Since 2014, Ukraine has taken decisive steps toward combating corruption. This has included the adoption of anti-corruption legislation and the establishment of anti-corruption bodies that operate in accordance with international standards. Furthermore, there has been a concerted effort to identify and address the root causes of corruption in Ukraine. Notably, the presence of an oligarchy with its inherent characteristics has been identified as one of the key factors contributing to corruption.
The Ukrainian oligarchy is generally perceived as a group of individuals who possess significant financial resources through their own businesses and use their power to influence public officials for personal gain, often through corrupt practices. They tend to have a negative attitude toward the state, which encourages illegal activity. This negative attitude is reflected in their tendency to use their influence in state bodies to prevent the implementation of fair business practices that apply to everyone and instead promote corruption.
Following Ukraine’s independence in 1991, the formation of the Ukrainian oligarchy began. This period marked the accumulation of financial capital and distribution of assets that resulted from the collapse of the Soviet Union. The future Ukrainian oligarchs gained their wealth through the privatization of Soviet enterprises and the manipulation of funds received for such enterprises at the expense of the budget. The slow reformation of legal mechanisms allowed the oligarchs to increase their wealth while consolidating their political influence.
The combination of various factors in Ukraine has led to the emergence of a new form of corruption known as state capture. This is evident in the way oligarchs control certain enterprises and maintain them as part of state ownership. Additionally, private individuals manipulate budget flows through lobbying and legislation to enrich themselves. Finally, monopolies are created by taking control of industry regulators, resulting in a lack of competition.
Since 2019, combating oligarchic influence has become a top priority in Ukraine. In 2021, a law on oligarchs was adopted to target state capture. This law defines the characteristics of oligarchs, persons who participate in politics, and individuals who have significant influence on the media. It also establishes mechanisms for the creation and functioning of what is described as a register of persons who have significant economic and political weight in public life — in other words, a register of oligarchs.
The Venice Commission has deemed the law on oligarchs undemocratic in its current state and has cautioned that it may be used for political purposes. They believe that the law is not in line with the principles of political pluralism and the rule of law. They have determined that even if significant changes are made to the Law, the core “personal approach” will still present issues with human rights, democracy, and the rule of law standards set by the Council of Europe. Therefore, the Venice Commission recommends that the Law not be implemented in its current form and instead, a “systemic” approach should be taken.
Despite the pause in implementing the provisions of the Law on Oligarchs due to Ukraine’s European integration process and ongoing war, investigations on some oligarchs are still ongoing. The case of Kolomoyskyi serves as an illustrative example.
Ihor Kolomoyskyi is a billionaire businessman of Israeli-Cypriot origin who was born in Ukraine. At one point, he was considered the top oligarch in Ukraine. In the early 1990s, he co-founded PrivatBank along with fellow billionaire Henadiy Boholyubov. However, Kolomoyskyi was sanctioned by the U.S. State Department in March 2021 for corruption that occurred under his watch in the Dnipro region. Forbes estimated his net worth to be $1.8 billion in early 2022, but by November of the same year, it had dropped to $850 million.
In 2020, Kolomoyskyi received the dubious honor of ranking fourth in a list of “person[s] of the year in organized crime and corruption.” In the ranking, compiled by the Organized Crime and Corruption Reporting Project (OCCRP), Kolomoyskyi trailed behind Jair Bolsonaro, US President Donald Trump, and Turkish President Recep Erdogan. The reason for his ranking was because his manipulations with loans in the bank he controlled. This resulted in the money disappearing into various offshore accounts and causing losses that represented 40% of all private deposits in the country.
Despite all of this, Kolomoyskyi has not been arrested.
Though he long managed to evade prosecution by anti-corruption authorities, Kolomoyskyi was eventually charged in September 2023 with the following offenses:
- Engaging in illegal activities involving transfer documents, payment cards, and other means of accessing bank accounts, electronic money, and equipment used for their production.
