UARU
"Ukraine Needs to Demonstrate Rule of Law to Attract Investors" – Danish Ambassador
22 June, 2018

There may still be a long way to go before Ukraine eradicates the systemic corruption that has long existed in the country, but according to the Danish Ambassador Ruben Madsen, there has been “remarkable progress” so far.

The most promising step recently has been the long-awaited adoption of the law on a specialized anti-corruption court, which was passed on June 7. Madsen says that this is a “big result” for Ukraine.

Nonetheless, corruption remains the biggest obstacle for attracting outside investment. “If Ukrainian businesses want to work with Western businesses, they have to clean up their own shop, because they'll not find anyone who wants to take the risk to deal with them,” Madsen told Hromadske.

What’s more, Ukraine has to face the issue of corruption head-on and avoid the tendency of downplaying corruption to improve its image abroad.

Madsen commented: “It's an obvious thing, but to have people say that corruption should not be exposed in Ukraine because it damages the image of Ukraine sounds like something from the moon.”

When it comes to investment, Ukraine also has to contend with Russian aggression and the ongoing war in the occupied territories of Donetsk and Luhansk. But, according to the Danish Ambassador, this issue is still secondary to the slow pace of reform.  

Photo credit: HROMADSKE

“There is a conflict there [in Donbas]. And, of course, it has a negative bearing. But for investors who know Ukraine, of course, this is not stopping them as much as lack of rule of law,” Madsen stated.

Hromadske sat down with Danish Ambassador to Ukraine Ruben Madsen ahead of the Ukraine Reform Conference, which takes place in Copenhagen on June 27.

The big reform conference is taking place in Copenhagen. This is a chance for the Ukrainian government to present what they have accomplished since last year. There was the first conference in London, this is a new initiative with the support of international partners, together to gather in different world capitals the foreign ministers and possible investors, but the politicians also from a number of countries from the European Union, NATO, G7, and this year it's taking place in Copenhagen. We, therefore, have with us the Danish ambassador to Ukraine. So Your Excellency, would you explain the importance of this event? Because there are so many conferences on reforms, everything that is going on. What makes this one unique?

There was the first reform conference in London a year ago, now we'll have this one to follow up. And we expect there will be a conference in a country that is soon supposed to say "we want it" in 2019. We, Denmark, we want to be a very good friend of reforms and a prosperous Ukraine. We see this not as one stand, or event. We see it as a process. It started in London. It's a bit different this time. In London there was a review of five important areas of reform. This time, to have a clearer picture, we have chosen, with the Ukrainian government, a joint hosting of this, Ukraine and Denmark, we have chosen two areas. One is economic development and growth, important to any government in this world, they wouldn't survive without it. And on the other hand, good government, including decentralization, anti-corruption. These two tracks make Copenhagen, I hope, a bit more focused. Also, we have all these big donors, a big group a forty countries we expect to take part. Many of them are on the level of foreign ministers. It would be open to prime ministers. The Danish Prime Minister, who is the host in Copenhagen, and your Prime Minister Groysman will be there jointly to open the conference.

Photo  credit: Vladyslav Musienko/POOL

While being on different events and discussions of foreign experts who are following Ukraine and international governments, they are listening that there are reforms taking place, but they would like something more concrete. You said that there is already a focus, but what is still expected from the Ukrainian government and this event? What opportunity is it for them, besides saying "we are here, we are a new country, we have done more reforms than any other government in the last decade".

Everybody is saying that it's more or less a cliche now, that there's been more reform in the last four years than the previous 25 years. But it's got to be more specific than that. The Danish side, with other partners, that's a strong group of international partners for this, we have gauged the Ukrainian government and said that it's up to you to deliver. It's a Ukrainian thing to deliver the results and showcase them. We also said that if certain things are not there, it may be very hard to talk about anything else. And I should not say that one report is always more important than the others but there is no doubt that one area has had more focus than other areas: anti-corruption. And on that of course, I can only say personally that I think it's a good and remarkable result that after all your government can go to Copenhagen with a law that has met many wishes. There may be flaws, the IMF has looked at it, and they should be more than anything also those to decide whether this is satisfactory. The Venice Commission has been involved. From what I hear, they also think there are mostly good things in that law. When we have the results we should always have the courage to say so. You look skeptical!

