[Joint House and Senate Hearing, 115 Congress]
[From the U.S. Government Publishing Office]


                           THE INTERNAL ENEMY

                  A Helsinki Commission Staff Report

                      on Corruption in Ukraine 
                      
                      
                      
 [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]                     
                      
                      


                              October 2017


                              
                          THE INTERNAL ENEMY
                    A Helsinki Commission Staff Report
                         on Corruption in Ukraine
                                

                               OCTOBER 2017
                          
                              
                                  CONTENTS
                                  
                                  
1. Executive Summary ............................................................. 1
2. Introduction .................................................................. 2
3. Background .................................................................... 4
4. Historical Analysis .......................................................... 14
4.1. Kravchuk ................................................................... 14
4.2. Kuchma ..................................................................... 15
4.3. Yushchenko ................................................................. 17
4.4. Yanukovych ................................................................  19
4.5. Poroshenko ................................................................. 19
5. Main Factors Behind the Persistence of Corruption in Ukraine ..................21
5.1. The Oligarchs .............................................................. 21
5.2. Incomplete Economic Liberalization ......................................... 22
5.3. Gas Arbitrage .............................................................. 22
6. Recommendations .............................................................. 24
6.1. Remaining Reforms .......................................................... 25
6.2. Civil Society Including Independent Media .................................. 28
6.3. The International Community ................................................ 30
7. Conclusion ................................................................... 33
8. Appendix ..................................................................... 34                         
                              
                              
                           
    This report was drafted by Helsinki Commission staff.
    Paul Massaro, Policy Advisor, served as lead author.


                     I. EXECUTIVE SUMMARY


 
    Ukraine's struggle with corruption has prevented it from becoming a 
full, prosperous democracy and hinders its ability to respond 
effectively to Russian violations of its sovereignty. This Helsinki 
Commission staff report examines why corruption has been so persistent 
in Ukraine. It provides a historical analysis of corruption in Ukraine 
from its break with the Soviet system to today, reviewing the current 
state of reforms and providing recommendations in context.
    The resilience and influence of Ukraine's oligarchs are at the 
heart of the country's persistent corruption. Oligarchs have captured 
the Ukrainian state, crowding out non-corrupt political parties and 
competing with one another to steal Ukraine's wealth. They are not so 
much businesspeople as courtiers, who transform political and personal 
connections into monopolies supported by the state.
    Two phenomena in particular have given rise to this system of 
oligarchic competition: (1) the lack of reforms in the early years of 
independent Ukraine, which resulted in incomplete economic 
liberalization, and (2) gas arbitrage, which has been uniquely 
devastating to reform attempts due to building so many oligarchic 
fortunes and providing a backdoor for Russia to influence Ukrainian 
politics for decades.
    Today's Ukraine has implemented many important reforms that have 
helped to counter corruption, specifically in energy, finance, and 
economics. However, judicial reforms continue to lag behind. 
Commentators have observed that progress has slowed and frustration 
among civil society and the international community has increased.
    This report recommends that Ukraine move forward with remaining 
reforms, supported by both civil society and the international 
community. Most important is that Ukraine not allow backsliding to 
occur. Ultimately, the oligarchs must be transformed from courtiers 
into entrepreneurs and businesspeople so as to finally end the 
pervasive institutionalized corruption. An empowered Ukrainian civil 
society--including independent media--will be paramount to such 
reforms, and has proven time and again that it is world class in its 
engagement. Key here is to condemn any attempt to hinder or harm civil 
society.
    The report makes numerous recommendations by sector, with an 
emphasis on the importance of reforming the judiciary. In particular, 
Ukraine should establish an anticorruption court as soon as possible, 
so as to provide the final necessary piece of Ukraine's anticorruption 
architecture.
    Additional reform areas discussed include the safeguarding and 
further empowering of the anticorruption architecture; implementing 
privatization and additional regulatory and corporate governance reform 
as the next step for energy sector reform; pursuing consolidation and 
transparency as ideas for banking sector reform; and limiting 
parliamentary immunity.
    This report also discusses greater e-government and press freedom 
as mechanisms to empower Ukrainian civil society, including independent 
media, to monitor the reform process and prevent backsliding. Finally, 
it encourages the international community to continue its support for 
Ukraine and dig in for the long haul.



                           II.  INTRODUCTION


2.1. The Importance of Ukraine for U.S. Foreign Policy

    The issue of corruption in Ukraine is a part of a larger U.S. 
foreign policy effort to counter the threat that corruption presents to 
U.S. interests around the globe. As Chairman Wicker and fourteen other 
Senators wrote earlier this year:

    A world that is a more democratic, respects human rights, and 
abides by the rule of law strengthens the security, stability, and 
prosperity of America. History has demonstrated time and time again 
that free societies are more likely to be at peace with one another. 
Constitutional democracies are also less likely to fail and become 
breeding grounds for instability and migration. Democratic nations that 
respect good governance and the rights of their citizens are also more 
likely to be economically successful, and to be stable and reliable 
trade partners for the United States. \1\
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\1\  Letter to President Donald J. Trump, May 3, 2017, https://
www.rubio.senate.gov/public/_cache/files/07d6ba61-7421-4316-9f3f-
d4485e7529bf/ABA64081874BD3513AB936690A9E8F3A.5-3-17-letter-to-potus-
re-human-rights-and-democracy.pdf (accessed October 3, 2017).

    In Ukraine, pervasive corruption has been both a cause and a 
symptom of political weaknesses since the country gained its 
independence in 1991. It has also rendered Ukraine vulnerable to malign 
Russian influence and eventually outright invasion.
    Russia, in fact, has weaponized corruption, both to exploit and 
undermine the rule of law in countries where Moscow seeks exercise 
influence or control and as a means of protecting and laundering the 
ill-gotten gains of Russia's power elite. As Brian Whitmore explained 
at a 2017 Helsinki Commission briefing, ``The Kremlin's black cash is 
the new red menace, and it has to be looked at that way. Corruption as 
a tool of statecraft is something that is spreading from Moscow and is 
spreading as a tool of influence.'' \2\ Monies stolen by the Russian 
government have ended up hidden in real estate in London, Miami, or New 
York, or funneled through anonymous companies to offshore accounts. 
These corrupt monies have a debilitating effect in their country of 
destination, influencing politics and generating resentment. \3\
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\2\  Remarks of Brian Whitmore, senior analyst with RFE/RL, U.S. 
Commission on Security and Cooperation in Europe. Kleptocrats of the 
Kremlin: Ties Between Business and Power in Russia. 2017, Briefing, 
115th Cong., 1st sess., Washington, DC: Government Publishing Office.
\3\  U.S. Commission on Security and Cooperation in Europe. Kleptocrats 
of the Kremlin: Ties Between Business and Power in Russia. 2017, 
Briefing, 115th Cong., 1st sess., Washington, DC: Government Publishing 
Office.
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    The corrosive effects of corruption in Ukraine understandably 
fueled widespread frustration and anger that, in 2013--ironically, a 
year when Ukraine held the Chairmanship of the OSCE--spilled out in the 
streets. On its face, the Maidan protests were a reaction to the 
government's rejection of an association agreement with the European 
Union.
    In reality, the European Union had become a stand-in symbol for the 
rule of law and good governance and the protests were a demand for 
those basic elements of democracy. Perhaps nothing illustrates Moscow's 
hand in Ukraine's corruption as concisely as the image of ousted 
Ukrainian President Yanukovich fleeing Kyiv by helicopter, after the 
deaths of 100 protesters, in a nighttime flight to Moscow where he 
continues to enjoy refuge from prosecution. His abrupt departure 
enabled protesters to enter the president's extraordinarily lavish 
residence which some have dubbed ``a museum of corruption.'' \4\
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\4\  Andrew Higgens, ``Ukraine Palace Is Still Emblem of Dysfunction,'' 
The New York Times, Sept. 8, 2014.
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    At a 2014 Helsinki Commission hearing on corruption in the OSCE 
region, then-Chairman Ben Cardin addressed both the general issue of 
corruption and the specific challenges before Ukraine:

    Democratic societies function based on a high level of trust in 
each other and the institutions that underpin democracies. Corruption 
undermines that trust, and thus undermines the very foundation of 
democracies. Research has shown a high level of correlation between 
failed states and endemic corruption. [ . . . ] component of the 
Euromaidan protests--the Revolution of Dignity--was the people's 
disgust with pervasive governmental corruption. With the election of 
President Poroshenko in May and new, pro-European parliament elected 
last month, Ukraine has a real opportunity. \5\
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\5\  U.S. Commission on Security and Cooperation in Europe, Combating 
Corruption in the OSCE: The Link Between Security and Good Governance, 
2014, Hearing, Pub. 95-572, 113th Cong., 2nd sess., Washington, DC: 
Government Publishing Office.

    Today, the rule of law and corruption are currently engaged in a 
struggle for dominance in Ukraine. It is both in the interest of the 
United States and the well-being of the Ukrainian people that rule of 
law come away victorious.
    Finally, for the first time, it seems real reforms are within 
reach.

2.2. Structure of the Report

    Despite an active civil society and an impressive independent 
media, Ukraine seems perennially unable to tackle its corruption 
problem. This Helsinki Commission staff report mines the past of 
independent Ukraine for hints as to why corruption has proven so 
insurmountable in the country. By pinpointing and analyzing the reasons 
for the persistence of corruption in Ukraine, it develops 
recommendations for further reforms and strategies to address these 
reasons.
    This analysis will delve into the development of corruption under 
each Ukrainian president from independence to present day: how rent was 
sought, who sought it, and what was done about it. This report will 
then pull out to a wide lens to pinpoint the phenomena of Ukrainian 
history that have resulted in the persistence of corruption in the 
country and offers recommendations and conclusions based on addressing 
these phenomena.




                     III.  BACKGROUND


3.1. Ukraine and the OSCE

    The Helsinki Commission is mandated to monitor the compliance of 
participating States with commitments made as part of the Organization 
for Security and Cooperation in Europe (OSCE). These commitments 
include those in the Second Dimension on what is known as ``Good 
Governance.'' These commitments were most recently renewed in a 2012 
Ministerial Declaration in Dublin, \6\ titled ``Declaration on 
Strengthening Good Governance and Combating Corruption, Money-
Laundering and the Financing of Terrorism.'' Via this declaration, all 
OSCE participating States:
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\6\  OSCE Ministerials are annual meetings of the Foreign Ministers of 
the 57 participating States of the OSCE and provide the second highest 
form of political decision-making after a summit, which are irregular 
meetings of the Heads of State. As such, Ministerial Decisions are the 
most common source of high-level political direction for the OSCE.

     . . . reaffirm[ed] their commitment to tackling corruption and 
countering money-laundering, the financing of terrorism and related 
offenses by making them policy priorities back up by appropriate legal 
instruments, adequate financial, human and institutional resources and, 
where necessary, appropriate tools for their practical and effective 
implementation. \7\
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\7\  Organization for Security and Co-operation in Europe, Ministerial 
Council, Declaration on Strengthening Good Governance and Combating 
Corruption, Money-Laundering and the Financing of Terrorism, 2012, 
Journal No. 2, item 7, 19th Mtg., 2nd Day, Dublin: 2.

    The Soviet Union was one of the founding participating States of 
the OSCE. Following the dissolution of the Soviet Union, independent 
Ukraine became a participating State of the OSCE. In 1994, the OSCE 
established a field mission to Ukraine in Kyiv, with a specific focus 
on the situation in Crimea and related constitutional questions. Among 
other activities, the mission facilitated the engagement of the OSCE 
High Commissioner on National Minorities and addressed the status of 
returning Crimean Tatars who had been forcibly deported from the 
peninsula by Stalin in 1944.
    In 1999, this mission was closed and replaced with a scaled-down 
OSCE Project Coordinator for Ukraine, which exists to this day. \8\ 
Although on its face the mandate for the new Project Coordinator was 
broader than the original mission mandate, \9\ the Ukrainian 
government's goal was to demonstrate that it had ``graduated'' from the 
need for a full-scale mission and to diminish the OSCE's presence.
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\8\  Organization for Security and Co-operation in Europe, Permanent 
Council, Decision No. 295, 1999, Journal No. 231, item 1, 231st Plen. 
Mtg., Vienna: 1.
\9\  The new mandate envisioned that ``particular emphasis will be 
placed on the planning and preparation of a large-scale project 
entitled `Comprehensive Review of Human Rights Legislation' to be 
started no later than fall 1999.'' DECISION No. 295 Decision of the 
Permanent Council of Organization on Security and Cooperation in 
Europe, PC.DEC/295, June 1, 1999, 231st Plenary Meeting of the 
Permanent Council, PC Journal No. 231, Agenda Item 1.
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    Corruption issues are not explicitly included within the mandate of 
the Project Coordinator, although they may be addressed under the 
favored OSCE euphemism ``good governance.'' Thus, according to the OSCE 
website:

    The OSCE Project Coordinator supports Ukraine's reforms and helps 
the country meet crisis-related challenges. Its projects actively 
contribute to major transformations, critical for the stable and 
democratic future of the country. The Coordinator's approach is multi-
dimensional and covers a wide array of activities, such as 
constitutional reform, legal and criminal justice reform; human rights 
and legal education; dialogue as a tool to deal with crises and 
implement reforms; psychological and social rehabilitation of crisis-
affected people; the fight against cybercrime and human trafficking; 
mine action and democratic control of the security sector; 
environmental protection; border security; media freedom; elections; 
good governance; and gender equality. \10\
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\10\  Organization for Security and Co-operation in Europe, Project 
Coordinator in Ukraine, ``OSCE Project Coordinator in Ukraine,'' http:/
/www.osce.org/project-coordinator-in-ukraine (accessed July 22, 2017).

