The Paradox of De-oligarchization

Despite the ongoing war, the Ukrainian government remains committed to fighting oligarchy in Ukraine. This commitment stems not only from President Zelensky’s long history of struggling with the oligarchs (about which we reported in a series of publications for Focus Ukraine, such as articles from November 15, 2022, August 3, 2022, January 25, 2022, June 10, 2021, and May 19, 2020) but also from the strategic aim of developing Ukraine as a functioning democracy and a country able to achieve membership in the European Union and NATO.

Zelensky’s Fight against the Oligarchs
In 2020–2021, Zelensky’s team chose the path of defanging the Ukrainian oligarchy by fighting individual oligarchs. In 2021, with the Anti-Oligarch Act, President Zelensky started creating a special institution within the National Security and Defense Council that would identify individual oligarchs through their assets (types and value) and a political influence test, enroll them in an official registry of oligarchs, and limit their influence on society, political groups, and government. Furthermore, during the first year of the war, the Ukrainian government took several steps to nationalize oligarchs’ shares of major industrial companies. Zelensky stripped several oligarchs of Ukrainian citizenship. The Russian hits on Ukrainian industry have considerably diminished the market value of many Ukrainian oligarchs’ assets. Currently the oligarchs are under unprecedented multilevel pressure. In a way, de-oligarchization has proceeded far in Ukraine.

Still, with one exception, by June 2023 the expected start of the registry of oligarchs had not yet taken place. In part, this delay is connected with the fact that the fight against the oligarchs is now not only an issue of internal politics but also part of the EU membership agenda. Which means that de-oligarchization should be carried out in accordance with EU standards of democracy and the rule of law.

De-oligarchization in the European Fashion
In June 2022, in its opinion on the EU membership application by Ukraine, the European Commission not only supported Ukraine as a country worthy of accessing the EU but also recommended implementing the Anti-Oligarch Act “in a legally sound manner, taking into account the forthcoming opinion of the Venice Commission on the relevant legislation.” Legality and a critical imbalance between two normative approaches in this act were indeed an issue (and one raised many times by Ukrainian and European lawyers in 2021–2022).

These drawbacks were highlighted in the opinion of the European Commission for Democracy through Law (the Venice Commission), which was finally published on June 13, 2023.

The commission has clearly indicated that the norms of the act stem from two approaches to fighting grand corruption: systemic and personal (Art. 17-21).

The systemic approach “involves the adoption and strengthening of legal tools in many fields of law, such as legislation relating to media, anti-monopoly, political parties, elections, taxation, anti-corruption and anti-money laundering (etc.) with a view to preventing the destructive influence of oligarchy in a comprehensive and coordinated manner.” It has a long-term preventative effect and increases the efficacy of liberal democracy in every country.

The personal approach “seeks to identify the persons who are considered to wield this negative influence on the state through specific criteria, such as wealth, media ownership, etc.” Persons who are regarded by the government as “having significant economic or political weight in public life” are to be registered as “oligarchs.” Such registration leads to punitive measures that may include “exclusion from the financing of political parties or activities, exclusion from privatizations of public property, and the strict obligation for public officials to report on the content of exchanges with them or their representatives.”

The Venice Commission decided that the mixture of the two normative approaches was imbalanced and could lead to the use of legal instruments that threatened to turn de-oligarchization into a process that “undermines democracy and rule of law” (Art. 28, 63). Such a conclusion comes from the fact that the “personal approach” in the law overweighs the “systemic approach” (Art. 61) and offers too “radical solutions,” which in exceptional cases can be used as supplementary and additional, but not as the core ones (Art. 26). Also, in these exceptional cases the personal decisions that involve such punitive measures, as prescribed in the Anti-Oligarch Act, “would necessarily require clear legal criteria and strong guarantees of an independent decision-making body and due process, with notions defined in such a way that they can be proven, and—as a consequence—judicially controlled” (Art. 27).

The commission recommended that the Ukrainian government take several concrete steps in updating the act so that it would prepare Ukraine for EU membership (Art. 29-41, 64). First of all, Ukraine should defer implementation of the act. The government would then need to analyze why existing institutions do not limit oligarchs from their destructive influence, and define how to improve existing anti-corruption organizations to be more effective in fulfilling their duties. Also, the commission recommends that the Ukrainian taxation system be revised to eliminate oligarchic structures from tax benefits and exemptions. Altogether, the systemic response to the threat of the oligarchy should base on building bridges “between various fields of law and the institutions that implement them (through the specific lens of tackling oligarchization),” as well as closer cooperation with the EU and international organizations fighting corruption. Finally, after the war, the government of Ukraine should reassess the danger of the oligarchs and establish a preventive system compatible with European standards of human rights, democracy, and the rule of law.

The representatives of the Ukrainian government have so far reacted to this decision with some contempt.

The De-oligarchization Paradox
The Venice Commission’s opinion document is an example of contemporary European legal thought applied to the politico-economic realities of post-Soviet European states, such as Ukraine, Georgia, and Moldova (the last two countries are frequently mentioned in the commission’s response). All three countries aspire to membership in the EU and try to fight corruption at home. Each faces the issue of which strategic path to choose. As I formulated in one of the previous articles on Ukrainian de-oligarchization, the choice is whether to fight oligarchy or the oligarchs.

The authors of the Venice Commission’s opinion went further and formulated the paradox of de-oligarchization (Art. 27): “If the administration and the judiciary are strong and independent enough to support the implementation of ‘personal measures’…, then such measures are no longer needed because the preconditions are met to deploy a much more systemic and effective strategy. If conversely the administration and judiciary are ‘captured’ by the interests that the ‘personal measures’ intend to fight, then such measures are either ineffective or—having to be adopted through executive acts that are not fully subject to effective judicial control—profoundly dangerous for human rights, democracy and the rule of law.”

Indeed, de-oligarchization, especially in the realities of the fragile Eastern European democracies, is a tricky process that does not allow simple solutions.

The opinions expressed in this article are those solely of the author and do not reflect the views of the Kennan Institute.