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Hryvnia (National Bank of Ukraine/Flickr)

Luxuries and Loopholes: Ukraine's New Asset Declaration Law

Natalie Duffy

Ukrainians have long suspected that many of their officials were unimaginably richer than themselves. Thanks to a newly launched e-declaration scheme, they now know by just how much.

Sunday, October 30 was a day of revelation for many Ukrainian citizens: It was the deadline by which 50,000 public officials were required to declare their assets and income from 2015. Those declaring more than $100,000 will be audited by Ukraine’s National Anti-Corruption Bureau.

The declarations can now be viewed by anyone in a publicly searchable online database, a measure adopted to comply with IMF demands to increase transparency in a country that has become almost synonymous with corruption.

The chasm between the ruling class of officials and those who elect them is now starkly apparent. The declarations revealed fortunes that include luxury cars, designer watches, massive diamonds, and even a bottle of wine worth $10,000 (which is five times the annual salary of the average Ukrainian).

Declarations unveiled baronial luxuries unimaginable to a largely impoverished population. The declaration of Arsen Avakov, an MP, revealed a large collection of priceless furniture from across Europe and the world, valuable manuscripts, and exquisite fine art collectibles. Other declarations revealed a different type of excess—some of it bizarre. MP Anatoliy Matvieynko apparently owns a church, while Eastern Ukrainian Mayor Boris Filatov has secured himself a ticket for a space expedition with Virgin Galactic worth 1.4 million hryvnyas (nearly $55,000).

Most of these officials are paid salaries of just over $200 per month. Seeing their vast, multimillion dollar fortunes and excesses splashed in stark black and white print on computer screens across the country has understandably enraged many Ukrainian citizens.

The e-declarations law is partly inspired by Romania’s anti-corruption reforms, and has been in the making since the post-Maidan government took office in 2014. Despite this, the website, which was due to be launched five months ago, had been delayed due to political foot-dragging and technical issues. This was part of the reason why $17.5 billion in U.S. and EU bailout money via an IMF loan for Ukraine remained frozen. Though far from perfect, the fact that it was launched at all is a clear case of conditionality at work.

What do Ukraine’s anti-corruption activists make of the reform?

They can see both a serious loophole and a flaw. The law’s loophole is that officials must only out themselves as the real (i.e. beneficial) owners of companies. The beneficial owners of real estate, however, do not need to be disclosed.

KI spoke to Daria Kaleniuk, Executive Director at the Anticorruption Action Center, a Kyiv-based NGO, about the law. “For example, if I am a senior official and I am a beneficial owner of a company registered in, let’s say Belize, I have to declare it,” explained Kaleniuk, “but if I am the beneficial owner an expensive mansion in Spain, I don’t have to declare this villa.”

The law’s flaw is how it treats cash–the law has no provision to check whether the vast amount of hard currency Ukrainian officials hold in paper is remotely accurate. “Officials literally store large amounts of money under their pillows,” warns Kaleniuk. “But to verify whether the sums reported in their declarations are the exact amount of cash they store at home is almost impossible.”

As a result, it is unlikely (to say the least) that the declarations represent anything approaching a true reflection of the wealth held by Ukrainian elites. Twelve officials failed to declare any of their assets, Prime Minister Vladimir Hroysman was holding $1.8 million in cash, and one MP, Serhiy Melnychuk, listed his income at 1 trillion hryvnyas ($39 billion) as a joke.

Nevertheless, the law, however imperfect, has shaken Ukraine politically.

Social media was flooded with outraged reactions, and reformist MPs sense an opportunity. Mustafa Nayyem, a Maidan activist turned lawmaker said: “Now we need a public campaign that answers the question ‘From where [did they get these fortunes]?’” Ukrainians seemed to echo this suggestion online, leaving the possibility for a wave of activism seeking to uncover the source of officials’ wealth.

Kaleniuk suggests two steps to rectify deficiencies in the legislation: increasing the investigative powers of anticorruption departments, and establishing a more effective prosecutorial framework. “We need the right for the new anticorruption investigative agency to wiretap independently. Now, they cannot wiretap without support from the Ukrainian Security Service, which is under the political influence of the president.” On how to go about prosecuting violators of the new law, she said: “We are lacking an anticorruption court with competitively selected and truly independent judges.” Any conditions placed on further Western aid should surely take these points into account.

Otherwise, how should Western policymakers react?

This is a major reform, unimaginable in Russia or even in pre-Maidan Ukraine, and should be welcomed. Yet the asset declarations themselves should be treated with skepticism. The omission of beneficial ownership of real estate, for example, is a glaring deficiency which must be urgently corrected as a condition of further Western aid.

More broadly, policymakers should recognize that the declarations by themselves will not bely the frustration and anger felt by ordinary Ukrainians about the ingrained corruption that permeates their government and has all but crippled their country.

Without further reforms which close the loopholes and correct the flaws, as well as proper enforcement, there is a danger that elites will exploit the veneer of transparency to continue stealing unimpeded.

The e-declaration site is available here.

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