    Other OSCE institutions that exist today within Ukraine are the 
Special Monitoring Mission (SMM), and the OSCE Observer Mission at the 
Russian Checkpoints Gukovo and Donetsk. Neither of the missions have an 
anti-corruption mandate.
    According to the OSCE website:

    The OSCE Special Monitoring Mission to Ukraine (SMM) was deployed 
on 21 March 2014, following a request to the OSCE by Ukraine's 
government and a consensus decision by all 57 OSCE participating 
States. The SMM is an unarmed, civilian mission, present on the ground 
24/7 in all regions of Ukraine. Its main tasks are to observe and 
report in an impartial and objective way on the situation in Ukraine; 
and to facilitate dialogue among all parties to the crisis. \11\
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\11\  Organization for Security and Co-operation in Europe, Special 
Monitoring Mission to Ukraine, ``OSCE Special Monitoring Mission to 
Ukraine,'' http://www.osce.org/special-monitoring-mission-to-ukraine 
(accessed July 22, 2017).

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3.2. What is Corruption?

    Corruption features heavily in the narratives of all political 
systems. Transparency International, a global anti-corruption 
coalition, divides corruption into three categories: grand corruption, 
political corruption, and petty corruption. All of these forms of 
corruption are present in Ukraine.
    Grand corruption: ``The abuse of high-level power that benefits the 
few at the expense of the many, and causes serious and widespread harm 
to individuals and society. It often goes unpunished.'' \12\ The most 
common form of grand corruption throughout Ukrainian history has been 
gas arbitrage.
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\12\  Transparency International, ``Grand Corruption,'' https://
www.transparency.org/glossary/term/grand_corruption (accessed June 18, 
2017).
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    Political corruption: ``Manipulation of policies, institutions and 
rules of procedure in the allocation of resources and financing by 
political decision makers, who abuse their position to sustain their 
power, status and wealth.'' \13\ In Ukraine, the parliament has been 
the center of political corruption.
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\13\  Transparency International, ``Political Corruption,'' https://
www.transparency.org/glossary/term/political_corruption (accessed June 
18, 2017).
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    Petty corruption: ``Everyday abuse of entrusted power by public 
officials in their interactions with ordinary citizens, who often are 
trying to access basic goods or services in places like hospitals, 
schools, police departments and other agencies.'' \14\ This is true of 
most state administration in Ukraine.
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\14\  Transparency International, ``Petty Corruption,'' https://
www.transparency.org/glossary/term/petty_corruption (accessed June 18, 
2017).
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    Transparency International also compiles a yearly ``Corruption 
Perceptions Index'' (CPI) that ``measures the perceived levels of 
public sector corruption worldwide based on expert opinion from around 
the world.'' \15\
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\15\  Transparency International, ``Corruption Perceptions Index 
2016,'' Transparency International, January 25, 2017, https://
www.transparency.org/whatwedo/publication/
corruption_perceptions_index_2016 (accessed June 18, 2017).
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    Currently, Ukraine is ranked 131 out of 176 countries monitored, 
\16\ one of the worst rankings in the entire OSCE region. It ties with 
Russia, and only Kyrgyzstan (136), Tajikistan (151), Turkmenistan 
(154), and Uzbekistan (156) are worse. In contrast, Georgia--another 
late reformer from the OSCE region--ranks 44, right below Spain and 
tying with Latvia. \17\
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\16\  Transparency International Ukraine, ``CPI-2016,'' Transparency 
International, https://ti-ukraine.org/en/research/cpi-2016/ (accessed 
June 18, 2017).
\17\  A table of consolidated corruption perceptions index (CPI) 
rankings of OSCE participating States is provided in the appendix. Data 
is not available for the Holy See, Andorra, Liechtenstein, or Monaco.

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3.3. Corruption in Ukraine

    According to Thomas de Waal, senior associate with Carnegie Europe, 
`` `Corruption' is an inadequate word to describe the conditions in 
Ukraine. Since the country achieved independence in 1991, the problem 
is not that a well-functioning state has been corrupted by certain 
illegal practices; rather, those corrupt practices have constituted the 
rules by which the state has been run. Ukraine's political system is 
best described as state capture.'' \18\
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\18\  Thomas De Wall, ``Fighting a Culture of Corruption in Ukraine,'' 
The Carnegie Endowment for International Peace, 2016: 1.

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3.3.1. The Soviet Legacy

    From 1922 until 1991, Ukraine was the Ukrainian Soviet Socialist 
Republic and a constituent piece of the Union of Soviet Socialist 
Republics (USSR). During this time, Russia nurtured Ukrainian energy 
dependence. Edward Chow notes, ``It's not just a matter of pattern of 
trade or infrastructure that preserves that pattern of trade, but also 
highly centralized and therefore political allocation of energy assets 
and energy supply.''
    Chow also notes that this is an artificial dependency and does not 
have to do with Ukraine's geology, which is actually quite favorable. 
``Up until the 1970's, Ukraine used to export gas to the Russian 
Republic,'' he adds.
    Chow continues, ``The legacy for Ukraine is you have the highest 
energy-intensive economy in Europe-energy intensity right after 
independence that remarkably is higher energy intensity than Russia 
itself. It has about twice the energy intensity of Poland, which had a 
rather similar structural economy.'' \19\ At independence, the 
Ukrainian economy was largely on par with that of Poland, yet these two 
economies would develop in two very different directions.
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\19\  U.S. Commission on Security and Cooperation in Europe, Energy 
(In)security in Russia's Periphery, 2017, Briefing.
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    Louise Shelley, a scholar of transnational organized crime, adds 
that the contemporary state of affairs is the product of the Soviet 
legacy, implying Ukraine's inability to break from it: ``The largest 
element of the Soviet legacy is that of corruption and the underground 
economy. The shadow economy has not diminished since 1991 but is now 
estimated at over 50 percent of the economy.'' \20\
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\20\  Louise Shelley. ``Organized Crime and corruption in Ukraine: 
Impediments to the Development of a Free Market Economy.'' 
Demokratizatsiya: The Journal of Post-Soviet Democratization 6, no. 2 
(1998): 651.

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3.3.2. A Political System of Oligarchic Competition

    The Ukrainian semi-presidential system has fluctuated significantly 
since its inception in 1991. The country has existed under an 
inconsistent constitutional order that has at times given more power to 
the Ukrainian Verkhovna Rada (the parliament) and at times the 
President. The constant in the history of independent Ukraine is the 
oligarchs, who emerged in the early 1990s under the Presidency of 
Leonid Kravchuk. Although the names and fortunes have changed, the 
oligarchic system of rule has come to characterize Ukraine and is the 
most significant reason why reforms continue to elude the country.
    Many of Ukraine's political parties are linked in one way or 
another to the oligarchs, who view business and political life as 
indivisible. Taras Kuzio, an expert on Ukrainian politics, writes, 
``Ukraine's oligarchs do not commit to deeply held ideological 
preferences, and personalities matter more than political party 
programs. Western Ukrainians have dominated the pro-Russian gas lobby 
even though the region was always anti-Russian in its national 
identity.'' \21\ Most of the time, two-thirds of parliamentarians have 
been business millionaires, who look at their seat as an exchange for 
money and state favors.
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\21\  Taras Kuzio, ``Oligarchs, the Partial Reform Equilibrium, and the 
Euromaidan Revolution,'' in Beyond the Euromaidan: Comparative 
Perspectives on Advancing Reform in Ukraine, ed. Henry E. Hale and 
Robert W. Orttung, (Stanford: Stanford University Press, 2016), 187.
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    A perennial issue is the existence and abuse of parliamentary 
immunity, afforded to every Member of the Rada, which oligarchs exploit 
when they feel legally threatened.

3.3.3. Institutionalized Corruption

    Institutionalized corruption is pervasive in Ukraine, stretching 
from the lowest to the highest rungs of society. Even if they do not 
want to, most Ukrainians end up participating in and perpetuating the 
cycle. Swedish political scientist Bo Rothstein writes, ``People in 
severely corrupt systems put the blame on `the system' for forcing them 
to take part in corruption, thus understanding that they are in a 
`social trap'-like situation.'' \22\
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\22\  Bo Rothstein, ``Anticorruption: the indirect `big bang' 
approach,'' Review of International Political Economy 18, no. 2 (2011): 
233.
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    The longer this ``social trap situation'' continues, the more it 
becomes ingrained in institutions until it becomes the self-
perpetuating norm. As Robert Harris, an expert on political corruption, 
puts it, ``Just as a predominantly non-corrupt system will self-correct 
to deal with corrupt individuals and the legislative or political flaws 
that facilitated their corruption, so will a predominantly corrupt 
system self-correct to maintain its corruption following a purge.'' 
\23\
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\23\  Robert Harris, Political Corruption: In and Beyond the Nation 
State (London: Routledge, 2003), 63.
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    This is reinforced by anticorruption measures that have, until 
recently, almost exclusively been used to settle political vendettas. 
For instance, a corruption audit conducted by the Tymoshenko government 
(2007-2010) was criticized after it labeled only one out of 14 
preceding Ukrainian governments as corrupt. Moreover, politicians have 
been reluctant to support criminal charges against members of their own 
party and, as Kuzio points out, usually ``defend their colleagues from 
accusations of corruption and election fraud by claiming that the 
charges are product of `political repression.' '' \24\
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\24\  Taras Kuzio, ``Political Culture and Democracy: Ukraine as an 
Immobile State,'' East European Politics and Societies 25, no. 1 
(2011): 88-113.

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3.4. Ukrainian Anticorruption Efforts Today 

    The Carnegie Endowment's April 2017 Ukraine Reform Monitor noted, 
``In the past year, Ukraine's reforms proceeded more slowly than 
previously against the background of consolidation of executive power 
under President Petro Poroshenko, resistance from oligarchs, and 
opposition in the parliament.'' \25\
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\25\  ``Ukraine Reform Monitor: April 2017,'' Ukraine Reform Monitor 
Team, Carnegie Endowment for International Peace, April 19, 2017, 
http://carnegieendowment.org/2017/04/19/ukraine-reform-monitor-april-
2017-pub-68700 (accessed July 25, 2017), 1.
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    Nonetheless, there are reasons to be hopeful and there are many 
positive indications with regard to anticorruption reform in Ukraine. 
These primarily include the establishment of an anticorruption 
architecture and the success of reforms in a number of sectors, most 
significantly in energy, banking, public procurement, healthcare, 
economic regulation, and police.

