My 60 Days of Rebuilding Ukraine

This weekend marks 60 days since the Rebuilding Ukraine Agency was founded in order to help Ukraine rebuild from the destruction caused by the Russian aggression. 60 days in the context of what it will take to rebuild the country post-war is a negligible number, and yet the last 60 days were among the most vivid, rewarding and event-filled in my 35-year international business journey. 60 days out of 35 years.

Thus far, it has been almost 90 days that Ukraine has been fighting a brutal, unprovoked war with its Russian neighbor. The war, which caused unimaginable destruction of property and economy, forced millions to leave their homes, cost thousands of lives and hampered hundreds of new births. The war, which caused the entire civilized world to rally around Ukraine and its people, in order to offer unprecedented help and support.

Amidst this global seismic shift, a small group of folks in the US, Canada, Ukraine, UK and EU, have decided that given their extensive international and professional experience, they wanted to help and rebuild Ukraine. Although they did not know when the war would end, what would be the final geographical boundaries, or national security arrangements, these folks were and remain convinced that Ukraine would win and remain independent. They also knew, that regardless of the massive expected reparations, government assistance, loans from international financial institutions and equity investment, Ukraine could use a team of international experts in the fields such as engineering, urban design, agricultural infrastructure, energy, water, healthcare, financing, insurance, legal, compliance and telecom.

They also knew that given the strain on the Ukrainian Government, regional and municipal authorities, as well as on the private business, which was caused by the war, it was necessary to simplify delivery of the rebuilding services and solutions to be offered. They also knew that no matter how much money would be allocated for rebuilding, Ukraine could always use more funding to rebuild and facilitate economic growth. Finally, they knew, that in the world of international bureaucracy, they would need to be nimble and have the capability to react rapidly, make decisions quickly and have a large toolbox of solutions unsurpassed by anyone else. Every one of these folks simply said “I am in, what can I do to help Ukraine rebuild?”

Thus was born the Rebuilding Ukraine Agency – the first international, member-owned, rapid deployment Agency, focused solely on helping Ukraine rebuild after the war. Initially, twenty four professionals and representatives of several companies became members. In the next 60 days, the Agency grew to over 50 members and its growth continues. What follows below, is my personal account of this short, but very event filled journey.

As one of the co-founders of the Agency I have been privileged to quarterback the first 60 days. The emotional highs and lows have been tremendous. Initially, it was difficult to reconcile the fact that with the war raging and missiles flying, people in Ukraine’s liberated cities started rebuilding efforts. The Agency arranged meetings with the Mayors of the war-ravaged towns of Bucha, Borodyanka, Melitopol and holding back tears, its members listened, as the Mayors recounted destruction and atrocities in their cities. The Agency’s Ukrainian-based members visited Irpin and saw first hand the destruction and the scope of the massive rebuilding efforts needed to restore the housing and infrastructure.

I watched, as Agency members from different countries, most of whom who did not know each other previously, started to function as a cohesive team. I watched, as our efforts at the Agency received support and offers of help from the folks at the US Government financial institutions, Ukraine’s investment agencies, and large engineering, agricultural and capital markets firms. I was there filled with joy, when a group of US investors expressed their firm commitment to invest in Ukraine and build a plant to produce badly needed construction materials. I was there, when the Agency forged alliances with the Ukrainian Builders’ Confederation. I participated in very open and candid discussions with a Senior Ukrainian Rada member, the UA Ambassador to the US, US Commercial Service officers, business executives and NGOs and was glad to see that their views on rebuilding the country after the war were mostly aligned. I was amazed to see the level of acceptance and support received through social media platforms. A times, I have been overwhelmed by all the activity required when setting up such an Agency. I am grateful to my team, our members, our attorneys and financial professionals for their support and for their continuing efforts to set this Agency up.

Having US Government maintain availability of Political Risk Insurance and project development grants during the war time, gave me optimism and allowed us to start putting together a pipeline projects, which will need to be financed, as soon as the hot phase of the war ends.

And then there was Nezhin. Although the Agency is not a non-profit, the story of the war-damaged birthing hospital in the city of Chernihiv and of totally underequipped neonatal facility in the city of Nezhin charged with handling overflow of the premie births and births requiring surgeries, moved my colleagues and me deeply. The members of the Agency’s healthcare committee sprang up into action and earlier this week a fundraiser was held, which would enable the Agency to buy, ship and fully oversee the delivery of the badly needed equipment to help rebuild the birthing unit at the Nezhin’s town hospital. More is needed and we will be looking for additional humanitarian funding for this and similar projects.

As all these efforts and meetings were taking place, there were always painful reminders of war. Having air raid sirens go off multiple times during my zoom calls with Kyiv, always caused my heart to race. A three month old baby killed by a missile strike in Odesa, along with his mom and grandma, a shopping center in that city struck by a missile, hundreds of yards from our client’s new construction site, fuel shortages, occupation of Chernobyl and the centralized spent fuel storage facility our team helped finance temporarily falling into the enemy hands…. Our team also came across the dark side and saw that elements of corruption, infighting and malaise were unfortunately are still present in Ukraine war, or no war.

