Ukraine: Corruption or Legal Dysfunction?
31 Mar 2023 ( kyivpost )
The logic underlying the various legal systems in democratic countries tends to be similar. Yet Ukraine’s use of necessary anti-corruption organs has this former prosecutor scratching his head.
The news about allegations of corruption against Andriy Pivovarsky, Ukraine’s former Minister of Infrastructure, by NABU (National Anti-Corruption Bureau of Ukraine) and SAP (Specialized Anti-Corruption Prosecutor) caught my attention for two reasons. First, I have twice worked in Ukraine, once as a Resident Legal Advisor at the U.S. Embassy in Kyiv and then as the Special Advisor to Ukraine’s Prosecutor General. Both engagements involved work in corruption reduction. I have also written about and in Ukraine made many public presentations about the rule of law, what is corruption, and the need for corruption reduction.
Second, I happen to know Andriy Pivovarsky. I first met him in the mid 1990s. I was the head of a diaspora charity that organized a competition among Ukrainian students to come to the United States for a semester of study at Harvard. Andriy was one of the five students among those who won the competition in his year. I have since had intermittent contact with him, and the last time that I saw or spoke with him was four or five years ago.
My familiarity with the case against Pivovarsky is based on numerous Ukrainian and Western media reports, including SAP’s own Facebook post on February 22. Some of these media reports also contain information about the NABU and SAP case against former Naftogaz CEO Andriy Kobolev involving the bonuses that the Naftogaz Supervisory Board awarded him and the staff that worked on the mammoth legal case that resulted in a $4.6 billion victory for Ukraine over Gazprom in Stockholm. These two cases reveal that there continue to be some foundational confusions about what constitutes proper decision-making in an organization with a corporate structure and what constitutes corruption; such confusions not only lead to bad decisions on the part of law enforcement but, equally importantly, are harmful and counterproductive to Ukraine’s further development both economically and legally.
Official corruption
In my experience, in Ukraine the term “corruption” is often used very widely, sometimes so widely or loosely as to be applied to anything that happens in the public sphere that is bad. But such loose usage is not helpful for the purpose of clear thinking about what happens in the public sphere. Official corruption refers to corruption by public servants, however high or low their rank may be, and by public servants I mean everyone including presidents, ministers, judges, MPs, their staffs, police officers and so on; and it is the presence or absence of official corruption that is at issue in the Pivovarsky and Kobolev cases.
In the U.S., for example, the term “official corruption” is understood to mean taking a decision or action – or even the failure to take an action – by a public servant that is done in whole or in part for reasons other than those involved in the proper execution of the duties and responsibilities of the particular public office. Official corruption is almost always performed in secret.
Examples of serious corruption include bribery, kickbacks, conflicts of interest or participation in a conspiracy to engage in any of these examples; and these are all criminal matters. In all of these examples a key element is the requirement that the prosecution of any of those violations demonstrate a benefit that was gained by the public official who engaged in bribery or a kickback scheme or a conflict of interest. The benefit may be financial or political or sexual or some other kind, it doesn’t matter what the benefit is as long as there is specific evidence of some specific benefit. And the beneficiary may be the public servant him/herself or his/her family members or his/her political party or his/her business partner etc.
More minor examples of corruption (typically conflict of interest cases) are proscribed by regulations or ethics rules and may result in sanctions or suspension or termination from a public servant’s position.
It is my understanding that the Ukrainian Criminal Code similarly defines corruption as involving some direct or indirect benefit to the defendant.
Exceeding a public servant’s authority
In the U.S., there is no general law that criminalizes a public servant’s exceeding his/her authority. There are, however, laws that prohibit specific actions, such as revealing state secrets to unauthorized individuals. But as a general proposition, an intentional decision or action that is performed by a public servant in good faith would of course not be considered to be an example of someone exceeding his/her authority. So a decision or action performed in good faith that may turn out to have been mistaken or that produced unintended consequences cannot be an example of someone exceeding his/her authority.
A public servant is considered to have exceeded his/her authority only if there is an intentional decision to knowingly exceed his/her authority. For example, as a federal prosecutor I knew that I could not direct the FBI to enter someone’s home or business without a search warrant. If, nevertheless, I did do so, I would have exceeded my authority.
There normally are two kinds of remedies for dealing with public servants who exceed their authority. One is removal or dismissal.
To be sure, the Pivovarsky and Kobolev cases are being pursued under Ukrainian, not U.S., laws. But the logic underlying various analogous parts of legal systems in different democratic countries tends to be the same or very similar.
