Last Updated: Thursday, 27 November 2014, 13:39 GMT

Ukraine: Whether business owners are forced to pay bribes to corrupt officials (January 2004 - March 2006)

Publisher Canada: Immigration and Refugee Board of Canada
Author Research Directorate, Immigration and Refugee Board of Canada, Ottawa
Publication Date 30 March 2006
Citation / Document Symbol UKR101123.E
Reference 2
Cite as Canada: Immigration and Refugee Board of Canada, Ukraine: Whether business owners are forced to pay bribes to corrupt officials (January 2004 - March 2006), 30 March 2006, UKR101123.E, available at: http://www.refworld.org/docid/45f147ba25.html [accessed 28 November 2014]
DisclaimerThis is not a UNHCR publication. UNHCR is not responsible for, nor does it necessarily endorse, its content. Any views expressed are solely those of the author or publisher and do not necessarily reflect those of UNHCR, the United Nations or its Member States.

General Situation of Corruption in Ukraine

A number of news articles have indicated that corruption was a major problem in Ukraine (AP 2 Jan. 2005; BBC 30 Jan. 2005; Financial Times 27 June 2005; Kiyevskiye Vedomosti 6 Mar. 2006), although some have noted improvements since 2005 (The Christian Science Monitor 29 Nov. 2005; Los Angeles Times 1 Aug. 2005).

A January 2003 poll conducted by Ukraine's Social Monitoring Center and the Institute of Social Studies, and cited by Radio Free Europe/Radio Liberty (RFE/RL), indicated that 78 per cent of respondents believed that government officials took bribes and 44 per cent said they had personally paid bribes in the previous year (RFE/RL 21 Jan. 2003). Another study, which was conducted by Transparency International (TI) and published in its 2005 Global Corruption Barometer, found that more than 80 per cent of Ukrainian respondents stated they had paid bribes to access public services and that, on average, Ukrainians claimed to have paid between 10 and 20 per cent of their per capita income on bribes (TI 9 Dec. 2005).

Bribery and the Business Sector

According to the British Broadcasting Corporation (BBC), some investors felt that ongoing bribing of officials had a negative impact on the development of private enterprise in Ukraine (11 July 2005).

Some media reports have noted that since the beginning of 2005, bribery is less widespread among Ukrainian officials (The Christian Science Monitor 29 Nov. 2005; Los Angeles Times 1 Aug. 2005).

A number of other sources, however, have noted that accepting bribes was a widespread practice among Ukrainian bureaucrats (TI 1 Feb. 2006, 266; Financial Times 27 June 2005; Freedom House 2005; Kiyevskiye Vedomosti 6 Mar. 2006). According to the Kiev-based newspaper Kiyevskiye Vedomosti, "'commissions'" are often used "in personnel decisions, the sphere of state orders, licensing, land relations, [and] registering enterprises" (ibid.). A poll cited by Radio Free Europe/Radio Liberty (RFE/RL) indicated that bribes were commonly paid to traffic police, tax inspectors, and post-secondary professors (21 Jan. 2003).

According to a report on corruption in Ukraine produced by The Center for Public Integrity, Ukrainian businesses typically reserved six to ten per cent of their expenses for paying bribes to expedite their dealings with bureaucracy (29 Apr. 2004). The same report stated that the situation had improved since the late 1990s, since fewer businesses required licensing (a process which encouraged bribing among civil servants) and unscheduled visits by tax and fire inspectors were banned (The Center for Public Integrity 29 Apr. 2004).

According to TI, however, laws regulating business activities, including licensing, are still so complex that it is often necessary to hire an "intermediary 'expert' who will pay an inevitable bribe" (1 Feb. 2006). The Center for Public Integrity indicated that due to bribing, "the majority of businesses in Ukraine still use two sets of books in their accounting" (29 Apr. 2004).