Probably, the most difficult, was the realization that the war is likely to last much longer than I originally thought, thus delaying serious rebuilding efforts and subjecting Ukraine to a much greater human toll, as well as property and economic destruction. Another difficult realization was the understanding that the Agency will not be able to help everyone who will need help. Emotionally this is very difficult to reconcile, amidst the rebuilding needs, which will need to be addressed.

Some years ago, I wrote a book in which I recounted interesting stories and adventures along what was then 25 year international journey. The last 60 days have made every one of those stories pale in comparison and I may one day document the Agency’s and mine journey on what I know will be a constructive and and meaningful effort to help Ukraine rebuild. Slava Ukraini!

Alexander Gordin

Dealmakers’ Anthem (affected by Covid-19)


Before the sunrise hits the roofs,
Before the birds begin to sing,
As drops of dew roll off the grass,
We hear the bells of global deals ring

Their energy provides the fuel
to drive the shipments cross the globe,
The email bits are cold and cruel,
They’re deals’ blood and players’ hope

The deals take us to strange places,
Exotic towns, abandoned mines,
Through deals we learn people’s faces,
And find the truth between the lines

The deals are like drugs and vices,
They make us high, and crashing lows they bring,
We chase them hard; we sometimes take bad chances,
and yet like junkies, we pursue them and ignore their sting

As Covid global business shuttered,
and havoc wrecked across the world,
It forced us to rethink the future of handshakes,
business flights and ways our goods are sold

And as we wait, and hope for cure to this once-in-a-life pandemic,
two things of which we can be sure better than any Academic:

The global business will continue, and deals will certainly rebound,
Thus offense in this time of chaos, is strategy, which is most sound
And though video for meetings has served a major role and found its place,
There is no way for it to ever, in-person interaction fully to replace

A.M. Gordin
©2014-2020

Broad Street Capital Group selects Lipman Law to provide due diligence support and General Counsel services.

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(December 2, 2019, New York City, NY) In an effort to streamline its legal operations and to manage international due diligence and compliance processes for the $1.2 billion of financing transactions in its pipeline, Broad Street Capital Group announced today that it has retained Alex Lipman of Lipman law PLLC, to provide general counsel services. Alex Lipman has also joined Broad Street as an Advisory Board Member.

Most recently a partner at a major international law firm, Mr. Lipman has almost 30 years of experience both in private practice and government with focus on SEC enforcement matters, anti-corruption investigations, securities litigation, other regulatory and government matters, as well as corporate governance.

Alex’s government experience includes serving as a Special Assistant United States Attorney on the Securities and Commodities Fraud Task Force at the U.S. Attorney’s Office for the Southern District of New York. In that position he prosecuted and tried cases involving accounting fraud, mail and wire fraud, and insider trading. Alex also served as a Branch Chief in the SEC’s Enforcement Division, where he conducted numerous high-profile investigations into securities law violations, including cases stemming from the collapse of Enron.

In private practice,  Alex has successfully represented numerous individuals and entities in high-profile white collar securities cases, including cross-border investigations and international prosecutions.

Mr. Lipman also has been a key driving force in developing a proprietary Grey2White® Due Diligence Program designed to identify and solve complex legacy due diligence issues, as well as to optimize multiparty compliance inquiries, which arise during international financing transactions.

“We are very excited to have Mr. Lipman and his Firm advise our team. As the Broad Street Capital Group is poised to enter its next phase of growth, having a seasoned, internationally renowned legal expert in our corner, will help the firm’s clients not only to successfully navigate through complexities of international financing and M&A transactions, but will also allow them to unlock the value of their companies by putting in place best practices in the areas of financial reporting, anti corruption and corporate governance.” said Alexander Gordin, Managing Director of the Broad Street Capital Group.

“I look forward to working with Mr. Gordin and the Broad Street team on ways to improve and streamline the way due diligence and compliance are managed during international financing and merger transactions involving companies in emerging markets. Rather than engaging in a reactive, expensive and cumbersome process, the Grey2White® program aims to provide deeper due diligence investigations than conventional KYC screenings in advance of potential transaction. This would provide greater transparency from the start, reduce costs and benefit all parties involved in the transaction.” said Alex Lipman

About the Broad Street Capital Group.

Based in the heart of New York City’s Financial District, Broad Street Capital Group (www.broadstreetcap.com) is an international private merchant bank, which since 1988 has served several foreign governments, multiple state-owned companies, as well as SMEs in emerging markets. Through its member companies, the Group focuses on developing project financing in the $100 million to $1 billion range, providing political risk mitigation, export management services and cross-border market development advisory. The Firm has done business in over 35 countries, spanning the emerging markets landscape from Bangladesh to Ukraine.

Currently, the Firm maintains presences in30broad eight countries and works closely with all trade and development agencies of the U.S. Government, as well as with Credit Agencies of several European and North American countries. Since its inception, Broad Street Capital Group has been involved in multiple high-profile cross-border transactions in agriculture IT/telecom, aerospace, healthcare, oil and gas,energy generation, food security, nuclear safety, hospitality and franchising sectors. The firm’s current advisory and financing portfolio is expected to exceed $1.25 billion by January 1st, 2020.

