Publication: Russia and Eurasia Review Volume: 2 Issue: 11

By Taras Kuzio

In the post-Soviet states, corruption is central to the manner in which the authorities control the political environment and extract loyalty from the ruling oligarchic class that has been permitted, by the executive branch, to grow and enrich itself. This is vividly exemplified by the Ukrainian case.

On May 19 a team of U.S. investigators arrived in Ukraine to begin collecting testimony from upwards of 100 Ukrainian officials, perhaps including President Leonid Kuchma, in preparation for the U.S. trial of former Ukrainian Prime Minister Pavlo Lazarenko, set to begin in August. The investigators are from both the defense and prosecution teams, and will take depositions together. Lazarenko is charged with laundering US$114 million. He is the second highest ranking foreign citizen to be prosecuted in the United States since Panamanian dictator Manuel Noriega was convicted on narcotics charges in 1992.

Then the governor of Dnipropretrovsk Oblast, Lazarenko was brought to Kyiv to become Prime Minister in 1996. Dnipropetrovsk, the traditional home base of Ukraine’s ruling elites in the Soviet era, was also the home base of Leonid Kuchma, who was elected president in 1994.

After only a year as prime minister, Lazarenko was replaced by another Dnipropetrovsk resident, Valeriy Pustovoitenko. He led the government until the 1999 presidential elections, when he handed over a nearly bankrupt Ukraine to National Bank chairman Viktor Yushchenko. Pustovoitenko led Ukraine’s first attempt at organizing a “party of power,” the People’s Democratic Party (NDP), which proved to be a total failure. It won only 5 percent of the vote in the 1998 elections.

Of Ukraine’s ten governments since 1992, Lazarenko’s is generally seen as the most corrupt, although hard comparative evidence is lacking. Only after Lazarenko was removed as prime minister did the authorities begin looking into corruption allegations. One reason for this was international pressure. Lazarenko’s corruption had become noticeable in the West, where money laundering from the former USSR was a growing concern.

Another more important factor was Lazarenko’s political ambition, which grew after he had strengthened his economic position by monopolizing Ukraine’s energy market. Competitors, particularly in the Donbas, were eliminated. (Parliamentary deputy and Donetsk Liberal Party activist Yevhen Shcherban was assassinated in 1996.)

Lazarenko became the only oligarch ever to go into opposition to the executive branch when he created the Hromada political party, which crossed the 4 percent threshold in the 1998 elections. Hromada challenged Kuchma in his home base of Dnipropetrovsk and, worse still for Kuchma, entertained an alliance with the Socialists led by Kuchma’s long time opponent, Oleksandr Moroz, and by Yevhen Marchuk, who served as prime minister in 1995-1996.


CIS leaders have generally reacted to the conversion of former allies into oppositionists as personal betrayals, and these former allies have therefore been targeted to a far greater degree than have those in the mainstream opposition. This has been especially true on the eve of elections, when oppositionists from the former elites are capable of causing the most damage to the executive.

A death squad that operated in Belarus in the late 1990s targeted former allies of President Alyaksandr Lukashenka. Boris Berezovsky, an ally of former President Boris Yeltsin, was forced into exile by President Vladimir Putin, from whence he has mounted a vigorous campaign of opposition to the Kremlin. Both Berezovsky and the Liberal Party that he finances have accused Russia’s Federal Security Service–not the Chechens–of being behind the 1999 Moscow apartment bombings that triggered the second Chechen war. Liberal Party cochairman and State Duma deputy Sergei Yushenkov was assassinated on April 17 in Moscow.

Berezovsky is also apparently financing the transcription of tapes made illicitly in Kuchma’s office in 1999-2000 by a member of the presidential security staff, Mykola Melnychenko, who obtained asylum in the United States in April 2002. Melnychenko is a fierce critic of Kuchma and sought to run in the 2002 Ukrainian elections as a member of the Socialist Party but was refused registration. Melnychenko claims that the 1999 presidential election results were falsified and that Kuchma in fact lost the second round by 3 percent to Communist leader Petro Symonenko.

Aside from Symonenko, four people stood in the way of Kuchma’s chances for reelection in 1999. One of them, Vadym Hetman, chairman of the National Bank before Yushchenko and his financial backer, was assassinated in 1998. Another, Vyacheslav Chornovil, the head of Rukh, died in a suspicious auto accident in March 1999. Yevhen Marchuk, the third, continued his opposition to Kuchma until the second round of the 1999 presidential elections, when he was co-opted as secretary of the National Security and Defense Council (NSDC). Since then, Marchuk and the NSDC have been marginalized in the policy process by Kuchma.

Lazarenko was the fourth. As he prepared to run for the 1999 presidential elections, the authorities instituted corruption charges and parliament voted to strip him of his immunity. Despite this, Lazarenko was not arrested. In February of 1999 he was allowed to leave Ukraine “for medical treatment.” He fled to the United States, where he asked for asylum and was arrested in the same month.


