Country: Ukraine

By Dr Jelena Aparac, the UN’s Independent Expert on its Working Group on the Use of Mercenaries and Ara Marcen Naval, Head of Advocacy at Transparency International Defence and Security.

The Russian network Wagner, which has spawned shadowy mercenary groups operating in conflict zones around the word, has just opened its first headquarters in Saint Petersburg.

From the battlefields of Ukraine to the ongoing conflicts in South Sudan and the war in Yemen, private military security companies and their corporate partners are flourishing from conflict. Despite the deadly force they fuel, these firms remain subject to scant regulation and accountability.

Next week [December 1 – December 2], the United Nations will stage talks on the dangers posed by the Wagner network and other private military and security companies. Governments recognised and began talking about the need to better regulate the activities of non-state security outfits back in 2008. Well over a decade on, they’re still talking.

In that time, the industry has grown to be worth US$224 billion. That figure is expected to double by 2030. New groups are proliferating, seizing on opportunities to make money from conflict hotspots.

Russian contractors, subject this summer to gold smuggling investigations in Sudan. Wagner, perhaps the world’s most notorious network operating in this sector – often through elusive and locally-registered companies that use an alphabet soup of opaque brand names – has meanwhile been accused of murdering civilians in Central African Republic, in Libya, and more recently in Ukraine.

Latest research from Transparency International Defence and Security underscores the myriad threats that leaving this growing sector unregulated pose on a global level.

Contractors are expanding their sales of surveillance, armed security and military training to many countries around the world, often including nations that have critically weak protections against defence sector corruption.

This growing industry, while sometimes providing necessary or benign support to the keeping of security and safeguarding of rights, has the potential to infringe international law, and insufficient oversight and regulation risks personnel engaging in corrupt conduct or human rights abuses.

Recent reports point to firms perpetrating suspected war crimes in Mozambique. In Libya and Yemen, claims have been made that groups are engaging in cyber-attacks against political opponents, human rights activists, and journalists, and almost always linked to the exploitation of natural resources.

As firms seek to expand opportunities, they are increasingly taking on activities in new areas, such as security around border controls and for mining industries. These often require technical and logistical support, opening the door to bribes to politically connected sub-contractors.

This outsourcing of one of the primary responsibilities of the state, the provision of security, is worrying. And efforts to respond to the risks are falling flat.

Initiatives such as the publication of the Montreux Document, which outlines the theoretical and non-legally binding responsibilities of states, have proven out of step with the risks posed, largely due to the non-binding nature. Similarly, the industry’s Code of Conduct only encourages voluntary standards to be upheld by the companies it audits and certifies.

With the ever-accelerating rise of Wagner, the time to move from words to the establishment of robust international rules and regulation that provide transparency and accountability for victims around the globe has surely arrived.

Our latest research catalogues conflict and corruption around the word – harm caused by leaving the privatisation of national security to grow and operate without proper regulation.

Post-Afghanistan, exploitation of global conflicts is big business. Most private military and security firms are registered in the US, so we are calling on Congress to take a leading role in pushing through meaningful reforms under its jurisdiction. The time has also come for accreditation standards to be enforced rather than only encouraged, at both a national and international level.

New research from Transparency International Defence & Security warns of high corruption risk across CEE region

 

December 9 – Decades of progress towards greater democratisation across Central and Eastern Europe (CEE) threatens to be undone unless urgent steps are taken to safeguard against corruption, new research from Transparency International warns.

The Government Defence Integrity Index (GDI) finds more than half of the 15 countries assessed in the region face a high risk of corruption in their defence and security sectors.

Released today, Progress [Un]Made identifies region-wide issues which provide fertile ground for corruption and the deterioration of governance. These include weak parliamentary oversight of defence institutions, secretive procurement processes that hide spending from scrutiny, and concerted efforts to reduce transparency and access to information.