 

U.S. EXIM BANK reopens for transactions with Ukraine

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 “A strong international voice for business in Ukraine”U.S. EXPORT-IMPORT BANK (EXIM) NOW OPEN FOR UKRAINE

U.S.-Ukraine Business Council (USUBC), Wash. D.C., Tues, Jan 8, 2019

WASHINGTON, D.C. – The Export-Import Bank of the United States (EXIM) is now open for Ukraine. “This is great news for U.S. exporters of goods and services and for business in Ukraine. EXIM being open for Ukraine provides an additional and important tool to expand U.S.-Ukraine business relations in 2019,” said Morgan Williams, President, U.S.-Ukraine Business Council (USUBC), www.USUBC.org. The Export-Import Bank of the United States (EXIM), www.EXIM.gov, is the official export credit agency of the United States. EXIM is an independent Executive Branch agency with a mission of supporting American jobs by facilitating the export of U.S. goods and services. The EXIM country limitation schedule now includes Ukraine, https://www.exim.gov/tools-for-exporters/country-limitation-schedule

“At the end of December, the Export Import Bank of the United States (EXIM) reopened its short and medium term programs in Ukraine for both private and public sector Ukrainian borrowers,” said Alexander Gordin, Managing Director, Broad Street Capital Group, www.BroadStreetCap.com, a long-time member of USUBC. “The reopening  of EXIM’s programs in Ukraine, after more than five years, sends a terrific signal to U.S. companies seeking to supply the Ukrainian market with U.S. goods and services. It also sends an encouraging message to investors on the improving economic condition in Ukraine,” according to Gordin. “The U.S.-Ukraine Business Council (USUBC) will be working the Broad Street Capital Group and the law firm of Brown Rudnick (www.BrownRudnick.com), both members of USUBC, to organize and conduct a series of workshops titled “Fluent In EXIM” in the near future in the USA and Ukraine,” said USUBC President Williams. “These workshops will feature experts from the public and private sector who will present the most effective strategies for structuring export transactions, submitting applications for export credit insurance and financing, as well as passing due diligence and compliance procedures,” Williams announced. 

ABOUT: EXPORT-IMPORT BANK OF THE UNITED STATES (EXIM) —– The Export-Import Bank of the United States (EXIM), www.EXIM.gov, is the official export credit agency of the United States. EXIM is an independent Executive Branch agency with a mission of supporting American jobs by facilitating the export of U.S. goods and services.
When private sector lenders are unable or unwilling to provide financing, EXIM fills in the gap for American businesses by equipping them with the financing tools necessary to compete for global sales. In doing so, the Bank levels the playing field for U.S. goods and services going up against foreign competition in overseas markets, so that American companies can create more good-paying American jobs.

Because it is backed by the full faith and credit of the United States, EXIM assumes credit and country risks that the private sector is unable or unwilling to accept. The Bank’s charter requires that all transactions it authorizes demonstrate a reasonable assurance of repayment; the Bank consistently maintains a low default rate, and closely monitors credit and other risks in its portfolio.==========================================================
NEWS: For the latest news about Ukraine go to the KYIV POST website: www.KyivPost.com.The Kyiv Post is a member of the U.S.-Ukraine Business Council (USUBC). 
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U.S.-Ukraine Business Council (USUBC) 
1030 15th Street, N.W., Suite 555 W, Washington, D.C.  
Morgan Williams, mwilliams@usubc.orgwww.USUBC.org
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Power Corrupts..Absolute Power Corrupts Absolutely

Grey2White Initiative – the journey continues (parts I and II)

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(Part I of the article reprinted from the June 2017 issue)

Hypothesis:

Given Ukraine’s current economic and geopolitical situation, one of the most beneficial  steps the US government, business and NGO community can take, is to encourage significant external and internal direct investment into the country’s economy.

Although the US Government has had some success in attracting and supporting American direct investment into Ukraine, those investment amounts are far from sufficient. US investors new to the Ukrainian market are wary of the country’s reputation for corruption, difficulty in doing business, threats from Russia and lack of financing options.

A second and much more viable economic development option, would be to support and enable direct investment by the successful Ukrainian business people who have amassed sufficient capital and are much more comfortable and adept in investing in their home market.

One problem with pursuing that option are high Western standards, which often preclude US government development agencies and public US investors from working with this potential class of investors.  This is due to the fact that for the last twenty-five years, practically all business people in Ukraine had to operate under a certain set of conditions widely considered “grey” and in many cases “black” in the West.

Some of these “grey” conditions are lack of financial transparency, inadequate corporate governance, use of yellow press, use of cash, as well as offshore accounts to conduct operations, bribery and use of adverse political influence.

In their attempts to succeed, some folks in Ukraine went beyond previously acceptable business norms and crossed the proverbial line even further by engaging in criminal “black” behavior – graft, extortion, corruption, tender rigging and illicit drug trade.

To date, these grey conditions have presented significant challenges for the IFIs, development agencies and regulated financial US investors. Yet, it is vital to recognize the necessity to find an acceptable solution that allows Ukraine’s economy to reap significant benefits from the anticipated increase in direct investment and low-cost, long-term financing.