I'm skeptical because the talks of the anti-corruption law were there in a while, and it had been adopted in a couple of weeks, speaking even days. There was a really, "clear demand" of the international partners, foreign partners, that it's up to Ukraine. So it can look a bit like, why should the international partners push that hard for something that is good for Ukraine?

I've been here for more than a year and in all my time, the foremost issue discussed is the anti-corruption court. and there has been a little side-tracking sometimes, back on track. But a year ago, many would have said we don't believe that reform will be there in a year's time. Now it's there. And we should be careful, when it's there, to hold and say "but we need more". It is a big result. I was with some sales society representatives last week, and I was very encouraged by the way they analyzed it. They said that they always work for more, we should have more and we should be hungry for more. But they said that the worst that could happen to date is that we lose what we already accomplished. In that sense, let's be at least pleased that in Copenhagen there will be a lot of attention on the establishment of a new anti-corruption court, that, of course, is going to be a very important anti-corruption triangle. We already have an investigation bureau NABU, we already have the special prosecutor, but we need the special anti-corruption court to finalize that triangle. That is on a good track now, from what I hear the Venice Commission and the IMF say. There are probably some things, with some cases from the ordinary courts, that should also if they are appealed should be appealed to the anti-corruption court. There are things to look for and I understand there's a good discussion on that between those more involved than Denmark. 

The skepticism is often there also because sometimes there are good laws but the issue is with implementation. So each law could not be implemented properly and there are always concerns. Therefore, what are the benchmarks for them working? It's not adopted in order to just be adopted and we can say "now we have it". What are the particular things that should happen in Ukraine that would bring trust for investors, because that's whom you're explaining what's going on here to?

I'll say not least that Ukrainian people, of course. They should have satisfaction in this field. They've had so much stolen from them, and there needs to be a corrective in this. That's the foremost perspective, to get rid of impunity. The idea that anybody can steal and nobody cares about it. I'm told that's not how it is anymore, that those who do are trying to hide it. Denmark has taken upon itself to implement the European Union Anti-Corruption Initiative, the EUACI. It's a technical team we have here, I'm co-chairing the steering committee of that anti-corruption initiative. Denmark put some of its own money into it. We have so far spent most time building the independent anti-corruption institutions. NABU, ARMA, NAPC, tried to work with all. Some successes have been bigger than others. At this committee, I hear from the heads of these independent institutions that we could not have done so well without the support of the European Union. We will do the same with the court. We will do everything we can to support, and we have good donations to do it with. It's not only IT, it's supporting in a personal way, how to build strategies and how to mend your organizations. We do all we can to support these anti-corruption institutions. And we are so happy that there will be another institution to help. I assure you it will get a lot of attention. It will not be left in a drawer somewhere, it will have our full love and care.

Photo  credit: Vladyslav Musienko/POOL

Interesting of course that Denmark is one of the least corrupt countries globally, and obviously has the moral ground to speak about fighting corruption. So if we really go out of the Copenhagen conference but we really ask for the Ukrainian audience, so there is a long history, but do you have this particular institution or is it considered like the anti-corruption court, or you've never needed that. What are, in particular, the practices which are the most important in Denmark to fight corruption, or does it just not exist?

Corruption is always a potential. One should always look out. We are very lucky in Denmark. We have built a very transparent society, it's built on trust, and I tell you that the fear of many Danes to be caught in corruption, in itself prevents a lot of corruption because sentiments are so strongly against it. It happens, if you're not aware, if you don't have checks and balances that show that you shouldn't get involved in corruption, you will be persecuted. Then it will develop in Denmark as well. But we have been lucky to keep it at a minimum. Eradicate? You can't. In our legal tradition, we have not had the need to have a special court. But it's been decided by Ukrainian institutions, in close cognition with international partners, in Ukraine's case it would be better to build a special investigating agency NABU, a special prosecutor operation SAPO, and now a special anti-corruption court. This is what Ukraine adopted and most people say that because of the state of the nature of corruption, that's the right way to do it. There has been a chance to run corruption cases but they have never gotten to the top levels of the courts because they're too busy with many things. Now you get a dedicated triangle of corruption fighters. NABU, SAPO, the court, and they will not take all matters, they will take the big cases to get rid of this impression of impunity which is extremely bad if not least for trust. Society cannot live without trust. That's why the Danes are not only the least corrupt but also the happiest people in the world sometimes. We share it with other Scandinavian countries sometimes, the happiness.