These issues are compounded by the huge amounts of money involved, with spiralling military expenditure in the CEE region topping US$104 billion in 2019 as many states continue to modernise their defence and security forces. The 15 states featured in the report are responsible for a quarter of this total with the majority increasing their defence budgets in the last decade.

 

Natalie Hogg, Director of Transparency International – Defence & Security, said:

“Following major strides towards more robust defence governance in Central and Eastern Europe, many of these results should be a cause for concern. Corruption and weak governance in the defence and security sector is dangerous, divisive and wasteful. While it is encouraging to see a handful of countries score well the overall picture for the region is one of high corruption risk, especially around defence procurement – an area responsible for huge swathes of public spending.”

 

The GDI provides a detailed assessment of the corruption risks in national defence institutions by scoring each country out of 100 across five key risk areas: financial, operational, personnel, political, and procurement. Highlights from the CEE results include:

• Average score for the region is 48/100, indicating a high risk of corruption.
• Montenegro is judged to be at ‘very high’ risk with a score of 32, while Azerbaijan’s score of just 15 places it in the ‘critical’ risk category.
• High levels of transparency see Latvia fare the best in the region, with a score of 67 indicating a low risk of corruption.
• Authoritarian governments have weakened parliamentary oversight (Poland) and restricted access to information regimes (Hungary), closing off a key sector off from public debate and oversight.

 

 

We identify five key themes that are increasing corruption risk across the region, including:

Weak parliamentary oversight

Parliamentary oversight of defence is a key pillar in enforcing transparency and accountability but only two of the 15 countries we assessed have retained truly robust parliamentary oversight.

CEE regional average score: 51/100 (Moderate risk)

Best performers: 1) Latvia: 94/100 (Very low risk); 2) Lithuania: 83/100 (Very low risk)

Worst performers: 1) Azerbaijan 12/100 (Critical risk); 2) Hungary 27/100 (Very high risk)

 

Opaque procurement processes

Allowing companies to bid for defence contracts helps reduce the opportunities for corruption and ensure best value for taxpayers, but our analysis highlights that open competition in this area is still the exception rather than the norm.

CEE regional average score: 47/100 (High risk)

Best performers: 1) North Macedonia 82/100 (Low risk); 2) Estonia: 74/100 (Low risk)

Worst performers: 1) Azerbaijan 8/100 (Critical risk); 2) Hungary 14/100 (Critical risk)

 

Attacks on access to information regimes

Access to information is one of the basic principles of good governance, but national security exemptions and over-classification shield large parts of the defence sector from public view.

CEE regional average score: 55/100 (Moderate risk)

Best performers: 1) Georgia, Latvia, North Macedonia, Poland 88/100 (Very low risk); 2) Lithuania: 75/100 (low risk)

Worst performers: 1) Azerbaijan 13/100 (Critical risk); 2) Hungary 25/100 (Very high risk)

 

To make real progress and strengthen the governance of the defence sector in the region, Transparency International calls on governments across the region to:

• Respect the independence of parliaments and audit institutions and provide them with the information and time they need to perform their crucial oversight role.
• Overhaul their procurement systems to ensure more competition and transparency.
• Guarantee transparent and effective access to information and implement a clear rationale on the use of the national security exception, as well as transparency over how the rationale is applied.

 

Notes to editors:

Progress [Un]Made – Defence Governance in Central and Eastern Europe can be downloaded here.

The CEE region spent US$104 billion on defence and security in 2019. This total includes Russia, which spent US$65 billion. Lithuania and Latvia increased military spending by 232 per cent and 176 per cent respectively between 2010 and 2019, and Poland by 51 per cent over the same period. Armenia and Azerbaijan consistently spend close to 4% of GDP on defence and are among the most militarised countries in the world.

Whilst defence governance standards in Europe are some of the most robust globally, states in Central and Eastern Europe and the Caucasus, where a combination rising defence budgets and challenges to democratic institutions, are particularly vulnerable to setbacks to their recent progress in governance and development.