It is also very important to understand that the proposed Grey2White (G2W)™ initiative aims to broaden and scale up very important development and capacity building work already undertaken over the last quarter century by IFIs, such as IFC and EBRD, USAID; development agencies such as OPIC and USTDA and financial investment communities. Those initial efforts, although quite effective, focused on a relatively small sample of Ukrainian companies and were undertaken during a different stage of the country’s development.

Initiative

The G2W™ initiative will only work with those companies and individuals, who will be able to create meaningful economic impact in Ukraine, after undergoing the conversion process.  G2W™ will not in any way target those convicted of the “black” behavior, as their reputation gap is un-bridgeable within the scope of the project.

Thus the question becomes, is it possible for US stakeholders to create an environment and a broad platform from which so-called “grey” Ukrainian businessmen seeking to utilize US financing, equipment, services and franchises, as part of their major investment programs, become “bankable” under Western standards? If the answer is “Yes.”This type of conversion will provide hundreds of millions, if not billions of dollars in direct economic benefit and enhanced geopolitical security to Ukraine and to the US.

If the answer is “No,” these businessmen will either be forced to forgo the planned capital investments, or seek alliances with other grey, or black global actors in countries like Russia, China, Brazil, Iran, etc.

It is the fundamental belief by the creators of the proposed initiative that given a concerted effort by the US and Ukrainian stakeholders to develop and implement realistic procedures to increase corporate transparency, introduce financial standards, address any existing reputation issues head-on and provide reputable outside management and board oversight, it is possible within short to medium time-frames to bring these so called “grey” businessmen and their respective projects up to elevated western standards, mitigate investment and reputation risks and affect substantial economic growth in Ukraine.

Thus we hereby propose the following:

Select three-four financially viable projects sponsored  the “grey” Ukrainian actors and use them as a pilot to develop, refine and implement an effective conversion strategy to bring that project up to acceptable Western standards.

From the government side, we propose to involve the US Commercial Service, USTR, US Embassy, Ukrainian Embassy, Cabinet of Ministers of UA, members of the US Congress focused on UA issues, OPIC, regional Governors and local administrations in Ukraine, IFC, USTDA and the US EXIM Bank (when that Agency resumes its activities in Ukraine).

Among the NGO stakeholders we would like to see US-Ukraine Business Council (USBC), AMCHAM, Transparency International, Freedom House, Atlantic Council and US Ukraine Foundation. Additionally, reputable international law firms, audit firms, press, appropriate private individuals, corporate off-takers, financial market regulators, as well as relevant providers of US goods and services should be involved.

The framework of the proposed initiative shall be as follows:

  • Initial Sponsor/Project assessment and preliminary due diligence
  • Project selection and stakeholder awareness and involvement
  • Project G2W™ Team building (attys., directors, advisers, auditors, suppliers, investors etc.)
  • Full due diligence and implementation plan for the Western financial, FCPA and governance standards
  • Investor cultivation and underwriting of the financing package
  • Project development and implementation
  • Monitoring and compliance

To kick off the proposed initiative, we propose an intensive education and awareness-building campaign designed to simultaneously involve all the stakeholders.

After the initial buy-in into the initiative is secured, work will begin on developing the pilot projects.

During the pilot project phase, the G2W pilot project team will be seeking to achieve specific and tangible goals:

  • Fully assess the existing reputation risks, possible political influence issues, suitability for OPIC/IFC financing and Political Risk Insurance for the US project participants
  • Prepare a legal due diligence report by a world-class law firm
  • Recruit highly reputable and competent outside board members to the Project’s Board
  • Design a comprehensive PR/IR strategy to inform stakeholders of the project and its ongoing developments
  • Design and implement transparent financial audit, reporting and management accountability standards
  • Develop ways to tangibly measure economic effect of the pilot project
  • Continue to promote the initiative and seek to move it from the pilot project phase to full-blown implementation.

(to be continued)

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Part II  (April 2, 2018)

In the nine months since the above article was first published, a number of events took place, which not only validated the concept behind the Grey2White™ initiation, but also expanded its scope and attracted top notch global professionals to the program.

Although initial premise of the program to convert grey actors in Ukraine to white bankable actors, whose economic contribution will greatly outweigh any possible transgressions they may have committed up to this point remains intact, the program has been expanded to include other emerging market countries of Eastern Europe and Central Asia. The program also grew to allow so-called grey companies to unlock their value through financial and legal transformation in order and become more bankable in the Western capital and financial markets. Part of this transformation involves tools, which on one hand provide increased political protection to the current management and to foreign investors, and on the other hand allow western companies to lock up predictable valuations and to observe the transformation process first hand.

A first rate international “scrub team” has been assembled as a multidisciplinary team consisting of former US Government prosecutors, forensic accountants, legal and financial experts and last but not least, former high-level grey operator with deep expertise in shadowy government and business dealings in Ukraine and several other  post-Soviet countries.

A pilot company and its owner have been selected, as the first of four pilots companies to undergo Grey2White™ transformation in order to make them bankable by US Development Agencies for a $150 million project slated to create over 200 new jobs and to generate significant economic impact in Southern Ukraine.

