Ukraine Corruption Scandal Stokes Longstanding Aid Concerns in U.S.

WASHINGTON — Since the start of the war in Ukraine, U.S. officials have watched with some anxiety as billions of American dollars flowed into the country, well aware of Kyiv’s history of political corruption and fearing that aid might be siphoned off for personal gain.

The ouster of several top officials from Ukraine’s government on Tuesday following accusations of government corruption has lent those concerns a fresh urgency. Although U.S. and European officials say there is no evidence that aid to Ukraine was stolen, even the perception of fraud would threaten political support for continued wartime assistance and for the postwar reconstruction effort that Western officials envision.

The allegations included reports that Ukraine’s military had agreed to pay inflated prices for food meant for its troops. A deputy prosecutor general was fired for reportedly borrowing an oligarch’s Mercedes to drive to Spain for a vacation, and a presidential aide accused of commandeering a Chevrolet Tahoe donated to help with evacuations was forced out.

Rather than betray alarm, however, U.S. officials insist the drama shows that President Volodymyr Zelensky is committed to fighting corruption.

The shake-up in Kyiv “sends a very strong signal to others who would try to rip off this war effort and is important for the future of Ukraine,” Victoria Nuland, the under secretary of state for political affairs, testified on Thursday during a Senate Foreign Relations Committee hearing on Ukraine.

“We have been very clear that we need to see, as they prosecute this war, the anti-corruption steps, including good corporate governance and judicial measures, move forward,” she added.

Ms. Nuland was responding to a question from Senator Jeff Merkley, Democrat of Oregon, who said he was worried that corruption in Ukraine’s government could be “a kind of cancer eating away at support that they need from everyone in the world.”

In an episode whose details remain murky, Mr. Zelensky in July fired his top prosecutor, intelligence chief and other senior officials for reasons he said were related to treasonous ties with Russia. But to the relief of Western and Ukrainian leaders, corruption has otherwise not been a significant factor in the war.

Mr. Zelensky is a former comedian who campaigned as a political outsider capable of stamping out the culture of corruption that has gripped his country since its independence from the Soviet Union. In his inaugural address in May 2019, he said that Ukrainian politicians had created “a country of opportunities — the opportunities to bribe, steal and pluck the resources.”

A 2021 “Corruption Perception Index” by the watchdog group Transparency International that ranked 180 countries for their perceived level of public-sector corruption, with No. 1 being the least apparently corrupt, put Ukraine at No. 122. Concern about corruption was second only to the Russian threat in the Biden administration’s prewar policy toward Kyiv. In 2015, when he was vice president, Mr. Biden pleaded with Ukraine’s parliament to stamp out “the pervasive poison of cronyism, corruption, and kleptocracy.”

While attention has focused on the possible theft or diversion of American weapons, U.S. officials take comfort in the fact that Ukraine has an urgent incentive to throw every available armament against the invading Russians.

In addition, the United States requires Ukrainian officials to log all military equipment they receive, track its progress to the front lines, and report ammunition expenditure and any damage or destruction of weapons, a senior defense official said last fall. Defense Department officials have trained Ukrainian troops in methods to help keep track of American arms, and U.S. personnel conduct inspections inside the country where security conditions allow.

Celeste Wallander, the assistant secretary of defense for international security affairs, said at Thursday’s hearing that the administration “has not seen credible evidence of any diversion of U.S.-provided weapons outside of Ukraine.” She added that the Pentagon was using oversight “mechanisms that go above and beyond our standard practices.”

But U.S. officials fear that humanitarian aid, and especially direct financial aid, is more at risk of embezzlement or theft.

The largest type of cash infusion into Ukraine’s government from the United States — $13 billion of it so far — is called direct budgetary support. It is approved by Congress, administered by the United States Agency for International Development, and distributed by the World Bank. Ukrainian officials ultimately decide how to allocate the money.

The U.S. agency says the budgetary aid funds basic government services like hospitals and schools, along with emergency responders and firefighters, and supports programs for needy, disabled and internally displaced people. It also helps provide housing and subsidies for utilities as Russia assaults the country’s infrastructure and energy grid.