In one of the tapes made by Melnychenko there is a conversation between Kuchma and then Prosecutor General Mykhailo Potebenko about Lazarenko. Kuchma asks Potebenko whether the United States is likely to follow Ukraine’s request to extradite him. Potebenko replies that it would be not in “our interests” for Lazarenko to be extradited to go on trial in Ukraine.

A trial of Lazarenko in 1998-1999 would have harmed Kuchma’s election chances in 1999 by opening several Pandora’s boxes. Lazarenko’s U.S. trial is set to begin in August in San Francisco (not in Ukraine, where no oligarch has ever been tried). It could impact the election campaign leading up to the October 2004 presidential elections–probably to the detriment of Kuchma’s chosen successor (who has yet to be named).

Because the executive and oligarchs in Ukraine control television, little information about Lazarenko’s upcoming trial will be aired. For example, all of the television news programs ignored the arrival of the U.S. lawyers in Ukraine. But events that have occurred since the Kuchmagate crisis began in November 2000 show that it is impossible to block all sources of information available to Ukrainians.

Lazarenko’s defense lawyers are seeking to obtain testimony as to how the gas market was divided up in the 1990s in Ukraine, with the intention of showing that any resultant corruption stretched far beyond their client. Lazarenko’s attorney, Dennis Riordan, said: “Nothing like this has ever been attempted.” It is obvious that corruption and money laundering on such a scale as Lazarenko’s could never have been undertaken without the Security Service (SBU) turning a blind eye.

The U.S. Ambassador to Ukraine, Carlos Pascual, has admitted that Kuchma is one of many Ukrainian officials that the U.S. team would like to interview. Kuchma is accused by the defense of receiving “expensive gifts” from Lazarenko–who was himself awarded two state medals by Kuchma–and of either turning a blind eye to, or conniving in, Lazarenko’s corruption.

Others on the list to be interviewed include NSDC Secretary Marchuk, former Prime Minister Pustovoitenko, and Kuchma’s son-in-law, Viktor Pinchuk, an oligarch based in Dnipropetrovsk. Pinchuk created the Winter Crop Generation (KOP) Party in a bid to emulate the success of the Russian Union of Right Forces and to draw votes away from Yushchenko’s Our Ukraine. But the KOR obtained a paltry 2 percent of the vote in the 2002 elections.

Radical oppositionist Yulia Tymoshenko will also be interviewed. In the second half of the 1990s she headed United Energy Systems, which was granted a monopoly on the Ukrainian gas market by then Prime Minister Lazarenko. After Lazarenko fled Ukraine, Tymoshenko left the now defunct Hromada and created her own political party, Fatherland. Like Lazarenko, Tymoshenko’s problems with the authorities began only after Yushchenko included her in his 2000-2001 government as deputy prime minister in charge of energy reforms. Her reforms diverted billions of dollars from oligarch corruption in the energy sector to the government budget, where it was used to pay wage and pension arrears. Her reforms eventually attracted the ire of the oligarchs who–with Communist support–voted out the Yushchenko government in April of 2001.

Tymoshenko and her husband were arrested in February 2001 and August 2000, respectively. They were then released after charges were thrown out by one court, only to be re-instituted by the Prosecutor’s office. This cat and mouse game has gone on ever since.

Since the Kuchmagate scandal broke in November 2000, Tymoshenko has repeated Lazarenko’s steps in 1997-1999 and gone into opposition to Kuchma. In the 2002 elections the Tymoshenko bloc finished fourth, with 7.26 percent in the party list voting. The Tymoshenko bloc has followed the path trod by Lazarenko in the late 1990s by aligning itself with Moroz’s Socialists as the main radical opposition.

The Lazarenko trial will add to the difficulties facing the current executive as it attempts to ensure that a loyal successor is elected next year–one who will guarantee Kuchma immunity from prosecution. However, the trial may also tarnish the image of Tymoshenko, who currently enjoys high ratings.


In the political systems of contemporary Ukraine and other CIS countries, domestic campaigns against corruption are entirely “virtual;” the only real actions are taken by West European and North American courts. Ihor Bakay, former head of Naftohaz Ukrayiny, is not under investigation in Ukraine but is unable to enter his US$10 million home in Florida. Similarly, Oleksandr Volkov is not under investigation in Ukraine but is wanted on charges of money laundering in Belgium.

What do these developments tell us about the state of politics in the post-soviet states? It is that corruption is tolerated in return for political loyalty and financial support to the executive, especially during election campaigns. Yale Professor Keith Darden has described this phenomenon in a recent article as a “blackmail state.” Furthermore, when loyalty to the executive turns into opposition, criminal charges of “corruption” are instigated against former oligarchs. This further radicalizes the executive’s former allies, who create opposition political parties, leading to a downward spiral of distrust and conflict.

Dr. Taras Kuzio is a Resident Fellow, Centre for Russian and East European Studies, University of Toronto and Visiting Fellow, Institute for Security Studies-EU, Paris.