Ukrainian oligarchs, collateral victims of the war

Published on Nov. 21, 2023 at 6:45 a.m.

On the morning of September 2, several hooded men equipped with bulletproof vests bearing the initials “SBU” appeared at the door of a wealthy residence in Dnipro, the fourth largest city in Ukraine. Facing them, with a sullen face behind his thin-rimmed gles, stands the owner of the place, oligarch Ihor Kolomoisky.

Officers from the Ukrainian security services come to give him a “notice of suspicion” as part of an investigation for “fraud” and “money laundering”. His home was searched and he was placed in pre-trial detention shortly after, with bail set at 509 million hryvnias, or more than 1.3 million euros. A photo of the operation published the same morning by the security services was widely relayed on social networks, then taken up by numerous media.

For many commentators, the indictment of the Israeli-Cypriot businessman, until recently considered one of the most influential in the country, is indeed symbolic. It signals, perhaps, the end of impunity for the wealthy elites who, since 1991, have reigned supreme over the political and economic life of Ukraine.

A symbolic arrest

“The era of oligarchs is over,” declared triumphantly the Minister of Justice, Denys Maliouska, on social networks just a few minutes after the announcement of Kolomoisky’s indictment.

Former governor of the Dnipro region and co-founder of Privatbank, the country’s largest banking institution, Ihor Kolomoisky is part of the small circle of businessmen and “red directors”: the descendants of the Soviet managerial cl, who, with the fall of the USSR, took advantage of successive waves of privatization to appropriate the vast industrial and mining wealth of Ukraine, in complete opacity.

Aided by political instability and endemic corruption, the country’s new strong men are building veritable empires, buying the loyalty or silence of the police and magistrates, while gradually taking over the levers of power.

A complete looting of the Ukrainian state

In 2008, as Ukraine plunged into a major economic crisis, the fortunes of the oligarchs reached new heights: the combined wealth of the fifty richest people in Ukraine was then equivalent to 85% of the country’s GDP. At the same time, a large majority of the population suffered the full force of the devaluation of the hryvnia, the Ukrainian currency.

With the coming to power in 2010 of Viktor Yanukovych and the Party of Regions, the plundering of the state by the oligarchs reached its climax. The corruption and nepotism that characterized Viktor Yanukovych’s presidency would contribute to his downfall during the Maidan revolution in 2014.

The reforms initiated by his successor, chocolate magnate Petro Poroshenko, will not be enough to neutralize the influence of the oligarchs on the country’s political life.

The Russian invasion reshuffles the cards

But the Russian invasion in February 2022 and the destruction it caused have reshuffled the cards. According to “Forbes Ukraine”, the hundred richest people in the country in 2021 derived the majority of their income from the metallurgy (17%), energy (15%) and real estate (12%) sectors, hardest hit by the war.

In less than a year, the oligarchs have suffered colossal losses. According to a study published at the end of 2022 by the Center for Economic Strategy, an independent research institute, the fortunes of the main Ukrainian businessmen have fallen by $4.5 billion since the start of the invasion. At issue: the destruction of energy, industrial and transport infrastructures, but also the systematic confiscation by the Russian authorities of companies, commercial ets and agricultural products in the occupied territories.

Rinat Akhmetov, the richest man in Ukraine, a native of Donetsk, is a big loser among the oligarchs: many of his ets are located in Donb, a region in the east of the country where war has been raging since 2014 and where most of the fighting is now concentrated.

Ukraine’s richest man among big losers

The Azovstal and Ilyich metallurgical plants in Mariupol, operated by Metinvest, a subsidiary of its holding company System Capital Management, were destroyed during the siege of the city, then captured by the Russian army. The Avdiivka coke plant, the largest in Europe, had to cease operations after being damaged by Russian strikes, while the facilities of the DTEK Energy group, owned by Rinat Akhmetov, were reportedly bombed at 27 times since the start of the invasion.

