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Ukraine’s anti-oligarch law: a reform tool or a political weapon?

Oligarhi
©EPA-EFE/SERGEY DOLZHENKO  |   Members and supporters of different nationalist parties carry flags and anti-oligarch banners during their march ‘For Ukrainian future without oligarchs!’ in downtown Kiev, Ukraine, 03 April 2018.

The Parliament in Kiev adopted a law aiming to curb oligarchs’ influence in politics. The piece of legislation comes at a time when Ukraine’s partners have warned Kiev authorities they are doing too little to limit the informal decision-making of groups of oligarchs. Despite having already been adopted, the law rather seems to be a sort of “window dressing” designed to boost Zelensky’s influence in the runup to the presidential election. No one really knows who exactly will be on the list of oligarchs who will have to abide by the new legislation and what the long-term implications will be.

The anti-oligarch law

Upon the president’s initiative, Ukrainian lawmakers drafted a bill aimed at “putting an end to the clans of oligarchs in the Ukrainian economic system”. At first, the idea raised a few smiles, given that until recently, Zelensky had called on the very same oligarchs to support his actions aimed at combating the pandemic – each oligarch was entrusted with a region he was supposed to look after – and at building social and economic infrastructure in eastern Ukraine.

Zelensky’s idea started to take shape the moment the draft law was submitted and voted in its original form. The document was harshly criticized by Zelensky’s opponents, but also by people close to him, particularly the former Parliament Speaker, Dmytro Razumkov. To prove his determination and pressure those who might block the draft law, Zelensky said he would fight the oligarchs at whatever cost, explaining that unless Parliament votes the bill, then he would call a referendum, thus bypassing parliamentary procedure – a referendum which he would have easily won.

Basically, Zelensky is bent on destroying a system that has been in place for over 20 years.

The first oligarchs emerged during Leonid Kuchman’s term as president in the late 90s, when they took an active role in politics: they became deputies themselves and got to control parliamentary groups. Oligarchs would appoint their own people in the Cabinet and would conduct their business while at the same time holding public office. Kuchma’s demise was followed by a period of fierce rivalry. Oligarchs preferred to leave the spotlights of major-league politics and to fund various parties, both in power and in opposition.

Viktor Yanukovych tried to seize control of the oligarchs based on the Russian model. But the lessons of this scenario (which could become dangerous for those who are too independent, Khodorkovsky and Berezovsky being just a few well-known examples) deterred Ukrainian oligarchs from joining forces with Yanukovych.

At present, oligarchs exert considerable sway in politics, controlling a number of deputies in Parliament and even people inside the government. 92% of Ukrainians believe oligarchs are influencing decision-making in Kiev to a great extent. Similarly, oligarchs’ overextended influence in the economic sector is considered one of the three biggest issues hampering Ukraine’s development. Finally, independence from the oligarchs was one of the top reasons people voted for Zelensky in the first place. It’s also why Zelensky himself feels compelled to tackle this issue, particularly in the absence of clear-cut progress in fulfilling the promises made in the election campaign.

“Law-abiding oligarchs”

The text of the bill actually describes “the oligarch” as the bad guy, which is transparent in the full name of the law: “on the Prevention of Threats to National Security Related to the Excessive Influence of Persons who have Significant Economic or Political Weight in Public Life (Oligarchs)”. According to the bill, an oligarch is any person corresponding to at least 3 of the following 4 criteria:

  1. Takes part in political life. Herein qualifies anyone engaged in political activity or holding public office: deputies, the president, oblast governors, members of the Cabinet, but also people financing political parties, staging protest actions or taking part in any action with political overtones, etc. It can virtually be any citizen.
  2. Exerts considerable influence over the media (owners and co-owners of media outlets: TV stations, radio stations, news agencies, online portals).
  3. Owns an enterprise that enjoys a monopolistic position in the market (this will actually require an additional piece of legislation, but it presumably targets gas and electricity companies, etc.). It is believed this group includes some of Ukraine’s economic heavyweights: Rinat Akhmetov, Dmytro Firtash, Viktor Pinchuk, etc.
  4. Owns assets the total value of which exceeds 1 million minimum wages (tantamount to roughly 83 million USD).

Anyone fitting the abovementioned criteria will be automatically listed in a special Register that will be managed by the National Security and Defense Council (NSDC). And since the president virtually controls the Council, Zelensky will decide who gets included and who doesn’t. The selected individuals and their affiliated companies will be banned from taking part in large-scale privatization projects, or from funding political parties directly or indirectly.

In their contacts with politicians and senior public officials, oligarchs will have to warn the latter about being listed in the Register, and the latter will need to file a special declaration with the NSDC. The signed document must provide details about the oligarch or his representative with whom they interacted, in addition to a summary of their conversation. The declaration also applies to conversations via videoconferencing or over the phone. Besides, oligarchs will need to file full financial statements listing their income sources and assets.