What would be considered corruption in Denmark? Also, give me an example, we are now speaking of oligarchy not only in Ukraine but in the US. The way big businessmen are running the country and possibly in the interest of their assets. So what things would be unacceptable in Denmark in that regard? To what extent is the government in your country connected to business?

There is a very strong negative sentiment against corruption in countries like Denmark. When you mention business, in the last year it has changed. I've been in other countries, European countries outside the EU, I've seen corruption for many years. Ten years ago many Western, Danish, Swedish businesses, said that we really don't like corruption but we really can't get anywhere in society without it. That has changed totally. Today they won't touch it. There's such a sentiment that any CEO can lose his job if he is caught in corruption. A transport company can lose contracts for big companies if they're caught in corruption. These transport companies say that they'd rather stay two, three weeks at the border than pay one hryvnia because they could lose the whole contract and the whole basis for the operation if they're caught. And this is also to do with global affairs, globalization, everybody knows about it, it's in social media, you'll be exposed. That's why there's a changed sentiment on business and corruption. Most Danish businesses I know will not touch it. They don't want to risk their jobs. If Ukrainian businesses want to work with Western businesses, they have to clean up their own shop, because they'll not find anyone who wants to take the risk to deal with them.

At the same time, there is a discussion that Ukraine has very robust anti-corruption activities. But then times in the discussion they are often criticized for maybe speaking too much about that or sometimes there's a criticism of panickers that complain to Western partners and therefore the international community sees Ukraine in the worst, gray, dark light than it really is. What would you say on that? How should this discussion be? I think you're also in this dubious position because you have to answer the international partners and foreigners on what is going on in Ukraine and at the same time you probably would like to promote a better image of Ukraine than those who have never heard about it.

It's an obvious thing but, to have people say that corruption should not be exposed in Ukraine because it damages the image of Ukraine sounds like something from the moon. Not many people know that Ukraine has a systemic problem of corruption. It's not just to thwart the image of Ukraine. We are strong supporters of Ukraine and we, therefore, want to take Ukraine the right way and we also say that Ukraine has moved forward on this. There has been remarkable progress. I'll use that word, remarkable progress, also in the fight against corruption. Two years ago nobody did anything, and many ordinary Ukrainians didn't want to pay their taxes, they placed it in a  brown envelope under the table. You have to develop in society a shared belief that corruption steals our future. That's what it does, that's why the product of Ukraine is as low as it is, especially for the poorest, they have very little because somebody takes the money away from the society and thus hinders the growth that would be prevailing in Ukraine. While not these barriers on investment that are ready to come in, but they will not come if they have to be involved in corruption and get dirt on their hands, they'd rather go somewhere else. There are many places investors are ready to go. They won't go to a place where they risk their own jobs. They do that in today's world. In the Western business world, it's too risky to deal with corruption.

And a small detail, at the same time we have the law on e-declaration on anti-corruption activities, and that the concern is that there will be selective justice against those who probably, there will be some people who will be picked up and it will be misused. There was pressure on the government to not have this law and in the end, it was adopted, it was enforced, and it was never canceled.

Many are against it but I haven't seen them remove it yet. I should be careful as a foreign diplomat but some say it's because it's good for those NGOs to taste their own medicine. I don't know if that's the fact but of course, it's absurd. It was meant for top civil servants and now it implies 1.4 million which of course makes the burden of verification, checking whether the information on salary is correct, and information on property and fortunes is correct. And of course, it's all I think meant to not have it be an effective instrument as we'd like it to be. That's why everybody has been so careful not to have the same mistakes repeated with the anti-corruption court. NABU has its clear jurisdictions. Major cases, not small cases. SAPO the same and the court has the same. Matters at the moment prevailing over the ordinary court. If it is appealed, where does the appeal go? That has implications for the overall picture and now I think we should have this correct but I also say we have a big result. I would say the most important one, I've been wishing to see since I came last year to have the triangle fighting corruption with investigation, prosecution, and court working together. 