In a 14 February 2005 article, Agence France-Presse (AFP) stated that Ukrainian business owners had helped fund the "Orange Revolution" in the winter of 2004 in the hopes of electing a new government, due to the fact that they had grown "wear[y] [of] corruption among officials." The president of a group of companies including factories and a bank added that "'[t]he tax system, the licensing system, registration of businesses was organized in such a way that to follow the letter of the law was impossible'" (AFP 14 Feb. 2005). AFP also quoted the head of the National Security Council (ibid.) and ally of Ukrainian president Victor Yushchenko (AFP 22 Jan. 2005), Petro Poroshenko, stating that, in the previous government, "'[n]othing could be done here without bribes'" (AFP 14 Feb. 2005) and that a business owner "'should not be someone from whom everyone demands bribes'" (AFP 22 Jan. 2005). In 2004, Poroshenko had told TV 5 Kanal that business owners could not receive a value-added tax refund without paying a bribe (14 June 2004).

The Associated Press (AP) also provided an example of the bribery faced by small business owners, describing how the owner of a general store in Kaniv reported frequent visits by tax police and environmental, fire, and sanitary inspectors expecting bribes (2 Jan. 2005).

Government Response

Ukraine has ratified the Council of Europe Civil Law Convention on Corruption and has signed, but not yet ratified, several other international anti-corruption conventions, including the Council of Europe Criminal Law Convention on Corruption and the United Nations (UN) Convention Against Corruption (TI 1 Feb. 2006).

One year after Yushchenko was elected to power, critics of his administration continued to complain that middle-ranking officials were demanding increasingly large bribes (BBC 31 Oct. 2005; see also The Economist 16 June 2005). According to The Economist, this was, in part, due to the premium charged by officials who felt they had less job security: for instance, 200 of the 3,000 employees working in the Lvov regional tax administration were replaced in an effort to reduce corruption (ibid.). In June 2005, President Yushchenko announced that he had replaced a total of 18,000 civil servants and planned to dismiss "others who did not live up to his no-bribes standards" (Financial Times 27 June 2005).

Since wages are considered low among many Ukrainian bureaucrats, many officials allegedly resort to "rent seeking" whereby they strive to maximize their personal profits by resorting to bribery (Freedom House 2005). "Rent seeking," however, is not considered as "unethical" as bribing, but rather an appropriate way to conduct business (Freedom House 2005). In order to counter "rent seeking," the Yushchenko government plans to increase the salaries of civil servants; however, TI was skeptical the government could afford this scheme (1 Feb. 2006, 266).

Speaking at the World Economic Forum in Davos, Switzerland, in January 2005, President Yushchenko admitted that Ukraine was "'a deeply corrupt country'" but claimed that there were solutions to this problem (BBC 30 Jan. 2005). In an effort to show he was serious about fighting corruption, he urged business people to stop paying bribes to government officials (UNIAN 15 Feb. 2005) and to inform the government of any attempts by officials to bribe them, using "tens of direct phone lines" with direct access to the premier (Interfax 25 May 2005).

According to a 31 March 2005 report by Inter TV, Oleksandr Turchynov, the head of Ukraine's Security Service, refuted allegations that three people who attempted to bribe business people were government officials, including a retired police colonel and a politician, instead saying they were "confidence tricksters with no real government contacts."

According to an article appearing in Kiyevskiye Vedomosti in March 2006, law enforcement officials' efforts to control bribery were not showing many results, and while there were "thousands and thousands" of cases of bribery every year, few ended up being resolved by the courts (6 March 2006). The Research Directorate could not corroborate this information within time constraints.

In March 2006, Ukraine's National Security and Defense Council announced its plan to create a National Investigation Service (Interfax 7 Mar. 2006), also translated as the National Bureau of Investigation (TI 1 Feb. 2006) to fight corruption among top bureaucrats, which was seen as an important problem (Interfax 7 Mar. 2006).

This Response was prepared after researching publicly accessible information currently available to the Research Directorate within time constraints. This Response is not, and does not purport to be, conclusive as to the merit of any particular claim for refugee protection. Please find below the list of additional sources consulted in researching this Information Request.

