putinism, and Putinism creates a geopolitical imperative around it. Because in Putinist oligarchy the top leaders of the country take control of the key economic sectors, the key law enforcement agencies, and they need to expand in order to survive. And we can’t confine Putin’s oligarchy within the borders of Russia. So starting in the early 2000s, they started to export their corrupt methods very successfully at home. They try to take over the energy sector and other major sectors in Ukraine and the region and this began to be driven to such an extent that in effect they’ve tried by this time to create an alternative to the western-based liberal economy.”

Therefore, according to Murray we now face what political scientists call the iron law of oligarchy.

“The iron law of oligarchy is simply standing for the proposition that dominant political and economic groups will always find ways around good reforms, even the most well-intentioned reforms, and will attempt to deform the economies of their resident countries and perpetuate their power.”

Nevertheless, even in this situation, Murray sees potential for Ukraine’s non-oligarchic future. In particular, he pointed out that there are many green sprouts of entrepreneurial economic growth.

“First, entrepreneurs have a stake in economic growth. Oligarchs have a stake in economic control. Entrepreneurs introduce a dynamic equilibrium when their private property is protected and their conduct is rewarded. They can build entire new companies, they can create new wealth and they can bring a new workforce.”

Murray summarizes that it is absolutely essential to develop an entrepreneurial economy by rewarding good behavior and trying to isolate the bad social behavior that comes with oligarchy.

The real opportunity for president Zelenskyy and the future of Ukraine is to stop the interference of the country’s government in the economy and allow entrepreneurs to grow their assets, gain new sources of financing and trade their assets on public markets.

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