If we observe the discourse of the people spearheading the law, we can notice that the Register could list as many as 13 oligarchs. There’s room for surprises as well, but what’s certain is that former president Petro Poroshenko will also be listed in the Register. This might complicate the upcoming election campaign in terms of the so-called “level playing field”, namely providing each candidate with equal chances. This could affect Zelensky’s image, but at the same time please a large segment of the voting population who strongly oppose Poroshenko.

The end justifies the means

It seems that not everyone perceived by society and experts as an oligarch will end up listed on the NSDC’s Register. The way Zelensky is trying to organize the deoligarchisation very much resembles former president Poroshenko’s own approach to what he termed “selected deoligarchisation”. As in the latter case, Zelensky seems willing to “pick his victims” and divide oligarchs between “good” and “evil”. The election campaign of the pro-presidency party was funded by oligarchs, and the party’s parliamentary group includes deputies who are controlled by oligarchs or guided by their interests. At the outset of Zelensky’s mandate, deputies controlled by oligarchs voted every piece of legislation tabled by the presidency, whereas oligarchs would buy ambulances, apartments for sailors and other goods the state could not afford, all this time smiling for the media.

Tensions erupted when Zelensky wanted to take control of certain assets which provided benefits to oligarchs, despite being state-owned. The best such example is that of “Centrenergo”, a major player on the energy market, which Zelensky sought to bring under his control. The president’s attempt was blocked by the very parliamentary party that supported the presidency. The groups of oligarchs also joined forces when the president tried to nominate a new energy minister (Yuri Vitrenko), an attempt that eventually failed after deputies loyal to oligarchs chose to vote against the proposal.

Nevertheless, the president didn’t go as far as declaring an all-out war on oligarchs who didn’t endorse him, because fighting on multiple fronts at the same time can be too dangerous. All big-league oligarchs control very popular media groups in the country, and a smear campaign targeting Zelensky could spell disaster – suffice it to look at former president Poroshenko and former prime minister Yatseniuk, whose approval ratings have hit a negative all-time low. 

It’s very likely we will be witnessing a differentiated treatment of oligarchs on the future Register due to the media as well as other financial reasons. Zelensky may pick second-tier oligarchs as his victims, because it would be hard for him to go to war with the oligarchs and at the same time secure a second mandate as president. Some suspect Zelensky proposed the anti-oligarch law particularly in order to stay in office – if none of these individuals run against him, then his odds will go up. Still, Zelensky has an entire arsenal of foolproof arguments in favor of deoligarchisation. First of all, the people want to see oligarchs’ influence toned down. Secondly, Ukraine’s partners, the EU and the USA most notably, have warned Kiev it is doing too little to curb informal governance, thus risking to lose the support of Western chancelleries. 

The sacking of Parliament Speaker Razumkov is the icing on the cake in this whole political soap opera. In recent years, Dmytro Razumkov has distanced himself from Zelensky and his faction, trying to pose as “the speaker of all”. At public level, the anti-oligarch law was the bone of contention, considering that Razumkov warned the Security Council that he cannot assume prerogatives that are not legally his. However, some voices argue Razumkov would have been dismissed at any rate, since Zelensky was unwilling to tolerate several poles of power within his party.

In the long run, Ukraine must align itself to the European model – where oligarchs play by the rules and thus become legitimate businessmen. Until then, however, Ukraine is yet to overcome the hardest stage of this transition.

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  • The Parliament in Kiev adopted a law aiming to curb oligarchs’ influence in politics. The piece of legislation comes at a time when Ukraine’s partners have warned Kiev authorities they are doing too little to limit the informal decision-making of groups of oligarchs. Despite having already been adopted, the law rather seems to be a sort of “window dressing” designed to boost Zelensky’s influence in the runup to the presidential election. No one really knows who exactly will be on the list of oligarchs who will have to abide by the new legislation and what the long-term implications will be.
  • At present, oligarchs exert considerable sway in politics, controlling a number of deputies in Parliament and even people inside the government. 92% of Ukrainians believe oligarchs are influencing decision-making in Kiev to a great extent. Similarly, oligarchs’ overextended influence in the economic sector is considered one of the three biggest issues hampering Ukraine’s development. Finally, independence from the oligarchs was one of the top reasons people voted for Zelensky in the first place. It’s also why Zelensky himself feels compelled to tackle this issue, particularly in the absence of clear-cut progress in fulfilling the promises made in the election campaign.
  • Nevertheless, the president didn’t go as far as declaring an all-out war on oligarchs who didn’t endorse him, because fighting on multiple fronts at the same time can be too dangerous. All big-league oligarchs control very popular media groups in the country, and a smear campaign targeting Zelensky could spell disaster – suffice it to look at former president Poroshenko and former prime minister Yatseniuk, whose approval ratings have hit a negative all-time low. It’s very likely we will be witnessing a differentiated treatment of oligarchs on the future Register due to the media as well as other financial reasons. Zelensky may pick second-tier oligarchs as his victims, because it would be hard for him to go to war with the oligarchs and at the same time secure a second mandate as president.
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