References

Agence France-Presse (AFP). 14 February 2005. "Bankrolling the Revolution: How Ukraine Business Joined the Street." (Factiva)
_____. 22 January 2005. "The High Bar of Expectations Ukraine's Yushchenko Will Face." (Factiva)

Associated Press (AP). 2 January 2005. Mara D. Bellaby. "Tackling Corruption Will Be a Big Task – and a Big Challenge – for Next Ukrainian President." (Factiva)

British Broadcasting Corporation (BBC). 31 October 2005. Stephen Mulvey. "Ukraine Torn by Broken Promises." [Accessed 28 Mar. 2006]
_____. 11 July 2005. Helen Fawkes. "Ukraine Investors Wary as Progress Is Slow." [Accessed 28 Mar. 2006]
_____. 30 January 2005. Tim Weber. "Yushchenko to 'Tackle Corruption'." [Accessed 28 Mar. 2006]

The Center for Public Integrity. 29 April 2004. Olena Prytula. "Ukraine: Corruption Notebook." [Accessed 28 Mar. 2006]

The Christian Science Monitor [Boston]. 29 November 2005. Fred Weir. "Corruption's Grip Eases in Ukraine." [Accessed 28 Mar. 2006]

The Economist [London]. 16 June 2005. "The Viktor and Yulia Show." [Accessed 28 Mar. 2006]

Financial Times [London]. 27 June 2005. Tom Warner. "Coping with Corruption – Foreign Companies – Tom Warner Looks at Ukraine as an Example of Operating in a Tricky Environment." (Factiva)

Freedom House. 2005. "Ukraine." Nations in Transit 2005. [Accessed 28 Mar. 2006]

Interfax [Kiev, in Russian]. 7 March 2006. "Ukraine Plans to Set Up Anti-Corruption Investigation Service by July." (Factiva/BBC Monitoring)
_____. 25 May 2005. "Yuschenko Urges Local Governments to Help Business Realize Its Potential." (Factiva)

Inter TV [Kiev, in Russian]. 31 March 2005. "Ukrainian Security Chief Denies Bribery Suspects MPs' Aides." (Factiva/BBC Monitoring)

Kiyevskiye Vedomosti [Kiev, in Russian]. 6 March 2006. "Ukrainian Security Supremo Says Efforts to Fight Corruption Are Weak." (Factiva/BBC Monitoring)

Los Angeles Times. 1 August 2005. Kim Murphy. "The World: Ukrainian Revolution Lives On – in Pup Tents." (Factiva)

Radio Free Europe/Radio Liberty (RFE/RL). 21 January 2003. Vol. 5, No. 2. "Group Fighting Public Apathy Over Corruption." RFE/RL Belarus and Ukraine Report. [Accessed 28 Mar. 2006]

Transparency International (TI). 1 February 2006. "Ukraine." Global Corruption Report 2006. [Accessed 23 Mar. 2006]
_____. 9 December 2005. Report on the Transparency International Global Corruption Barometer 2005. [Accessed 23 Mar. 2006]

TV 5 Kanal [Kiev, in Ukrainian]. 13 June 2004. "Ukrainian Opposition Figure Accuses Tax Service of Corruption." (Factiva/BBC Monitoring)

UNIAN News Agency [Kiev, in Ukrainian]. 15 February 2005. "President Encourages Businessmen to Save on Bribes in Ukraine." (Factiva/BBC Monitoring)

Additional Sources Consulted

Internet Sites, including: Amnesty International (AI), Center for International Private Enterprise (CIPE), European Country of Origin Information Network (ECOI), International Helsinki Federation for Human Rights (IHF), Johnson's Russia List (JRL), Organization for Security and Co-operation in Europe (OSCE), Ukrainian Helsinki Human Rights Union, United States Agency for International Development (USAID).

Copyright notice: This document is published with the permission of the copyright holder and producer Immigration and Refugee Board of Canada (IRB). The original version of this document may be found on the offical website of the IRB at http://www.irb-cisr.gc.ca/en/. Documents earlier than 2003 may be found only on Refworld.

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