At the same time, the real issue in Ukraine is corruption. But the other issues, of course, are the rule of law but also poverty. What we also know about poverty now is just because of a lack of hard, cold currency. Meaning money, not just loans from international organizations, but foreign direct investments. So if you really make the general assessment, you can't move very forward unless you make your economy really work. People will still be poor, no matter how transparent the system is. At the moment we still see that there is very little foreign direct investment. That's what we know about the figure 1.8 billion USD, seven times less than Poland which is a neighbor. This makes it very different. There is a law on privatization in the process, on the big companies. So really, what are also concerns, we have concerns because some of these companies have old cases, court cases, so it's really complex. But really regarding the investing to the big state-owned companies, what would you say? What are the benchmarks for investors to come, what would be the answers to be given that they would consider coming to Ukraine?

First of all, we need to see transparent processes making candles for these huge companies. The small ones are simple, but for the big ones, these are big cases, and it's very serious. You can't just do it in one night, there needs to be a good preparation. Western investors will look at these [...], but they will not come in if any day they could have a court ruling against them where the property they own was taken away from there. They want to be sure they have rule of law. They want to know that there will be no negative surprises, no special authorities asking for special contributions for this or that. It must be a clean business. Otherwise, as I said, I doubt they'll come, because not only will they lose their money they will also lose their reputation. They don't want to be involved with corruption, they would rather go somewhere else.

To what extent is the Russian aggression and the war playing its card? Because we have the question that Ukraine is speaking so much about possible aggression, fair enough, with absolute reason. And that could make investors afraid. There are people saying that no, that's not the issu, because there are places where the war is going on and big international companies are still coming.

It has a clear bearing. it is a very serious matter also for investment because those who don't know well, they hear news about Donbas, they see casualties every week.

Photo credit: EPA-EFE/FLORIAN WIESER

They are there. There is a conflict there. And of course, it has a negative bearing. But for investors who knows Ukraine of course, this is not stopping them as much as lack of rule of law. But you shouldn't say it doesn't matter. I wouldn't say that at all. Ukraine lost the power of its industrial base in Donbas, of course, it hurts the economy, and you have an aggressive Russia that really wants to strangle not only Ukraine but the economy, if they can get away with it. It is important to fight it but I think also that you have friends who would like to encourage their companies, like Denmark, like other Western countries, because we need to help Ukraine develop the economy, to develop what we call a reformed and prosperous, stable Ukraine. Because then this country will be, for those who are long enough to be here when it's cleaning up when they have safe investment, they will have good investments. This will be a blooming economy the day it starts working, hopefully soon. There's a lot of potential here. Your cultural sector could grow, your industrial base could grow, three million of your people are working outside Ukraine today, you have lots of able hands and brains that could push this explosion, and it will come if the problems are solved.

If we speak about these fears, where are those fears of interest? You are now here for a year, even for Danish companies or any Western companies, what are the spheres where Ukraine can position itself better? Agriculture, anything else? Because we usually speak of resources that Ukraine is selling, but of course any modern country is interested in not this kind of resource based economy.

At the moment most Western companies that are here are here to sell their products. You can then sell their products with the new association agreement with the EU, you have a much better chance of growing exports also from Ukraine. But what will happen when investments really come, these companies will erect factories, new jobs, because the potential is here. Long transport lines. They'd much rather do the production with the workforce you have than go to China, it's much easier for European countries. They were in China and many have come back, they are looking for places like Ukraine to come and invest, to offer great jobs. We have companies that create jobs, but it's still in the beginning. That's where I'd expect the explosions, that's when real investment comes. Not only endeavors to sell products but to produce in Ukraine.

We see other countries where the Europeans would go to far-east Asia, or African countries, Latin American countries and elsewhere for some production. In Ukraine to a lesser extent.

That was the case 10 years ago. They are coming back to Europe. There is a trend to come back. That's the truth.

So how can Ukraine use this opportunity? What should be done besides fighting corruption?