In the next 60 days. key members of the G2W™ Team are expected to travel to Latvia, Kazakhstan, Azerbaijan, Uzbekistan and Ukraine to conduct additional screening and selection of the pilot companies and individuals.

In the subsequent parts of this article, we will examine the different case studies and watch the pilot candidates undergo the first steps of the Grey2White™ transformation.

(to be continued…)

 

Nuclear waste with an OPIC wrap

  TXF PREMIUM

An Opic-wrapped Energoatom nuclear waste storage facility project bond is nearing launch. The enhanced bond will be structured around Ukrainian risk, nuclear risk, and the vagaries of the arbitration process.

A $250 million enhanced bond financing for Ukrainian nuclear operator Energoatom is likely to come to market in November this year. The bonds, for which Bank of America is placement agent, would carry breach of contract insurance from the United States’ Overseas Private Investment Corporation (Opic), and fund construction of the Energoatom Central Spent Nuclear Fuel Storage Facility near Chernobyl.

Opic is wrapping the debt in large part because a US manufacturer, Holtec International, is supplying the facility with 94 double-walled stainless steel casks and related equipment. Broad Street Capital, a New York-based advisory firm, is financial adviser and what it describes as “financial developer” for the project.

READ MORE

 

ExportBOOST Helps US Companies Double Their Exports

By: Alexander Gordin

Fi3E BadgeInternational trade is thought to have its routes in 19th century BC with Assyrian merchants. Over centuries the business of exports changed dramatically with evolution in transport modes, advent of Incoterms, standardized shipping containers and computerized customs clearance.

Yet for all the progress and record $2.3 trillion amount, exports in the US still remain a complex and not terribly efficient process. Multiple players involved in exports are still largely silo(ed). Even at large companies export related functions like international sales, legal, shipping, banking, financing and insurance often have difficulty communicating with one another. Concepts such as international payment protection mechanisms, US content policy, or US flag shipping requirements are often misunderstood. Generally business approach to managing export transactions is reactive, rather than proactive. Situation is even more difficult in small and mid-size businesses where resources are significantly more scant. A relatively small percentage of businesses export. Of those that do, a large portion exports to only one country. Expanded exports of goods and services represent amazing possibilities not only to help companies grow their profits and shareholder returns, but also to benefit our nation’s economy by creating new jobs and generating additional tax revenues. President Obama’s National Export Initiative has served as a catalyst to spur job growth and along with general economic recovery led to a resurgence of manufacturing activity. More needs to be done, and companies should focus on exports as a fundamental part of their business activities, rather than an afterthought.

The entire export ecosystem is ripe for disruption and entry into the technological age. I can envision a day in the very near future when shipping containers of foodstuffs, plane loads of licensed computer equipment, dozens of Ro Ro tractors, or construction cranes will be as simple as buying individual items on eBay or Amazon. Of course handling export transactions is infinitely more complex and requires signed multilingual contracts, letters of credit, export credit and freight insurance, licensing, quality inspections and complex shipping arrangements. Thus the disruption process that is being put in place needs to account for the nuanced complexity that characterizes exports. Step one of the transformation is already on the way.

ExportBoost™ – a  curated service guaranteed to help small and mid-size companies to at least double their present exports in 18 months – was recently unveiled

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by the Broad Street Capital Group (“BSCG”) . Specifically developed for US manufacturers and distributors with revenues of between $5 and $750 million and for providers of professional services , ExportBoost™ uses proprietary export building met

hodology and tools such as: Fi3E™ Export Indices, XPORTINSURE™, FinanceABLE™ and EZShip™ to greatly simplify export operations and mitigate international business risks.

ExportBoost™ was designed to help small and medium companies who are either experienced exporters, or just looking to start their international expansion to significantly grow their exports. ExportBoost™ service has two tiers – one where the exporter is guided by the Broad Street Capital’s professionals and implements the program internally and the second where Broad Street Capital Group implements ExportBoost™ on its client’s behalf. In either case, the clients will be offered a unique guarantee, should they follow the program and their exports do not at least double in 18 months, Broad Street Capital Group will refund all the fees paid by the clients for the ExportBoost™ service.

ExportBoost™ is part of the product portfolio being developed by the Broad Street Capital Group, and its partners. to greatly streamline and finance international trading operations. The project code named “Barbell” is scheduled to be unveiled at the Broad Street’s annual conference later this year.

Should Corruption in Ukraine be Legalized?

Corruption

Should corruption in Ukraine be legalized? As I ask this question, I can almost see many people who follow Ukrainian politics raise their eyebrows. I can also see many, especially members of the outspoken Ukrainian Diaspora, beginning to seethe. Yet, after two and a half decades of watching Ukraine fight, and mostly lose, battles against epidemic corruption, and realistically not seeing no other credible options to turn the tide, I turn to the only principal, which works well when trying to combat a very strong and seemingly unbeatable opponent. It is a millennium-old Judo principle, which states “use your opponent’s strength to your advantage”, or as I like to say, “when pushed, instead of pushing back, pull.”  In this case, corruption is the proverbial opponent we are looking to defeat.

