Washington's Man In Ukraine Can't Stop His Country's Corrupt Cronies
Ukraine's Western allies backed Arseniy Yatsenyuk when he became prime minister and vowed to "wage a war" on graft. But as the country's fight against corruption stalls, many in Kiev see his government as part of the problem.
KIEV, Ukraine — When Ukraine’s revolution swept him to power last spring, Arseniy Yatsenyuk vowed to become a “kamikaze politician” pushing unpopular reforms and “waging a war” on graft.
A year and a half later, Ukraine’s prime minister is fighting for his political future after making slow progress on those reforms — and watching his allies become embroiled in corruption allegations themselves. Swiss prosecutors are investigating one of his top parliamentary leaders for paying bribes in a scheme to set up a nuclear power plant. The official in charge of repatriating ill-gotten foreign assets is facing criminal charges over luxury homes she somehow obtained in Britain and France. Investigative journalists revealed how a Yatsenyuk-linked billionaire used his political connections to win a government tender for duty-free space in Kiev’s airport.
Frustration over Ukraine’s sluggish reform process and anti-corruption efforts is fracturing its pro-Western governing coalition, creating rifts with the United States and European Union. Popular Front, Yatsenyuk’s political party, is polling so badly that it decided not to run in local elections on Oct. 25, only a year after it won a surprise majority of the parliamentary vote. An IRI poll published in August found that only 3% of Ukrainians were satisfied with the pace of change in the country; an astonishing 51% said that the government of Viktor Yanukovych — which protesters overthrew last year in large part due to anger at his appropriation of untold billions in state funds — did a better job fighting corruption.
“Definitely, much more must be done,” said Danylo Lubkivsky, an adviser to Yatsenyuk. Despite that, “if the government was corrupt, we would never receive any money from the international community,” he added. “There is only one person who gets benefits — Putin.”
Yatsenyuk’s tenure has exposed the difficulties and contradictions Ukraine faces in escaping the crony clan politics plaguing it since independence more than 20 years ago. His cabinet is stacked with fresh-faced, English-speaking ministers pledging a move towards transparent, Western-style governance. Yet in Yatsenyuk and President Petro Poroshenko, Ukraine is led by politicians with deep roots in the very corrupt back-door clan politics they say they seek to destroy. The equal division of power between their offices has slowed the legal process and given rise to countless backroom spats. Several officials in the governing coalition speak of a powerful “shadow government” of informal allies with longstanding connections to the president and prime minister who wield vast influence over political decisions and state-owned companies that loom over Ukraine’s economy.
“It’s the same house of cards — they’ve just reshuffled the deck,” said Viktoria Voytsitska, a coalition lawmaker and secretary of the parliamentary energy committee. “They’re still defending the same business interests of the same oligarchs.”
Publicly, the U.S. and EU have backed Ukraine’s government to the hilt in its effort to reform while fighting Russian economic pressure and support for a war in its east. Privately, several Western diplomats express serious doubts about whether Yatsenyuk and Poroshenko have the wherewithal, or even the political will, to smash the system that raised them. “They know they have to change the system, but they are too much creatures of the system to do it,” one said. “We are very disappointed” in Ukraine’s progress on reform, the diplomat continued. “It gives ammunition to all the member states who were always skeptical.”
At 41, the skinny, bespectacled Yatsenyuk is part of the first generation of Ukrainians to come of age after the Soviet Union’s collapse offered them experiences of the West. His older sister Alina is married to an American and lives in Santa Barbara, California. Though Yatsenyuk never studied outside his hometown of Chernivtsi in western Ukraine, he speaks the fluent, rhetorical English of the Davos man, to great effect among Western interlocutors. In the pro-Western government brought to power in 2004’s Orange Revolution, he served as economy minister, then the country’s youngest-ever foreign minister.
