Last month’s arrest of Oleksandr Hrytsenko, chairman of Ukraine’s state-owned export-import bank Ukreximbank, on money laundering charges is a setback for a country determined to boost trade and investment and shake off its reputation for corruption. Together with Ukraine’s newly-established PJSC Export Credit Agency, which Ukreximbank was integral to setting up, the bank is an essential pillar in Ukraine’s export push.
The bank’s board was quick to reassure customers and partners following Hrytsenko’s abrupt departure. Ukreximbank will co-operate with the authorities and business activities will remain uninterrupted, said acting chairman of the supervisory board, Steven Fisher in a statement. “The bank places great value on its standing as a reputable and transparent bank and will act according to the best practices of corporate governance.”
Elsewhere, the EU, Ukraine’s largest trading partner and accounting for more than 40% of its total trade in 2016 (Ukraine accounts for 0.9% of the EU’s) also reassures it is business as usual. “Ukreximbank is functioning and continuing normal commercial operations, thus there is no impact on EU-Ukraine trade,” says a spokesperson for the European Commission 9EC).
Yet the Ukreximbank scandal is the latest in a series to knock Ukraine’s banking sector. Most infamously, oligarch Igor Kolomoisky is trying to overturn the nationalisation of the country’s largest commercial bank PrivatBank, which he used to head, following allegations of massive fraud. International investors and institutions are keenly watching how the tussle plays out in a test case for Ukraine’s new President Volodymyr Zelensky, a television comedian and entrepreneur who came to power in April on a promise to end corruption. The fact that Zelensky rose to fame playing a fictional president on the oligarch’s TV channel, could mute any impact.
And governance is flagged as an enduring risk. “Governance considerations are material to Ukraine’s credit profile. Ukraine receives relatively unfavourable scores on the Worldwide Governance Indicators in the categories of government effectiveness, rule of law and control of corruption, impeding more robust entrepreneurial activity and investment,” says ratings agency Moody’s which has recently upgraded its rating of Ukraine from stable to positive.
The EU also has a keen eye on governance at Ukreximbank and broader banking reforms, listing safeguarding the independence of the Central Bank and macro-financial stability as priorities. “The new, independent board members to Ukreximbank’s supervisory board have been selected with participation of international observers,” says the EC spokesman, noting that “competition” for a new chairman was recently announced by the Ministry of Finance.
Yet Ukraine’s high profile and public battle with corruption is a sign for some that the country is finally beginning to tackle the problem. “Ukraine hasn’t had active processes for actually detecting or investigating corruption until recently,” says Ihor Olekhov, partner at law firm CMS Cameron McKenna in Kyiv, tells GTR. “In a way these are positive signs. Although the allegations may come to nothing it is positive that anti-corruption bodies are moving ahead with an agenda and there are first signs of life.” Ukraine passed anti-corruption laws in 2015 as part of a reform package that helped Kiev win a loan from the IMF and visa-free travel to the EU for its citizens.
In another encouraging sign of change, a new generation of younger politicians is coming to the fore, says Olekhov. “There is generational change in the government. Most of our politicians are in their thirties.”
For others, fighting corruption with arrests – or youth – won’t necessarily solve the problem. “The system is not just corrupt – it runs on corruption. There are no, or almost no, completely clean people within this system and under these conditions, random arrests mostly increase uncertainty rather than strengthen business confidence,” says Vladimir Dubrovskiy, a tax expert at Ukraine’s Reanimation Package of Reforms Coalition, a group of NGOs determined to bring reform to the country. “Politically motivated arrests can, even more, further solidify the corrupt system by signalling that now it is time to strike a (corrupt) deal with some another party,” he warns.