3.4.1. The Anticorruption Architecture

    Rather than opting for wholescale reform of the system of law 
enforcement after Euromaidan, \26\ Ukraine has instead implemented 
partial reform of the old system and developed parallel anticorruption 
bodies.
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\26\  ``Euromaidan'' describes the 2013-2014 protests against 
corruption that were spurred by then President Viktor Yanukovych's 
sudden decision not to sign an Association Agreement with the EU at the 
behest of Russia. Following months of protests that grew violent and 
included many attacks on protestors by government-hired thugs and at 
least 100 fatalities, Yanukovych fled the country via helicopter and is 
now taking asylum in Russia. He is still wanted in Ukraine for his 
crimes against protestors as well as the massive corruption he indulged 
in as President. The period that includes Euromaidan to the flight of 
Yanukovych has come to be known as the ``Revolution of Dignity.''
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    Additionally, the State Security Service (SBU) has not been subject 
to reform. The judicial system is currently subject to reforms, but the 
speed is glacial, offering the corrupt judges within the existing 
system ample opportunities to manipulate the reforms.
    While often a subject of criticism, the anticorruption architecture 
in Ukraine is new and is a significant improvement on anything that has 
been stood up in the past. Its subdivisions are as follows:

    The National Anticorruption Bureau (NABU): NABU is responsible for 
the investigation of officials thought to have committed acts of grand 
corruption. It has shown some major success so far, with the website 
claiming there are 410 proceedings under investigation, 260 notices of 
suspicion, 141 indictments, and 92 cases in court as of October 11, 
2017. \27\ Most recently, on October 11, 2017, Deputy Minister of 
Defense and Igor Pavlovsky and Director of the Department of Public 
Procurement and Material Supplies of the Ministry of Defense Volodymyr 
Hulevych were arrested as part of a NABU-led investigation. A NABU-led 
investigation also led to the stripping of parliamentary immunity from 
Rada Member Oleksandr Onyshchenko, a rare occurrence that demonstrates 
NABU's influence. He is now a fugitive outside the country. NABU's 
investigation into his corrupt dealings is ongoing. \28\
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\27\  National Anti-Corruption Bureau of Ukraine, NABU Homepage, 
https://nabu.gov.ua/en (accessed October 11, 2017).
\28\  ``Ukraine 2016 Human Rights Report,'' Bureau of Democracy, Human 
Rights, and Labor, The U.S. Department of State, March 3, 2017, https:/
/www.state.gov/j/drl/rls/hrrpt/2016/eur/265484.htm (accessed July 25, 
2017), 37.
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    Additionally, its investigations have led to the arrest of the head 
of the State Fiscal Service, Roman Nasirov, and one of the alleged grey 
cardinals \29\ in the Rada, Mykola Martynenko. Both Nasirov and 
Martynenko have been let out on bail by the courts. In the case of 
Nasirov, his family managed to pay 100 million hryvnia ($3.7 million) 
in bail. \30\
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\29\  Individuals who are in charge of a party's corrupt financing.
\30\  Daryna Krasnolutska, ``Get-Out-of-Jail Cards Frustrate Ukraine's 
Anti-Corruption Cops,'' Bloomberg Politics, May 5, 2017, https://
www.bloomberg.com/news/articles/2017-05-05/get-out-of-jail-cards-
frustrate-ukraine-s-anti-corruption-cops.
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    NABU has so far performed impressively, but continues to be under 
threat from oligarchic interests in Ukrainian society. For example, 
Hrant Kostanyan of the Center for European Policy Studies points out, 
``The unreformed prosecutor general's office, which retains its Soviet-
style powers of coercion, undermines the work of the NABU, whose 
detectives even got into fistfights with members of the general 
prosecutor's office in the course of performing their duties.'' \31\ 
NABU also requires additional investigative authorities, such as the 
ability to carry out independent wiretapping, in order to grow in 
effectiveness.
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\31\  Hrant Kostanyan, ``Ukraine's unimplemented anti-corruption 
reform,'' Center for European Policy Studies, February 10, 2017, 
https://www.ceps.eu/publications/ukraine%E2%80%99s-unimplemented-anti-
corruption-reform,2.

    The National Agency for the Prevention of Corruption (NAPC): NAPC 
is responsible for setting anticorruption policy in Ukraine, and also 
administers the online financial disclosures (known as e-declarations) 
of public officials.
    The implementation of e-declaration requirements has been lauded by 
observers as a major anticorruption achievement. \32\ According to the 
Annual Country Reports on Human Rights Practices for 2016 by the U.S. 
Department of State, there were indications of near total compliance 
with e-declaration requirements among officials, and the results 
provoked public outcry at the lavish lifestyles of these officials. 
\33\
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\32\  Oleksandr Sushko and Olena Prysyatkko, ``Nations in Transit: 
Ukraine,'' Freedom House, 2017, https://freedomhouse.org/report/
nations-transit/2016/ukraine, 11.
\33\  ``Ukraine 2016 Human Rights Report,'' The U.S. Department of 
State, 39.

    The Specialized Anticorruption Prosecutor's Office (SAPO): Although 
SAPO is not a legislatively created agency like NABU and NAPC, it 
carries out the prosecutions of cases that are investigated by NABU. 
The Specialized Anticorruption Prosecutor (SAP) is a deputy to the 
Prosecutor General of Ukraine, but even so has demonstrated 
considerable independence and integrity.
    The missing piece is a National Anticorruption Court, which is 
currently a top demand of the International Monetary Fund (IMF), since 
NABU and the anticorruption prosecutor must complete their cases in an 
ordinary court system that remains pervasively corrupt.
3.4.2. Energy Sector Reform

    The most important anticorruption reform has occurred in the energy 
sector. Domestic gas subsidies coupled with subsidized Russian gas 
imports have long made this sector the source of massive corruption and 
the fortunes of many oligarchs. \34\
---------------------------------------------------------------------------
\34\  Gas arbitrage has been the premier source of corrupt fortunes 
since Ukraine's independence. Politically connected individuals engaged 
in gas arbitrage by purchasing either domestically subsidized gas from 
the state or subsidized Russian gas at cut-rate prices and then selling 
it at market prices for enormous profits. Russia offered these 
subsidized imports for two reasons: (1) in order to gain influence over 
and corrupt Ukrainian officials so as to affect the direction of 
Ukrainian development and (2) in order to keep the Ukrainian domestic 
gas market underdeveloped and corrupt so as to preserve Ukrainian 
dependence on Russian gas supplies, which enables Russia to use gas as 
a geopolitical tool.
---------------------------------------------------------------------------
    By ceasing the practice of hidden energy subsidies, Ukraine has 
dealt a major blow to the corrupt practice of gas arbitrage while also 
managing to halve the level of domestic gas consumption. The state oil 
and gas company, Naftogaz, has also undergone significant corporate 
governance reform, transforming it from one of the most unprofitable 
companies in Eastern Europe to the largest contributor to Ukraine's 
state budget. Finally, Ukraine is no longer purchasing gas from Russia 
and has diversified and significantly increased its gas imports from 
alternative sources as well as domestic gas production. \35\
---------------------------------------------------------------------------
\35\  Sushko and Prysyatkko ``Nations in Transit: Ukraine,'' 12.

---------------------------------------------------------------------------
3.4.3. Banking Reform

    Banking reform has been moderately successful in Ukraine. According 
to a summary of the statements of Valeria Gontareva, a governor of the 
National Bank of Ukraine, at a recent Atlantic Council forum, ``100 
percent of ownership in the Ukrainian banking system is accounted for-
up from only 40 percent when she took over as governor in 2014.''
    It continues, ``Ukraine undertook further reform in the banking 
sector to solve issues of insolvency and illiquidity, money laundering, 
and nontransparent ownership.''
    Gontareva commented, ``One of the biggest prior problems of the 
Ukrainian banking sector was related-party lending,'' which she 
referred to as the ``oligarch banking model.'' \36\
---------------------------------------------------------------------------
\36\  Jack Gloss, ``Ukrainian Officials Tout Banking Sector Reforms,'' 
Atlantic Council, April 27, 2017, http://www.atlanticcouncil.org/blogs/
new-atlanticist/ukrainian-officials-tout-banking-sector-reforms.
---------------------------------------------------------------------------
    The same summary also notes the comments of Susan Schadler, senior 
fellow at the Centre for International Governance Innovation, who 
concluded, ``A cleaned-up banking system without concerns of non-
performing loans or unclear ownership, and sustainable fiscal practices 
generally lead to macroeconomic stability . . . if Ukraine can keep 
those conditions in place, the risk of crisis is pretty low.'' \37\
---------------------------------------------------------------------------
\37\  Ibid.

---------------------------------------------------------------------------
3.4.4. Public Procurement Reform

    Another anticorruption milestone has been the implementation of 
``ProZorro,'' a web platform through which by law all public 
procurement in Ukraine must now occur. The platform hinders corruption 
in public procurement, resulting in significant savings for the state, 
and was lauded at the Public Procurement Awards as ``one of the best 
public sector procurement technologies in the world.'' \38\
---------------------------------------------------------------------------
\38\  Sushko and Prysyatkko ``Nations in Transit: Ukraine,''11.
---------------------------------------------------------------------------
    The story of how this system came about is illuminating as to the 
potential ability of civil society to affect reform in Ukrainian 
society. Per Oksana Huss, a scholar of anti-corruption with a focus on 
Ukraine at the University of Duisburg-Essen, ``In Ukraine, the 
activists from the civil society developed ProZorro independently from 
the state. Because of a lack of public trust of the Government, during 
the test phase, the activists transferred the ownership license for 
ProZorro not to the state, but to the NGO Transparency International on 
a free-of-charge basis.'' \39\
---------------------------------------------------------------------------
\39\  Oksana Huss, ``The Perpetual Cycle of Political Corruption in 
Ukraine and Post-Revolutionary Attempts to Break Through It,'' in 
Revolution and War in Contemporary Ukraine, ed. Olga Bertelsen, vol. 
161 ser. Soviet and post-Soviet politics and society (Stuttgart: 
Ibidem-Verlag, 2016), 340.

---------------------------------------------------------------------------
3.4.5. Healthcare Reform

    Healthcare has long been a neglected sector of reform in Ukraine 
and one rife with procurement corruption. However, a 2015 decision of 
the government to allow only the United Nations Development Program 
(UNDP), the United Nations Children's Fund (UNICEF), and the 
international company Crown Agent to procure medications for the state 
led to a marked reduction in healthcare corruption related to the 
procurement of medications. \40\
---------------------------------------------------------------------------
\40\  Oksana Bedrantenko, ``Why I'm Optimistic about Ukraine's Reforms 
in 2017,'' Atlantic Council, December 21, 2016, http://
www.atlanticcouncil.org/blogs/ukrainealert/why-i-m-optimistic-about-
ukraine-s-reforms-in-2017 (accessed July 25, 2017), 1.
---------------------------------------------------------------------------
    In addition, a reform plan rolled out by the government on November 
30, 2016 seeks to fundamentally transform the sector by making 
healthcare available to all Ukrainian citizens and funded via general 
taxation. \41\
---------------------------------------------------------------------------
\41\  ``Ukraine Reform Monitor: April 2017,'' Carnegie Endowment for 
International Peace, 6.
---------------------------------------------------------------------------
    Acting Ukrainian Minister of Health, Ulana Suprun, also has been 
proactive about reforming and rooting out the massive corruption within 
the country's health care system. Melinda Haring, editor of the 
Atlantic Council's UkraineAlert blog, writes, ``Suprun and her team 
have designed a system that reforms palliative, emergency, and primary 
care simultaneously. The new National Health Service would be an 
independent body in the executive branch under the Cabinet of 
Ministers, much like the National Anticorruption Bureau of Ukraine.'' 
\42\
---------------------------------------------------------------------------
\42\  Melinda Haring, ``Ulana Suprun: Tough, Tenacious, and 
Transforming Ukraine's Health Care,'' Atlantic Council, June 6, 2017, 
http://www.atlanticcouncil.org/blogs/ukrainealert/ulana-suprun-tough-
tenacious-and-transforming-ukraine-s-health-care (accessed July 26, 
2017).
---------------------------------------------------------------------------
    Unfortunately, the Rada did not pass these reforms. Suprun 
acknowledged this, stating, ``Our team worked effectively to prepare 
the reform, but there was no political will to continue this at the top 
level.'' \43\
---------------------------------------------------------------------------
\43\  Anna Nemtsova, ``The American Doctor Trying to Cure Ukraine's 
Corruption,'' The Daily Beast, July 18, 2017, http://
www.thedailybeast.com/the-american-doctor-trying-to-cure-ukraines-
corruption (accessed July 25, 2017).

---------------------------------------------------------------------------
3.4.6. Regulatory Reform

    Ukraine has also achieved considerable economic deregulation via a 
package of reforms that came shortly after the Euromaidan. This has 
been demonstrated by a move on the World Bank's Ease of Doing Business 
Index from rank 112 of 189 in 2013 to a rank of 83 in 2015 and 80 in 
2017. \44\ \45\ Greater deregulation has helped to counter the 
corruption that Ukraine's arcane regulatory codes made possible.

\44\  Oleh Havrylyshyn, ``Reforms and Performance under Poroshenko. 
2014-Present,'' in The Political Economy of Independent Ukraine, part 
of the series Studies in Economic Transition, ed. Jens Holscher and 
Horst Tomann (London: Palgrave Macmillan, 2017), 172.
\45\  ``Ease of Doing Business in Ukraine,'' Doing Business, The World 
Bank, 2017, http://www.doingbusiness.org/data/exploreeconomies/ukraine 
(accessed June 25, 2017).

