The Risks and Opportunities of Ukraine's Anti-Corruption and Reform Agenda

(Andriy Zhyhaylo/Obozrevatel/Global Images Ukraine via Getty Images)

A Ukrainian flag flies near the Great Lavra Bell Tower of the Motherland Monument in Kyiv, Ukraine, on Nov. 22, 2023.

Ukraine will likely make significant progress on its institutional reform and anti-corruption agenda in the next 18 months, though resistance from parochial interests and increased attention to anti-graft activities will create political, economic and security risks for Kyiv, as Western war fatigue may continue to rise for other reasons. On Jan. 9, Ukrainian Defense Minister Rustem Umerov disclosed that an internal audit by ministry authorities uncovered corruption related to military procurement exceeding 10 billion hryvnia ($262 million), just since Umerov took office in September 2023. Umerov said the audit helped recover embezzled funds and foil future corrupt procurement practices, and that authorities would ''respond harshly to all cases'' of corruption revealed during the audit. The revelations were the latest reminder of the direct relationship between Ukraine's reform and anti-corruption agenda and the country's defense. Recognition of the urgency of reforms in Ukraine has been at an all-time high since Sept. 25, when Ukrainian media published a Priority Reform List sent to the Ukrainian government by the U.S. Deputy National Security Advisor for International Economics outlining specific reforms that Ukraine's Western donors believe Ukraine must implement. The letter confirmed reports that the U.S. government is conditioning future aid on numerous reforms, most urgently to tackle corruption, make Ukraine more attractive for private investment, and ultimately help Kyiv continue its defense.

The Priority Reform List was sent to the Interagency Donor Coordination Platform, which was launched in January 2023 to support Ukraine's recovery and reconstruction. It includes representatives of Ukraine, the European Union, Group of Seven (G-7) countries, and financial institutions such as the European Investment Bank, the European Bank for Reconstruction and Development, the International Monetary Fund, and the World Bank.
Western governments could eventually openly condition military aid on certain reforms. The reform list reportedly corresponds to the confidential version of the U.S. State Department's Integrated Country Strategy for Ukraine, a document prepared periodically that serves as an official policy guide for U.S. goals. In early September 2023, U.S. National Security Adviser Sullivan held a meeting with delegates from Ukrainian anti-corruption institutions that was likely related to implementing the U.S. strategy document, elements of which directly relate to the Ukrainian military. The United States wants Ukraine to reform its army and entire defense ministry to NATO standards by, for example, creating a professional officer corps per NATO doctrine, though the expected timeline for this is unclear and would present a major challenge for a country at war.
On Jan. 11, Ukraine's National Agency for the Prevention of Corruption claimed that Prime Minister Denys Shmyhal's office had illegally disclosed information about a whistleblower in a Ukrainian government agency by notifying the head of the relevant agency of a corruption complaint. Shmyhal himself is not accused of corruption. However, if Ukrainian President Volodymyr Zelensky calls for the prime minister's resignation, it would suggest that Kyiv is willing to send a strong message to the West that the Ukrainian government is responsive to anti-corruption bodies, given the country's complete dependence on Western support — even if it comes at the cost of creating intra-government volatility that could distract from, rather than aid, Ukraine's reform agenda.

Kyiv has already made progress on corruption prevention reforms related to politicians and the judicial system, while the pernicious influence of the country's oligarchs has declined significantly as a result of the war. On Oct. 17, Ukraine's parliament passed a law establishing lifelong financial monitoring of politically exposed persons, or PEPs, which had been a requirement of the International Monetary Fund. The law was also the last major obstacle to the European Union formally launching talks on Ukraine's accession to the bloc, which began on Dec. 14. In the judicial sphere, Ukraine established the High Qualification Commission of Judges (HQCJ) in June 2023 to select judges and oversee further judicial reform, along with the Public Integrity Council composed of civil society experts and lawyers to assist the HQCJ with integrity checks of judges and candidates. At the same time, Ukrainian law enforcement has increasingly scrutinized the country's once all-powerful oligarchs. Most notably, on Sept. 3, Ukrainian authorities arrested Ihor Kolomoisky — one of the country's most controversial oligarchs and a former primary backer of President Zelensky — on fraud and money laundering charges. Since Russia launched its invasion of the country in February 2022, Ukraine's oligarchs have seen their net worths fall; they've also been pushed to divest from their media assets amid legal and economic changes as a result of the war, severely limiting their economic and political influence. But while these steps were important and aligned with U.S. and European demands, Ukraine will now have to move from demonstrative high-profile prosecutions and the establishment of new judicial and anti-graft bodies to making sure that these institutions effectively do their job in fighting corruption.