Fight corruption, create rule of law, make it safe, and I see lots of endeavors. Your government has set down commissions to help foreign companies that runs into problems. I hope it'll work and be effective, because such measures make governments think that now is the time, now we can establish productive facilities, create jobs, because we can get better labor there than in China or all the way in Asia, and then I feel very confident that there will be a big change. But we need to get around that hurdle because the reputation of Ukraine is not good. It's unfairly negative and it's not because of your anti-corruption activists, it is because, first of all, it's because it's driven from the Kremlin. They drive the rhetoric that Ukraine is a failed state, it's more corrupt than anywhere in the world, nothing will work there, that's the kind of negative rhetoric that is much more important than the anti-corruption activities I can tell you. And that has, because, your Orange Revolution in 2004-5, and then a lot of disturbances and Maidan in 2014, and still people talk about the same challenges, corruption, big business ruling and so on. That is why you need to really project a much more positive picture of Ukraine, and you do that by building a reformed, prosperous Ukraine.

What can Ukrainians, not the government, but the society, expect from international partners coming to Copenhagen. Because for Ukrainians it's also important to understand that yes, our government went to Copenhagen. What are they coming back with except what they are promising? That's also that society is expecting something. So what are the maximum, what are the minimum signs of success for Ukrainian society first of all?

Again I'll have to say, we see it as a process. Copenhagen is not a donor conference. It's not a place where donors say we will give so much, and then we'll see how much is on the line. It is a process that's going on. But your prime minister, the day before the conference, will meet big Danish companies active in Ukraine, and they are top level people, they are CEOs in the Federation of Danes Industries. I'll be there myself, I look very much forward to it. That's a chance to get some promises put over the table, also to say that if you come, we will protect you. We will make sure that you do not regret that you invested. There will be a direct dialogue between the chief of your government and 20 top business people of Danish companies that already know Ukraine. So they will talk about the challenges, and the barriers there for them to move on and make business bigger in Ukraine. So that's another thing you'll get but don't expect overnight that there will be anybody able to put money on this and investments on this. The important thing is to get beyond the point where people have doubts, where investors have doubts. To get them to where they think that now is the time. Because with a market of 45 million as Ukraine has, and a very active and well skilled labor force, this will bloom one day. Everybody knows that there's such a delay in developing things, so when it comes, it comes with big force. Those who are first in that will be rewarded, but of course, they risk losing instead of being rewarded. It's a delicate balance that will get to the point when Westerners trust that now is the time to move in.

My final tone could sound different, but you know the conference is about economy, good government, but we already have the 40th day of Ukrainian filmmaker Oleg Sentsov being on hunger strike in Russia. He went for a hunger strike prior to the World Cup in Russia to get attention. 40 days is a lot. We know his health has deteriorated. He is prominent, he had reached some international prominence, yet there is no progress. In the current world, we cannot expect anything can happen. What could be done? What could the international community do if we really understand that its Vladimir Putin, the President of Russia, who decides. But still, what could be an additional pressure from the international community. What should and could be done?

Photo credit: Dmytro Rusanov/HROMADSKE

There have been many declarations from the European Union office. I myself have been active on social media supporting the pressure in this case. It's not formally on the agenda in Copenhagen, but don't be mistaken that it will be on the lips of people, they will talk about it. You people will tell others. Your civil society representatives will be advocating that we need to build some pressure to allow at least, we must have this visit, to see how Mr. Sentsov is. I see the two ombudsmen are working together to try and do it. Something must be done, you're right, and I'm sure there will be many who will discuss how to put more pressure than the declarations we make, because that is what we can. This is Russian jurisdiction. We can't force our way there. I think the attention is extremely important in this matter, it's right of you to take it up and push it on all possible opportunities you get.

Really, doesn't the international community have any leverage to influence the Kremlin?

By putting pressure and moral pressure also, speaking morally, that is being done already. There have been several statements from EU representatives, I've seen that, and they continue. But in Copenhagen, we expect to have the [...], Commissioner Hahn, and many other important people, well more than ten foreign ministers, and there will be a chance for people who come from civil society to do advocacy in this matter, and that will be expected I think. We hope somebody can find anchors to put more pressure. Pressure is what you can work with. We can't work in the actual world, unless the Ukrainian ombudsperson will be successful in agreeing with her Russian counterpart to put away disagreements and then go together to visit and see how the situation is for Mr. Sentsov. That's the best hope.

/By Nataliya Gumenyuk