Global companies know all too well that operating in jurisdictions with security issues poses special risks, not only to employee safety, but also to investments that may be wiped out or severely devalued by political unrest and civil strife. Corruption risks in these hot spots, which in the past 20 years have included countries in Latin America, Eastern Europe, Africa, and the Middle East, tend to be magnified. In fact, the majority of the countries at the bottom of Transparency International’s 2014 Corruption Perceptions Index (“CPI”) have experienced unrest – or an all-out war – in recent years.
As one of the most populous countries in Europe with a GDP of over $337 billion,1 Ukraine stands in contrast to many smaller and less strategically located jurisdictions experiencing civil strife and violence. In 2013, Ukraine’s total foreign trade was approximately $140 billion, €37.8 billion of which was with the European Union.2 With the new Ukrainian government throwing its support behind closer ties to the West, Ukraine is an important test case for the implementation of anti- corruption laws in a security hot zone and a country literally under fire.
Ukraine faces two formidable challenges – the ongoing conflict in the Eastern part of the country and a faltering economy. The international community has provided political and economic assistance to Ukraine, including $35 billion in loans and
loan guarantees pledged by the G7 countries and the International Monetary Fund in the past year.3 The loans, dubbed by some a “Marshall Plan for Ukraine,”4 will come with strings attached. One of the main strings would inevitably be Ukraine’s commitment to overcome widespread corruption.5
The principal question is whether new laws recently enacted by Ukraine can provide an effective legal framework for reducing corruption and enhancing the risk
that corrupt conduct will be prosecuted, or whether they will fail to take root, as reform efforts often do in countries where larger conflicts cannot be put to rest.
Ukraine, perceived by some as “the most corrupt country in Europe,”6 was ranked in 142nd place (tied with Uganda and the Comoros) out of 175 countries on the 2014 CPI.7 In fact, pervasive corruption was among the key reasons prompting
the uprising that brought down former president Victor Yanukovich in early 2014. Not surprisingly, Petro Poroshenko, Ukraine’s new President, declared eradicating corruption as one of his foremost objectives.8
As a key step forward, on October 14, 2014, the Ukrainian Parliament passed four anti-corruption laws: On the Strategy to Combat Corruption in Ukraine in 2014-2017, Prevention of Corruption, Amendments to Certain Legislative Acts on Year-End Reporting and Public Dealings, and National Anti-Corruption Bureau of Ukraine (collectively, “Anti-Corruption Legislation”). The laws are designed to prohibit corruption, as well as money-laundering and terrorist financing.
The Anti-Corruption Legislation defines corruption as an act enabling an individual to obtain an “undue advantage or benefit” from an official who may be induced to use his or her powers unlawfully.9 Officials are barred from using their authority or position to solicit an undue advantage for themselves or others.10 Like the 2011 Principles of Prevention and Combating Corruption Act it replaced, the Anti-Corruption Legislation contains a broad definition of “undue advantage or benefit,” encompassing money or other property, advantages, benefits, services, or intangible assets that are provided for free or at a below-minimum market price.11
The new law, however, quantifies “undue advantage or benefit” with respect to gift- giving. Gifts that fit “generally accepted notions of hospitality” are exempted so long as their value does not exceed the minimum wage, and the aggregate value of such gifts received from the same source during the year “does not exceed twice the subsistence minimum.”12
With respect to the obligations of private entities, the Anti-Corruption Legislation requires companies doing business in Ukraine to regularly update their accounts of revenues and to maintain the information for presentation to the State Registrar
if requested.13 Substantial changes in the ownership of a legal entity also must be reported.14
Not surprisingly, given the role that frustration with rampant corruption played in the Maidan uprising a year ago, the legislation gives the public broad rights
of participation in the fight against corruption, including the rights to receive information about the government’s anticorruption efforts, to lodge complaints, and to participate in parliamentary hearings.15
Most significant, however, is the establishment of the National Anti-Corruption Bureau: a new governmental agency tasked with monitoring and enforcing Ukraine’s national anti-corruption agenda. The Bureau is charged with the enforcement of the Anti-Corruption Legislation.16 The law specifically guarantees independence of the Bureau through the special selection process for Directors, safety measures for Bureau employees, and the prohibition of interference from other government bodies.17
The Director of the Bureau is given general powers to initiate investigations, approve operational plans, appoint deputy directors, protect restricted information, and formulate guidance for encouraging citizens to assist in preventing
and detecting corruption.18 The Director is also given the right to attend all Parliamentary meetings and to directly advise the Cabinet of Ministers of Ukraine on corruption-related matters.19
Three finalists for the position of the Bureau’s Director are to be selected through a public search by a special Evaluation Commission composed of nine members. The President, Parliament, and the Cabinet of Ministers each appoint three members.20 The President selects the winner of the search, who must be confirmed by the Parliament.21 The Director will be appointed for
a term of seven years, and cannot serve more than two consecutive terms.22 Besides the Director, the Bureau will include central and regional offices, with a staff of 700.23
Poroshenko has requested that the Bureau be fully staffed and operational by August 24th, the anniversary of Ukrainian independence.24 Although the current version of the law requires the Director to be a Ukrainian citizen without any other nationality, there has been a strong push to appoint an outsider with “clean hands” and lack of local connections, which would correspond to the spirit of the reform.
In mid-February, sources reported that David Sakvarelidze, a former Assistant Attorney General of the Republic of Georgia and a current Assistant Attorney General of Ukraine, was a potential candidate for this post.25 Sakvarelidze filed a petition for Ukrainian citizenship and alluded to the history of comradery between Ukraine and Georgia in struggling to overcome “common problems.”26 Georgia stands as a model of reform for Ukraine, as it currently ranks 50th on the 2014 CPI.27 Sakvarelidze believes that successfully combating corruption in Ukraine will “give a new impetus to all countries fighting for freedom to conduct new, more ambitious reforms.”28
The recently elected Ukrainian government has been put on notice that if it does not work to eradicate corruption, it will face a number of hurdles
to the receipt of much-needed financial assistance and investment from the
West. Furthermore, the government’s own fate might well depend on how effectively and efficiently it tackles the widespread corruption.
Thus far, Ukraine seems to be taking this reality seriously. Indeed, at the end of January, the Parliament debated amending the October 2014 legislation to furnish the Anti-Corruption Bureau with broader tools to combat corruption. For example, some amendments suggested a procedure for reduced sentencing in exchange for testimony regarding corruption.29
It remains to be seen how the new Anti-Corruption Legislation will be enforced and if it will succeed. As Oleksii Khmara, Executive Director of Transparency International Ukraine, points out, the laws, on their own, “will not change anything.”30 They provide a necessary framework for reform, but need to be followed up with practical steps and vigorous enforcement. If Ukraine’s anti-corruption effort succeeds, it could inspire change in other former Soviet countries with high levels of corruption, as well as in countries in other “hot zones” that may believe that tackling corruption is too daunting a task under the current circumstances.