- By Jamila TrindleJamila Trindle is a senior reporter who covers finance, economics and business where they intersect with national security and foreign policy. Her beat spans everything from the economic underpinnings of conflict to sanctions, corruption and terror finance. Before coming to Foreign Policy magazine, Jamila reported for the Wall Street Journal’s Washington bureau, covering financial regulation and economics. She has also worked as a foreign correspondent in China, Indonesia and Turkey as a freelancer for NPR, Marketplace, The Guardian and others. She moved back to the U.S. to cover the post-crisis economy for PBS in 2009.
This story has been updated.
As Ukraine’s battle against separatists along the border with Russia intensifies, the conflict threatens to bleed the government’s coffers dry. The IMF warned the government could be short $19 billion next year if fighting doesn’t stop soon. Kiev could really use the money frozen in Swiss bank accounts that allegedly originated from its treasury but was allegedly stolen by the former Ukrainian president and his cronies. The only problem is that it could take years — if ever — to get the money back.
Ukraine’s budget situation has deteriorated rapidly as the government has been forced to divert more and more resources to the military. The IMF warned Tuesday that if the conflict doesn’t end in the next few months, Ukraine will need a new bailout. "Risks loom large," the IMF said in a new report. Kiev would face a $19 billion government shortfall next year if fighting doesn’t end soon.
The conflict is likely to only get more expensive, after recent setbacks against well-armed pro-Russia separatists. Ukrainian officials warned Tuesday that Russian forces had been seen in cities in the eastern part of the country, raising the prospect of direct confrontation with Russia in the crisis that began when Moscow annexed the Crimean peninsula in March. On Aug. 24, President Petro Poroshenko boosted Ukraine’s military budget by $3 billion over the next three years — a 50 percent increase — in preparation for a protracted fight.
The situation also diverts attention from the new government’s attempt to root out corruption and find money reportedly siphoned out of public accounts during the previous administration. In February, the Swiss government froze accounts, holding about $75 million, belonging to ousted President Viktor Yanukovych and 17 others, including his son. But none of it has returned to Kiev yet.
Although Yanukovych and his son Oleksandr, a dentist turned mogul, are widely suspected of corruption in Ukraine, proving that and getting the money back is another story. In February, Ukrainian and Swiss authorities opened investigations, but to force Switzerland and other jurisdictions to drain the frozen accounts into Kiev’s treasury, they must prove the money’s illicit nature in court.
A trove of documents dumped in a river near Yanukovych’s lavish estate, Mezhyhirya, as he fled Ukraine should help investigators. Nonetheless, using contracts, receipts, and corporate documents to prove the assets were obtained illegally, rather than through legitimate businesses, is a long, painstaking process.
The United States and Britain dispatched experts to Ukraine in March after the new government took over to help it find assets and make a case. Kiev also reportedly asked the Swiss justice department for assistance. On Aug. 11, Vitaliy Yarema, Ukraine’s prosecutor general, called in the International Center for Asset Recovery, a nonprofit specializing in corruption investigations. But even the experts acknowledge that their task is daunting.
Gretta Fenner said her Swiss-based center is helping Ukraine trace assets and build legal cases, which is challenging. Much of the money was taken in cash, making it harder to trace. And even if investigators find it and can prove that it was stolen, there’s no guarantee that the countries harboring the money will return it. Switzerland has gone to great lengths in recent years to shed its image as a safe haven for the spoils of criminals and despots by helping foreign governments investigate corrupt leaders accused of stashing their loot in Swiss banks.
Other offshore financial centers like Bermuda, Singapore, and the British Virgin Islands are not necessarily as cooperative. Strong diplomatic ties are usually a prerequisite to legal assistance, so that means anything Yanukovych took with him to Russia likely isn’t coming back.
"We assume that a lot of money is in Russia, and you can assume that the Russians are not being cooperative with anyone at the moment," Fenner said from Basel, Switzerland.
Fenner advised Ukrainian officials to focus on the "cases that lead to jurisdictions that have helped in these investigations in the past." Still, she said the process — even if successful — will likely take years.
"Anything under three or four years is going to be radically fast in comparison with past investigations," Fenner said.
For example, the frozen Swiss accounts of deposed Arab Spring leaders, such as Zine el-Abidine Ben Ali (Tunisia) and Hosni Mubarak (Egypt), remain full while investigations launched in 2011 continue. Swiss banks froze accounts belonging to former Haitian dictator Jean-Claude "Baby Doc" Duvalier in 1986, and the money is only now in the process of being returned to Haiti. According to the Swiss government, it has returned almost $2 billion to countries chasing stolen assets. But that figure pales in comparison with how much was taken. Ukrainian officials estimated that Yanukovych and his associates made off with as much as $100 billion.
Without any prospect of getting the stolen assets back anytime soon, Ukraine will likely look to the IMF and its Western allies to fill the budget gap that deepens as the conflict in eastern Ukraine inflicts more and more damage to the economy. The IMF agreed in March to give the country a $17 billion loan, released in tranches, combined with some $10 billion more promised in bilateral aid from individual countries.
Ukraine got the first $3 billion portion of IMF money in May, but military spending and debt repayments are tearing through it. Finance Minister Oleksandr Shlapak said Aug. 20 that the IMF should speed up disbursements because the country needs more money faster to make up a budget shortfall of 5 percent of GDP. If the IMF rejects Shlapak’s request for more money, Kiev may soon have to pass the hat around to its Western supporters.