Erin McKee, an assistant USAID administrator, told the Senate panel that the agency used “extraordinary measures” to track that funding.

The agency has a contract with the accounting firm Deloitte to have a team work in Kyiv with the Ukrainian government to monitor and audit the aid money. Ms. McKee said the team was in Ukraine this week.

Last fall, Deloitte completed an audit of money flows from the World Bank to the state treasury account for the Ukrainian government budget and found no “significant areas of concern,” USAID said. Deloitte has since begun an audit of money flows from the treasury account to recipients, the agency said.

The agency also said it has continued to give aid to anti-corruption and rule-of-law programs in Ukraine during the war, as it has done for years. That includes support for independent media organizations and civil society groups.

Ukrainian officials have said they are aware of the need for transparency on expenditures, declarations that American lawmakers say appear to be sincere.

For now, the Ukrainian leader appears to enjoy the confidence of key U.S. officials and lawmakers from both parties. On Thursday, the Senate committee’s Democratic chairman, Bob Menendez, commended Mr. Zelensky and his cabinet “for their serious oversight plans for U.S. and international assistance,” and said that anti-corruption measures implemented before Russia’s invasion last February had been effective.

“It demonstrates what President Zelensky has told us: that there will be zero tolerance for fraud or waste,” Senator Richard Blumenthal, Democrat of Connecticut, said at a news conference in Washington on Tuesday, shortly after returning from a visit to Kyiv.

“All of the scrutiny and oversight so far has disclosed no fraud or waste, no misappropriation of any of the military or humanitarian assistance that have been provided so far,” Mr. Blumenthal added.

Even before this week’s dismissals from Ukraine’s government, however, some prominent Republicans had expressed concern about the possible misuse of U.S. aid.

America must ensure that resources “don’t go to underwrite a corrupt Ukrainian government,” former Secretary of State Mike Pompeo said in a November appearance on Fox News. However, he has also said the United States should give Ukraine the weapons it needs to end the war.

With other Republicans growing skeptical of Ukraine aid, their congressional leaders say they will place even more emphasis on oversight and accountability.

Some congressional Republicans pushed unsuccessfully last year for the creation of a special inspector general modeled on the one whose office issued scathing indictments of wasted U.S. reconstruction aid in Afghanistan. Currently, inspectors general at the State Department, Department of Defense, and USAID are jointly conducting oversight as part of an informal working group.

Sarah Chayes, a corruption expert who has studied the embezzlement of wartime aid, said it was important that aid packages budget money for evaluation and monitoring. She also recommended having intelligence agencies compile information on the personal networks of Ukrainian officials.

And the United States should work with civil society groups experienced in anti-corruption efforts, to bolster the role of “citizen watchdogs.”

“It’s somewhat risky to rely on a government exclusively to police its own corruption,” she said.

William Taylor, a former U.S. ambassador to Kyiv, said that policing corruption during a war is very difficult. But he credited Mr. Zelensky for promoting effective reforms before the Russian invasion.

Mr. Taylor said that Mr. Zelensky had strong incentives to keep corruption in check. At stake are not only his own public standing in Ukraine and Western aid to fight Russia, but also Ukraine’s hopes of joining the European Union. E.U. membership, which is a high priority for Mr. Zelensky’s government, will require the country to meet the union’s high anti-corruption standards.

And even after the war ends one day, Ukraine will remain desperate for money to rebuild its shattered country. Group of 7 officials have begun to sketch the outlines of a postwar reconstruction effort that might cost hundreds of billions of dollars.

Some Western officials say they worry most about the potential for misuse of such enormous sums, particularly if the immediate Russian threat has abated.

“Anti-corruption is going to be a condition for successful reconstruction,” Mr. Taylor said.

Mr. Taylor was optimistic, saying the latest scandal showed that Ukraine is more capable than ever of policing itself. He noted that some of the accusations of misconduct came from journalists, in an example of press freedom, and from special oversight bodies that had been created by Mr. Zelensky’s predecessor and that the Ukrainian leader had empowered.

“The institutions worked,” Mr. Taylor said.