Government corruption in Ukraine is deep, well entrenched and akin to a massive granite mountain. Not to be too simplistic, but it can generally be divided into two basic categories. The first is corruption perpetrated by the influence of the powerful interests who direct budget flows, or rig supply and privatization tenders. The second type is corruption perpetrated by the underpaid bureaucrats (ministry clerks, prosecutors, and customs and tax agents). They extort money from businesspeople and from the public by either helping them expedite, or by running interference, as these folks try to navigate through the arcane systems of byzantine rules and regulations, which permeate Ukrainian life.

Although corruption in Ukraine has always been an issue, recently, certain young reform factions, with support from Western (primarily US) donors, have attempted to combat government corruption head on. Attempts to install Western and progressive Ukrainian Ministers to head the corrupt Ministries have failed. Not a single one of those ministers remains in power after one year.  Unfortunately, but predictably, they were all consumed and spat out by the system they tried to reform. These people were set up to fail, as it is impossible for a handful of even the brightest people to defeat a monolith without having a strong backing of the population, support of organized political parties, sufficient finances and true support from the country’s business and political elites. As the saying goes, “we can only help those who want to help themselves.” It seems Ukrainian bureaucracy is not yet ready to help itself. The general population is also not at the level where it keeps up constant pressure for change. The people of Ukraine have bravely risen up during Maidan revolutions, but the after effects of their protests did not produce desired meaningful changes (e.g. post Orange Revolution government rift, Yanukovich presidency).

The idealistic thinking and mentality of some Western ministers who thought they could and singlehandedly tried to alleviate corruption and change the Ukrainian bureaucracy, is nothing but naive. I was privileged to know some of these intrepid warriors and their advisory teams. They certainly possessed the skills and the desire to change the system. Yet, they were very ill-equipped and did not have a realistic grasp on how badly the corruption cancer metastasized.  In some cases, the reformers’ desires to radically break the system led to opposite effects. I have seen Ministers require tenders, where none were needed (or legally required) just to display a corruption fighting banner. The irony of the whole thing was that Ukrainians have learned to rig and beat many “fair and open” tenders, so these Ministers’ misconstrued demands were a double whammy.  I have also seen a large state company paralyzed with fear of action on a terrific project, because the management was afraid that a minister would interpret a legal sole-source procurement, as corrupt.

These ministers, advisors, governors, investigative journalists and many other extremely well-meaning and reform minded folks also have failed, or modestly succeeded in their attempts to introduce e-government procurement, create a new police force, reform Prosecutor’s General office and the GPU and reform the Customs Service. It certainly was not for lack of trying, patriotism, or incorruptibility. All this got me thinking as to:

  • why there is such rampant corruption in Ukraine?
  • whether efforts to eradicate it are doomed?
  • if there is a better way to solve the problem?

 To answer the first question, we need to look at couple of factors, which amplify graft in Ukraine. Although corruption exists pretty much everywhere in the world, in Ukraine, a confluence of factors makes it particularly pervasive and damaging to the economy. A very low pay scale for public servants, very large gap between the salaries of civil servants and budget funds, which are expended in public procurement, external financings, aid and donor contributions. Thus people of means, seeking to corrupt the system, get greater leverage in influencing low-paid bureaucrats. These bureaucrats (especially the ones steeped by the Soviet system of graft) operate with impunity because the enforcement branches are corrupt and so on. The whole system is infested and needs complete structural overhaul.

Is Ukraine doomed? That depends on whether radical attempts of wishful thinking, unsustainable reforms, populist solutions and political farce continue. As people who have been on crash diets, tried to kick a habit cold turkey, or tried to undertake a massive change mostly with lip service PR, but without real resources and commitment know, these solutions almost never work.cropped-ukrainefi180profile_page_1.jpg

So what needs to be done? The biggest asset, which Ukraine has today, are its people born in the 80’s, or after the fall of the Soviet Union. These folks grew up in a freedom-loving Ukraine and connected to the rest of the world. They are mostly free of the Soviet corruption malaise (although strong evidence exists that current Ukrainian corruption has permeated Ukraine’s higher education system in the last twenty years and many students are very comfortable with bribing teachers for good grades). Yet, despite these obstacles, and with the understanding that human nature will never change and some corruption will always be there, we can reasonably expect corruption in Ukraine to subside with every subsequent generation.

Meanwhile, in the medium term, it is reasonable to start chipping away at the corruption from many sides. Gradually introduce reforms, decrease rules and regulations, reform the tax code and completely overhaul Ukraine’s prosecutorial branch GPU, substantially increase public service salaries, and introduce international audits of select tenders. Eliminate tariffs and, most importantly, continue to raise the stakes for the powerful business and political elites by expanding their access to western markets and financial systems, thus raising the stakes for them in terms of reputational and real risks in case they are implicated in corruption.

In the short-term, it is worth looking at the lobbying and advisory/support institutions of the US as an example. Their structure should provide a very clear framework as to how our country has legalized activities normally considered corrupt. Setting up regulated lobbying firms, expediting firms, and shifting mindsets of the bureaucrats on being able to make money at such lobbying firms after leaving the public service, are just some of the tools, which may be employed to legalize corruption. This is the carrot. 