---------------------------------------------------------------------------
3.4.7. Police Reform

    Among the first reforms in post-Euromaidan Ukraine was the law 
creating the National Police of Ukraine. \46\ This was accompanied by 
the recruiting of Georgia's Eka Zguladze, former Acting Interior 
Minister of Georgia, and former Georgian President Mikhail 
Saakashivili, as First Deputy Minister of Internal Affairs and Governor 
of Odessa, respectively, in hopes of carrying out police reforms 
similar to the dramatic ones that were carried out in Georgia. \47\ 
\48\ \49\ oth of these individuals have since left their Ukrainian 
government posts. Nevertheless, the Ukrainian police have undergone 
significant reform, with a smaller, more professional, better paid 
police force, who entered through a rigorous recruitment system.
---------------------------------------------------------------------------
\46\  Thomas De Waal, ``Fighting a Culture of Corruption in Ukraine,'' 
The Carnegie Endowment for International Peace, April 18, 2016, http://
carnegieeurope.eu/2016/04/18/fighting-culture-of-corruption-in-ukraine-
pub-63364.
\47\  As governor of Odessa, Saakashvili discredited himself by voicing 
approval for a pogrom carried out against Roma in Odessa in August 
2016. Former OSCE Office of Democratic Institutions and Human Rights 
(ODIHR) Director Georg Link responded by calling ``upon the Ukrainian 
authorities to enforce the law, based on the principles of equality and 
non-discrimination. Authorities need to firmly counter violence against 
and scapegoating of Roma.''
\48\  Pigman, Lincoln. ``Mob in Ukraine Drives Dozens of Roma from 
Their Homes.'' The New York Times. August 30, 2016, https://
www.nytimes.com/2016/08/31/world/europe/ukraine-roma.html.
\49\  ``Ukrainian authorities must stand against anti-Roma violence, 
address interethnic tension, restore respect for rule of law, says 
OSCE/ODIHR Director.'' Office for Democratic Institutions and Human 
Rights, Organization for Security and Co-operation in Europe, September 
2, 2016, Press Release, http://www.osce.org/odihr/262301.
---------------------------------------------------------------------------
    Recently, Ukrainian Chief of Police Khatia Dekanoidze, another 
Georgian who formerly served in the Georgian government, stepped down. 
Carnegie's Ukraine Reform Monitor notes that her replacement was chosen 
via an open process with civil society and international expert 
participation.
    As a practical matter, there is a shortage of qualified personnel. 
\50\ Finally, the public enthusiasm over patrol police reform has 
faded. The old police have remained in parallel and they often oppose 
the actions of the new patrol police. When the patrol police arrest a 
criminal, prosecutors let those with good connections out and sensitive 
cases rarely reach courts.
---------------------------------------------------------------------------
\50\  ``Ukraine Reform Monitor: April 2017,'' Carnegie Endowment for 
International Peace, 5.

---------------------------------------------------------------------------
3.4.8. Skepticism

    Despite progress, Carnegie's April 2017 Ukraine Reform Monitor 
notes, ``The public perception is that corruption is still very high.'' 
\51\
---------------------------------------------------------------------------
\51\  ``Ukraine Reform Monitor: April 2017,'' Carnegie Endowment for 
International Peace, 2.
---------------------------------------------------------------------------
    Last year, Pierre Vimont, senior fellow at Carnegie and former 
French Ambassador and European External Action Service official, 
commented, ``A vast majority of Ukrainians have little trust in the 
success of these reforms. Because of perceptions of corruption, the 
persistent power of oligarchs, incompetence, or a lack of real 
commitment, public support seems to be lagging behind.'' \52\
---------------------------------------------------------------------------
\52\  Pierre Vimont, ``Ukraine's Indispensable Economic Reforms'' The 
Carnegie Endowment for International Peace, April 29, 2016, http://
carnegieeurope.eu/2016/04/29/ukraine-s-indispensable-economic-reforms-
pub-63490.
---------------------------------------------------------------------------
    The total amounts of corrupt revenues have undoubtedly declined, 
but what people notice is how often they are asked for bribes, and that 
frequency does not appear to have declined. In particular, the 
judiciary continues to resist reform.
    Oleh Havrylyshyn, an expert on Ukrainian economic policy, comments:

    The lack of real action is most often discussed with reference to 
prosecutors bringing cases to the courts; it suffices to note that 
while corruption charges have been laid out, expert observers for the 
most part consider them low level, and not a single case exists against 
senior officials of the Yanukovych regime, nor against judges, nor the 
security personnel responsible for the killing of 100 demonstrators at 
the Euromaidan. \53\
---------------------------------------------------------------------------
\53\  Havrylyshyn, ``Reforms and Performance under Poroshenko. 2014-
Present,'' 179.

    Does this lack of demonstrable action mean that Ukraine is headed 
for a post-Orange Revolution \54\ return to corruption once Ukrainian 
people become fed up enough with the slow pace and return to political 
disillusionment? Havrylyshyn notes, ``So far there appears to be a 
somewhat uneasy consensus among observers that important areas of 
progress are visible, but on the whole not enough has been done.'' \55\
---------------------------------------------------------------------------
\54\  The Orange Revolution describes the peaceful demonstrations that 
occurred in Ukraine in reaction to the rigging of the 2004 presidential 
elections. Demonstrators successfully demanded a revote, which occurred 
with international observers present and led to the election of Viktor 
Yushchenko.
\55\  Ibid., 168.
---------------------------------------------------------------------------
    Ultimately, it would seem that the reform currently taking place in 
Ukraine is having an effect, but must continue to be pushed hard. While 
there are pitfalls that could yet emerge, Ukraine is moving in the 
right direction. However, these potential pitfalls are plentiful and 
require constant vigilance on the part of the international community 
and Ukrainian civil society.

              IV.  HISTORICAL ANALYSIS


4.1. Kravchuk (1991-1994)

    The early days of independent Ukraine were tumultuous. A laser 
focus on nation-building at the expense of all other state policy left 
organized crime, and therefore also corruption, to thrive.
    When Ukraine regained its independence economic chaos reigned. 
Serhiy Kudelia, a scholar of Ukrainian politics, comments:

    After the Soviet breakup, Ukraine emerged as a financially 
impoverished state with a factionalized political elite, rapacious 
entrepreneurial class, and a weak civil society. This situation created 
a favorable environment in which political and business actors, guided 
primarily by short-term interests of quick wealth accumulation, could 
prey on the state without limits. \56\
---------------------------------------------------------------------------
\56\  Serhiy Kudelia, ``Corruption in Ukraine: Perpetuum Mobile or the 
Endplay of Post-Soviet Elites?'' in Beyond the Euromaidan: Comparative 
Perspectives on Advancing Reform in Ukraine, ed. Henry E. Hale and 
Robert W. Orttung (Stanford: Stanford University Press, 2016), 68.

    He calls this phase atomized corruption, arguing that it set the 
stage for the more structured oligarchic corruption that would come 
later. \57\
---------------------------------------------------------------------------
\57\  Ibid.
---------------------------------------------------------------------------
    Corruption under President Leonid Kravchuk was notable for its 
free-for-all nature. Kudelia says, ``The multitude of actors involved 
in corrupt dealings with the state maintained their access to spoils 
largely through personal ties and commitment to share acquired wealth. 
The system of grand corruption, however, was decentralized and devoid 
of unified political purpose.'' \58\
---------------------------------------------------------------------------
\58\  Ibid.
---------------------------------------------------------------------------
    However, grand corruption was not absent as petty corruption and 
organized crime thrived. Ukrainian Prime Minister Yukhym Zviahilsky 
(1993-94) indulged in what Anders Aslund, an expert on post-communist 
economic transitions at the Atlantic Council, calls ``unabashed rent 
seeking'' during this phase of history, as he and Kravchuk attempted to 
rebuild the command economy. \59\
---------------------------------------------------------------------------
\59\  Anders Aslund, How Ukraine Became a Market Economy and Democracy 
(Washington DC: Peterson Institute for International Economics, 2009), 
46.
---------------------------------------------------------------------------
    Aslund notes, ``The only winners of this policy reversal (back to a 
command economy) were Zviahilskiy and his business partners. They made 
money on foreign trade arbitrage between low domestic prices of energy, 
metals, and chemicals and much higher world market prices. Since they 
controlled foreign trade licensing, they ensured that profits stayed in 
their circle.'' \60\
---------------------------------------------------------------------------
\60\  Ibid., 47.
---------------------------------------------------------------------------
    Zviahilskiy was a pioneer of corruption. This method of trade 
arbitrage--buying goods at artificially low prices at home, selling 
them at global market prices abroad, and pocketing the difference--
would become the main method through which the various Ukrainian 
oligarchs would make their fortunes, specifically through gas 
arbitrage. \61\ The other method of gas arbitrage, via the purchase and 
sale at global market prices of artificially cheap Russian gas imports 
originated at this stage as well. \62\ State credits and subsidies were 
also handed out. \63\
---------------------------------------------------------------------------
\61\  Anders Aslund, Ukraine: What Went Wrong and How to Fix It 
(Washington DC: Peterson Institute for International Economics, 2015), 
186.
\62\  Aslund, How Ukraine Became a Market Economy and Democracy, 55.
\63\  Ibid., 56.
---------------------------------------------------------------------------
    To hear Aslund tell it:

    In this way, a small group of privileged insiders usurped a huge 
share of GDP in the early years of transition and grew even stronger. 
Their wealth was not based on property but on arcane financial flows. 
For society, the result was untold social suffering and sharply rising 
income differentials. Ukraine reached a Gini coefficient \64\ of 47, 
about as much as Russia or the Latin American average. \65\
---------------------------------------------------------------------------
\64\  A Gini coefficient is a statistical measure of distribution, most 
often used as a way to measure
inequality.
\65\  Ibid., 56.

    Virtually no efforts at anticorruption were made during this period 
of Ukrainian history. The chaotic nature of the state, a single-minded 
focus on nation-building, and a lack of the formal institutions 
required to address organized crime left Ukraine helpless to confront 
the cancer of corruption growing in its midst. \66\
---------------------------------------------------------------------------
\66\  Louise Shelley, ``Organized Crime and corruption in Ukraine: 
Impediments to the Development of a Free Market Economy,'' 
Demokratizatsiya: The Journal of Post-Soviet Democratization 6, no. 2 
(1998): 648.
---------------------------------------------------------------------------
    Havrylyshyn claims that this interpretation is too generous to 
Kravchuk and that he really could have done more to kick-start the 
economy and combat corruption. ``History needs to revise its relatively 
benign interpretation of Kravchuk's Damascene conversion to the 
independence cause, as the nation builder who may have made a `small' 
mistake in giving too little priority to economic reforms,'' he says. 
\67\
---------------------------------------------------------------------------
\67\  Oleh Havrylyshyn, ``Ukraine: Greatest Hopes, Greatest 
Disappointments,'' in The Great Rebirth: Lessons from the Victory of 
Capitalism over Communism, ed. Anders Aslund and Simeon Djankov 
(Washington DC: Peterson Institute for International Economics, 2014), 
172.
---------------------------------------------------------------------------
    Louise Shelley, writing in 1999, comments on the ubiquity of 
organized crime early on in the country's history, ``The political 
costs of organized crime for Ukraine are staggering. The pervasive 
corruption and the penetration of organized crime into the political 
process are inhibiting the development of new laws needed to develop a 
democratic free market economy.'' \68\
---------------------------------------------------------------------------
\68\  Shelley, ``Organized Crime and corruption in Ukraine: Impediments 
to the Development of a Free Market Economy,'' 649.
---------------------------------------------------------------------------
    Aslund concludes, ``Ukraine's fundamental problem is that it did 
not experience any clear break from the communist system. Its tardy 
transition to a market economy bred pervasive corruption by giving the 
old elite ample opportunities to transform their power into personal 
wealth.'' \69\ The failure to implement liberalizing reforms set the 
stage for institutionalized corruption that has proven remarkably 
resilient since. In a manner of speaking, Ukraine got itself into 
``good governance debt'' and has been trying to get out since.
---------------------------------------------------------------------------
\69\  Aslund, Ukraine: What Went Wrong and How to Fix It, 40.

