“Ukraine is fighting a war against Russian aggression, but we must also prosecute the war against our domestic enemy – corruption – no less vigorously,” says MP Valentyn Nalyvaichenko, a former head of the Security Service of Ukraine (SBU).
Nalyvaichenko’s maxim is also heard in Washington DC’s halls of power, according to Robb Watters, a longtime DC insider and the founder of the city’s most well-respected lobbying firm, the Madison Group. He says that Ukraine’s problems with corruption are “well noted in DC” and “a big reasonwhy some people do not want to continue funding Ukraine.”
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The plague of corruption in Ukraine, detailed in Transparency International’s Corruption Perceptions Index – billed as “the leading global indicator of public sector corruption” – ranked the gravity of Ukraine’s corruption as 104th place of 180 nations examined.
Aside from Ukraine’s immediate need for US and European military hardware, its long-term path will also depend heavily on Western donors. Experts have estimated the reconstruction of Ukraine may cost anywhere from $486 billion to $1 trillion.
Despite Ukraine’s request that the roughly $300 billion of frozen Russian monies, in European and American banks, be given to Kyiv for military purchases and later for reconstruction, the EU announced on July 26 that it would send Kyiv €1.5 billion. This comprises interest on Russian capital frozen in EU banks but does not include the frozen principal itself.
Dozens of UK Companies Under Investigation for Avoiding Russian Sanctions
Case of apparent property seizure
Given the important role that European and American creditors will play in Ukraine’s victory over Russia and eventual reconstruction, some have been alarmed by a recent dispute with a European Bank for Reconstruction and Development (EBRD) loan recipient. An official letter from the EBRD to the Kropyvnytski Court of Appeals refers to the “illegal seizure of property pledged and mortgaged to EBRD.”
The targeted company, the I & U Group, founded in 1995 by Sergei Tarasov, focused on green energy and agriculture. The company, which enjoyed a positive reputation, had been involved in various causes to support the Ukrainian military and its founder had been made honorary counsel of Lithuania for his work in fostering closer relations with the Baltic States. This is something that was granted, said one person with knowledge of the decision, only after Vilnius had verified that Tarasov was “clean.”
According to its website, the EBRD’s shareholders include “73 countries from five continents plus the EU and the European Investment Bank.” The US, an EBRD founder and current Board Member, controls a 10 percent capital share in the Bank, which is why, in comments to Kyiv Post, a former European intelligence official noted the case, like the one of the EBRD loan-recipient in Ukraine, “could undoubtedly draw the ire of Brussels and could lead to European and American partners becoming involved.”
The EBRD has been particularly active in Ukraine. This past June, it promised an additional €600 million of assistance for Ukraine, bringing the total to over €4.5 billion for the length of the war. This is in addition to the €190 billion in investments having been made in more than 7,000 projects, including €2.1 billion of loans for Ukraine during 2023 alone.
However, some might imagine that, given the EBRD’s heavy international weight and likely role in developing Ukraine’s future, the institution would have been immune from attempts of the “illegal seizure” of the businesses that it backs.
However, the reality is quite different, according to Oleksandr Babikov, a Ukrainian lawyer who has worked on this case, telling Kyiv Post that the seizure and the arrest of assets “remains the most effective tool for extorting money from entrepreneurs,” something that is made worse as “cases are not brought to trial for consideration.” This, he adds, “deprives the [claimant his] right to a fair trial guaranteed by the European Convention.”
Echoing this argument, a document given to Kyiv Post argued that “Ukraine's credibility and progress towards European integration, necessitating a reassessment of its commitment to justice, human rights, and the rule of law” is something that is “crucial for Ukraine to align with EU standards and demonstrate genuine adherence to democratic principles.”
Indeed, a 2023 US State Department report indicated that regulations in Ukraine “feature a high degree of arbitrariness and favoritism in decisions by government officials, weak protection of property rights, and irregular payments.” This is likely worsened by “extrajudicial action against foreign investors in the form of official acts of government (e.g., unwarranted inspections, investigations, fines) and illegitimate acts by private parties (e.g., corporate raiding) occur in Ukraine.”
Does the seizure of assets portend a return to the bad old days?
An American investor, living in Kyiv, who was familiar with this case but not connected to either the EBRD or the business that was being attacked, told Kyiv Post that “the lack of trust in the Ukrainian legal system, to uphold contract law, is already a serious concern for anyone doing business in Ukraine.”
Effectively, “cases like this are red flags” for potential foreign investors, noted the American, concluding that they risk scaring away those who might be interested in investing in “projects to rebuild post-war Ukraine.”
The Ukrainian National Police, the Ministry of Interior, and the Kropyvnytski Court of Appeals could not be reached for comment.
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