UkraineAlert

The last week of February was a great one for corrupt officials in Ukraine. They finally got off scot-free. Ukraine’s Constitutional Court (CCU) eliminated criminal liability for illicit enrichment. This decision is a major step back in Ukraine’s struggle to fight high-level corruption. (Incidentally, the US Ambassador to Ukraine agrees with this assessment.) And the timing is not accidental either.

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Fictional houses, “dead souls,” but real embezzlement — it sounds like the plot of a horror film. But it’s actually a corruption scheme that ran for over eight years in Ukraine’s Kirovograd Oblast.

From 2009 to 2017, the management of the regional gas distribution company, Kirovogradgaz, inserted hundreds of fictional addresses into its electronic billing system, according to a police filing. As a rule, the addresses were nonexistent houses with fake house numbers located on real streets. The fake houses were occupied by imaginary residents. Each fake house came with an account number, also fictional.

In those more than eight years, these “dead souls” — named after the novel by 18th century Ukrainian writer Nikolai Gogol — “consumed” 9.8 million cubic meters of natural gas subsidized for household consumers and worth around $2.83 million. While it is impossible to trace where that gas went, few have any doubts: it was resold to industry at a markup.

Energy sector specialists had long suspected that this scheme existed. However, it was only revealed after June 2017, when Ukrainian state gas company Naftogaz, which owns 51 percent of Kirovogradgaz’s shares, was able to wrest control of the company from its previous management.

This plot is the subject of my latest investigation for the Kyiv Post, and it offers a window into the type of scheme that many believe is still operating across Ukraine.

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Comedian Volodymyr Zelenskiy tops the polls in Ukraine and may be the next president. Some argue that Zelenskiy is the country’s only shot at reform and that he might be able to break the old system.    

Could Zelenskiy be a reformer?

The short answer is: No. Here’s why.

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Since having seized Ukrainian territory and energy installations in 2014, Russia and its gas company, Gazprom, have been waging systematic economic warfare against Ukraine in an attempt to destroy Naftogaz—Ukraine’s energy company and the single biggest source of state revenue—and the Ukrainian state. To date, however, Russia has failed. Indeed, Naftogaz won three arbitral awards against Gazprom in 2017 and 2018; these were about Gazprom’s efforts to divert gas using the Nord Stream 2 pipeline, blocking Central Asian gas from traveling through Ukraine. But Gazprom has refused to pay the $2.6 billion arbitration award granted to Naftogaz. Instead, Russia is blocking that award, building Nord Stream 2, and trying to use the pipeline to suffocate Ukraine’s economy and strengthen its grip on European energy supplies.

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Exactly five years ago, the country’s most important independent crisis communications center was set up in Kyiv in less than forty-eight hours. It started with a text message and a series of phone calls.

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Out of forty-two candidates who are running for president in the Ukrainian elections on March 31, only eleven support NATO and EU membership. This represents a lower proportion of supporters than the over 300 deputies who voted on three occasions to change the constitution to include those two goals. Batkivshchina (Fatherland) party and the Radical party voted for those constitutional changes, but neither Yulia Tymoshenko nor Oleh Lyashko—who lead these parties, respectively—include NATO and the EU in their election programs.

A high proportion of the candidates are using the presidential election to obtain name recognition ahead of the October parliamentary elections and some act as technical candidates to take votes away from others. The lack of support for EU and NATO membership among the 44 candidates is a product of two factors. The first is Batkivshchina and the Radical Party have always held contradictory positions; on the one hand, they support constitutional changes while over the last five years they have provided half-hearted support for reforms and espoused the same anti-IMF rhetoric as the pro-Russian Opposition Bloc. The second is by not including NATO and EU membership goals, these “opposition” candidates seek to distance themselves from incumbent Petro Poroshenko. Both of these factors are perplexing when one considers that polls show that a majority of Ukrainians support EU and even NATO membership.

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It’s election season in Ukraine. While there are forty-two candidates officially registered, the competition, according to recent polls, comes down to three: incumbent President Petro Poroshenko, former Prime Minister Yulia Tymoshenko, and newcomer and comedian Volodymyr Zelenskiy. In January, UkraineAlert examined the foreign policy views of the five leading candidates. Now we narrow the focus to the top three.

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Ukraine is in danger of backsliding, big time, and few people realize just how serious it is. This week, the Constitutional Court eliminated a law which made corrupt officials liable for illicit enrichment. This will immediately result in the closure of sixty-five high-profile criminal cases. The court decision may jeopardize Ukraine’s relations with international institutions.

But that’s not all. There’s a serious effort to undermine Ukraine’s new anti-corruption institutions underway that hasn’t gotten the attention it deserves.

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Ukraine needs a change.

The latest scandal, involving allegations of massive profiteering from the war against Russia by well-connected Ukrainians, proves the need for a new leader in the upcoming presidential election.

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On February 25, investigative journalists accused President Petro Poroshenko’s close associates of getting rich by smuggling spare parts for military equipment from Russia. The Bihus.Info report claims that the son of Oleh Hladkovskiy, deputy secretary of the National Security and Defense Council, was the mastermind behind a scheme to buy spare parts from Russia in 2015. The year before, Russia annexed Crimea and occupies part of the Donbas. Bihus.Info alleges that Ukraine bought the goods from private companies linked to Hladkovskiy at inflated prices and that Ukroboronprom, the state company that oversees everything, knew the origin of the parts.             

Bihus.Info says that it received the information from anonymous sources. It was published weeks before Ukraine’s presidential election on March 31. 

Before the scandal broke, most polls put Poroshenko in second place. Support for the army has been one of Poroshenko’s main campaign themes, and he recently said that he wouldn’t allow anyone to steal from the army.

We asked the Atlantic Council’s Ukraine experts and friends the following questions: How serious are the allegations? How will they impact the presidential race? Is it game over for Poroshenko? Should we be concerned about where the information came from?

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