In Armenia, Albania, Hungary, Kosovo, Montenegro, Poland and Serbia, there is a notable tendency for parliaments to align themselves with the executive on defence matters, for example by passing executive-sponsored legislation with no or only minor amendments.

In Georgia, secret procurement accounted for 51 per cent of total procurement procedures from 2015-2017. In Ukraine that figure is 45 per cent, while in Poland it is as high as 70 per cent. In Lithuania, open competition accounted for as little as 0.5 per cent of procurement procedures, with upwards of 93 per cent of defence procurement conducted through restricted tenders and negotiated procedures.

In Hungary, the government has made it harder to access information by skewing the rules in favour of public bodies and imposing new fees on those who lodge requests. In Estonia, the 2013 access to information act contained 7 exceptions, with 1 related to defence; by 2018, there were 26 exceptions, with 7 related to defence. Just three of the 15 states we assessed – Lithuania, Latvia and Georgia – were found to have been responding to freedom of requests promptly and mostly in full.

 

About Transparency International

Through chapters in more than 100 countries, Transparency International has been leading the fight against corruption for the last 27 years.

About the Government Defence Integrity Index

The GDI is the only global assessment of the governance of and corruption risks in defence sectors, based upon 212 indicators in five risk categories: political, financial, personnel, operations and procurement.

The Central and Eastern Europe wave includes assessments for 15 countries: Poland, Hungary, Lithuania, Latvia, Estonia, Ukraine, Armenia, Georgia, Azerbaijan, Serbia, Bosnia & Herzegovina, Kosovo, Albania, Montenegro and North Macedonia. All states are either EU/NATO members or accession/partner states.

The GDI was previously known as the Government Defence Anti-Corruption Index (GI). The Index underwent a major update for the 2020 version, including changes to the methodology and scoring underpinning the project. This means overall country scores from this 2020 version cannot be accurately compared with country scores from previous iterations of the Index.

Subsequent GDI results will be released in 2021, covering Latin America, G-20 countries, the Asia Pacific region, East and Southern Africa, and NATO+.

Contact:

Harvey Gavin

harvey.gavin@transparency.org.uk

+44 (0)20 3096 7695

+44 (0)79 6456 0340 (out of hours)

This report examines the quality and effectiveness of defence governance across fifteen countries in Central and Eastern Europe: Albania, Armenia, Azerbaijan, Bosnia & Herzegovina, Estonia, Georgia, Hungary, Kosovo, Latvia, Lithuania, Montenegro, North Macedonia, Poland, Serbia and Ukraine. It analyses vulnerabilities to corruption risk and the strength of institutional safeguards against corruption across national defence sectors, drawing on data collected as part of Transparency International Defence & Security’s (TI-DS) Government Defence Integrity Index (GDI).

It is intended to provide governments and policymakers with an analysis of defence governance standards in the region and supply civil society with an evidence base that will facilitate their engagement with defence establishments and support advocacy for reforms that will enhance the transparency, effectiveness and accountability of these institutions.

This report details good practice guidelines and policy implications that are designed to reduce the opportunities for corruption and improve the quality of defence governance in Central and Eastern Europe. It identifies five key issues of defence governance where improvements are urgently needed in order to mitigate corruption risks: parliamentary oversight, defence procurement, transparency and access to information, whistleblowing, and military operations.

In 2016, Transparency International – Ukraine and Transparency International – Defence & Security created the Independent Defence Anti-Corruption Committee (NAKO). A year ago, NAKO became an independent NGO.

As NAKO moves through the transition toward effective governance and full operational autonomy, we  wish to thank all those who have contributed to its and our work so far. In particular, our thanks go to the NAKO Committee members: Drago Kos, Yulia Marushevska, Volodymyr Ogrysko, Oleh Rybachuk, James Wasserstrom and Michel Yakovleff, as well as previous Committee members – Timothy Evans and Sevgil Musaeva.

Director of Transparency International Defence and Security, Steve Francis, said:

“We thank the committee members for their insight and commitment. They have been key to the progress NAKO has made since it was set up three years ago in working towards building integrity, transparency and accountability in the defence sector in Ukraine.”