Yatsenyuk’s combination of English fluency and economic literacy were so rare among senior Ukrainian officials that they quickly made him a favorite in Western capitals. He and Poroshenko are the first Ukrainian leaders to speak English at all. Sergei Arbuzov, who negotiated for an International Monetary Fund bailout that collapsed during the revolt against Yanukovych, would show up to meetings in leather jackets. “Ukraine lost trust with the international community a long time ago — it takes a lot to win that back,” a Western diplomat said. During the protests last year, that skill set saw Victoria Nuland, the U.S. diplomat in charge of Ukraine policy, turn to him as a potential compromise prime minister. “Yats is the guy who’s got the economic experience, the governing experience,” she said in an infamous leaked phone call.
Though U.S. officials say they were never under any illusions about the task facing Ukraine — the country even reaching Romania’s progress by 1995 is considered a high benchmark for success — the lack of action on corruption has alarmed even many of Ukraine’s biggest supporters in Washington. In July, Vice President Joe Biden directly warned Yatsenyuk at a Ukrainian business forum. “This is it, Mr. Prime Minister. The next couple years, the next couple months will go a long way to telling the tale,” he said. “Now you have to put people in jail.” After the forum, however, President Barack Obama dropped in on Yatsenyuk’s meeting in Biden’s office — a gesture Ukrainians interpreted as support in his turf war with Poroshenko.
"People in Washington ask me, 'Why do they have to steal so much?' And I tell them, 'Why not? You're letting them get away with it,’” said Balasz Jarabik, a visiting fellow at the Carnegie Endowment for International Peace. “That’s how U.S. support is understood in Kiev.”
"It’s the same house of cards — they’ve just reshuffled the deck."
Officials and diplomats say that Poroshenko and Yatsenyuk genuinely want to avoid the infighting that plagued the government that came to power in 2005 after Ukraine’s pro-Western Orange Revolution, in which they both served. “Neither of them have suicidal inclinations,” a senior adviser to Poroshenko said, speaking on condition of anonymity. Relations between president and prime minister are like “this joke about a turtle and the snake who go across a river,” the adviser said. “They agree that the turtle would not [dive] because snakes can not swim, and the snake agrees not to bite, because they would drown.” (In most versions of the story, the snake bites the turtle anyway, though the official did not comment on this.)
Yatsenyuk’s own formative experiences came in the rough-and-tumble world of Ukrainian clan politics. Two college friends from Chernivtsi with whom he started a law firm, Andriy Pyshny and Andriy Ivanchuk, flanked Yatsenyuk as his political fortunes rose. “Pyshny is really a good one; he’s relatively not corrupt. But Ivanchuk is a very bad guy,” a former colleague of all three men said. “I think of them as the angel and the devil on his shoulder.”
In 2009, as Yatsenyuk ran for president, Pyshny fell seriously ill, leaving Ivanchuk control over his campaign. Ivanchuk hired Timofei Sergeitsev and Dmitry Kulikov, vaguely KGB-linked Russian political consultants known as “Tima and Dima,” who told Yatsenyuk to adopt a militaristic platform in an ill-guided attempt to win over Russian speakers in eastern Ukraine. They were occasionally joined by a third Russian, Alexei Sitnikov, whose business cards listed his occupation as “color revolutions and coups d’état.” Their smoke-and-mirrors techniques were no match for Yatsenyuk’s rivals, who ran a gritty smear campaign accusing Yatsenyuk of being Jewish. Despite public assurances from Ukraine’s chief rabbi that Yatsenyuk was not Jewish at all, he never shook off the accusations, and finished a distant fourth.
Pyshny and Ivanchuk retain close ties to Yatsenyuk, who is said to run a tight inner circle and has never built a broader political support structure. “He missed the opportunity to build a grassroots party,” said Orysia Lutseyvich, a fellow at Chatham House who set up Yatsenyuk’s Open Ukraine foundation when Yatsenyuk was foreign minister. “He does not carry well among simple people — he’s afraid of the babushka in Bessarabka,” Kiev’s central market. Pyshny now runs Oshchadbank, Ukraine’s state bank; Ivanchuk chairs the economic committee in parliament.
According to some of Poroshenko’s allies, they are joined by Nikolai Martynenko, a lawmaker in Yatsenyuk’s party with influence over the energy sector. Igor Skosar, a former lawmaker in Tymoshenko's party, claimed last year that he paid Martynenko a $6 million bribe in 2012 so that Yatsenyuk, who then chaired it, would put him on the party list. Swiss prosecutors told BuzzFeed News they are investigating Martynenko over bribery and money laundering allegations which, according to Czech media, are related to contracts for a nuclear power plant with a Czech contractor. Martynenko has said that the allegations are a Russian plot to discredit him, and denies the case's very existence.
