Oligarchs: good old buddies who own Ukraine | #UAreforms

Graphics by: Ganna Naronina, Euromaidan Press

Graphics by: Ganna Naronina, Euromaidan Press 

2016/04/12 • Analysis & Opinion, Politics, Ukraine

Article by: Joss Meakins

There exists a wide consensus amongst Ukraine watchers that, notwithstanding a full-scale Russian invasion, corruption is the country’s greatest threat. Oligarchs buy representatives in various political parties and this process of vote selling is so transparent that it is ‘openly discussed in the Ukrainian media’.

An analysis by Novoye Vremya journalist Kristina Berdynskykh found that the oligarch Dmytro Firtash had political representatives in four different parties, while Ihor Kolomoyskyi had proxies in five. This creates a cyclical web of entanglement whereby whichever party one votes for, the threads of patronage lead right back to the same place. Indeed, much of the recent pressure for reform has come from international donors and civil society groups, not from within the Rada.

Initiatives to create a free and transparent economy run completely counter to the entrenched interests of Ukraine’s oligarchs and have consequently foundered on the shoals of vested interest.

The majority of oligarchs accumulated their wealth by appropriating (or stealing) state funds and they have reinvested part of their wealth in shaping a political system favorable to them.

Unlike in Russia, their political rise has been unchecked and many now have private fiefdoms in different regions, hired political representation and their own media holdings. As Timothy Ash writes, ‘the country’s political system is still dominated in effect by 10-15 oligarchic families’ but extirpating their influence is so difficult because they still control ‘the strategic heights of the economy’ and account for large numbers of jobs and much of the country’s exports.

An article in Newsweek recently estimated that the country’s oligarchs control as much as 70% of Ukraine’s economy. Moreover, the ranks of this kleptocracy close up whenever it is assaulted – Ash refers to this as the ‘kum or godfather code’, a perverse ‘all for one and one for all’ mentality. To make the situation even more squalid, many of the ‘good old boys’ or have “kompromat” (compromising information) on one another, binding them tightly together through the threat of mutually assured destruction.

Thus, we see that the oligarchs are the ‘Gordian knot’ whose webs of influence enmesh and entangle any attempts to dismantle what Judy Dempsey of Carnegie has termed Ukraine’s ‘Deep State’.

Amongst the key players are Rinat Akhmetov, Ihor Kolomoyskyi, Dmytro Firtash, Victor Pinchuk and, of course, President Petro Poroshenko.

Rinat_Akhmetov_Oligarchs_UkraineAkhmetov is Ukraine’s richest man and made much of his money in iron, steel and coal mining in eastern Ukraine. He was a supporter of Yanukovych and although he has lost a great deal in the recent conflict, he still retains a significant powerbase in the Donbas. His ties to the Party of the Regions create concern that he may be used as a tool for Russian influence.

Ihor_Kolomoysky_Oligarchs_UkraineIhor Kolomoyskyi is a fiery businessman from Dnipropetrovsk and was made governor of the region by Poroshenko. He funded defense battalions to fight the separatists but was subsequently removed from the position as it was feared that he was using his influence to expand his business interests and turn the defense units into a private army.

Dmytro_Firtash_Oligarchs_UkraineGas tycoon Dmytro Firtash is wanted for extradition to the US on corruption and bribery charges and has been unable to return to Ukraine.

 

 

Viktor_Pinchuk_Oligarchs_UkraineVictor Pinchuk made much of his money through selling steel pipelines and is the country’s second wealthiest man – he is also former president Kuchma’s son-in-law.

 
Petro_Poroshenko_Oligarchs_UkraineFinally, Petro Poroshenko is one of the country’s most successful businessmen. Although he made his money by building up a successful confectionary company, rather than traditional oligarchic tactics, he is ‘one of the only business leaders in the nation to increase his business assets in 2015’. Moreover, the President has refused to sell Roshen, despite an election pledge to the contrary, and is now implicated in a real estate scandal, along with Ihor Kononenko who faces allegations of money laundering.

Poroshenko has claimed that 274 instances in which the police brutalized or murdered protesters during the Euromaidan are being investigated, while over 2702 former officials have been convicted of corruption during his tenure. Yet both claims later turned out to be false and no evidence has yet been provided to support either assertion.

One prominent analyst, Taras Kuzio, asserts that Poroshenko struck a deal with Firtash and the rest of the ‘gas lobby’, granting them immunity from prosecution in return for financial and media support in the upcoming presidential elections. Firtash later bragged to a Viennese court, “we got what we wanted – Poroshenko as president”. Irrespective of the veracity of such claims, the incident demonstrates the extent to which Poroshenko is a product of the system and how difficult it is for an insider to purge the old guard without himself falling victim.