---------------------------------------------------------------------------
4.2. Kuchma (1994-2005)

    The two terms of President Leonid Kuchma saw the largest paradigm 
shift in the history of corruption in Ukraine as the free-for-all of 
the Kravchuk days gave way to the rise of the oligarchs.
    The era of Kuchma began with at least the recognition that 
corruption was a problem for the country and an internal enemy that 
would have to be defeated if Ukraine ever desired to be a prosperous 
democracy. The first push to fight corruption came in the form of a 
series of presidential decrees in 1994 that addressed a large variety 
of issues from taxation to deregulation in an effort to create a proper 
free market economy that, on its own, would help to battle corruption. 
\70\ Unfortunately, most of these decrees were later reversed.
---------------------------------------------------------------------------
\70\  Aslund, How Ukraine Became a Market Economy and Democracy, 74.
---------------------------------------------------------------------------
    The first major piece of legislation targeting corruption, the Law 
on Combating Corruption, ``was adopted in 1995 and detailed ways to 
control and punish corruption offenses for a relatively broad range of 
public officials.'' \71\ This law, like so many after it, proved 
toothless and unable to address the issues of pervasive grand 
corruption that had developed in Ukraine.
---------------------------------------------------------------------------
\71\  Kudelia, ``Corruption in Ukraine: Perpetuum Mobile or the Endplay 
of Post-Soviet Elites?'' 62.
---------------------------------------------------------------------------
    Kuchma, like all presidents after him, paid lip service to 
combating corruption. As Huss writes:

    Under Kuchma, the Law on Prevention of Corruption and the Concept 
on Fight against Corruption for 1998-2005 were introduced. Yushchenko 
developed the Concept of Overcoming Corruption ``On the Way Toward 
Integrity'' and formed the National Bureau of Investigation 
subordinated to the Prosecutor General. Yanukovych advanced the 
National Anticorruption Strategy for 2011-2015 and the National 
Anticorruption Committee. \72\
---------------------------------------------------------------------------
\72\  Huss, ``The Perpetual Cycle of Political Corruption in Ukraine 
and Post-Revolutionary Attempts to Break Through It,'' 320.

    Despite an early reform drive in the first two years of Kuchma's 
administration, corruption remained much the same free-for-all that it 
had been under Kravchuk. This changed with the introduction of the 1996 
president-centric constitution, which led to the rise of the oligarchs 
as Kuchma cultivated ``loyal business clans'' and developed 
``clientelistic relationships with subordinate officials who had direct 
access to cash flows to the state budget and capable of diverting them 
for his political purposes.'' \73\ Kudelia calls this phase patronal 
corruption. \74\
---------------------------------------------------------------------------
\73\  Kudelia, ``Corruption in Ukraine: Perpetuum Mobile or the Endplay 
of Post-Soviet Elites?'' 69.
\74\  Kudelia, ``Corruption in Ukraine: Perpetuum Mobile or the Endplay 
of Post-Soviet Elites?'' 68.

    This was also the era of another infamously corrupt Prime Minister, 
Pavlo Lazarenko. \75\ During his single year in office, Lazarenko built 
upon Zviahilskiy's legacy of grand corruption with massive fraud and 
money laundering, which involved ``defrauding the state budget of more 
than $200 million in the period from 1993 to 1997 through gas trading 
and other schemes,'' according to Kudelia. \76\
---------------------------------------------------------------------------
\75\  Aslund, How Ukraine Became a Market Economy and Democracy, 95.
\76\  Kudelia, ``Corruption in Ukraine: Perpetuum Mobile or the Endplay 
of Post-Soviet Elites?'' 70.
---------------------------------------------------------------------------
    Ultimately, Lazarenko was ousted by Kuchma after the latter 
realized that Lazarenko's stolen funds were to be used to finance 
Lazarenko's own presidential bid. \77\ Eventually, Lazarenko wound up 
in a Californian jail after he fled to the United States and was tried 
and found guilty for money laundering by a U.S. court.
---------------------------------------------------------------------------
\77\  Ibid., 70.

    In 2000, Ukraine was at the brink of default. An alliance of 
oligarchs requested that Viktor Yushchenko, a young reformer and head 
of the national bank, be made Prime Minister. As a result, ``The first 
four months of 2000 saw the greatest reform drive that Ukraine had seen 
since the fall of 1994.'' \78\
---------------------------------------------------------------------------
\78\  Aslund, How Ukraine Became a Market Economy and Democracy, 133.

    Yushchenko was ousted by Kuchma after little more than a year after 
having been too successful for the taste of the oligarchs. Aslund 
comments, ``In April 2001 Yushchenko was ousted, but Ukraine had been 
reformed, and its rent-seeking society had been transformed into a 
productive market economy.'' \79\
---------------------------------------------------------------------------
\79\  Ibid., 128.

    Productivity does not mean an end to corruption though, and rent-
---------------------------------------------------------------------------
seeking may have been transformed, but it did not stop.

    In 2000, Prime Minister Yushchenko was the first to make a dent in 
Ukrainian corruption. His reforms targeted large swaths of the economy, 
with regulatory reform and privatizations that helped fight the state 
policies that made arbitrage possible. Most importantly, Yushchenko 
teamed up with Tymoshenko for the first time to take on rent-seeking in 
the energy sector.

    Aslund comments that an important reason why these reforms stuck 
and the 1994 ones did not was that ``the 2000 reforms were largely 
legislated, while the 1994 reforms had been imposed through decrees.'' 
\80\
---------------------------------------------------------------------------
\80\  Aslund, How Ukraine Became a Market Economy and Democracy, 150.

    He writes, ``They (Yushchenko and Tymoshenko) had transformed the 
oligarchs from rent seekers to producers, and the producers needed a 
functioning market economy, although they did not mind tax privileges 
and some protectionism.'' \81\ Corruption in Ukraine had fundamentally 
transformed from an entity that continually threatened the existence of 
the state to one that had merged with it.
---------------------------------------------------------------------------
\81\  Ibid., 153.

    Kuchma's loss of political legitimacy as a result of audio tapes 
implicating him in the murder of journalist Georgiy Gongadze, among 
other scandals and corrupt activity, neutered his power and brought on 
the era of Ukrainian corruption as it has largely existed, with many 
fluctuations, from 2001 to today: a grand political competition of 
---------------------------------------------------------------------------
self-serving oligarchs that precludes most reform.

    By the end of the Kuchma era, the oligarchs had come to dominate 
the political as well as business worlds of Ukraine as Kuchma himself 
became a lame duck. Nonetheless, the situation had strangely improved 
since the beginning of the era thanks to a clever set of anticorruption 
reforms that made it in the interest of the oligarchs to not milk the 
corrupt system to the brink of financial ruin.

4.3. Yushchenko (2005-2010)

    Corruption during the Yushchenko administration, which immediately 
followed the Orange Revolution, is best described by the word 
``retrenchment.'' The hopes of the Orange Revolution came to a 
screeching halt and started moving in reverse, setting Ukraine up for 
its worst era of corruption yet. Despite a handful of victories such as 
the Law on Joint Stock Companies, this era ``restored the gridlock of 
the Kravchuk presidency.'' \82\
---------------------------------------------------------------------------
\82\  Ibid., 232.

    While many instances of dubious political financing existed in the 
saga of the Orange Revolution, as in many Ukrainian elections, this 
triumph of the Ukrainian people was much more about the democratic 
---------------------------------------------------------------------------
development of Ukraine and its rejection of authoritarianism.

    Despite initially high hopes for combating corruption and making 
necessary reforms during Yushchenko's presidency, those individuals 
that led the Orange Revolution, notably Yushchenko and Tymoshenko, 
quickly fell into infighting and enabled corruption to thrive once 
again.

    The 2004 passage of the reactionary constitutional amendments, 
backed by oligarchs opposed to Yushchenko and the Orange Revolution had 
led to a significant neutering of presidential power. Combined with the 
implosion of the Orange Coalition, this resulted in what Kudelia calls 
``party cartel'' corruption, which he claims continues in Ukraine to 
this day. \83\
---------------------------------------------------------------------------
\83\  Kudelia, ``Corruption in Ukraine: Perpetuum Mobile or the Endplay 
of Post-Soviet Elites?'' 68.

    These ``party cartels'' are a clean break with ad hoc funding and 
individual-driven politics of the past. They function largely as 
bureaucratic rent collection and financing mechanisms to which 
oligarchs can contribute large sums anonymously and oftentimes still be 
---------------------------------------------------------------------------
in compliance with Ukrainian law.

    In addition to being better financing mechanisms and remaining 
politically engaged year-round, ``party cartels serve as a reassurance 
mechanism to funders concerned with the durability of the politicians' 
commitments.'' Kudelia continues, ``The notorious practice of party 
leaders to offer positions on the parties' electoral lists in exchange 
for campaign contributions, which became widespread in the early 2000s, 
has been one of the most effective ways for them continuously raise 
funds.'' \84\
---------------------------------------------------------------------------
\84\  Ibid., 72.

    Yushchenko's first Prime Minister, Tymoshenko, initiated a policy 
of re-privatization that largely targeted her political enemies. This 
was followed by the short-lived Yekhanurov government before Viktor 
Yanukovych, who had only recently been defeated in the 2005 
presidential election, even after attempting to win via electoral 
---------------------------------------------------------------------------
fraud, became Prime Minister in 2006.

    As Prime Minister, Yanukovych pursued a policy of corruption. 
Aslund writes, ``Corporate raiding was thriving as never before, and 
the government did nothing to stop it. Gas trade corruption was 
rampant, as was tax corruption. A constitutional court judge was caught 
red-handed accepting a bribe of $12 million. Yushchenko sacked her, but 
Yanukovych's side reinstated her.'' \85\
---------------------------------------------------------------------------
\85\  Aslund, How Ukraine Became a Market Economy and Democracy, 219.

    The Yanukovych government was eventually followed by a second 
Tymoshenko government, but the damage had been done. Yushchenko became 
---------------------------------------------------------------------------
an uncooperative, combative President who no longer engaged on reform.

    If the Kuchma era led to the rise of the oligarchs as the dominant 
movers and shakers of the Ukrainian political system and therefore also 
of Ukrainian corruption, the Yushchenko era displayed for all to see 
the supposed futility of trying to defeat them. The disillusionment 
that resulted from the failure of Yushchenko and the Orange Coalition 
led to the most corrupt era in Ukraine's history following the election 
in 2010 of an unlikely candidate: Viktor Yanukovych.

4.4. Yanukovych (2010-2014)

    Grand corruption on the grandest scale was the modus operandi of 
the Yanukovych administration. In particular, Yanukovych did everything 
he could to enrich his family, going to lengths that none before him 
had gone. This grand corruption was made much more easily attained by a 
reversion to the 1996 president-centric constitution of Kuchma after 
the Constitutional Court of Ukraine found the 2004 amendments limiting 
presidential power unconstitutional. Yanukovych was the first president 
to enjoy a steady durable majority in both parliament and government, 
and he quickly seized control over the Constitutional Court as well.
    Aslund comments:

    The Yanukovych family allegedly enriched itself during its four-
year reign through energy subsidies, discretionary public procurement, 
embezzlement from the state, privileged privatization, fraudulent 
refunds of value-added tax to exporters, extortion, and corporate 
raiding (i.e., forcing a businessman to sell his enterprise 
involuntarily at a low price). \86\
---------------------------------------------------------------------------
\86\  Aslund, Ukraine: What Went Wrong and How to Fix It, 92.

    He adds, ``Another source of corruption was outright theft from the 
government . . . the Yanukovych family mastered this art.'' \87\
---------------------------------------------------------------------------
\87\  Ibid., 94.
---------------------------------------------------------------------------
    The system was being transformed from the productive, if corrupt, 
equilibrium that had been established by the 2000 Yushchenko reforms 
back into the rent-seeking Kuchma era. Had this kept up, the state 
would have been in danger of eating itself alive, as it had nearly done 
in the past. Indeed, Aslund writes, ``In its last year, the Yanukovych 
regime grew increasingly surreal. The president concentrated power and 
wealth to an ever smaller group of family and friends, while doing 
nothing to satisfy his population. Ukraine's already fragile 
institutions were further undermined.'' \88\
---------------------------------------------------------------------------
\88\  Ibid., 101.
---------------------------------------------------------------------------
    The Euromaidan was a protest movement that started as a 
demonstration against corruption in as much as it was a protest against 
Yanukovych's pulling out at the last second of the European Union 
Association Agreement. Unlike the 2004 Orange Revolution, which was 
bloodless and peaceful, Euromaidan saw over a 100 fatalities.