We look forward to continue working with NAKO as a strategic partner in Ukraine, and to support its efforts to combat corruption in the Ukrainian defence sector, thereby increasing the effectiveness of defence spending, improving living conditions of defence personnel and ensuring Ukraine’s defence forces provide state and human security.

Problems in Ukraine’s defence housing are costly to Ukraine’s societal and political security. Unless changes are made to the current conditions, it could take over 600 years for the Ministry of Defence to resolve its defence housing problem and provide housing for personnel waiting for homes. Moreover, damages incurred to Ukraine’s budget, as a result of inefficiencies and subjective decision-making power, run into many billions of hryvnas. From its outdated Soviet promise of providing permanent housing to its servicemen/women to its current planning system,Ukraine’s approach to defence housing violates international best practices, and enriches corrupt criminal networks.

The Independent Defence Anti-Corruption Committee (NAKO), a joint initiative of Transparency International Defence & Security Program and Transparency International Ukraine, has analysed the issues of defence housing in Ukraine. It recommends the Ukrainian government develop a new defence housing strategy and adopt the necessary legislation to reform this sector. This legislation is missing from the Strategic Defence Bulletin, but is provided for by the National Security Strategy and the Concept for the Development of Ukraine’s Security and Defence Sector. The strategy must account for the real needs of the military, include all relevant infrastructure to the defence housing database, and reflect the current Ukrainian real estate market.

2nd October 2018, Kyiv – On Tuesday, October 2, the Independent Defence Anti-Corruption Committee presented its new report, Poor governance and corruption in Ukraine’s defence housing system: Risks and Recommendations, and called for systemic changes in how servicemen and women are housed. There are 47 thousand families of servicemen currently waiting for homes. According to a preliminary calculation by NAKO, under the current model, it would take more than 600 years to house them all.

NAKO identified ineffective management and corruption risks, including that a few individuals have the power to make decisions with few controls and little oversight. Interviewees reported that servicemen are required to pay bribes to get a place in the queue for houses, even as some are provided with multiple homes.

And poor oversight means that companies that fail to deliver on the buildings they’ve committed to are not held to account; in one instance, the director of a company that failed to build the homes it was contracted to was even put in the position of overseeing the body ensuring that military properties are built.

The report also identified that poor planning by the MOD leads to unbuilt homes and drained budgets, even as thousands wait for homes. In one building alone, researchers found that the Ministry paid more than $300,000 US dollars over what the Ministry of Regional Development estimated the cost should be.

NAKO Co-Chair James Wasserstrom stated: “It is high time for the MOD to find a realistic way to make good on unrealistic Soviet promises. This is going to require a major change that won’t be easy. It will require political courage to make decisions in the long-terms interests of Ukraine’s military, rather than sticking to commitments that the Ministry is unable to deliver.”

NAKOs New Committee Member, Former NATO Vice Chief fo Staff, SHAPE, LTG Michel Yekovleff, stressed the need for Ukraine to keep its Euro/Atlantic promises: “Being with the EU and NATO means following their principles and procedures”.

In terms of defence housing, it means that Ukraine is expected to follow the best examples of the Euroatlantic contries providing the decent housing to the servicemen in a transparent and non-prone to corruption way”.

NAKO recommends that the Ministry of Defence:

1. Abolish the housing queue. Instead of promising homes that the Ministry cannot deliver, it should move to a model of transparent, fair monetary compensation for personnel, which is not only more realistic, but also puts decision-making in the hands of service families.

2. Conduct an audit of existing homes and the queue of those waiting for homes. This can be used to make the Maino-Zhytlo software, which tracks the queue and available homes, more effective.

3. Adopt capability-based planning, so that housing projects that the MOD embarks on are based on the real needs of its troops.

NAKO conducted the research on housing corruption at the request of Defence Minister Poltorak. The Committee has offered to advise and support the Ministry on the implementation of the recommendations for systemic reform.