- Abusing his official position as an official to acquire other people’s property, which was committed by an organized group and involved particularly large amounts.
- Legalizing funds obtained through criminal means.
According to the investigation, Kolomoyskyi allegedly took possession of UAH 5.8 billion between 2013 and 2014. To do this, he created a criminal group, which included bank employees and of which he was a founder and shareholder. During this time, members of this group allowed Kolomoyskyi to make fictitious “cash contributions to the bank’s cash register,” sums that were not ultimately received by the bank. This scheme allowed Kolomoyskyi to receive UAH 5.8 billion, which was equivalent to more than USD 700 million USD at the time. These fake contributions were credited to Kolomoyskyi’s personal account and became real non-cash funds. To legitimize these virtual assets, Kolomoyskyi used them in his business activities by giving them as loans and using them to pay for loans of enterprises under his control. He also allegedly took them abroad, converted them into cash and withdrew them from the bank branches.
The Security Service of Ukraine is currently investigating two cases, in collaboration with the Bureau of Economic Security. The first one is related to fraud and money laundering, which occurred from 2013 to 2020, and involves an amount of 574 million hryvnias. The second case is regarding the falsification of payment documents and money laundering, which happened during 2013 and 2014, and involves an amount of 5.8 billion hryvnias. Additionally, the National Anti-Corruption Bureau of Ukraine is conducting an investigation into the suspected illegal appropriation of PrivatBank’s funds in an amount surpassing 9.2 billion hryvnias.
Despite the numerous suspicions and Kolomoyskyi’s detention, there is much debate about whether he will be able to avoid punishment due to flaws in the current legislation. Experts warn that he may be able to evade punishment under a set of amendments proposed by lawmaker Andrii Lozovoy that have already resulted in the closure of criminal cases against other Ukrainian oligarchs.
In 2018, Losovoy’s amendments brought about several changes to the Criminal Procedure Code of Ukraine. One of the changes requires that a court must mandate an expert examination. Another change is the elimination of the monopoly of state expert institutions. Additionally, pre-trial investigation terms are now calculated from the moment information is entered into the Unified Register of Pre-trial Investigations, instead of from the notification of suspicion. Depending on the severity of the crime and the possibility of continuing through court, the pre-trial investigation term can last for 12 or 18 months. Finally, individuals can contest the suspicion after two months from the date of its delivery.
Legal experts have expressed concern about the negative impact of recent changes to the Criminal Procedure Code on pre-trial investigations. These changes have imposed a very short time frame for conducting criminal investigations, made the process of conducting examinations more complicated as they are now a state monopoly, and given the investigating judge the power to cancel the notification of suspicion. Furthermore, the changes based on the Losovoy’s amendments have increased corruption risks and made it easier for outsiders to influence pre-trial investigations.
In 2019, Ukraine adopted Law No. 187-IX, which abolished clauses related to the authorization of examinations by the investigating judge and the state monopoly on examinations. However, Losovoy’s amendments regarding the system for calculating investigation deadlines and contesting the notification of suspicion remained intact.
The 2023 report of the European Commission on Ukraine suggests that Ukraine’s criminal legislation needs to be reviewed to improve efficiency and effectiveness in handling cases involving corruption by high-ranking officials. This includes preventing procedural delays and revising the Lozovoy’s amendments.
Despite claims of the legal mechanisms being imperfect in conducting criminal investigations, including those into corruption cases like the Lozovoy’s amendments, which could directly impact the outcome of the current Kolomoyskyi cases, the mere existence of such cases, and the efforts being made to combat state capture, is an affirmative trend. It unequivocally indicates that Ukraine is putting in a tremendous amount of effort to fight against corruption.
Dr. Olha Chernovol is a postdoctoral fellow in the Droit civil section of the University of Ottawa Faculty of Law. She is also a fellow and member of the Scholar at Risk Program at uOttawa Human Rights Research and Education Center.