4.5. Poroshenko (2014-Present)

    Shortly following Yanukovych's flight to Russia, Russia 
unilaterally annexed Crimea and initiated the conflict in the Eastern 
Donbas through a combination of backing for pro-Russia militant forces 
in Ukraine and an invasion by Russian military personnel. Amid this 
aggression, Ukraine held presidential elections, which led to Petro 
Poroshenko becoming president of Ukraine.
    For the first time in the history of Ukraine, it looks as though 
reducing the power of oligarchs significantly enough to render them 
nothing more than influential businessmen may be within sight. Aslund 
comments, ``The oligarchs have suffered considerable damage to their 
assets in the war-torn areas of Ukraine, rendering them weak. The 
crisis offers a chance to finally break their disproportionate 
influence over the state for good.'' \89\
---------------------------------------------------------------------------
\89\  Aslund, Ukraine: What Went Wrong and How to Fix It, 23.
---------------------------------------------------------------------------
    The efforts to combat corruption in post-Euromaidan Ukraine have 
been many, although some have criticized that they have been too slow. 
Sympathetic commentators have argued that it is difficult to fight 
corruption when a country is being invaded by Russia. However, 
Havrylyshyn points out that other commentators argue, ``Instead of 
pointing to the war as an excuse for slow reforms, one should, on the 
contrary, see the war as further reason to move as quickly as 
possible.'' \90\
---------------------------------------------------------------------------
\90\  Havrylyshyn, ``Reforms and Performance under Poroshenko. 2014-
Present,'' 182.
---------------------------------------------------------------------------
               
      V.  MAIN FACTORS BEHIND THE PERSISTENCE OF CORRUPTION IN UKRAINE


    Even though the persistence of corruption in Ukraine has been 
remarkable, it by no means is insurmountable. The following factors are 
the three most important behind the persistence of corruption in 
Ukraine:

      The oligarchs represent the single most significant 
factor behind the persistence of corruption in Ukraine.

      Incomplete economic liberalization enabled the 
consolidation of power for the early oligarchs.

      Gas arbitrage. Although other sectors have been the 
source of rampant corruption in Ukraine, nothing has engendered 
corruption quite like the gas trade, which has also offered Russia a 
back door to political influence in Ukraine. Luckily, much has already 
been done in post-Euromaidan Ukraine to combat corruption in this 
sector.

5.1. The Oligarchs

    Ukrainian oligarchs have successfully managed to block the creation 
of parties that could have promoted reforms that would have been in the 
interest of all Ukrainian citizens.
    Kuzio writes, ``Oligarchs prevent the emergence of a level playing 
field in politics by blocking the entrance of genuine political parties 
into the political arena.'' \91\ Every party is a piece in the 
oligarchs ``politics-as-business'' and reliant on oligarchs for the 
funding necessary to compete. Thereby, parties become indebted to 
oligarchs and support their political preferences, which are non-
ideological and tolerant of corruption. This influence peddling is 
facilitated by Ukraine's lack of constraints on political donations.
---------------------------------------------------------------------------
\91\  Kuzio, ``Oligarchs, the Partial Reform Equilibrium, and the 
Euromaidan Revolution,'' 181.
---------------------------------------------------------------------------
    Moreover, Ukraine's ``winner-take-all'' political system makes it 
possible for oligarchs to prevent the emergence of any truly national 
force that could crack down on corrupt practices.
    Oligarchic interest groups have promoted politicians and parties of 
all kinds who have focused solely on securing clear regional voting 
bases, and pitting different segments of Ukrainian society against each 
other, by exploiting the fault lines in Ukrainian identity and 
historical memory for their own political and economic purposes. Kuzio 
comments, ``Their funding of pro-Western political forces (for example) 
should not be misunderstood as backing reforms, fighting corruption, or 
promoting European integration, but instead understood as opportunism 
and survival tactics.'' \92\
---------------------------------------------------------------------------
\92\  Kuzio, ``Oligarchs, the Partial Reform Equilibrium, and the 
Euromaidan Revolution,'' 187.
---------------------------------------------------------------------------
    For example, a pro-Russian campaign targeting primarily 
southeastern Ukrainian citizens, mainly Russian-speaking and ethnic 
Russian, led to Kuchma's first electoral win in 1994. Only five years 
later-once his oligarch supporters' personal, political, and economic 
calculations required a change in political orientation-he managed to 
campaign and win elections on a pro-Western, ethnic Ukrainian platform 
targeting mostly western Ukrainians, a traditionally more nationalist 
voting base.
    While Presidents Yushchenko and Yanukovych did not flip-flop on 
their core constituencies, both built their presidential campaigns, and 
later governed, based on the divisions of identity in Ukrainian 
society, instead of attempting to build real national parties. Kuzio 
concludes, ``The key to Ukraine breaking free of the partial reform 
equilibrium and entering the path of European integration is the 
political will to demonopolize Ukraine's economy, politics, and media 
by reducing the power of the oligarchs and separating business and 
politics.'' \93\
---------------------------------------------------------------------------
\93\  Kuzio, ``Oligarchs, the Partial Reform Equilibrium, and the 
Euromaidan Revolution,'' 196.
---------------------------------------------------------------------------
    Now is the moment for Ukraine to strike. The general weakness of 
the oligarchs in the post-Euromaidan world, exemplified by Rinat 
Akhmetov's tremendous financial losses, has led to corruption 
retreating to the Rada, where parliamentary immunity protects against, 
or at least delays, prosecution and grey cardinals finance 
parliamentary factions through corrupt funds in exchange for loyalty 
guarantees. \94\ Until this holdout is tackled, business and politics 
will not be separate in Ukraine.
---------------------------------------------------------------------------
\94\  ``Rinat Akhmetov,'' Forbes, June 25, 2017, https://
www.forbes.com/profile/rinat-akhmetov/ (accessed June 25, 2017).

---------------------------------------------------------------------------
5.2. Incomplete Economic Liberalization

    A major reason that Ukraine continues to lag behind other post-
Soviet states, and post-communist states more generally, is Ukraine's 
lack of reforms early on. The years under Kravchuk exacerbated Soviet-
era corruption and led to the development of institutionalized 
corruption in the country that only became worse over time.
    This failure to complete economic liberalization is exacerbated by 
the crisis situation that Ukraine currently finds itself in. If the 
necessity of reforms was not clear enough, the war in the eastern 
Donbas and Crimea have further amplified the need to address Ukraine's 
institutionalized corruption because Ukraine will be more successfully 
able to confront those problems with its internal house in order.

5.3. Gas Arbitrage

    No single corrupt activity has been more destructive to Ukraine 
than the gas trade. It has built more fortunes of more oligarchs than 
any other. It is arguably more vital to the life of every Ukrainian 
citizen than any other. Most importantly, it is the only one that has 
been traded at such high volumes with Russia, almost always at an 
absurd discount, in its efforts to export corruption into Ukraine.
    By and large, Russia has succeeded. Oleh Havrylyshyn writes, ``In 
Ukraine, the very low price of imported gas . . . not only fed the 
rents of gas oligarchs, but induced related corruption with payoffs to 
politicians.'' \95\
---------------------------------------------------------------------------
\95\  Oleh Havrylyshyn, ``Controlling Corruption: The Elusive Golden 
Fleece?'' in The Political Economy of Independent Ukraine, part of the 
series Studies in Economic Transition, ed. Jens Holscher and Horst 
Tomann (London: Palgrave Macmillan, 2017), 266.
---------------------------------------------------------------------------
    Aslund comments, ``Gazprom should be treated as an organized crime 
syndicate with which no links are advisable.'' \96\ He notes that 
Ukraine is not the only country that Russia has implemented this policy 
against. ``Russia's oil transit through Latvia and Lithuania was the 
main source of high-level corruption in those two countries, and its 
end greatly helped both countries to check corruption.'' \97\
---------------------------------------------------------------------------
\96\  Aslund, Ukraine: What Went Wrong and How to Fix It, 203.
\97\  Ibid., 204.
---------------------------------------------------------------------------
    Local gas subsidies and the subsidized gas that is offered by 
Russia has hobbled the development of the local energy sector and 
enabled the gas arbitrage that has been taken advantage of time and 
again throughout Ukraine's history. The dependence of the oligarchs on 
subsidized gas to continue growing their fortunes provides a strong 
incentive for them to keep the energy sector underdeveloped and 
corrupt. This also enables Russia to use its gas monopoly as a 
geopolitical tool to demand concessions when necessary.
    Ukraine's recent energy sector reforms are extremely welcome and 
should be lauded. They speak to the ability of Ukraine to implement 
reform successfully. Although those who have built their fortunes 
through gas arbitrage will be able to seek rents elsewhere, these 
reforms are a serious blow to impunity, especially given the Russia 
connection. Nonetheless, more must be done to create a competitive 
energy sector.


           VI.  RECOMMENDATIONS


    Three main recommendations follow from this analysis. These are 
aimed at realizing a democratic and prosperous Ukraine with robust 
public institutions and rule of law. All policy leaders and activists 
involved in Ukraine's fight against corruption can play a part in 
implementation, monitoring, or advocacy, depending on how they are 
positioned. Taken together, these make up the three most important 
pieces to defeating corruption in Ukraine.

      Ukraine must implement remaining reforms. Ultimately, the 
oligarchs must come to realize that the rule of law is favorable to 
them in the long run and cease corrupt political manipulation, becoming 
productive private sector businessmen. This is sure to be an 
exceptionally difficult and complicated process.

      Ukraine must safeguard and take advantage of its civil 
society, including independent media. Anything further that can be done 
to increase their effectiveness should be. Nothing should be done to 
hinder them.

      The international community, and specifically the United 
States, the EU, and the international organizations that are a part of 
the Ukrainian struggle against corruption, should keep up the pressure 
and assistance.

    In general, those that wish to see successful reform in Ukraine 
should keep in mind the lessons of Georgia, a country that successfully 
saw through its catch-up reforms. Havrylyshyn writes, ``[Georgia] 
achieved the same rapid results in reforms and performance as the 
[central European and the Baltic countries] CEB, but did so in an 
environment of deeply entrenched rent-seekers, those with vested 
interests, their political pawns and pervasive corruption, perhaps 
worse than Ukraine.'' \98\
---------------------------------------------------------------------------
\98\  Oleh Havrylyshyn, ``Controlling Corruption: The Elusive Golden 
Fleece?'' 275.
---------------------------------------------------------------------------
    He goes on to summarize some of the World Bank's lessons for 
combating corruption that it derived from the Georgian case:

      Exercise strong political will

      Establish credibility early

      Launch a frontal assault

      Attract new staff

      Limit the role of the state

      Adopt unconventional methods

      Develop a unity of purpose and coordinate

      Tailor international experience to local conditions

      Harness digital technology \99\
---------------------------------------------------------------------------
\99\  Ibid., 272.
---------------------------------------------------------------------------
6.1. Remaining Reforms

    Sector-based reforms should be tackled in whatever order possible, 
simultaneously when possible or one-at-a-time as necessary. The most 
important thing is for the international community and Ukrainian civil 
society including independent media to keep a close watch for 
backsliding and sound the alarm at any deviations. Another danger that 
should be considered is the tendency of reforms to be enacted, but not 
implemented. Continued monitoring is necessary following the passage of 
any given reform. If Ukrainian officials know they will not get away 
with cheating, they may not try to. \100\
---------------------------------------------------------------------------
\100\  Antonidis et al., ``Strengthening Ukraine: Policy 
Recommendations for the New Administration,'' 7.

