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International Policy Digest | 16Sep2018 | James Durso

Ukrainian Oligarchs Invest in Politics

[W.Z.: Election season in Ukraine is on until after the presidential elections in March 2018 and parliamentary (Vekhovna Rada) elections in the fall of 2019. The reader would be well advised to read all political articles critically and counter-check their accuracy.]

There are many investment opportunities in Ukraine -- energy, infrastructure, consumer goods -- but the best return may come from an investment in civil society groups, misleadingly referred to as the “independent sector.”

It’s a smart move anywhere. In the United States, every $1 spent on lobbying the federal government returns $760. American oligarchs on the left (George Soros) and the right (the Koch brothers) spend to support their political interests.

But the Ukrainian oligarchs needed no lessons from the United States in this regard. Prior membership in the Communist Party, the Komsomol, or the state security organs of the Soviet Union provided an excellent education in subterfuge and the use of front groups that was readily repurposed to democratic life. Political analyst Andrew Wilson accurately observed that post-Soviet political culture owes “more to the Cheka than Chekhov.”

Post-1991 Ukraine, like the rest of the former Soviet republics, had no civil society groups. Of course, there were the USSR’s “creative unions,” approved groups for artists, writers, and journalists whose purposes were to co-opt the members so they would disseminate the Party line in wider society (to be “engineers of the human soul” as Joseph Stalin liked to say). These groups helped to control the educated and potentially vocal members by awarding or withdrawing privileges like better housing or travel to the West.

The legacy of the Soviet experience is thus that non-state groups, for lack of a better term, didn’t exist for the improvement of their members, the betterment of society, or holding the government accountable to the citizens. The groups existed as appendages of the state and were used to advance the interests of the state -- against the wider interests of the citizenry if that was necessary.

After 1991, the newly independent government and the newly empowered oligarchs probably observed that much of the aid from the West arrived via influential civil society groups or non-governmental organizations acting as contractors for their governments -- appendages of the state.

The new public and private leaders would surmise that civil society groups could have both an internal and an external mission. The internal mission was to influence the voters and the government, an exciting prospect as there were no agreed norms for political behavior in the new democratic landscape. The external mission was to influence policy decisions and the flow of funds from Western governments.

As in the West, the “revolving door” -- moving from the public sector to positions of profit in the private sector, and back again -- is alive and well in Kyiv. An example of an experienced practitioner of this art is Oleg Rybachuk, an alumnus of the Soviet-era customs service who then worked as a translator in India at Zarubezhneft, a state-owned oil company, later headed by Nikolai Tokarev, Major General of the FSB of the Russian Federation, and Vladimir Putin’s colleague at the KBG’s Dresden, Germany rezidentura.

Rybachuk later became Deputy Prime Minister and chief of staff under President Viktor Yushchenko in 2005. In 2007, Rybachuk, then counselor to the president of Ukraine, was a non-executive director at the KyivDonbass Investment Company, a major real-estate investor, and a member of the supervisory board of the largest metallurgical enterprise of Ukraine, Arcelormittal Kryvyi Rih.

In 2009, Rybachuk established a number of civic organizations, among them: Center UA, New Citizen, and Chesno. Many of the staff of these organizations, like Rybachuk himself, had no prior experience in this area and are his former subordinates. With a good share of its start-up money from the Pierre Omidyar Foundation, the group was off and running.

Despite the fact that the beginning of Center UA’s activity coincided with the Russia-friendly Viktor Yanukovych coming to power in Ukraine, the organization was not a serious critic of the regime and cooperated with Yanukovych’s government, including on such sensitive issues as preparing constitutional reform.

During Ukraine’s Revolution of Dignity in 2013-2014, Rybachuk and his confederates controlled the messages via their control of the stage and sound systems in the Maidan, while working closely with the then-head of the presidential administration, Serhiy Lyovochkin. Rybachuk was aware of the impending violent crackdown of the protests, but prevented the notification of other participants. Even after the use of violence against protesters, and protesters’ subsequent demand for early presidential and parliamentary elections, Rybachuk continued to call for an end to the protests.

