On 15 December 2022, Supervising and Monitoring Ukraine’s Reconstruction Funds (SMURF) project held a discussion in a hybrid format (in-person in Kyiv and online) with BRDO (Better Regulation Delivery Office, Ukrainian think tank) and the members of RISE UA coalition on how to protect Ukraine’s reconstruction funds from corruption.
Ukrainian civil society organisations working on the rule of law, anti-corruption, anti-money-laundering and experts from the Centre for Financial Crime and Security Studies (CFCS) at RUSI took part in the discussion.
RISE Ukraine’s paper: Institutional Architecture of Reconstruction of Ukraine framed the discussion on the most effective approaches to Ukraine’s reconstruction and its key principles of coordination, responsibility, transparency and accountability of reconstruction funds flows.
We're already working with RISE Ukraine on systems and processes for transparent and accountable reconstruction of Ukraine. I'm delighted that RUSI's CFCS is joining us to build an effective anti-money laundering system.
CEO at Better Regulation Delivery Office (BRDO) think tank, Kyiv
Key Considerations From the Workshop
- The project is focused on taking an operational approach to reconstruction. As of now, the concept of the electronic system for managing reconstruction already exists and it was suggested that we use already successfully working solutions (such as Prozorro, Spending.gov.ua, Register of Damaged or Destroyed Real Estate, etc.) and integrate them into a single, user-friendly interface to create an understandable and clear representation of the lifecycle of a reconstruction project. In using this system we aim to provide a level of transparency to international partners and donors, to civil society, and to Ukrainian citizens so that of all the steps and stages of each reconstruction project can be seen.
- As of November 2022, the necessity of having an institution responsible for the reconstruction of Ukraine was discussed. Two options as to how this could be developed were considered: 1) use the existing design of the Cabinet of Ministers and state bodies that can perform the required functions, or 2) create a new national institution (or incorporate or reorganise the existing ones) with instruments ensuring its independence and accountability. The institution should be responsible for procedures and projects but not for the funding flows.
- At this point, there are more questions than answers. How to coordinate the whole process of reconstruction? Who will take responsibility? Who will design standards and procedures for developing projects for reconstruction and who will approve them? How will those procedures work? How to ensure transparency and accountability for the flow of reconstruction funds and reduce corruption risks? And how to ensure the financial system (banks, other non-financial businesses and professions such as lawyers and accountants, and government agencies) is alert to any financial flows (money laundering) related to corruption risks?
Key Insights From the Workshop
- A strong anti-money laundering framework to support the efforts of safeguarding Ukrainian reconstruction is important. In Ukraine, there is strong public financial oversight of banks. However, there is no established public financial monitoring system in non-banking areas such as real estate, law, audit. Organisations in these areas are not obliged to report on the suspicious transactions, therefore, limiting risk awareness and creating the risks of corruption and money laundering.
- There is a different understanding of transparency in Ukraine and Western countries. For example, under the World Bank procedures, an ex post statement is released on a contract signature with "organisation A" for a certain tender, but all details about competitors, reasons for disqualification etc. remain confidential. While in Ukraine, the principle "open by design" or "everybody sees everything" works facilitating the ability to trace online all stages of public procurement in the e-system https://prozorro.gov.ua/. The latter type of transparency is needed for the reconstruction of Ukraine.
- There is a misleading impression among Western countries that Ukraine’s institutional capacity is mostly ruined like in Iraq or Afghanistan. In those countries, the reconstruction was proposed to be implemented through NGOs. In Ukraine, despite all efforts of the Russian Federation to destroy the country, institutional capacity is well preserved. Therefore, the functioning governmental institutions should implement the reconstruction and there is no need to create separate NGOs with that purpose.
- Alongside international partners and donor funding, the role of private investment is essential for long-term reconstruction in Ukraine. To ensure the inflow of private investment, Ukraine should create a conducive environment for business operation, including strong protections against corruption and money laundering. In sum, a system with demonstrated integrity.
Related project page
SMURF aims to empower Ukraine’s civil society as the ‘second line of defence’ by providing the necessary expertise and tools to enhance the financial monitoring capabilities of Ukraine’s reconstruction funds.