---------------------------------------------------------------------------
6.1.1. Judicial Reform

    The judiciary is far and away the sector most in need of reform in 
Ukraine in order to successfully combat corruption. While the new 
anticorruption investigation architecture is impressive and is working, 
it will amount to little if cases continually come before corrupt 
judges.
    Although constitutional amendments and a new legislative framework 
have been approved by the Rada that could eventually lead to the 
necessary reforms, they must be implemented properly. \101\
---------------------------------------------------------------------------
\101\  Sushko and Prysyatkko ``Nations in Transit: Ukraine,'' 3.
---------------------------------------------------------------------------
    These amendments will overhaul the Supreme Court with new judicial 
appointments based on an open and transparent selection process. They 
will also streamline lower courts and establish a Citizens' Integrity 
Council, to consist of 20 NGO representatives. This Council will 
oversee judges and communicate to the Higher Qualification Committee of 
Judges regarding the extent to which judges are upholding professional 
standards. This will hopefully result in speedier and more transparent 
trials. \102\
---------------------------------------------------------------------------
\102\  Ibid., 10
---------------------------------------------------------------------------
    A new ``High Council of Justice'' has also been formed to monitor 
the judiciary, with the power to submit judicial appointments to the 
President and pursue disciplinary action, including dismissal. 
Previously, only the Rada could dismiss judges, resulting in a high 
level of political rather than professional dismissals. This Council 
can also void judicial immunity, enabling arrest and prosecution of 
judges thought to be corrupt. However, the President continues to 
influence decisions with regard to transferring and promoting judges. 
This power should also be ceded to the Council so as to guarantee the 
independence of the judiciary. \103\
---------------------------------------------------------------------------
\103\  Antonidis et al., ``Strengthening Ukraine: Policy 
Recommendations for the New Administration,'' 8.
---------------------------------------------------------------------------
    The new legal framework also calls for the establishment of an 
anticorruption court, a missing link of the anticorruption 
architecture, where NABU's cases of grand corruption can be tried 
independent of the standard, unreformed judiciary itself mired in 
corruption until such a time as the standard judiciary is fully 
reformed.
    This report strongly recommends that this be the next large civil 
society and international community push. The IMF and the EU are also 
strongly in favor; establishment of an anticorruption court is a 
structural benchmark included in the IMF's most recent review. \104\ A 
selection procedure for judges that includes international involvement 
would be a central part of this process.
---------------------------------------------------------------------------
\104\  International Monetary Fund, European Department, ``2016 Article 
IV Consultation and third review under the Extended Arrangement, 
Requests for a Waiver of Non-Observance of a Performance Criterion, 
Waiver of Applicability, Rephasing of Access and Financing Assurances 
Review--Press Release; Staff Report; and Statement by the Executive 
Director for Ukraine,'' International Monetary Fund, p. 29.
---------------------------------------------------------------------------
    The proper implementation of this new judicial framework will be 
fought every step of the way by the oligarchs. Civil society and the 
international community must remain vigilant in their push to see that 
it is implemented to the highest possible standards.
    There are a handful of practical measures that can also be taken in 
addition to pursuing a new judicial framework to combat corruption in 
the judiciary. One such measure is increasing judicial wages. Much like 
the abysmal wages for police that have led to petty corruption in the 
past, low wages for judges make them particularly vulnerable to bribes. 
\105\ Relatedly, judges have been included in e-declarations processes 
and have come under investigation, which is a welcome development. 
\106\ An even more potent combination of carrots and sticks should be 
pursued. In addition, more judges and prosecutors need to be replaced.
---------------------------------------------------------------------------
\105\  Antonidis et al., ``Strengthening Ukraine: Policy 
Recommendations for the New Administration,'' 9.
\106\  Natalia Zinets, ``Fighting corruption, Ukraine starts to judge 
its judges,'' Reuters, May 25, 2017, http://www.reuters.com/article/us-
ukraine-corruption-insight-idUSKBN18L0HC.
---------------------------------------------------------------------------
    The ``Strengthening Ukraine'' report of the Bush School and U.S.-
Ukraine Foundation also recommend judicial exchanges. These exchanges 
would enable Ukrainian and European legal officials to better 
understand one another's judiciary with the goal of bringing Ukrainian 
judicial standards more in line with the European ones. \107\
---------------------------------------------------------------------------
\107\  Antonidis et al., ``Strengthening Ukraine: Policy 
Recommendations for the New Administration,'' 11.

---------------------------------------------------------------------------
6.1.2. Energy Sector Reform (Cont.)

    Despite steps forward, necessary reforms remain in the energy 
sector. While the reduction in energy subsidies, the corporate 
governance reform of Naftogaz, the cessation of purchases from Russia, 
the increase of gas imports from the rest of Europe, and the increase 
of domestic gas production is a start, what is needed now is the 
privatization of the energy sector. Regional energy distribution 
companies must be the targets of privatization efforts. \108\ Ukraine 
is on its way to accomplishing this thanks to the signing of the recent 
electricity market law. \109\ Now, this law, accompanied by 
deregulation, must be successfully implemented.
---------------------------------------------------------------------------
\108\  IMF, ``2016 Article IV Consultation and third review under the 
Extended Arrangement, Requests for a Waiver of Non-Observance of a 
Performance Criterion, Waiver of Applicability, Rephasing of Access and 
Financing Assurances Review--Press Release; Staff Report; and Statement 
by the Executive Director for Ukraine,'' p. 95
\109\  Interfax-Ukraine, ``Law on electricity market enters force,'' 
Kyiv Post, June 12, 2017, https://www.kyivpost.com/ukraine-politics/
law-electricity-market-enters-force.html.
---------------------------------------------------------------------------
    In addition, corporate governance reform and the introduction of 
ever greater transparency must continue and should include areas like 
procurement and transfer pricing. Chow argues, ``The aim should be to 
break up state-owned energy monopolies in order to promote competition 
and market efficiency, release the value of state assets, and remove 
the temptation for special interest groups to control energy 
franchises. It is not just the management, but the business model of 
Ukraine's energy sector that must change.''
    Finally, regulations governing the taxation of independent 
companies should be simplified to enable the development of a 
competitive and independent market. \110\ While the introduction of 
corporate governance structures to Naftogaz as part of reforming the 
company was a good start, the unbundling of former Soviet bureaucratic 
behemoths must continue. Additionally, the exploration of oil and gas 
fields is still governed by outdated regulations that need to be 
revised in order to boost domestic gas production. \111\
---------------------------------------------------------------------------
\110\  This should occur not only in the energy sector, but in the 
private sector as a whole and especially with regard to small and 
medium-sized, i.e. non-oligarchic, enterprises (SMEs). Non-oligarchic 
businesses are harmed by corruption unlike their oligarchic brethren 
and have interests that line up with those of civil society and the 
international community. They could potentially become a powerful voice 
in advocating for reforms.
\111\  Edward Chow, ``The High Stakes of Ukraine's Energy Reforms,'' 
The American Interest, October 21, 2016, https://www.the-american-
interest.com/2016/10/21/the-high-stakes-of-ukraines-energy-reforms/.
---------------------------------------------------------------------------
    Supporting the development of domestic production should be a key 
priority as, once Ukraine's domestic energy production is no longer 
captured by corrupt interests, it could achieve energy independence. 
``The problem is not geology, but the absence of a stable and 
attractive business climate for non-politically connected and honest 
investors,'' argues Chow. \112\
---------------------------------------------------------------------------
\112\  Ibid.

6.1.3. Safeguarding and Further Empowering the Anticorruption 
---------------------------------------------------------------------------
Architecture

    NABU's independence and jurisdiction over all high-profile 
corruption cases in Ukraine should be preserved. NABU's external audit 
commission, which can provide the grounds to dismiss the head of NABU, 
should also be selected via transparent and accountable processes and 
consist of independent individuals with impeccable reputations and 
experience in investigations in international corruption cases.
    To promote transparency and curtail the ability of the oligarchs to 
manipulate Ukrainian politics, \113\ NABU should be strengthened to 
more effectively perform its investigative duties. Besides being 
granted the authority to independently wiretap, NABU should also be 
empowered to monitor donations to parties and politicians. Accompanying 
reforms that establish limitations and regulations on political 
donations would be needed, and the party financing law that was passed 
in July 2016, but has not been enforced, must be implemented. \114\
---------------------------------------------------------------------------
\113\ Antonidis et al., ``Strengthening Ukraine: Policy Recommendations 
for the New Administration,'' 6.
\114\ Kostanyan, ``Ukraine's unimplemented anti-corruption reform,'' 3.
---------------------------------------------------------------------------
    NAPC's admirable work in e-declaration can also be improved by 
establishing verification mechanisms for e-declaration.

6.1.4. Banking Sector Reform (Cont.)

    Although the Ukrainian banking system has seen significant reform 
and is not as rife with corruption as it was in 2014, experts agree it 
still has a long way to go. \115\ The ``Strengthening Ukraine'' report 
of the Bush School and the U.S.-Ukraine Foundation recommend 
consolidation and full transparency as ways to further combat 
corruption in the banking sector. These reforms will make Ukraine's 
banks easier to monitor, enabling the government to ensure that they 
are complying with the law. Given the centrality of a corrupt banking 
sector to the wealth of the oligarchs, this sector will be especially 
difficult to reform. \116\
---------------------------------------------------------------------------
\115\  Gloss, ``Ukrainian Officials Tout Banking Sector Reforms.''
\116\  Antonidis et al., ``Strengthening Ukraine: Policy 
Recommendations for the New Administration,'' 14.
---------------------------------------------------------------------------
    According to Francis Malige, the managing director for Eastern 
Europe and the Caucasus of the European Bank for Reconstruction and 
Development, the most important four building blocks of any future 
banking reform are ``good conditions facilitating lending from banks 
which lower interest rates and shift lending to the real economy, 
rather than to the government; the development of capital markets; land 
reform that would allow banks to accept land as collateral; and 
privatization in the banking sector.'' \117\
---------------------------------------------------------------------------
\117\  Gloss, ``Ukrainian Officials Tout Banking Sector Reforms.''

---------------------------------------------------------------------------
6.1.5. Limit Parliamentary Immunity

    Parliamentary immunity should be carefully limited so that it is no 
longer a form of de facto blanket immunity. Ranking Helsinki Commission 
Senator Cardin has worked to limit parliamentary immunity in the OSCE 
region.
    Most notably, this included the adoption by the OSCE Parliamentary 
Assembly (OSCE PA) of a resolution proposed by Senator Cardin calling 
for the limiting of parliamentary immunity, entitled ``Resolution on 
Limiting Immunity for Parliamentarians in Order to Strengthen Good 
Governance, Public Integrity and the Rule of Law.'' \118\ The OSCE PA 
is an independent international institution related to, but not part of 
the intergovernmental OSCE made up of parliamentary delegations from 
the 57 participating States of the OSCE, which every year gather in an 
annual session to pass resolutions based on majority votes. \119\
---------------------------------------------------------------------------
\118\  Organization for Security and Co-operation in Europe, 
Parliamentary Assembly, Brussels Declaration of the OSCE Parliamentary 
Assembly and Resolutions Adopted at the Fifteenth Annual Session, 2006, 
Brussels: 32-33.
\119\  Troy C. Ware and Shelly Han, ``Corruption: A Problem that Spans 
the OSCE Region and Dimensions,'' Helsinki Commission 41, no. 13, 
December 30, 2009, http://lawandorderinrussia.org/2009/corruption-a-
problem-that-spans-the-osce-region-and-dimensions/.

---------------------------------------------------------------------------
6.2. Civil Society Including Independent Media

    The Ukrainian people have proven now on three different occasions--
as protesters during the Orange Revolution and the Euromaidan, and as 
volunteers assisting troops fighting Russian aggression--that their 
organizational capacity and desire for democracy and prosperity is 
greater than the forces that would bankrupt their country.
    Civil society has played a fundamental role in Ukraine's democratic 
transition, and remains a critical element of combating corruption. It 
is the first to the scene, pushes for change, and, ultimately, sees to 
it that changes stick. The independent media is no different. Ukrainian 
journalists played a critical role in the Euromaidan Revolution and 
continue to play an essential role as corruption watchdogs to this day.
    The big question then is how to safeguard and take advantage of 
these comparative advantages of Ukraine's. First, do no harm. Civil 
society and especially independent media should continue with their 
work without the introduction of any additional constraints. It is 
largely thanks to them that Ukraine remains politically competitive and 
that the country has not long since fallen to the siren song of 
authoritarianism. Moreover, their ability to uncover corruption is 
unparalleled. Who knows where Ukraine would be today without 
publications such as Ukrainska Pravda and Dzerkalo Tyzhnia. \120\
---------------------------------------------------------------------------
\120\  Aslund, Ukraine: What Went Wrong and How to Fix It, 97.
---------------------------------------------------------------------------
    Unfortunately, harm is being done. A recent law requires civil 
society activists who are working in anticorruption to complete e-
declarations similar to those that officials are now required to 
complete in an attempt to burden them needlessly. \121\ In addition, a 
recent article by Josh Cohen also explains how the SBU is harassing 
civil society activists on behalf of oligarchs. In order to counter 
this harassment, the SBU should be reformed in line with NATO 
standards. Any harm to civil society must be condemned and prevented 
such that civil society can do its job and continue to push for 
reforms. \122\ That said, it is also a demonstration of the fear that 
oligarchs have for civil society. Oligarchs would not be working so 
hard to stop Ukraine's civil society if they were not profoundly active 
and effective.
---------------------------------------------------------------------------
\121\  Adrian Karatnycky, ``Watching the Watchdogs: Why Ukraine's NGOs 
Should Disclose Assets, Too,'' Atlantic Council, March 29, 2017, http:/
/www.atlanticcouncil.org/blogs/ukrainealert/watching-the-watchdogs-why-
ukraine-s-ngos-should-disclose-assets-too.
\122\  Josh Cohen, ``Something Is Very Wrong in Kyiv: Ukraine Brags 
about Reforms and Harasses Activists,'' Atlantic Council, May 18, 2017, 
http://www.atlanticcouncil.org/blogs/ukrainealert/something-is-very-
wrong-in-kyiv.
---------------------------------------------------------------------------
    In her piece ``Corruption in Ukraine in Comparative Perspective,'' 
Daphne Athanasouli, a scholar of corruption at the University of Derby, 
recognizes Ukraine's civil society including independent media as a 
comparative advantage that it has to combat corruption.
    She recommends improving upon this advantage further through the 
introduction of greater e-government, essentially giving Ukraine's 
civil society including independent media a megaphone. She comments, 
``Progress in e-government can decrease corruption, rent-seeking, and 
regulatory capture in Ukraine by strengthening the accountability of 
public officials and politicians.'' \123\
---------------------------------------------------------------------------
\123\  Daphne Athanasouli, ``Corruption in Ukraine in Comparative 
Perspective,'' in Beyond the Euromaidan: Comparative Perspectives on 
Advancing Reform in Ukraine, ed. Henry E. Hale and Robert W. Orttung 
(Stanford: Stanford University Press, 2016), 80-105.
---------------------------------------------------------------------------
    She adds, ``E-government can also reduce the time of interaction 
with public officials and their discretionary power, thereby reducing 
administrative corruption.'' \124\ Finally, she concludes, ``The 
development of e-government and access to online information about 
government services help increase accountability and tackle petty 
corruption by limiting the discretionary power of government officials 
and public servants.'' \125\
---------------------------------------------------------------------------
\124\  Ibid., 98.
\125\  Ibid., 100.
---------------------------------------------------------------------------
    Already, Ukraine has made some progress here. Athanasouli writes:

