Ukrainian contribution to offshore schemes

Ukraine is now among the top twenty countries from which capital is flowing out on a catastrophic scale. According to the international non-governmental organization Tax Justice Network, 167 billion dollars have fled Ukraine to offshore zones since the 1990s, i.e., the first days of independence. For comparison’s sake, the 2012 budget of Ukraine is 350 billion hryvnias.

In the opinion of other researchers, the high-profile British publications Ukraine Business Insight and Eurasia Insights, the assets of Ukraine’s richest people make up about 85.2 billion dollars today. The British research shows that there are about 30,000 people in Ukraine, who have personal quick assets worth more than 100,000 dollars. Moreover, the number of dollar-possessing millionaires in this country increases by up to six percent, i.e., about 1,500 people, a year. However, the most affluent individuals keep about 60 percent of their assets in offshore zones in spite of tough restrictions and legal obstacles. Impressive, isn’t it?

What looks very symptomatic against the backdrop of these statistics is the fact that Verkhovna Rada Speaker Volodymyr Lytvyn has signed Law No. 9634 which calls for exempting state-run businesses from the bidding procedures envisaged by the law on public purchases. Has the government been so persistent in cutting public expenditures – closing the “ineffective” rural schools and first-aid stations, increasing the retirement age, and depriving the underprivileged strata of the population of social benefits – in order to share out the saved money “under the blanket”? (Experts estimate that Law No. 9634 exempts about 240 billion budgetary hryvnias, i.e., 2/3 of the entire state budget, from bidding procedures.) The Anticorruption Center forecasts that, in the current no-publicity conditions, at least 70 billion hryvnias (!) will be spent to “improve” the national statistics on the offshore accounts. This means two (!) Ukrainian budgets of education and six (!) budgets of public health.

Lytvyn so skillfully rode out of the language law situation, only to sign a rather controversial law that had been passed quite unlawfully – only 73 MPs were present in the session room, which CCTV footage clearly shows. Why did Lytvyn do so?

The opposition also had, in theory, a chance to improve transparency in the distribution of public funds – not only in the session room, incidentally. It was enough to complain to the Constitutional Court about violations in the procedure of voting on Law No. 9634. To do so, they needed to collect 150 signatures. But, as we see, there was not even an attempt to do this. Why?

Now we are pinning hopes on the president, but, in all probability, it is also in vain. It would look somewhat strange from the political angle if the guarantor of the Constitution vetoed a law railroaded by the pro-governmental majority. (Yet who knows? What if President Yanukovych suddenly chooses to oppose himself to his partners?) Moreover, the president and his family are also interested in the public funds being shared out in the conditions of non-transparency. As journalists of the TV program “Our Money” managed to find out, the Yanukovych family received every fifth hryvnia at coal-mining industry tenders last year. “The Yanukovych companies marched in three columns and won tenders worth a total 3.56 billion hryvnias,” says the article “Coal Industry Kings” on Ukrainska Pravda’s website.

Naturally, there is one more way to realize a scenario to stem the tide of opaqueness in bidding procedures. In the spring of last year parliament passed Law No. 7532, which resembles Law No. 9634, but the president vetoed it under the pressure of international financial institutions (in this case the World Bank and the European Commission were taking the same stand). Yanukovych was forced to make this step because the “creditors” warned: if you sign this law, forget about any kind of technological assistance or loans. But the chance of a presidential veto seems to be very slim today because we can hear no statements from international financial institutions on changes in the bidding law. At first glance, they gave it up as hopeless. But when we turned to some financial institutions for comment, their experts began to persuade us that these changes… have some positive points. They allege that the changes will revitalize the economy because state-run businesses will have more freedom as far as purchases are concerned and will be able to respond quicker to a bid. These experts also advised us to fight “kleptomaniac” bureaucrats in the opaque conditions by means of the system of inner audit. As we have no concrete figures or facts, we can so far be guided by our logic only, but the impression is that some executives of some international organizations that have been working in Ukraine for quite a long time have a personal interest in this. It is only about the price of the question. This price is very “attractive” as long as the bidding law is being changed.

COMMENTARIES

Mykhailo BRODSKY, Chairman, State Committee for Entrepreneurship:

“A different system should be introduced. Every owner is interested in a bidding procedure. In this case the state is the owner of state-run businesses and, at the same time, the state is the entire people. In other words, the people are interested in a bidding procedure and in fair prices. If you tell me that the previous bidding law worked, this will sound funny. It is common knowledge what those biddings in fact were, how they were organized and what happens, as a result, at all these state-run enterprises. Therefore, it would be wrong to say something terrible has occurred [after the passage of a new law on bidding procedures. – Ed.]. There had been no really fair bidding procedures before it came.

“It seems to me we should draw up an electronic bidding procedure. Every enterprise must conduct an open electronic bidding procedure, while the public must monitor the purchasing by means of a transfer (equalizing) price. For example, the price of repairing a square meter of asphalt road may radically differ in Cherkasy and elsewhere. Should such infringements be detected, the public must formally request the Prosecutor General’s Office to investigate into why this could happen.

“The previous law needed to be changed. A new one has been passed now. Let us see whether it works and then, two or three months later, I am sure we will have to go on. I don’t think this law will satisfy anybody in its current shape.”

Viktor MATCHUK, ex-member of the Verkhovna Rada of Ukraine:

“It is very bad that bidding procedures are being canceled for the purchases that surpass the national budget by an estimated one and a half times. I am sure it is dishonest to try to persuade Ukrainian citizens that it is the question of state-run businesses’ own money rather than that of governmental funds. This means they are taking us for fools! A state-run or communal business cannot possibly have funds of its own. What they have belongs to the owner, i.e., the state. Likewise, at a private enterprise, the property does not belong to the manager. The latter only disposes of what was entrusted to him.

“As long as I have cooperated with the Anticorruption Center, we have managed to prevent the embezzlement of 2,340,000 hryvnias. This is what can be calculated. Naturally, this amount is negligible in comparison to overall public purchases. But we pursued a different crucial aim – to make things public, to enable people to understand that they are being shamelessly cheated and their money is being stolen. For the budgetary funds, as well as the funds of state-run or communal businesses, is the money of each of us. There is no such an individual as the state. The state is just an instrument that must serve society. But in this country it only serves some members of the latter, who have access to the ‘feeding trough.’

“So, in the conditions of publicity, we managed to put some information across to the people so that they could adequate assess certain officials. There will no longer be such an opportunity tomorrow [after the president signs the law on exempting state-run businesses from bidding procedures. – Ed.].

“It is, of course, very symptomatic that Lytvyn has signed this law. But we should not forget that the law comes into force only after being signed by the president. It is international financial institutions that can stop the guarantor [of the Constitution]. There have already been examples of this. Therefore, the fact that Yanukovych will or will not sign changes to the bidding law will also be symptomatic not only from the viewpoint that thieves are holding sway in the government, but also from the viewpoint that the opinion of international organizations does or does not matter to the president of Ukraine.”