Furthermore, the broken nature of the system makes it even more difficult to change.

Anders Aslund has highlighted that running for election in Ukraine is extremely expensive, with the 2010 presidential election campaign costing $1 billion. In relation to GDP, that is 1000 times more than a US election campaign and the same is true at the parliamentary level.

Many MPs who are elected in single mandate districts (half the parliament) finance their own campaigns and are therefore either wealthy businessmen in their own right or political proxies for particular vested interests. This problem is exacerbated by the fact that a great deal of the media is owned and controlled by oligarchs.

Of the top ten television channels, three are controlled by Viktor Pinchuk, three by Ihor Kolomoisky, three by Dmytro Firtash, and one by Rinat Akhmetov. Many Ukrainians receive most of their news through TV broadcasts and all of the oligarchs have been accused of using their media outlets to attack rivals and advance their own interests.

President Poroshenko himself owns Channel 5 which has been accused of providing partisan coverage and being nothing more than the President’s press office. However, in spite of all this, it should be noted that the oligarchs have lost both wealth and influence since Euromaidan. As Balázs Jarábik and Yuliya Bila point out, the total net worth of the five richest and most influential Ukrainians (Akhmetov, Pinchuk, Kolomoyskyi, Boholyubov and Kosiuk) has dropped from $21.6 billion in 2014 to $11.85 billion as of June 2015.

Through closing loopholes and stripping the oligarchs of political power it should eventually be possible to tame and transform these individuals into ‘normal businessmen’ who must make money by providing good competitive services in a free market.

Jocelyn Iannis Meakins

Joss Meakins is a graduate student studying Russian and International Politics at Columbia University in New York. His research interests include Russian and Ukrainian politics and history, security studies and the post-Soviet space. Joss graduated from Cambridge University with a bachelor’s degree in Modern and Medieval Languages, majoring in Russian and French. In his third year at Cambridge he spent eight months living and working in Russia.

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Edited by: Viktoriia Zhuhan

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  • Tony

    Two positive points:
    1. Ukraine now has state financing of parties and limited/made transparent the campaign donations, meaning that it is possible for organized people to compete without being rich.
    2. Well if they have compromising information on each other, then its a matter of focusing on one and making him squeal, hopefully it sets off a chain reaction.

  • Lev Havryliv

    The only Ukrainian political party and until recently a member of the ruling coalition, which is not controlled by oligarchs is Samopomich.

    Samopomich has taken a principled stand by declining to be a member of the coalition until certain electoral and reform issues are accepted by the government.

  • Nordmann

    These Oligarchs and their companies should be subject to a special type of selective sanctions and their assets frozen. That goes for all of them.

    To remove their destructive power, you must remove their money.

    This must be done before we send more dollars and euros to this infested government.
    It will hurt, but do good.

    You can not weed out by just adding fertilizer.

  • Dirk Smith

    Are outsiders Jaresko and Saavashvili the answer?

    • Super Vlad

      By “outsiders” do you mean “carpetbaggers”?

      • Dirk Smith

        You mean Jughashvili and Beria?

      • Dirk Smith

        You mean like Jughashvili and Beria?

  • Alex George

    The oligarchs have hurt themselves in the last few months, by trying to halt reform completely.

    They should have worked out a deal to slowly cede issues like control of the prosecutors’ office.

    For example, Poroshenko’s choice for prosecutor, Viktor Shokin, attracted attention because he did not prosecute ANYONE from the corrupt Yanukovych regime. If he had set about prosecuting the most blatant offenders, even just say one prosecution a month, he probably would have deflected the criticism.