***ENDS***

Download NAKOs Research ‘Poor Governance and Corruption in Ukraine’s Defence Housing System: Risks and Recommendations’ here

NOTES TO THE EDITOR

The Independent Defence Anti-Corruption Committee (NAKO) aims to reduce corruption and increase accountability in the Ukrainian defence sector. It is a joint initiative of Transparency International Defence and Security (TI-DSP) and  Transparency International Україна (ТІ Ukraine). NAKO’s vision is that Ukraine’s defence and security sector that is accountable, efficient, and has a low level of corruption. Its mission is to minimize opportunities for corruption through strong research, effective advocacy, and increased public awareness, in order to strengthen the Ukrainian defence and security sector.

The Committee consists of six members: Editor in Chief of ‘Ukrayinska Pravda’ Sevgil Musaieva, Former Minister of Foreign Affairs of Ukraine, Former First Deputy Secretary Defence and Security Council of Ukraine Volodymyr Ogryzko, Chairman of Centre UA, co-initiator of Chesno Campaign Oleh Rybachuk, Chair of the OECD Working Group on Bribery and Former Anti-Corruption Commissioner in Slovenia Drago Kos, and anti-corruption expert and Former Head of Oversight of Public Utilities at the UN Mission in Kosovo James Wasserstrom. The committee is supported by a Secretariat in Kyiv, which is led by Olena Tregub.

Ukraine’s defence sector scored a ‘D’ in the 2015 edition of Transparency International’s Government Defence Anti-Corruption Index (GI); signifying low transparency and a ‘high’ risk of corruption. Defence procurement scored even lower and was highlighted as the most opaque and corruption-prone area in the defence sector.

To help improve this, NAKO has studied the phenomenon and identified “red flags” i.e. the most common indicators of corruption in defence procurement. NAKO researchers interviewed 35 well-placed sources and analysed over 47 incidences of alleged or confirmed cases of corruption in Ukrainian military purchases between 2014-2018. The report summarises the red flag categories, along with the possible cases and specific recommendations on how to prevent and detect the corruption risks. This report provides valuable information to those interested in defence procurement reforms including government officials, business representatives, as well as Ukrainian MPs, journalists, NGOs and law enforcement officials tasked with oversight.

19^th June 2018, Kiev – The Independent Defence Anti-Corruption Committee (NAKO) announced on June 19^th that it is in favour of the revised tender for an independent audit and strategic analysis of Ukroboronprom. It has reestablished dialogue with Ukroboronprom and intends to monitor the tendering process.

NAKO said that the process is the opportunity to bring light to inefficiencies, corruption risks and structural deficits at Ukroboronprom and will be a first step towards resolving these issues and building a state-owned defence establishment that meets the needs of the public and armed forces. The NAKO committee stated that the creation of the independent Supervisory Board, which was appointed by President Petro Poroshenko this January, was a key step towards having effective governance and will be the main customer in the upcoming tender.

Volodymyr Ohryzko, NAKO Co-Chair, stated:

The Supervisory Board of Ukroboronprom is responsible for reforming the institution so that it meets the interests of the public and the Ukrainian state. This audit, in line with international standards, will aid the Supervisory Board in carrying out their responsibility and raising the company to meet international standards of governance.

The call for tender includes three parts: 1) an assessment of the corporate governance of Ukroboronprom and its members, 2) a legal review, diagnosis and consultation of Ukroboronprom and its member companies, 3) an independent financial audit of Ukroboronprom and its member companies.

The original tender did not include some of these components, including the independent financial audit. The NAKO provided recommendations to Ukroboronprom’s Supervisory Board about what should be included in the tender, and the Supervisory Board revised it in line with these recommendations. Following those amendments, the tender process is currently underway. The deadline has been extended from June 18^th to September 28^th in order to give a broader range of companies the opportunity to bid.

