Lessons I learned from Chicago about fighting corruption

by Diane Francis

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I’m fully confident that Ukraine will take its place as one of Europe’s most important countries because of its splendid resource endowment, talented people, access to Europe, and financial support from the west. To me, it’s not a matter of if, but when.

I first visited Ukraine as a journalist after its independence in 1991 and have watched it slowly get out from under the Soviet boot. To help, a group of us founded the Canadian Ukraine Chamber of Commerce in 1993 to encourage trade and investments.

In 1986, I became involved in a start-up newspaper in Kyiv with others. But one year later, the newspaper was simply stolen by thugs.

Unfortunately, this was commonplace so many of us sat on the sidelines for a few years. Then a new generation of Ukrainians asserted themselves and after two revolutions — one in 2004 and 2014 — I for one have become an optimist and an activist and an investor again.

I’m involved, in a small way, in the IT and agri-business sectors. Like all revolutions, the Revolution of Dignity led to undesirable knock-on effects such as Russia’s surprise invasion in the east.

But ironically, this has united Ukrainians unlike before and led to the massive amount of financial help from western countries and institutions that has, and will, underpin the transition and reform efforts by Ukraine’s growing civil society.

Still there remain skeptics that any of this will overthrow the kleptocrats. But I disagree. Why?

Because I grew up in Chicago which was the most corrupt city in the United States until the 1980s. Throughout its history, the city was controlled by a political oligarchy where judges could be bought, the mafia operated with impunity, and the political machine extracted huge tributes from businesses and individuals.

One of my earliest memories as a child was that my father, like most, always carried in his wallet a $5 bill beside his driver’s license.

This was because he was routinely stopped, without justification, by police for fictitious offenses. He would be asked to hand over his license and the cop would take his wallet, remove the $5 bill and hand it back.

Everybody lived with this reality until public opinion—thanks to a lively press and activists — became emboldened enough to reject the systemic corruption.

Public outrage brought in the “cavalry” in the form of a bribery-proof federal police and judges and they began to clean out the rot by putting policemen, judges, bureaucrats, gangsters, and politicians in jail. What I experienced in Chicago has begun to happen in Ukraine.

The creation of a new anti-corruption court to bolster the creation last year of Ukraine’s “FBI” or the National Anti-Corruption Bureau of Ukraine will do the trick. What then needs to happen is that a few highly-publicized show trials result in sending a few high-profile “untouchables” to jail.

If this happens, the business culture will transform and foreign direct investment will pour in.

There’s no guarantee of this yet, but Chicago demonstrates how a jurisdiction can clean up its act no matter how entrenched or long the larceny has lasted.

And the most necessary condition has been reached, according to recent polls in the form of Ukrainian public opinion that is wholeheartedly against corruption and its perpetrators.

Two other good signs are that Ukrainians in the IT and tourism sectors continue to build world-beating businesses by navigating around the oligarchs and their politicians; and that foreign investors are tire-kicking and some cautiously taking the plunge, betting on the turnaround.

Western Ukraine is a case in point, close to the European Union and far from Russia’s war. The region around Lviv is becoming an auto parts cluster that has attracted 20 major auto companies employing 40,000 Ukrainians. Tourism also booms.

Of course, investing in Ukraine now and in future is not for the faint of heart, but American venture capitalist Jason Mitura has succeeded and offered some important advice in an interview. “The biggest barrier to investors was political risk,” he said. “The geography is unfamiliar”.

One British venture capitalist said Kyiv is too far away for us to invest in — Britain is only three hours away by plane — but then there was a guy in LA who said ‘let’s get on a plane and have a look at this.’” He said every investor who came to see operations and the culture and country wrote checks.

The other important factor in his success, and that of others, is to operate through a western entity and using western-base contractual agreements, intellectual property laws, financial efforts, or acquisition processes.

“You cannot run a gray market company where you make cash and pay people in cash because when you need institutional capital they won’t look at you. You must run the company properly with auditable practices or they will walk away,” he advised.

“The macro story of stability/instability in Ukraine can’t be controlled, but needs to be front loaded and explained to investors,” said Mitura.

“It’s the fi rst thing anyone asks when they hear about Ukraine. Israel has managed this and I think Ukraine can, too. The history of ups and downs can’t be changed, but there’s a history of stability and excellence too.” Clearly, Ukraine — the most resource-rich and biggest country in Europe — deserves a look if only because it is on the cusp of a breakthrough into a nation that treats its citizens and investors with respect.

But like investing anywhere, entrepreneurs must adhere to several rules: Choose sectors that have potential but are immune from meddling; choose partners carefully; then watch for positive signals from the IMF, European Union, and World Bank that monitor the country’s reform agenda closely and tie their financial aid to deliverables. And consider as I have, that if Chicago can do it, so can Ukraine.

 Diane Francis, a Canadian-American author and journalist, is a non-resident senior fellow at the Atlantic Council.

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