After Russia’s invasion of Ukraine, Rybachuk focused on the fight against corruption and became co-chairman of the Independent Defense Anti-Corruption Committee (NAKO), a project of the Ukrainian branch of Transparency International, and sharply criticized the procurement of weapons and the Ukrainian military-industrial complex. A key requirement of this initiative is the public release of information about security and defense activities -- a curious priority in a time of war with the Russian Federation.

Another member of NAKO is Sevgil Musayeva, editor-in-chief of the Ukrayinska Pravda online edition. Center UA, Ukrayinska Pravda, and the studio of the private television station Hromadske-TV, inhabit the same offices owned by the Russian oligarch Konstantin Grigorishin, a partner of Serhiy Lyovochkin, formerly of the presidential administration and now one of the leaders of the pro-Russia Opposition Bloc, which opposed Euromaidan. The Bloc is a former client of disgraced American lobbyist Paul Manafort, who is on trial in the United States for alleged financial crimes.

What should the United States do in this bewildering landscape where Mr. Rybachuk is just one of a number of skilled operators? It should consider that it is dealing with a country that, due to its Soviet heritage, has a sophisticated understanding of how to manipulate the outward aspects of Western political culture -- free media, civil society groups -- even as it often privatizes the intent. That is married to a growing nationalism that started anew with independence in 1991 and was spurred by Russia’s invasion in 2014. Despite the war with Russia, the economy is growing, though one-third of it is off the books, and the country has demonstrated its resilience by climbing 28 places in four years in the Global Innovation Index.

Reforms are taking hold and the Poroshenko administration and parliament have demonstrated a remarkable record of success in four years, bringing Ukraine closer to Europe than any previous government.

What to do?

There are three fronts on which the United States can increase its engagement with Ukraine: military (which won’t be discussed here), economic, and political/civic.

On the economic front, U.S. aerospace giant Boeing recently cast a vote of confidence in Ukraine when it agreed to work with aircraft maker Antonov to restart production that had been halted due to Antonov’s past reliance on parts from Russia. Unit 3 at the South Ukraine Nuclear Power Station has been loaded with fuel from American supplier Westinghouse Electric Company, the first time non-Russian fuel has been used in reactors designed in the Soviet Union. And U.S. agricultural trader Cargill commissioned a new grain terminal in the Odessa region on the Black Sea in July. U.S. engagement should emphasize introducing Ukraine to business best practices, and in doing so it will find itself pushing on an open door: Young Ukrainians are eager to learn, as they have seen the results of corruption and crony capitalism.

The United States is dealing with a country with a technology industrial base, including significant cyber defense capability, that wants to increase its integration with Western economies but with political folkways -- like civil society group “investments” -- tinged by its 72-year Soviet history and resurgent sense of nationalism. Ukrainians feel that drawing closer to Europe shouldn’t mean obeisance to EU bureaucrats in Brussels after they escaped the rule of Soviet bureaucrats in Moscow.

Therefore, Washington should refrain from intervening as it did in 2014 [??? How did Washington intervene in 2014, except to impose sanctions after Russia annexed Crimea???], but should learn the “who’s who” of Ukraine’s civil society groups. Given Moscow’s long history in the country, it has had ample opportunity to try corrupting public and private leaders -- and where corruption hasn’t worked, it has improvised. Civil society groups ostensibly engaged in democracy promotion or media activity (or maybe a magnate’s vanity project) are usually viewed by Western embassies as a “good thing” – but there is good reason to take a ruthlessly skeptical approach to these groups.

Especially vulnerable to manipulation are civil society or media groups that received start-up money from the Americans as this convinced other public and private funders that the United States did its due diligence (whether it did or not). The infiltration occurs after the U.S. imprimatur is received and everyone else lets their guard down. If the funders wise up they may be reluctant to seriously examine recipients that have now leveraged that start-up cash into real money, giving the Russians an influential vehicle at no cost to them. Talk about a win-win!

The United States should encourage the growth of Ukraine’s civil society with an awareness of their unique vulnerability, given the country’s place in Russia’s near abroad.