Strategic Considerations: The Ukrainian parliament yesterday set out the criteria and procedure for someone to be defined as an “oligarch”, as well as the restrictions to be placed on such people, in the newly adopted legislation — dubbed the Oligarch Law. But the law, officially aimed at “the prevention of national security threats related to excessive influence of persons with significant economic and political weight in society”, is seen by some local experts as window-dressing and, so far, raises more questions than answers. It could also have the negative side effect of increased bureaucratic pressure on businesses controlled by such persons. A group of MPs submitted a proposal earlier today to hold a new vote on the legislation, citing inconsistencies in part of the law concerning the state agency that determines whether the person can be defined as an ‘oligarch’. The people that would qualify under the law's definitions include businessmen controlling some of the largest debt borrowers out of Ukraine, such as Rinat Akhmetov, owner of Metinvest and the DTEK Group of Companies, and Konstantin Zhevago, owner of Ferrexpo.
- A new law designed to curb oligarch influence in politics and asset privatizations
- Seen by local lawyers as insufficient and easy-to-circumvent
- Presents risk of increased bureaucratic pressure on businesses controlled by oligarchs
- The law will go through a repeat vote, likely next week
Legislation dubbed the Oligarch Law, passed by the Ukrainian parliament yesterday (23 September), set out criteria and procedures for defining someone as an oligarch, as well as the restrictions on such people to curb their political and economic influence in the country. The law will be resubmitted for another vote next week after some text inconsistencies are fixed, but fundamentally, it raises more questions than answers, according to two local lawyers.
“[While] adoption of the law is generally a good thing, which can be positively taken by the international community, it is more for window-dressing purposes than anything else,” said one of the lawyers.
According to the legislation, a person can be defined as an “oligarch” if all the following statements about the person are true: participates in politics; has a significant influence on media; is the end-beneficiary of an entity that holds a monopoly status under the law on Protection of MarketCompetition and has maintained that position for at least a year; and the confirmed value of the assets controlled by the person exceeds one million times the minimum monthly living wage approved by the state for working people in a respective year.
In 2021, the minimum monthly living wage in Ukraine is UAH 2379 (USD 89).
The law stipulates that the decision to define someone as an oligarch and include them in the oligarch“register” is to be taken by the National Security and Defense Council of Ukraine, a state advisory body to the President of Ukraine, following a submission from the Cabinet of Ministers of Ukraine, a member of the council, the National Bank of Ukraine, the Security Service, or theAntimonopoly Committee.
However, the most important part of the law that is designed to curb the oligarchs' influence is far from sufficient or well-thought-out, said both local lawyers.
The law states the persons who have been added to the oligarch register cannot in any shape or form make contributions to the Ukrainian political parties or campaigns of political candidates during elections. Such persons cannot be buyers or beneficiaries of the buyer in large asset privatizations in Ukraine. Lastly, they cannot finance political propaganda, meetings, or demonstrations that have political aims.
“This oligarch register will be effectively a quasi-sanctions list and could significantly complicate the work of these “oligarchs'” businesses — both in Ukraine and abroad,” said a second lawyer. The risk here, the lawyer continued, is that in practice this would lead to asset reallocation and an increase in bureaucratic pressure on business in Ukraine.
“Instead, the government should restrict monopolies in all sectors and open [the sectors] to new players, starting with the energy and mining industries. And provide equal opportunities for property rights protection to all investors, including the so-called oligarchs,” the lawyer said.
The “hall of fame”
The persons are known as “oligarchs” control most of the Ukrainian economy and are known to have vast political influence through their proxy persons in parliament and other decision-making bodies within the Ukrainian power structure. They regularly top the lists of the richest people in Ukraine and include businessmen such as Rinat Akhmetov, owner of Eurobond issuers
Metinvest and DTEK Group of Companies; Viktor Pinchuk, owner of Interpipe; and Konstantin Zhevago, owner of iron-pellets producer Ferrexpo.
The three were named the richest people in Ukraine in 2021 by Forbes Ukraine magazine earlier this year. Ihor Kolomoyskiy, the former PrivatBank shareholder currently disputing the bank's nationalization in international courts, and Petro Poroshenko, former Ukrainian President, are also on the list.
“Oligarchs create the biggest obstacles for business in Ukraine, along with courts, law enforcement agencies, and tax authorities,” commented Andy Hunder, President of the American Chamber of Commerce in Ukraine.
According to Hunder, some 93% of AmCham members said that implementation of real and effective judicial reform, rule of law, fair justice, and eradication of corruption is the foremost strategic step the Ukrainian government should take to improve the business climate and attract foreign direct investment (FDI).
“There won't be any FDI if there is no rule of law and level playing. And without FDI, Ukraine will forever remain a toy in oligarchs' hands,” Hunder said.
However, it does not look like the new law will dramatically change the status quo.
While the local legal experts are still studying the legislation to provide a detailed legal opinion, they say that at first glance, it is unlikely to move the needle.
“I do not think [the law] would really impact any of Ukrainian oligarchs negatively. Certainly, there will not be any less of them or their influence in politics or economy as a result of this law, which is a shame,” said the first lawyer.
“[Rinat] Akhmetov will just pick a convenient replacement for Zelensky with other oligarchs — this will happen if the law starts working against him. But most likely it will not touch him, and will target smaller fish like Zhevago,” said the second lawyer.