Drago Kos, NAKO Co-Chair said:

We hope to see a strong pool of auditing firms bidding for this. It is undoubtedly complex – but if it can be reformed, the impact on Ukraine and its future will be historic.

Olena Tregub, NAKO Secretary General confirmed that:

The NAKO continues to monitor this tender; our aim is to ensure that the reform of Ukroboronprom is provided with clear advice on the corporate structure and management, and that a full financial audit will identify financial black holes in the company – and will facilitate an evidence-based reform programme.

More details on the tender can be found here.

***ENDS***

Notes:

The Independent Defence Anti–Corruption Committee (NAKO) is a joint initiative to fight corruption in the Ukrainian defence sector run by Transparency International Defence and Security Program – Great Britain (TI-DSP) and Transparency International Україна (ТІ Ukraine).

The Committee consists of six members: Editor in Chief of online media ‘Ukrayinska Pravda’ Sevgil Musaieva–Borovyk, Former Minister of Foreign Affairs of Ukraine, Former First Deputy Secretary Defence and Security Council of Ukraine Volodymyr Ogryzko, Chairman of Centre UA, co–initiator of Chesno Campaign Oleh Rybachuk, Lieutenant–General of the British Army and Former Commander of the NATO Allied Rapid Reaction Corps Timothy Evans, Former Anti–Corruption Commissioner in Slovenia Drago Kos and Former Head of Oversight of Public Utilities at the UN Mission in Kosovo James Wasserstrom.

The goal for the NAKO is to reduce corruption risks in defence and security sector of Ukraine by means of monitoring, evaluation and analysis of anti-corruption reforms and providing the corresponding recommendations.

Contact:

Dominic Kavakeb
+44 20 3096 7695
+44 79 6456 0340
Dominic.kavakeb@transparency.org.uk

 

On Saturday, 12 May, the state-owned defence company Ukroboronprom posted an updated tender for a consultant on the e-procurement platform Prozorro. Ukroboronprom is now bound to an independent financial audit in line with international standards. The move follows the re-establishing of the functioning Supervisory Board of Ukroboronprom and extensive input from the Independent Defence Anti-Corruption Committee (NAKO) together with international partners.

The previous version of the Statement of Work excluded a fully independent financial audit. The new edition of the tender includes three components: (1) assessment of corporate governance and strategic consulting of Ukroboronprom and its members in accordance with OECD standards; (2) legal due diligence and legal consulting of Ukroboronprom and its members; and (3) an independent financial audit of Ukroboronprom and its members in accordance with international standards.

NAKO provided recommendations relating to this independent financial audit as well as assessment of corporate governance and they were duly implemented by the Tendering Committee in the final version of the call for tender. NAKO will provide external monitoring of this procurement process.

Volodymyr Ohryzko, NAKO Co-Chair said:

A full and independent financial audit, conducted in accordance with international standards by a recognized auditing firm, will gain trust not only from the Ukrainian people, but also among Western partners and investors’.

The success of the audit depends on multiple factors including: a strict adherence to International Auditing Standards by the auditor; the auditor’s ability to access all necessary information, taking relevant laws on state secrecy into account; the auditor’s independence, impartiality, and; the implementation of audit recommendations.

Olena Tregub, NAKO Secretary General said:

“Ukroboronprom’s willingness to amend the Statement of Work though including the services of independent audit is a positive step which will open the company up to greater scrutiny. It is the first step towards transforming the company. NAKO is expecting to see reputable international auditing firms among the bidders,”

***ENDS***

The deadline for companies to bid is 18 June 2018.

More details can be found at: https://prozorro.gov.ua/tender/UA-2017-12-20-003453-c

Corruption and insecurity reinforce one another in conflict environments. Conflict often weakens state institutions and shifts the balance of expectations and incentives, entrenching corruption, undermining the development of state capacity, and encouraging cycles of impunity that leave whole populations angry and disenfranchised. This can be particularly pernicious when it affects defence and security institutions, turning them from protectors into predators that endanger human security, slow down development, and can perpetuate conflict.