The law on PEPs subjects thousands of public workers in Ukraine, including members of parliament, senior political figures, judicial officials, law enforcement officials and defense sector officials, as well as leading business figures, including subjecting ''oligarchs'' and their families to constant financial disclosures and scrutiny.
Ukraine began taking a harder stance toward oligarchs before Russia's invasion, most notably by passing a bill to define and limit their influence in the fall of 2021. While the bill was flawed, oligarchs' power in the country has fallen since it was passed, which has reduced the urgency for Kyiv and the West to place additional legal constraints on these business leaders' influence. Many Ukrainian oligarchs are now under various criminal investigations, and Ukraine's ongoing national telethon has also left them unable to use the media to influence politicians and public opinion. The elevation of war support industries and sectors less under oligarchs' control has considerably shrunk their share of Ukraine's economy as well, amid the falling value of the country's extractive and export industries that oligarchs have traditionally dominated.

Despite this progress, the United States and Europe will likely increasingly use conditionality to ensure steady progress on reforms in Ukraine, which the West hopes will stem rising war fatigue at home by spurring economic activity in Ukraine and thereby reducing the cost of supporting Kyiv in the long run. The Sept. 25 Priority Reform List provides by far the most detailed window ever into the United States' vision for reforms in Ukraine. It organizes reforms by how quickly they should be passed, outlining the necessary changes in order of urgency and relative ease to pass and enact: 0-3 months, 3-6 months, one year, and 18 months. The West's concrete expectations significantly increase pressure on Ukraine to implement reforms in the coming months, as their publication and subsequent reporting on them de facto creates a form of conditionality: if Ukrainian lawmakers fail to pass or effectively implement the changes, it could justify calls in the West to reduce support to the country, as Western governments and political forces now have a rough timeline to point to show that Ukraine's reforms are ahead of or behind expectations. Notably, many in the Ukrainian government, activist community and general public view the conditionality as positive, as they believe it should also pressure the West by working the other way: If Kyiv effectively passes reforms, any sudden reductions in support for the country would appear unjust and therefore carry a higher reputational cost for the Western governments, potentially sowing distrust among the West's other partners around the world. This, along with greater flows of private money not tied to Western governments, should help reduce the cost of supporting Ukraine, which is fueling war fatigue in the West.

On Sept. 27, the U.S. special envoy for Ukraine's economic recovery, Penny Pritzker, said that Ukraine's economy had ''extraordinary'' potential, with opportunities across all major economic sectors. But she noted that significantly increasing private investment into the country will require steady progress on economic and other reforms.
Ukraine will likely have the fastest-growing economy in all of Europe for the decade following the war's eventual conclusion due to the influx of earmarked reconstruction funds and the base effect from Ukraine's initial GDP decline of around 40% in 2022. But without structural reforms that increase Ukraine's stability, the country will struggle to attract private investment, preventing near-term growth while also increasing the burden on Western governments and taxpayers, thereby fueling war fatigue in the West. Reforms are thus essential to Ukraine's economic recovery and eventual reconstruction, if and when the war ends.

The Ukrainian government's strong political position will likely enable Kyiv to pass many of the United States and Europe's requested reforms, though the overall pace of reform will likely lag behind the ambitious pace set by Ukraine's Western backers. While public support for President Zelensky has somewhat decreased in recent weeks, he remains very popular in Ukraine, and opposition political forces stand to gain little from opposing the anti-corruption reforms sought by the West. Moreover, Zelensky's Servant of the People party retains a comfortable majority in Ukraine's parliament, which means that Kyiv can likely quickly pass reform legislation if it truly believes its access to Western support is at stake. Over the next year, Kyiv will thus likely remain focused on reforms it deems relatively easier to pass and less likely to destabilize the country (including those that involve establishing new oversight bodies and appointing new judges and prosecutors), rather than wholesale reforms of large Ukrainian institutions that could upset the population and further rattle the country's war-torn economy by encroaching on the profits of various Ukrainian businesses and associated elites. Prioritizing these ''quick wins'' will also fuel positive narratives about the pace of reform in Ukraine in the West. However, the measures demanded by Western governments are the most ambitious structural and institutional reforms Ukraine has ever attempted, and some will likely be pushed to 2025 and possibly beyond the 18-month deadline. But Kyiv's Western backers are unlikely to quickly withdraw support so long as the delays are due to legitimate challenges revealed during the legislative drafting process, rather than a lack of political will to unify behind reform legislation.