  • albertphd

    Desperate times, they say, demand desperate measures. Ukraine, despite the monies and loans offered by the USA, EU, Japan, Canada and other countries, is in desperate straits, both politically and economically! But to hit rock bottom usually means that one has no place to go but ‘up’! Radical change then requires radical laws that, if enforced, will pull Ukraine out of its doomed destiny!
    Let’s not kid ourselves: Ukraine is doomed: politically, economically, and militarily if this war with this Rogue Federation (aka: Russia) continues as is for another decade or more! As long as Ukraine favors an Oligarchy as opposed to a Democracy as the mode of change, no real radical change is possible. Oligarchs prefer red tape, stalemates, and the status quo, as long as their pockets are filled and their profits increase.
    Forty per cent of Ukraine’s GNP (Gross National Product) is spent on this war effort. Accordingly, I would propose the following radical changes to save Ukraine from it’s own ruling class–the Oligarchs:
    #1: Pass a mandatory oblast flat (no exemptions!) personal income tax of 10% for all Ukrainian citizens (but allow a $12,000 USD tax exemption for everyone–so that those poor peasants at the bottom of the social scale pay no tax!);
    #2: Pass a mandatory federal flat (no exemptions) personal income tax of 15% for all Ukrainian citizens (but allow a $15,000 USD tax exemption for everyone–so that those poor peasants at the bottom of the social scale pay no tax!);
    #3: Pass a flat (no exemptions) business tax of 15% for all persons in business in Ukraine whether foreigner or Ukrainian citizen!
    #4: Pass a luxury ‘war’ tax measure to add an additional sales tax of 10% on all luxury items: luxury cars and other luxury items (exotic gems, watches, cosmetics, high-end electronics, etc.) and attribute it to the ‘war effort’;
    #5: Pass a property flat (no exemptions) tax of 1% on all properties (with the property evaluation calculated by Government officials on an annual basis);
    #6: For people earning more than $50,000 USD (but less than $100,000 USD) annually, add a 5% surcharge for both personal and business taxes; for those earning more than $100,000 USD (but less than $200,000 USD) annually, add a 10% surcharge; for those earning $200,000 USD (but less than $300,000 USD) annually, add a 15% surcharge; for those earning $300,000 USD (but less than $400,000 USD) annually, add a 20% surcharge; and to those earning more than $400,000 USD annually, add a 25$ surcharge. Explain to all the above that this ‘surcharge’ is also known as a ‘war tax’ and would remain in effect only until the war in Ukraine is ended (with the Donbas and Crimea zones returned to Ukraine and the pro-Russian invaders expelled)!
    #7: Because of pervasive corruption in the political and economic circles of Ukraine, a new law needs to be passed to empower an elite police group (the ‘tax collectors’) to collect the full taxes from each person (citizen or non-citizen) who profits from business (personal or otherwise) within Ukraine. Severe penalties (including prison sentences) need to be exercised in order to send the clear message that no one, especially the Oligarchs, can be held exempt from these new taxes (which are needed to support the war effort in particular and to maintain economic stability in Ukraine)! Justifiable expenses incurred while in office can be reimbursed or paid for by the State, once an impartial third party or committee can vouch for their validity! Receipts and proof of payment as well as reason for expenses need to be submitted for pending remunerations.
    #8: All federal and state (Oblast Governors) who run for political office are to donate their salaries to the ‘war effort’ until the wars with pro-Russian invaders has ceased and the Russian-occupied territories (Crimea & Donbas) are returned to Ukraine along with it’s former border controls. Elections can be held only after these properties are returned to Ukraine (as there can be no ‘free vote or democratically held elections’ while the guns or weapons of the invaders are present in these regions). Political platforms are to be presented on all Ukrainian TV stations free of charge during elections while no billboard or private advertising is to be allowed during the campaigns. Campaign debates may be held in selected cities and locations as agreed upon for each type of election with media coverage.
    #9: All properties, bank accounts, personal and business assets of anyone running for political office may be seized (and eventually confiscated, if so determined in Court) for failure to abide by the taxation rules as set out under a War Measures Act for the duration of the period that Ukraine is at war with it’s invaders and Fifth Columnists. The right to remain an Ukrainian citizen may be revoked as it was in the case of the former President, Victor Yanukovich.
    #10: All monies confiscated or legally apprehended under this new (and radical) War Measures Act are to be used directly for the war effort until the war with Russia has ended and all the Russian-occupied lands of Ukraine are rightfully returned to Ukraine. Because Ukraine cannot depend upon the sale of War Bonds or similar measures, due to pervasive distrust and wide-spread corruption throughout Ukraine, these dire tax measures need to be passed as LAW and severe penalties imposed upon law breakers, especially upon the well-to-do and the Oligarchs who are currently grinding the faces of the poor peasants of Ukraine into the ground. [Although it may initially be difficult to enforce such ‘war efforts’ via taxation, one need to look to other countries, such as Japan, in particular, to see how tax collectors can collect taxes even from Mafia dons and Triad ring leaders. It is challenging but by no means impossible. If these Oligarchs profit from the current wars in Ukraine, and thereby prolong these wars, they must be called to task and made to pay at least for the 40% of Ukraine’s GNP that is spent–not to mention the priceless lives lost!–on a war the Oligarchs could arguably have stopped any day of the week!]

  • Super Vlad

    Why are Jews always well represented among oligarchs ?

    • Dirk Smith

      You mean like Ulyanov and Bronstein?