By Oksana Huss, Research Fellow, Bologna University and Svitlana Musiiaka, Head of Research and Policy, NAKO
Previous research featured in this very blog on corruption in the defence sector suggests that good governance can be essential to ensure the effectiveness of security forces, while corruption impedes defence capacity. Consider the case of Ukraine. The Russian occupation of Crimea and Donbas in 2014-15 became a costly lesson of how corruption in defence undermined Ukraine’s sovereignty. President Yanukovych's kleptocratic policy systematically deteriorated material and human resources of the Armed Forces of Ukraine (AFU), which eroded its capacity to resist invasion.
Since then, Ukrainian society has fought against illicit influence and corruption. The reform of the security and defence sector became one such battlefield. Today, while much of the world rightfully applauds Ukraine’s David vs. Goliath military resistance to Russia, it’s worth noting how essential the defence sector anti-corruption efforts have proven in contributing to the country’s defence. It’s even possible to argue that without such reforms, Russia would be in control of Kyiv and much of the country.
However, as previous CJL blog posts show, it is anything but self-evident that defence and security reform is rooted in ideas of good governance. Up to 90% of all funds for the military flow into tactical and operational reforms, clearly leaving governance reforms aside. At the same time, if these resources are placed in a corrupt and poorly managed defence sector, they will be useless. How then is it possible to advance anti-corruption reforms in the traditionally highly closed sector of security and defence?
We argue that anti-corruption reform in the Ukrainian security and defence sector was advanced by two primary factors. First, the complex interplay among civil society, government authorities, and international partners featured necessary pressure and collaboration. Second, these stakeholders were acutely aware of the risks of large-scale corruption to security. Since then, a spillover effect from this exchange among stakeholders has enhanced Ukraine’s resilience in its current war.
Corruption and Anti-Corruption in Ukraine’s Security and Defence sector
The extensive reforms in security and defence in Ukraine involved almost every aspect of the sector: from defence industry and public procurement, to parliamentary oversight and conceptual revision of classified information, to gender equality in the AFU. The anti-corruption and corporatization reform of the defence industry conglomerate UkrOboronProm (UOP) demonstrates the mechanisms by which Ukraine advanced its most challenging reforms since 2015.
UOP consists of more than 100 state-owned enterprises (SOE) which manufacture, trade, and maintain military equipment and ammunition. Since its 2010 creation, corruption scandals have plagued the conglomerate. Additional urgency for reform arose from inefficient, Soviet-style management practices and financial losses from obsolete production assets. The main challenge to any intervention were post-Soviet structures and thinking in the entire security and defence sector: Authorities and SOE management were closed to external advice or intervention; information was overclassified; and decision-making occurred in a strict, vertical way.
“It’s worth noting how essential Ukraine’s defence sector anti-corruption efforts have proven in contributing to the country’s defence. It’s even possible to argue that without such reforms, Russia would be in control of Kyiv and much of the country.”
The joint working group of UOP representatives, Office of President, members of Parliament, Ministries (of Defence, of Interior, of Economy), NATO Liaison Office in Ukraine, and civil society experts drafted UOP’s modernisation reform. This working group was a victory in itself given the defence sector’s infamously closed-off status. Despite strong resistance from some MPs who supported an alternative draft law, the Ministry of Strategic Industries, and some SOE representatives, parliament adopted the law on UOP’s new corporatization and in 2021 the law entered into force. The law has transformed state-owned defence and aerospace enterprises into LLC and joint stock companies and privatized non-profit companies; ultimately, moreover, UOP itself will be dissolved. Importantly, the law entrenched the OECD good governance principles, according to which the transformation process and the functioning of these transformed enterprises will take place.
Lessons from the Reform
Naturally, most approaches to anti-corruption imply protest, resistance, and fight. The approach to anti-corruption reforms in Ukraine, however, shows a much more complex picture: In addition to the exposure of corruption and society’s demand for change, it reveals the added value of collective action and constructive communication among key stakeholders. The analysis of the defence industry reform shows the interplay of three heterogenous groups of stakeholders: civil society, government authorities and international partners. This interplay evolved through three critical activities that were designed to tackle corruption in defence.
1. Assessment and Awareness Raising The first step in the reform consisted of identifying the problem. The stakeholders raised awareness of corruption risks in the form of international indexes and systematic internal and forensic assessment of poor performance of the defence industry. This provided evidence that one needed to tackle corruption simultaneously with building defence capacity.
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In 2011, corruption risks in the security and defense sector of Ukraine were systematically analysed based on the internal audits of the Ministry of Defence and law enforcement authorities. Transparency International Defence and Security (TI DS) encouraged and methodologically supported this approach. As a result, all corruption-related issues were clustered in four categories: waste of revenues, illegal expenditures, violations that did not result in losses, and inefficient managerial decisions. Interestingly, these issues indicated a lack of integrity rather than a prevalence of corruption.
Further, in 2015 TI DS’ Government Defence Anti-Corruption Index (GI) warned that corruption in defence procurement was the key corruption risk facing Ukraine’s defence sector, which scored worst in Europe. In the same year, two of Ukraine’s state-owned defence companies scored 0 points (Band F) in the Defence Companies Anti-Corruption Index (DCI), meaning they showed absolutely no evidence that any anti-corruption programs or procedures existed. Given these embarrassing comparative results—some companies from Brazil, Turkey, and also Russia scored significantly higher in the bands (between C – E)—civil society started “encouraging” anti-corruption reforms in defence.