The stick should be greatly increased punishment for those who break the rules, with prosecution being handled by outside independent arbitrators, the accused having the burden of proof and expense of their own legal defense in an international neutral venue. 

Many countries and states have legalized vice and illegal activities in order manage them. Holland and Australia legalized prostitution, the state of Colorado marijuana, Nevada gambling. All such efforts have been largely successful, generated billions in taxes and dealt with massive public problems according the judo principle mentioned above.

So if the future powers to be in Ukraine and in the West start looking at the eradication of the corruption problem through a 30-50 year prism and start managing the transition gradually while legalizing some of the corruption, Ukraine stands a chance to finally realize its true potential.

 

 

 

 

 

My Dad, JFK, Was for Free Trade. Democrats Today Should Be Too.

(From the Publisher. When it comes to foreign and domestic policies, there are very few things I agree on with the Democrats and especially with our President.  Yet, sometimes (3 times total:) Mr. Obama and some key party members get something right. This is one of those times. Below, is an excellent summary by Caroline Kennedy, US Ambassador to Japan)
            Lead image by AP Photo.

Serving as the U.S. ambassador to Japan has given me a chance to experience first-hand how our country is perceived in Asia. It has been a deeply moving experience to see how much the American dream still matters from 7,000 miles away.

The people of this region are eager for American involvement of all kinds—they cherish the free expression that we sometimes take for granted, their workers are seeking the kinds of hard-won protections the U.S. labor movement has gained, entrepreneurs are eager to innovate and young people are desperate to connect with us on a free and open internet that protects intellectual property and cybersecurity.

With assistance from the United States, Japan and other nations, developing countries throughout Asia are working to educate girls and young women and to protect their environments so future generations can reduce the risk of natural disasters and live sustainably.

This is a dynamic region that, right now, is at peace. It is also growing, presenting enormous economic opportunities for Americans. With a continued focus on President Barack Obama’s “rebalance to Asia,” we can keep it that way for generations to come.

A vitally important part of that strategy is the Trans Pacific Partnership. This ambitious, 12-nation trade agreement, now in the final stages of negotiation, has the potential to knit the United States and our allies into the world’s strongest, most prosperous partnership.

Yet, there are some who are reluctant to change the status quo and embrace the future. This is nothing new. But there is a proud Democratic free-trade tradition that we should not forget. For my father, President John F. Kennedy, expanding trade was integral to America’s prosperity and security. As he told Congress on January 11, 1962, when asking for a precursor to the same authority President Obama is requesting today, “Our decision could well affect the unity of the West, the course of the Cold War, and the economic growth of our Nation for a generation to come.”

The debate raged again when NAFTA was brought forward 20 years ago. Critics argued that it would kill jobs, lower wages, and erode the middle class. In fact, NAFTA has helped create jobs—and higher-paying export-related jobs—but it has also added to pressures for change in the U.S. economy, according to the Council on Foreign Relations. The trade agreements the United States is negotiating today give us the opportunity to shape how globalization affects our economy and its impact on our trading partners.

Throughout more than 45 years in the U.S. Senate, there was no greater champion of American workers than my uncle, Senator Edward Kennedy. He shared the concern of those fearing the effects of globalization, and fought hard to mitigate them. Yet like my father, Uncle Teddy always looked to the future. After an impassioned speech on the Senate floor outlining his concerns about NAFTA, he supported his President and voted for the agreement.

That is precisely what President Obama has committed to do through TPP. Simply put, it is the most progressive trade deal in history. It will require high standards in digital trade, environmental protections, worker’s rights and other critical areas. It will lower barriers to U.S. goods and services in the world’s fastest growing markets, providing new access to long-protected agricultural markets, such as Japan, for American farmers and ranchers.

TPP will also level the playing field for American firms and workers. It will give businesses competing with state-owned enterprises a fair shot and protect the 40 million Americans whose jobs are dependent on innovation. By increasing our exports, TPP will support more jobs that pay higher wages here at home.

In addition to the limitless economic possibilities, TPP also carries significant strategic benefits. Countries in the region are looking to the U.S. to help maintain the freedom of navigation, commerce and trade that have made the Asian miracle possible. They are eager to expand our alliances and strengthen our security partnerships. Young generations are looking to the United States for stability, opportunity and hope.

To realize the economic and strategic benefits of TPP, Congress needs to pass Trade Promotion Authority. That’s how Congress has worked with American presidents of both parties for decades.

American leadership is essential. With TPP, we can ensure that global trade is fair to American workers and based on the values of individual freedom and opportunity that still inspire the world. As my uncle, Senator Kennedy, said two decades ago, “We cannot turn our backs on progress or cast our votes against the future.”

Caroline Kennedy is the U.S. ambassador to Japan.

Read more: http://www.politico.com/magazine/story/2015/06/dad-jfk-free-trade-democrats-today-should-be-too-tpp-kennedy-118888.html#ixzz3cweU1G00

Export-Import Bank Near Showdown in Congress

Senator Maria Cantwell, Democrat of Washington, tied a vote on trade to a vote on extending  the Export-Import Bank.CreditAndrew Harnik/Associated Press

WASHINGTON — In 2013, the impoverished African nation Cameroon teamed with General Electric and the Environmental Chemical Corporation, which is based in Burlingame, Calif., to begin work on a $668 million drinking water project for its thirsty capital, financed with loan guarantees from the Export-Import Bank of the United States.