Corruption is so rife in Ukrainian bureaucracy that ministers say they essentially have to start anew. “When I hear the words ‘institutional memory,’ I get scared, because they mismanaged everything for 20 years,” Economy Minister Aivaras Abromavicius told BuzzFeed News. Yatsenyuk’s critics within the governing coalition say that he has not done enough to fight those vested interests. “We essentially have a shadow government, a parallel government,” Mikheil Saakashvili, the former Georgian president and university friend of Poroshenko’s who now governs Odessa province, recently said. “Ukraine is owned by the oligarchs like a joint stock company.”
The problem is compounded by Ukraine’s political system, which distributes power between Poroshenko and Yatsenyuk equally and where party finance is notoriously murky, requiring both men to cut deals with oligarchs, insiders say. Oligarchs, Poroshenko included, also control Ukraine’s major TV stations, which gives them enormous influence over public opinion and leverage over officials. When Poroshenko fought the oligarch Igor Kolomoisky over Ukrnafta, the country’s largest oil and gas producer, earlier this year, Ivanchuk, who is one of Kolomoisky’s business partners, blocked a bill to return it to the state. Though Yatsenyuk eventually got the bill passed, Kolomoisky still retains untoward influence over Ukrnafta, according to Sergei Leshchenko, a lawmaker who spearheaded the push to take back the company.
"Kolomoisky's people are still there, and they've let him put off his payments [on the company's $425 million debt to the state] until the end of the year," Leshchenko, a former investigative journalist, told BuzzFeed News last month. "He isn't paying the dividends or the revenue. Yatsenyuk isn't suing or filing criminal charges. I am sure there's a conspiracy between Kolomoisky and Yatsenyuk."
Rinat Akhmetov, Ukraine’s richest man, also sees Yatsenyuk as a major ally in his attempt to retain his influence and wealth, according to two people who discussed the matter with him. Akhmetov’s fortune, concentrated in industrial holdings in eastern Ukraine, has plummeted from $22 billion to $7 billion since war broke out there last year, according to Bloomberg. His closest political allies, a group of officials who ran their mutual hometown of Donetsk as their personal fiefdom, fled the country along with Yanukovych. “I’ve been knocked down, but not knocked out,” Akhmetov said, according to one of the sources. DTEK, Akhmetov’s sprawling energy monopoly, owns a number of assets it bought from the state at knockdown prices while Yanukovych was president. With he and his team gone, the famously soccer-mad Akhmetov is fond of saying that “Arseny Petrovich is the Lionel Messi of the Ukrainian government,” using Yatsenyuk’s patronymic, according to a Western diplomat who knows him.
Ukraine’s Western partners say they are seriously concerned the country’s leadership will not make good on its reform commitments. The country has passed the sweeping macroeconomic reforms under the terms of its $40 billion IMF bailout, but has made little progress elsewhere. Another diplomat recalled a meeting over bailout terms in 2014 where Yatsenyuk screamed at senior European officials, demanding they hand over the money immediately. “They can only be helped so much as they are willing to help themselves,” the diplomat said. “This is the most money the EU has ever given to a third country, and we’re not seeing the result.”
Some former members of the government say that institutional resistance is so strong as to make reforms all but impossible. “I was never invited to do reforms,” said Pavlo Sheremeta, who resigned as Yatsenyuk’s economy minister last year. “The money came in and it got much tougher. There’s no sense of urgency unless there’s no money in the coffers.”
Speaking at a conference in Kiev last month, Yatsenyuk said the struggle against corruption was ultimately not his concern. “I am not responsible for the prosecutor’s office ... nor for judiciary. I am doing my jobs: to fix the economy, to be back on track in terms of reforms, to provide energy efficiency reform, to provide financial resources for the Ukrainian military, to improve corporate governance for state-owned enterprises, ” he said. “Everyone is to make his own job."