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18 May, 2015  ▪  Lyubomyr Shavalyuk

Shaking the Foundations

Cutting access to their financial resources is the most effective way to leave the representatives of the old regime with no chance for comeback

It looks as though in the war, which currently has two dimensions – of the fighting in the Donbas and of the "peaceful" battle over reforms by civil society and some representatives of the new authorities versus the old oligarchic-bureaucratic – a third front is emerging. This one is the fight against the ghost of Viktor Yanukovych's regime, the representatives of which are quietly working to regain the power they lost after the EuroMaidan.

And as far as this intensifying struggle on the third front is concerned, it was Yanukovych himself, who in the late February provided the perfect sound bite to describe the present developments: “As soon as I get a possibility to return, I will. And I'll do my best to ease the life in Ukraine”. For now many view such a return as implausible at best, but the preconditions for the regime's comeback (even if in disguise and without the infamous ex-president) are being actively created as we speak. In fact this is being done in more ways than one. Serhiy Arbuzov, ex-NBU Chief and First Vice Premier under Yanukovych, is active on Facebook posting articles to justify the actions of his pre-Maidan team and to slam the authorities currently in office over the current economic situation. And while his arguments hardly hold water, the more Ukrainians get disgruntled about their worsening financial position, the more of them will fall for such rhetoric. The Azarov-era Cabinet Minister of Income and Taxes Oleksandr Klymenko has spent the last six months criticizing the State Fiscal Service and sending out press releases to the media on a regular basis. As of late his criticism concerned the ever larger scope of macroeconomic tendencies as well as every branch of state power. Some members of the old guard are working on getting the EU sanctions lifted to regain control over their assets. Take Yanukovych's close business associate Yuriy Ivaniushchenko, for example. In December 2014, he managed to get an official statement from the Prosecutor General's Office (the latter had been taking a lot of efforts to backpedal the investigation of Ivaniushchenko's wrongdoings until very recently) that he was not a party to any ongoing criminal case. A similar kind of paper enabled the Azarov-era Minister of Environment and Natural Resources Mykola Zlochevskyi to get Great Britain to unfreeze his bank accounts with some USD 23mn. Eduard Stavytskyi, the ex-Minister of Energy, is getting his assets re-registered to third parties and battling in courts (with mixed success) over the fortune he accumulated under Yanukovych.

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Examples of Yanukovych’s “Family” members and other oligarchic clans that were part of his regime, fighting to regain their power and influence, are plenty. This is beginning to resemble the time after the Orange Revolution, when some of the officials and oligarchs, including Rinat Akhmetov, fled Ukraine, but were later guaranteed impunity and returned within months. Eventually they not only regained power but led the country to another revolution and to bloodshed at Maidan. To avoid repeating past mistakes and minimize the chances of such a scenario happening again the new authorities must act now. The revenge-seeking old guard must be denied access to resources, first and foremost financial ones. This will require action on several fronts.

First and foremost, the revanchists must have their money flows within Ukraine taken away from them. There are a few aspects to this. Firstly, it's common knowledge that the "Family" capital under the regime used to be formed to a great extent through outright extortion and corporate raiding with protectorate from law-enforcement agencies. Most of such deals could easily be declared void in court (that is if Ukraine had an adequately functioning judicial system). Therefore putting things in order in the judiciary is an indirect way to prevent the comeback of the old regime. The creation of an efficient court system would allow the current government to make a register of assets illegally seized by representatives of the regime. The government could then assist the original owners in restoring their rights through a transparent judicial process. Such a step would not only strip Yanukovych's cohorts off their financial base, but also grant public support for the authorities in power, as justice has been in high demand in Ukraine for some time. However, launching re-privatization of the assets privatized in 2010-2013 would be a step too far. The experience of other countries shows that large-scale re-privatization campaigns tend to scare investment away, and these days investment is in short supply in Ukraine even as it is.

Secondly, an important part of the "Family" income used to come from the state budget. And it wasn't limited to public tenders, in which the current authorities have demonstrated notable progress by implementing a transparent e-auction system (meanwhile the dodgy schemes that are still in place are probably filling new pockets, for the most part, rather than those of the revanchists). Other elements include budget subsidies, for example, in the coal industry, which enriched the "Family" with hundreds of millions every year. The subsidies have now been done away with, while the industry itself awaits radical transformations. Not to mention that with the war in the Donbas very few of the coal mines left on the Kyiv-controlled territory are worthy of any state investment. As far as natural gas is concerned, one can go at lengths criticizing the soaring utility bills, but as soon as the tariffs reach the market price the vast flow of government subsidies filling the pockets of the old guard, from the Firtash & Liovochkin oligarchic group to certain members of the "Family", will dry out. This will once again take away a considerable source of income from those, whose political orientation is anti-Ukrainian.

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Thirdly, another factor of revanchists' economic influence is monopoly that they created for their businesses during their time in power. Unfortunately, the idea to break up the monopolies and to remove the hurdles hampering other players from entering certain markets isn't part of the public discussion right now. This guarantees the representatives of the old regime monopoly in certain industries. More broadly, currently oligarchs have some degree of control over the majority of the population by either being proprietors of businesses that provide employment, or controlling state enterprises that employ Ukrainians. This gives oligarchs their social and ideological influence. Such a monopoly must be destroyed by creating favorable conditions for small and medium business or a powerful influx of foreign businesses. Both options would provide an alternative to the oligarchs and the revanchists among them, an alternative to the economic force, on which so many Ukrainians are financially and therefore psychologically depend.

Fourthly, one of the pillars of economic influence for the representatives of the Yanukovych regime were the banks they own. They provided the means to launder the money and transfer capital overseas. Currently the National Bank of Ukraine is revoking licenses of such financial institutions. As a result the "Family" has been deprived of many pet banks, which undoubtedly complicated their task of creating fertile economic grounds for the comeback. NBU's efforts in this area are indeed commendable, as transparency in the financial system is one of the key factors for eliminating shady schemes along with the operators incapable of surviving in a fair competitive environment.

While working away at destroying that economic foundation under the old oligarchic elites the current authorities and the civil society will time and time again encounter sabotage by the corrupt policemen and judges paid out of the billions of dollars, which the regime funneled abroad. They will do their utmost to torpedo transformations and to "wind back" reforms. Hence we can conclude that without fair judiciary and effective reform of law enforcement Yanukovych's odds are looking considerably better. Until Ukraine has judges, prosecutors, investigators, etc. that can be bought, they will defend the material interests of the revanchists bankrolling them. Therefore the more successful Ukraine becomes at conducting reforms, first and foremost in judiciary and law enforcement, the further this apparition of Yanukovych will roll with its foundation kicked from under it. However, should the reforms stall, the revanchists will pounce at the first opportunity to extensively feature in Ukraine.

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At the same time, for as long as the Kyiv-controlled territory of Ukraine does not include Crimea and the Donbas, no matter the economic influence, the revanchists don't stand a chance in free and fair elections (the access to nonelected positions is blocked for them by the lustration law). The significant enough portion of the population residing in Ukraine's current boundaries remembers the exploits of the Yanukovych regime all too well.


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