But as the project moves toward its larger second phase, the threatened demise of the Export-Import Bank, a 70-year-old federal export credit agency, is rippling across Cameroon. The water project is a potential victim of an effort by conservative Republicans to kill the bank.

The Ex-Im Bank reaches a critical moment on Friday: Congress must be notified 35 days in advance of all projects of more than $100 million, and with powerful Republicans bent on letting the bank die when its authorization expires on June 30, all the projects frozen over that review period would die with the bank.

While the bulk of the Ex-Im Bank’s financing is used to support the sale of things like Boeing jetliners to companies abroad, projects like Cameroon’s are also animating a dispute in Congress that is reaching a critical juncture this week.

Senators Maria Cantwell, Democrat of Washington; Heidi Heitkamp, Democrat of North Dakota; and Lindsey Graham, Republican of South Carolina, halted Senate consideration of a major trade bill Wednesday, saying they would try to block a final vote on granting President Obama expanded trade negotiation power until they secured a vote on extending authorization for the Ex-Im Bank beyond June.

Their stand threatens the trade bill. Ms. Cantwell and Ms. Heitkamp are among fewer than a dozen Democrats supporting trade promotion authority. Mr. Obama needs their votes to break a filibuster supported by most Senate Democrats.

Ms. Cantwell and the other senators in her group accuse conservatives of sacrificing American jobs on the altar of what they portray as an ideological crusade.

“I don’t plan to start moving ahead until we stop catering to this minority group that doesn’t support the basic tools that the American people want,” Ms. Cantwell pledged.

She faces an uphill fight. Senator Mitch McConnell, Republican of Kentucky and the majority leader, said he personally opposed Ex-Im’s reauthorization, but he has promised a vote on the matter, which  would pass if it comes to a vote in the Senate.

In the House, though, conservatives say a majority of Republicans now oppose reauthorizing the bank. On Thursday, the 170-member Republican Study Committee — a conservative House group — will come out formally in favor of its extinction.

“All we have to do is nothing,” said Representative Raúl Labrador, Republican of Idaho. “I feel pretty good about our prospects.”

Virtually every Republican presidential candidate has been pulled into the campaign to kill the bank.

Representative Justin Amash, Republican of Michigan, said House Speaker John A. Boehner of Ohio could join Democrats to save the bank, but, Mr. Amash warned, “he does so at his own peril.”

Supporters of the Ex-Im Bank say the toll of that campaign is beginning to come into focus. G.E. said this week that a $350 million deal to build locomotives for Angola in Erie, Pa., is about to be lost, with 1,800 jobs.

Boeing says that it will be forced to cede deals in Asia to its only competitor in the wide-body passenger jet business, Airbus, which is based in France.

The looming cutoff of money could compel Cameroon to turn to China, which has already made a competing $850 million bid complete with financing from Beijing’s export credit agency. Executives at G.E. are scrambling for a Plan B, moving the work from its water technology facility in Minnesota to Canada or Hungary, where the company has other plants supported by those countries’ credit agencies.

“You’re talking about a country in sub-Saharan Africa,” said Heiner Markhoff, president and chief executive of G.E.’s water and process technology unit. Commercial banks “aren’t willing to take the risk without an export credit agency. It’s almost contingent on getting to the table.”

The Cameroon project shows the complexity of the issue. Ex-Im opponents say companies as large and powerful as G.E. and Boeing do not need a federal backstop to persuade private banks to finance export projects.

Mr. Markhoff said to some degree that was true — but that conservatives were missing the consequences for American companies that lack G.E.’s deep pockets and connections around the world.

The Environmental Chemical Corporation, with G.E.’s help and Ex-Im loan guarantees, struck the $668 million, three-phase deal with Cameroon’s government, which wanted an American government entity involved as well in what is a public water project.

The first phase — 10 mobile water treatment plants installed in Yaoundé, the capital, as an emergency measure — is done.

Phase 2 — a $532 million effort to move the mobile facilities to where they are needed in southwestern Cameroon while building permanent water plants in the capital — was scheduled to begin soon.

The competing Chinese proposal is part of an effort by Beijing to gain strategic influence in Africa. Its $850 million bid was substantially higher than the cost of the American project, but its financing is not in doubt.

Cameroon’s prime minister, Philémon Yang, has asked the Chinese and American teams to present side-by-side studies of the remaining work, Mr. Eber said. Environmental Chemical Corporation officials have tried to play down the Ex-Im developments in Washington, but he noted that the American study was now delayed pending the showdown.

G.E. officials said that without the support of the Ex-Im Bank, the company could still leverage its global operations to attract government financial backing elsewhere, probably in Hungary or Canada. But that would lead to moving work to the countries where that financing is available.

That could mean leaving a midsize company like the Environmental Chemical Corporation and much smaller suppliers behind. “We have 43 different suppliers in different states for this project,” Mr. Markhoff of G.E. said. “This is not about ‘big corporate welfare.’ ”

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