“At the present time, when countries are resuming an arms race and investing in military capacity in the face of Russian aggression and even WWIII threats, Ukraine shows the importance of an anti-corruption foundation in any security and defense reform.”
Finally, to tackle the issue of efficiency and effectiveness, UOP enterprises underwent a “triage” assessment, with France providing technical assistance for the forensic audit. The “triage” revealed that most UOP entities are unprofitable—only 29 out of the 116 entities accounted for 88% of total UOP profit—and that one-third of enterprises no longer produced any defence products. These findings helped support UOP corporate governance reform and the privatization of 23 UOP entities.
2. Public and International Pressure
Initial failures prior to the collaborative reform show that awareness and assessment of corruption risks in the defence industry existed but were insufficient for the sector to open. What was needed was significant public and international pressure.
In 2019, investigative journalists at Bihus.info published a series “Army.Friends.Cash”, which revealed large scale corruption schemes in UOP procurement procedures involving high-ranking political and UOP officials. The scandal emerged over supplying UOP with smuggled Russian parts for military equipment—and significantly over the market price—while those officials involved received large kickbacks. All this occurred during Russia’s military aggression against Ukraine in Crimea and Donbas. This case strongly resonated with the public. NDSC Deputy Secretary Oleh Gladkovsky was dismissed and faced criminal charges. His longstanding business ties and friendship with then-President Petro Poroshenko shadowed the 2019 presidential election and enhanced the anti-corruption platform of Poroshenko’s competitor, current President Volodymyr Zelensky.
The “sandwich tactics” in the work of civil society and international partners usefully accelerated reform. For instance, when work on the draft law for UOP corporatization stagnated, civil society attracted the attention of the G7 Ambassadors, who then raised these issues at the highest political level, addressing the Office of the President and relevant ministers. This ensured that despite strong opposition, Ukraine’s Parliament was largely able to adopt the law in the version which reflects the OECD good governance standards for state owned enterprises.
3. Constructive Advice and Collaboration
The interplay of pressure and constructive advice was crucial to advance reform. Civil society’s first attempts to establish dialogue with the government and UOP representatives failed due to the strong resistance of those powerful stakeholders, who profited from the status quo and hindered reform. But the combination of public and international pressure created demand for change, while professional expert opinion left authorities with little excuse not to act.
With the aim to bring together civil society, government authorities, and international partners to collaboratively push for anti-corruption reforms, TI DS in UK, together with TI Ukraine, established the Independent Defence Anti-Corruption Committee (NAKO). When investigative journalists exposed corruption in the defence sector, NAKO was in a position to communicate independent expert opinions and ideas for the reform. The collaborative efforts were possible due to the public commitment of the new President to reform, as well as Parliament’s Committee for Defence that hosted the joint working group.
In addition, NAKO supported UOP management directly in its anti-corruption efforts, such as transparency in appointments of directors in the UOP member companies, implementation of the Code of Ethics and compliance procedures, and conflict of interest regulation. In the second DCI assessment in 2020, UOP had improved its overall score on the Defence Companies Anti-Corruption Index from 0 to 28 points out of 110.
At the present time, when countries are resuming an arms race and investing in military capacity in the face of Russian aggression and even WWIII threats, Ukraine shows the importance of an anti-corruption foundation in any security and defense reform. The multi-faceted interplay between government authorities, civil society and international partners not only helped advance difficult reforms despite resistance, but also created collaborative patterns that have scaled Ukrainian resilience in its asymmetric war against Russia.
To create these collaborative patterns a three-part mechanism was essential: First, assessment of and awareness about corruption risks; second, public pressure on government authorities through exposure of corruption and coordination with the international community; third, constructive and professional advice for reforms from independent civil society experts. Yes, contextual enablers unique to Ukraine, such as the 2013-14 Euromaidan Revolution, Russia’s invasion in 2014-15, and the 2019 presidential elections were important to open the window of opportunity for a new collaborative approach. However, the approach to security and defence reform through an anti-corruption lens, as well as creating space for multi-stakeholder dialogue to advance such reform, is up to each society to consider.
Oksana Huss acknowledges that this article was written in the framework of the BIT-ACT project, funded by the European Research Council (ERC) under the European Union’s Horizon 2020 research and innovation program (Grant agreement No 802362).
Dr. Oksana Huss is a researcher in the BIT-ACT research project at University of Bologna, Italy and lecturer at the Anti-Corruption Research and Education Centre in Kyiv, Ukraine. Her areas of expertise cover political corruption, open government and social movements against corruption in the post-communist states. She is a co-founder of the Interdisciplinary Corruption Research Network and author of How Corruption and Anti-Corruption Policies Sustain Hybrid Regimes: Strategies of Political Domination under Ukraine’s Presidents in 1994-2014 (ibidem Press, 2020).
Svitlana Musiiaka is the Head of Research and Policy in the Independent Anticorruption Commission (NAKO) – the NGO created under the umbrella of Transparency International in 2016. NAKO is an independent civil society organization that works to reduce corruption risks and promote good governance in areas critical for national security. Previously, Svitlana was the head of authorized anti-corruption unit of the Ministry of Health of Ukraine, where she was responsible for the creation and implementation of the Ministry's anti-corruption program, development of anti-corruption initiatives and relevant regulations. You can hear her speak on Ukraine’s Independent Anti-Corruption Commission in a recent KickBack podcast.