The Pivovarsky Matter
The action for which Pivovarsky is being criminally investigated involved his decision in 2015 – then expressed in an order, and as part of a broader de-regulation campaign – to allow a private company to receive half of the fees paid for use of Ukrainian port facilities on the Black Sea. The SAP Facebook post claims that this decision subsequently resulted in Ukraine losing $30 million in fees, although it is unclear whether those lost fees were sustained in the year following the de-regulation decision or in the eight years since that decision.
As it currently stands, and for multiple reasons, this case makes no legal sense. First, Pivovarsky’s 2015 decision followed and was entirely consistent with the “law on seaports” that was adopted in 2013. Pursuant to this law, private companies were entitled to a portion of port usage charges if they were to invest in port infrastructure with their own funds. So how could a decision that was wholly consistent with an existing law be unlawful? Logically, it cannot.
Second, the Pivovarsky order was approved by the Cabinet of Ministers and the Ministry of Justice. Unless there were some evidence that a minister had deceived the government – and there is none in this case – how could a minister’s decision that then received the approval of the entire government be unlawful? Logically, it cannot.
Third, the Pivovarsky decision and order does not have any of the indicia of a corrupt act. There was no secrecy, everything was public. More importantly, there is no evidence that Pivovarsky sought or received, whether directly or indirectly, any benefit from his decision. The absence of any benefit almost always takes an action out of the range of corrupt acts.
So what are we left with? The allegation that Pivovarsky had exceeded his authority because his decision – even though it was consistent with a Ukrainian law specifically related to port management and even though his decision had been approved by the Cabinet of Ministers—had purportedly resulted in a $30 million reduction in fees received by Ukraine.
In itself, this allegation is absurd because if it stands it would mean that any decision or action by any public servant that results in an immediate loss to the government should result in a criminal penalty. But in democratic countries, decisions and actions undertaken in good faith, that is, decisions or actions that are not reckless or negligent or corrupt, are not subject to any penalties, much less to criminal penalties. Thus far, there has been no suggestion that Pivovarsky’s decision was undertaken in anything other than good faith.
Unrelated to the question of whether Pivovarsky’s order should somehow implicate the criminal law – and for the reasons cited above it is quite obvious that it should not – is the public policy issue of whether Ukraine actually suffered a loss. I am not an economist, but some of the obvious questions that would have to be examined in order to answer this policy question of national benefit include: Has Pivovarsky’s decision helped to increase economic activity at the port? Has the decision influenced foreign or domestic investment in the port or in the production of the goods in which the port traffics? What are the estimates for these and related kinds of questions?
More generally, as regards policy, according to all available reports and not contradicted by anyone to this day, when he was Minister of Infrastructure Pivovarsky was in fact engaged in de-regulation and economic liberalization in all of the transport industries. This was a stated policy of the entire Ukrainian government.
The Kobolev Matter
As reported in the media, Andriy Kobolev is accused of having received a special bonus for leading the extraordinarily successful, four-year Naftogaz arbitration case against Gazprom, as a result of which Naftogaz was awarded the sum of $4.6 billion. The special bonus, which is alleged to be higher than is statutorily allowed for bonuses in state-related enterprises, was distributed to Kobolev and 40 other employees who had worked on the arbitration.
Naftogaz has a Supervisory Board consisting in part of appointees by the Ukrainian government and in part of foreigners from several different Western countries. As I understand it, it was this Supervisory Board that voted to award the special bonus to the 41 employees involved in working on the arbitration.
It is an elementary principle that if a board of directors or a supervisory board that has oversight over some corporation or organization makes a decision, then those who are under that board’s supervision and who act in accordance with that decision cannot be held responsible for any such action. An obvious exception to this rule would occur if, say, the corporation’s CEO or other officers lied to or provided misleading information to the board that then led the board to make a decision that it would not have made had it received accurate information.
In the situation involving Kobolev, there is no evidence that anyone misled the Supervisory Board of Naftogaz prior to its decision to award the special bonus. Quite the opposite, insofar as after NABU and SAP made the accusation of suspicion against Kobolev, members of the board confirmed their support for Kobolev and stated that both the foreign and the Ukrainian government-appointed board members had voted in favor of the special bonus.
I do not have an opinion about whether the decision to award the special bonus was or was not a good idea. What I am clear about is that in light of the decision to award the special bonuses by the Supervisory Board, it simply makes no sense to open a criminal case against Kobolev. If anyone made a mistake, and I am not saying that anyone did, it may have been the Supervisory Board. So perhaps, if there really was a mistake, the board should be replaced. Whatever the case, this should not be a criminal matter.
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