In June 2022, the businessman filed a complaint against Russia with the European Court of Human Rights, demanding $10 billion in compensation for his Mariupol factories.

Ihor Kolomoisky, for his part, reportedly lost more than $400 million following the destruction, in April 2022, of the Kremenchuk oil refinery, the largest in the country, contributing to a radical reduction in his political influence.

“Reconfiguration of the oligarchic system”

Petro Poroshenko was not spared either: according to “Forbes”, his fortune fell from 1.6 billion to 700 million dollars following the Russian invasion.

This loss of economic capital and the destruction of local power systems led to a reconfiguration of the oligarchic system.

Anastasia Fomitchova, member of the chair of Ukrainian studies at the University of Ottawa

“This loss of economic capital and the destruction of local power systems led to a reconfiguration of the oligarchic system,” explains Anastasia Fomitchova, doctoral student in political science and member of the chair of Ukrainian studies at the University of Ottawa.

The financial losses suffered by the oligarchs, although spectacular, nevertheless constitute only one of the factors explaining the decline in their political influence. According to the researcher, the establishment of martial law also deprived economic elites of their traditional relays of influence within the political cl, by radically transforming the functioning of institutions.

A loss of economic and political influence

“Since February 2022, the political agenda has been dictated by the needs of war and European integration,” she confirms. The reforms that p are validated in advance by the presidential party, which holds the majority, and parliamentary debates are limited. »

According to her, the change in the legislative process has hampered the strategies of the oligarchs, who previously used sympathetic MPs to propose bills favorable to their private interests.

No one has suffered more from this reconfiguration of the Ukrainian political landscape than Viktor Medvedchuk, long considered one of the country’s most influential oligarchs. On the eve of the invasion, this close friend of Vladimir Putin was accused of high treason for having participated in the illegal extraction of natural gas in the Black Sea with Russia, then was placed under house arrest.

Corruption in the sights of Westerners

Four days after the start of the invasion, Viktor Medvedchuk escaped, before being apprehended while trying to leave the country. His Opposition Platform-For Life party was banned by decree of the Ukrainian president in March 2022.

Pressure from Ukraine’s Western partners having led to the adoption of major “de-oligarchization” and anti-corruption measures, sine qua non conditions for the country to be able to join the European Union, it also proved decisive in limiting the influence of the oligarchs.

Thanks to pressure from allied countries, the Ukrainian government was forced to take measures against corruption, although some were quite uncomfortable.

Yaroslav Yurchishin, deputy of the Holos party

“Thanks to pressure from allied countries, the Ukrainian government was forced to take measures against corruption, even though some of them were quite uncomfortable,” confirms Yaroslav Yurchishin, deputy of the Holos (“Voices”) party and former executive director of Transparency International Ukraine.

The anti-oligarch law of 2021, a revolution

An anti-oligarch law, adopted in 2021, requires them to declare their income exhaustively, prohibits them from participating in the privatization of major companies and from financing political parties. This last clause constitutes, in itself, a real revolution, even though the president Volodymyr Zelensky had benefited from the support of Ihor Kolomoisky during his presidential campaign.

“Before the war, decisions taken by the government benefited the oligarchs. But the war changed the situation, said Mark Savtchouk, chairman of the supervisory board of the National Anti-Corruption Bureau. Now that Zelensky has umed more powers and no longer needs to compromise with them, he is finally carrying out the necessary reforms. »

“The government’s desire to attack the oligarchs, the pressure from civil society and Western partners will lead to the establishment of effective institutional mechanisms to fight against the porosity between the economic and political fields,” Anastasia Fomitchova wants to believe.

More cautious, Yaroslav Yourtchishine, believes that it will take “years” to definitively neutralize corruption And the disproportionate influence of oligarchs on political life : “We need a global approach, which includes an effective anti-monopoly policy, greater transparency of public procurement, and a strengthening of media pluralism. »

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