Business Sector Takes Action to Fight Corruption in Ukraine

12.21.2016 | Articles | Anna Kompanek

Article at a glance:

  • Although corruption remains entrenched in Ukrainian politics and the economy, private sector-led anti-corruption initiatives show a different path for the country.
  • A new Ukrainian anti-corruption law incentivizes prevention and promises stricter enforcement, prompting business efforts toward improved compliance.
  • CIPE and its partner the Ukrainian Corporate Governance Professional Association are building the capacity of small and medium-sized enterprises in Ukraine to follow the standards of corporate governance and anti-corruption compliance.

Article in full:

When it comes to corruption, the news from Ukraine is rarely good. EuroMaidan protests fueled by public outcry over kleptocracy on a massive scale led to the ouster of President Yanukovych in 2014. The protests led people to be optimistic about Ukraine’s future and there was genuine hope the corruption would be addressed. Since then, Ukraine has made progress on anti-corruption reforms but the veracity of these efforts remains in question.

Signs point to an uphill battle for those wanting lasting change. Earlier this year, the economy minister Aivaras Abromavicius stepped down saying that he did not want to be a “smoke screen for obvious corruption or a marionette for those who want to return control in the old style.” In November, former Georgian president and governor of Ukraine’s Odessa region, Mikheil Saakashvili, resigned citing corruption and blaming the government for obstructing his efforts to fight graft. Now, three years after EuroMaidan, the technocratic reformers that entered government after the protests have largely been driven out of public service.

Such troubling news underscores the depth of corruption’s entrenchment in Ukrainian politics and the economy. The country faces the challenge of a profound systemic transformation that realistically will take decades to achieve. At the same time, Ukraine remains a large market of vital interest to domestic and foreign companies. Ukrainians cannot wait for the government to resolve the corruption problems from the top down and Ukrainian businesses need to make changes today to gain new clients and investors. In particular, for companies that are (or aspire to be) a part of global value chains, the U.S. Foreign Corrupt Practices Act and the UK Bribery Act create incentives to be proactive about anti-corruption compliance.

new Ukrainian anti-corruption law incentivizes prevention and promises stricter enforcement. The law, passed in 2015, targets both public and private sector corruption. It mandated the creation of the National Agency for Prevention of Corruption and the National Anticorruption Bureau. It also mandates compliance in companies by demanding the adoption and implementation of “measures necessary and reasonable to prevent and fight corruption.” In particular, all wholly or partially state-owned enterprises and all private companies participating in public procurement are required to maintain anti-corruption policies. These include procedures for the periodic review of the policy’s effectiveness, employee training, and the appointment of a corporate compliance officer.

Encouragingly, many companies take the new law seriously and have been making efforts to comply. However, many smaller companies face the challenge of understanding the provisions of the law and tailoring their compliance policies to their size and risk profile. They need to increase their awareness about the requirements of the law and expand their knowledge of best practices. That need is being addressed by a joint program of the Center for International Private Enterprise (CIPE) and the Ukrainian Corporate Governance Professional Association (UCGPA).

The two organizations are building the capacity of small and medium-sized enterprises (SMEs) to follow the standards of corporate governance and anti-corruption compliance. To-date we have jointly trained over 50 Ukrainian businesses from all over the country in intensive five-day sessions – the first and only such targeted initiative in Ukraine. The demand remains high and CIPE and UCGPA hope to reach many more local businesses with this training in the coming months. CIPE is also assisting UCGPA in creating a professional association of anti-corruption compliance officers, and establishing an online resource center to provide educational materials and details of recent enforcement actions.

“While progress against large-scale corruption at the government level remains slow, we have seen a significant change in popular attitudes that come through among the businesses we train,” said the head of the UCGPA Alexander Okunev. “They want to improve anti-corruption compliance because they want to make sure they follow the new law, are able to participate in government tenders, and can do business with multinational corporations. More fundamentally, they also see anti-corruption as something that benefits the country as a whole and is every citizen’s responsibility.”

On November 11, CIPE and UGCPA held a major conference in Kyiv focused on anti-corruption compliance in business and the interplay of international experience and Ukrainian practice. Organized with support from the American Chamber of Commerce in Ukraine and the Commercial Law Development Program (CLDP) of the U.S. Department of Commerce, the conference gathered nearly 180 participants and shed a spotlight on an often underappreciated aspect of Ukraine’s anti-corruption efforts: what the private sector is doing to limit the opportunities of corruption in how businesses operate. “Companies that put in place internal controls and compliance need positive motivation, they need to be rewarded for good behavior,” emphasized one of the expert speakers, Drago Kos, the head of the OECD Working Group on Bribery.

This focus on advancing anti-corruption compliance among local companies complements larger anti-graft efforts and helps address a major concern of Ukrainian businesses. According to a recent business climate assessment survey conducted by the Institute for Economic Research and Policy Consulting, Ukrainian SMEs want deregulation and friendlier tax authorities – key factors in addressing corruption risks. Out of more than 1,800 polled enterprises, 71 percent named reducing the number of documents and procedures required for doing business as the most important policy reform priority.

But more needs to be done to educate the business sector. According to Okunev, there is a lack of understanding of the mechanisms, forms, and methods for fighting corruption. “It’s not that much that Ukrainians prefer to solve their issues through bribes, but more about the mere fact that they simply are not aware of specific anti-corruption technologies,” Okunev said.

Ukraine clearly needs both government- and private sector-led anti-corruption reforms and the road ahead will not be easy. The challenges need to be recognized but so do the accomplishments. Local businesses that take concrete steps to improve anti-corruption compliance in their operations are bright spots in Ukraine’s corruption-tainted economic landscape, and an important source of good news.

Anna Kompanek is the Director of Global Programs at the Center for International Private Enterprise.