In 2024, Kyiv will likely make significant progress on the reforms deemed as most pressing by its Western supporters. These include restructuring the boards of major state-owned enterprises, strengthening anti-corruption bodies (such as the Special Anti-Corruption Prosecutor's Office, the National Anti-Corruption Bureau of Ukraine, and the National Agency for Corruption Prevention), and further bolstering the country's judicial institutions (such as the High Anti-Corruption Court, the High Administrative Court of Ukraine, and Ukraine's supreme and constitutional courts).
By contrast, reforms prioritized by the West that Kyiv might fall behind on in 2024 include liberalizing gas and electricity prices and rebooting the institutions tasked with regulating the country's economy (such as the Accounting Chamber of Ukraine, the State Audit Service of Ukraine, the Asset Recovery and Management Agency, and the Bureau of Economic Security). This is because such reforms would risk destabilizing Ukraine's broader economy and could upset economic stakeholders and parochial interests, not to mention the general population.
In 2025, Ukraine will face increasing pressure to conduct even more destabilizing reforms that involve overhauling entire bureaucratic institutions. The United States, for example, wants to see sweeping changes to the country's SBU security and intelligence agency, as well as its defense ministry, National Police, State Customs Service and Border Guard Service — agencies that, together, employ hundreds of thousands of Ukrainians. Reforming the SBU, which is one of the most politically and economically powerful organizations in Ukraine, will prove particularly difficult given the spy agency's history of corruption and Russian influence, and the fact that the SBU's importance has only grown as a result of the war. Reforms will likely strive to confine the SBU's powers to counter-intelligence, counter-terrorism and cyber security, and put limits on its involvement in other law enforcement and criminal investigations, which have made the agency vulnerable to bribery.

While reforms will come with some resistance and risk political scandals, domestic reform failures are unlikely to decisively undermine U.S. and EU support for Kyiv in 2024, as they will not sufficiently convince incumbent forces in the West to override their reasons for supporting Ukraine. Some political officeholders at the national, regional and local level and aligned elements of the Ukrainian bureaucracy will oppose reforms they feel could impinge on their economic interests and safety by revealing and ending corrupt practices. These forces could seek to prevent reform at the political level or sabotage reforms during their implementation, and may even fabricate accusations of corruption against reforms in a bid to discredit reform-minded politicians or force them to resign to slow the reform process (though this will likely be less of a concern in 2024 because the reforms Kyiv will pursue over the next year will probably threaten corrupt individuals rather than upset the economic interests of larger groups). Still, the reform agenda will likely lead to more cases of corruption — both legitimate and dubious — being publicized, which reform opponents in Ukraine believe will fuel narratives in the West that Kyiv isn't worth supporting, gambling that this will threaten Zelensky and other government reformers to water down their policy changes rather than result in a sudden and decisive end of aid to Ukraine. However, corruption scandals or a slow pace of reforms are unlikely to serve as grounds for a catastrophic decline of Western support in 2024 because incumbent political forces in the United States and Europe are unlikely to significantly alter their positions. The administration of U.S. President Joe Biden and many leading Republicans in the House of Representatives, along with the majority of European governments, will likely prevent a decisive drop in support for Ukraine this year. And the speed of reforms in Ukraine — combined with the unchanged strategic reasons underpinning Western support to Kyiv — will be sufficient to justify maintaining that position over the next year.

The risk of major corruption scandals capable of undermining Ukraine's national unity and Western support will likely increase over the coming year. Zelensky and his Servant of the People party have supplanted the oligarchs as the central drivers of Ukraine's political system, and the war effort has replaced the oligarchs as the center of Ukraine's economic system. Against this backdrop, the risk is growing that future corruption scandals could involve high-ranking individuals appointed by Zelensky, as relations with him and his ruling party are the primary instrument through which to peddle influence and extract bribes.
Despite the growing influence of Republican politicians aligned with former U.S. President Donald Trump, the key figures in the Republican congressional delegation remain supportive of Ukraine and have, in fact, argued that the Biden administration has not helped Kyiv enough.

Regardless of Ukraine's progress on reforms in 2024, some oppositional political forces in the West will increasingly argue against maintaining support for Kyiv. War fatigue in the United States, in particular, will likely keep growing, both due to various strategic arguments and for political/ideological reasons. Political forces opposed to Western support for Ukraine appear poised to continue gaining clout, even if they do not oust key officeholders or take control of policymaking in 2024. In the United States, particularly prominent will be the argument that, at the end of the day, Ukraine's independence is a 2nd tier U.S. strategic priority, and that Washington should spend more resources on various other challenges, such as bolstering Taiwan's defense, ensuring South Korea's security, or deterring escalation in the Middle East amid the ongoing Israel-Hamas war. There is no amount of reform or anti-corruption prosecution in Ukraine that could reasonably convince those calling for reduced support to Kyiv — such as Trump and his supporters in the U.S. Republican Party, or Hungarian Prime Minister Victor Orban and other fringe political forces in Europe — to suddenly change their minds. In other words, the slow but steady growth in Western war fatigue is taking place for reasons unrelated to the speed of reforms and anti-corruption activities in Ukraine, even if Zelensky's critics often use corruption to justify their positions.