    In 2012, Ukraine endorsed a new Open Government Plan (OGP) with the 
active participation of civil society organizations and the United 
Nations Development Program (UNDP) office in Ukraine. The OGP included 
initiatives to improve the provision of public services to citizens and 
the introduction of administrative services in digital format by the 
end of 2014. Many of these reforms were successful. \126\
---------------------------------------------------------------------------
\126\  Ibid., 99.

    A second method to empower civil society including independent 
media recommended by Athanasouli is increasing press freedom. She 
writes, ``An environment that can also support free media is pivotal 
for (combating corruption) since it helps support an anticorruption 
agenda, expose corrupt practices, and exert pressure on the government 
for reforms.'' \127\ While even during Yanukovych's presidency, when 
Ukraine was threatened by an unfree media environment, independent 
publications stepped up to fill the void, Athanasouli is correct when 
she states, ``Oligarchs continue to own the main television networks 
and they determine the content of their broadcasts.'' \128\
---------------------------------------------------------------------------
\127\  Ibid., 100.
\128\  Ibid., 100.
---------------------------------------------------------------------------
    One need look no further than Ukraine's President, Petro 
Poroshenko, owner of Kanal 5, to find an example. Although Poroshenko 
has largely allowed Kanal 5 to be a home for real journalists, this has 
not been the case for much other media in Ukraine, and it remains a 
significant issue. Dunja Mijatovic, former Representative for the 
Freedom of the Media of the OSCE, has commented, ``If Mr. Poroshenko 
intends to sell his assets, in my view, his TV station should be the 
first to go.'' \129\
---------------------------------------------------------------------------
\129\  Simon Shuster, ``Ukraine's New Leader Clings to His TV 
Channel,'' Time, May 29, 2014, http://time.com/137020/ukraine-petro-
poroshenko-channel-5/.
---------------------------------------------------------------------------
    Ukraine's impressive independent media will not evolve into an 
impressive free media until this oligarchical stranglehold on the main 
television networks has been broken. Yet, ``Following the Euromaidan 
revolution, the media situation improved considerably.'' \130\ As with 
other reforms relating to the oligarchs, now is the time to deal the 
knockout punch.
---------------------------------------------------------------------------
\130\  Athanasouli, ``Corruption in Ukraine in Comparative 
Perspective,''100.
---------------------------------------------------------------------------
    Athanasouli writes, ``The citizens and the media can act as 
monitoring agents against both administrative and grand corruption, 
promote anticorruption reforms and the work of law enforcement 
agencies, and increase political accountability by tracking the 
progress of reforms and exposing mischief or delays in the 
implementation of specific measures.'' \131\ This report could not 
agree more.
---------------------------------------------------------------------------
\131\  Ibid., 101.
---------------------------------------------------------------------------
    The reality in Ukraine is that it will come down to ``citizens and 
the media'' to make reforms happen and keep them in place. This is the 
Ukrainian people's greatest test, but they need not go it alone. The 
international community should push the Ukrainian state as hard as it 
can too and offer as much assistance as is responsible to assist 
Ukraine in realizing a democratic and prosperous future.

6.3. The International Community

    External pressure was critical to the successful implementation of 
the all-important 2000 Prime Minister Yushchenko reforms. Aslund 
describes the influence of external pressure on these reforms:

    External pressure was important. The IMF defined the threat of 
external default and made the rulers ware of the dangers. 
Paradoxically, its pressure was stronger when it provided no credit. 
The West strongly influenced the government's ideas, notably the German 
advisory group, but also the IMF and the World Bank. Ukrainian 
officials were anxious to be respected by the West and Yushchenko 
greatly benefited domestically from being considered so highly in the 
West. \132\
---------------------------------------------------------------------------
\132\  Aslund, How Ukraine Became a Market Economy and Democracy, 149.

    Then, as now, Ukraine is in a position where it needs the West more 
than ever, having cut many ties with Russia. Many western-educated 
Ukrainians are in Ukrainian government and civil society and Ukraine is 
seen in the foreign policy of western countries as the litmus test for 
democracy and anticorruption in an era where both are falling out of 
favor globally.
    It is imperative that the international community not become 
frustrated with the pace of reform in Ukraine. The historical analysis 
of this report provides insight into the resilience of the oligarchs. 
Ultimately, the international community, along with Ukrainian civil 
society, will have to show that it is even more resilient. As such, the 
international community should prepare itself to be invested in Ukraine 
for the long term, so as to avoid past mistakes.

6.3.1. The IMF

    The IMF is the international organization with which Ukraine has 
had the most interaction. After a board meeting on April 3, 2017, the 
IMF decided to proceed with a $1 billion loan payment to Ukraine, the 
fourth installment of a $17.5 billion aid-for-reform program spanning 
four years. Financial support for the program is being released in 
installments contingent upon progress in reforms in the country.
    When the IMF board initially adopted the stabilization program on 
March 11, 2015, it decided to issue a credit of $5 billion immediately. 
The green-lighting of additional funding in April surprised many 
experts, as the Ukrainian government has struggled to implement many of 
the structural reform conditions outlined for the fourth tranche, only 
meeting five out of fourteen conditions from the agreement. In the 
press release that accompanied the most recent disbursement, the IMF 
commented on the successes of implemented macroeconomic policies, while 
calling for additional anticorruption efforts. \133\
---------------------------------------------------------------------------
\133\  International Monetary Fund, ``IMF Executive Board Concludes 
2016 Article IV Consultation and Completes Third Review of Ukraine's 
EFF, Approving US$1.00 Billion Disbursement,'' International Monetary 
Fund, April 3, 2017, https://www.imf.org/en/News/Articles/2017/04/03/
pr17111-imf-executive-board-concludes-2016-article-iv-consultation-and-
completes-third-review (accessed June 18, 2017).
---------------------------------------------------------------------------
    Ukraine has received funding totaling $8.8 billion under the 
program. Aslund credits these loans with stabilizing exchange rates and 
containing inflation, as the Ukrainian economy outperformed 
expectations when finishing 2016 with a budget deficit at only 2.3 
percent. \134\ Furthermore, he credits the IMF program for the creation 
of NABU, as the corruption bureau was created at the behest of the 
reform program. The IMF is applying pressure for the establishment of a 
Ukrainian anticorruption court.
---------------------------------------------------------------------------
\134\  Anders Aslund, ``Why Does the IMF Keep Funding Ukraine?'' 
Atlantic Council, April 11, 2017, http://www.atlanticcouncil.org/blogs/
ukrainealert/why-does-the-imf-keep-funding-ukraine.
---------------------------------------------------------------------------
    While additional structural conditions need to be implemented, 
economic reforms have proven easier to enact than judicial reforms, 
where opposition from private interests blocks attempts to strengthen 
and enforce anticorruption frameworks. \135\
---------------------------------------------------------------------------
\135\  Anders Aslund, and John Herbst, ``Take It to the Next Level: 
Create a Biden-Poroshenko Commission,'' Atlantic Council, December 7, 
2015, http://www.atlanticcouncil.org/blogs/ukrainealert/take-it-to-the-
next-level-create-a-biden-poroshenko-commission.

---------------------------------------------------------------------------
6.3.2. The United States

    The United States has shown and must continue to show its support 
for the territorial integrity as well as the ongoing reform process in 
Ukraine. It continues to put pressure on as well as support Ukraine 
both symbolically and via financial, security, and technical 
assistance. There are multiple bills in the 115th Congress that could 
increase or change the nature of this aid. USAID and Department of 
State International Narcotics and Law Enforcement Affairs Initiatives 
are highly active in Ukraine and provide assistance, financial and 
otherwise, to a variety of programs.


6.3.3. The EU

    The Euromaidan advocated for a European direction for the country 
and the goal remains the eventual accession of Ukraine to the EU. The 
EU has an active assistance program within Ukraine. In addition, a new 
Danish-led initiative focused on combating corruption has become active 
on Ukrainian issues. The recent realization of the EU-Ukraine visa-free 
travel agreement was a significant achievement for Ukraine. \136\
---------------------------------------------------------------------------
\136\  Diane Francis, ``It Was a Very Good Spring for Ukraine,'' 
Atlantic Council, June 7, 2017, http://www.atlanticcouncil.org/blogs/
ukrainealert/it-was-a-very-good-spring-for-ukraine.
---------------------------------------------------------------------------


                   VII.  CONCLUSION


    The persistence of corruption in Ukraine can be explained by the 
influence of the oligarchs, who were enabled early on by the incomplete 
economic liberalization of the country and the corrupt gas trade, which 
historically was the most corrupt sector of the Ukrainian economy and 
deeply influenced by Russia. The oligarchs' capture of the state 
structure has proven exceptionally resilient; civil society and the 
international community must prove that they are more resilient.
    Indeed, Ukraine's civil society including independent media is and 
will continue to be the most central piece of the struggle against 
corruption in Ukraine. As the Nations in Transit 2017 Report on Ukraine 
states, ``Civil society remains the strongest element in Ukraine's 
democratic transition.'' \137\ The international community and the 
Ukrainian state should do everything it can to improve the capacity of 
civil society including independent media to hold politicians' feet to 
the fire.
---------------------------------------------------------------------------
\137\  Sushko and Prysyatkko, ``Nations in Transit: Ukraine,'' 7.
---------------------------------------------------------------------------
    Vested interests will do everything in their power to prevent 
meaningful reform in Ukraine. It is bound to be an arduous battle, but 
it will be well worth it if Ukraine is finally able to defeat its 
internal enemy.
       


VIII. Appendix: Consolidated Corruption Perceptions Index (CPI) Rankings of 
                        OSCE Participating States

              
1--Denmark				54--Slovakia		
3--Finland				55--Croatia
4--Sweden				57--Hungary
5--Switzerland				57--Romania
6--Norway			        60--Italy
8--Netherlands				64--Montenegro
9--Canada				69--Greece
10--Germany				72--Serbia
10--Luxembourg				75--Bulgaria
10--United Kingdom			75--Turkey
14--Iceland				79--Belarus
15--Belgium			        83--Albania
17--Austria				83--Bosnia and Herzegovina
18--United States			87--Mongolia		
19--Ireland				90--The FYR of Macedonia
22--Estonia				95--Kosovo
23--France				113--Armenia
29--Poland				123--Azerbaijan
29--Portugal				123--Moldova
31--Slovenia				131--Kazakhstan
38--Lithuania				131--Russia
41--Spain				131--Ukraine
44--Georgia			        136--Kyrgyzstan
44--Latvia				151--Tajikistan
47--Cyprus				154--Turkmenistan
47--Czech Republic			156--Uzbekistan
47--Malta
                        
 

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