How to Curb Corruption in Ukraine’s Postwar Reconstruction

Though it may seem premature to discuss Ukraine’s postwar reconstruction, with a Ukrainian counteroffensive launched two weeks ago making some small gains in the south of the country, in fact, the moment to do so is now. At the latest G-7 meeting in Japan, leaders reaffirmed their commitment to ensuring that Ukraine has the economic support it needs for recovery and reconstruction, a project that Ukrainian President Volodymyr Zelensky has called “not a project of one nation, but a joint task of the entire democratic world.” And the U.S. Congress is currently structuring its fifth supplemental appropriations bill for Ukraine.

Central to a successful reconstruction effort will be curbing corruption. No nation is immune from corruption, and Ukraine is no exception. Special attention must be paid to curbing the foreseeable corruption by the country’s oligarchs and properly managing the involvement of 3,300 state-owned enterprises in Ukraine’s anticipated fast-paced recovery. Clearly, Ukraine has a major role to play in curbing corruption. By reining in the oligarchs and state-owned enterprises, Ukraine’s own efforts comprise the first tier of corruption control.

An equally important second tier is creating an international, multilateral coordination and oversight framework that would manage and reduce the anticipated corruption that large sums of funding, from multiple sources, engender. Several layers of aid inspection are already in place in the United States, comprising the third tier of oversight. These include inspectors general, for existing funding of military operations and humanitarian assistance, as well as by multilateral donor agencies and EU agencies. This represents the top-down level of programmatic oversight: scrutinizing the allocation and disbursement of institutional funds, developing policies, and managing programs.

What is missing from the discussions is an essential fourth tier for managing corruption during the recovery and reconstruction phases. This is “bottom-up” corruption, which involves humanitarian aid and construction-related fraud, waste, and abuse. It is the bottom-up operational level of management and oversight that interacts in-country and on-site with regional and local officials and private sector contractors to provide hands-on technical advice, administration, supervision, and quality control for thousands of construction projects. In order to manage corruption in this fourth tier, and as part of its newest appropriations bill, the U.S. Congress must legislatively set up, as part of the currently debated bill, an independently integrated management office for administering the reconstruction effort to be housed within the State Department. Valuable lessons on execution can be drawn from U.S. involvement in Afghanistan’s and Iraq’s postwar reconstruction. These lessons are readily transferrable to Ukraine.

SIGIR offered three major recommendations that would strengthen oversight in Ukraine: establish an independent agency that would organize and monitor contingency operations; streamline and unify contracting procedures of agencies involved in reconstruction; and establish provincial reconstruction teams for effective and timely delivery of services.

Foremost among SIGIR’s recommendations was an independent stabilization and reconstruction operations office. The report even provided draft legislation that defined the authorities, budget, and functions of such an office, hypothetically named the U.S. Office of Contingency Operations (USOCO). This office would be housed within the State Department. It  would handle all types of foreign recovery efforts, such as the recent earthquake in Turkey, droughts in the Sahel, tsunami aid in Indonesia, evacuation of U.S. citizens from Sudan, and recovery operations in Ukraine.

Audits of such recovery efforts would still be part of the overall multitiered oversight process, but the operational coordination of assistance would be handled by skilled emergency management professionals at USOCO. This would curb some corruption attributable to the fragmentation of government efforts while minimizing chaos at the receiving end of U.S. aid.

The existence of USOCO, alone, is insufficient to ensure that programs and projects are implemented on time and under budget, without corrupting influences. Reconstruction will have to contend with the reality that the host nation will have many additional layers of involvement from local and national government agencies and decision-makers.

Hence, an auxiliary, unified in-country, on-site construction management authority is needed to better manage all U.S.-funded reconstruction operations that would be largely undertaken by Ukrainian authorities and private sector contractors. A local operational entity should be formed, under the auspices of USOCO, to manage the distribution of these funds. The in-country management structure would also establish and manage provincial reconstruction teams. These teams would largely be made up of Ukrainian private contractors and local officials, overseen by U.S. engineers and auditors.

In Iraq, the SIGIR auditors worked directly with the project inspectors of the provincial reconstruction teams, focusing on project performance audits to test how well the contracts were being managed and assuring construction quality. This joint effort could be readily implemented in Ukraine. Installing provincial construction management teams in Iraq was one of the key successes and recommendations promoted by the SIGIR report. Such provincial teams for Ukraine would provide the key direct on-site administration and inspection system to effectively curb construction corruption.

Of course, there are built-in tensions between the need for speedy recovery activities and auditing at every level of the management chain. Construction requires wide-ranging equipment, a broad array of materials, and specialized technical expertise in the various sectors of civil infrastructure: water and wastewater treatment, hospitals, clinics, bridges, rail transport, communications, housing, marine terminals, etc. Moreover, “building back better” and “greener” demands innovative designs and technologies that are cost-effective.

Contracting for these services and providing engineering designs requires considerable expertise. To respond to these critical needs, procedures for planning, design, contracting, and construction must be streamlined—especially during the critical recovery phase immediately after the war is over. Basic municipal services must be restored rapidly and housing must be rebuilt as quickly as possible, as an obvious priority.

A great deal of money will be spent in Ukraine during recovery, coming from multiple sources and distributed to hundreds of different humanitarian programs and thousands of construction projects. Even as the Russia-Ukraine war intensifies this spring and summer, with no end in sight, thousands of businesses around the globe are already lining up for a piece of Ukraine’s potential reconstruction pie. At the Rebuild Ukraine 2023 Expo, held in Warsaw, Poland, in February, the Ukrainian chamber of commerce pronounced Ukraine “the world’s largest construction site!” At this scale, and with human need so acute, streamlining services, supply lines, and contracting procedures is necessary—and direct oversight at construction sites, essential.

Ukraine’s extraordinary efforts in keeping power and heat on during the winter months of 2022-23, under intense Russian bombardment, are a very good indicator of its superb engineering capabilities and construction competence.

Damage estimates are constantly changing and escalating as the war progresses and intensifies. The World Bank’s second rapid damage assessment, conducted for the first full year of the war, from Feb. 24, 2022, to Feb. 24, 2023, estimated direct physical damages of $135 billion. They cover housing (38 percent of total damages), transport (26 percent), energy (8 percent), commerce and industry (8 percent), and agriculture (7 percent). It is these damages, primarily to housing and critical municipal services, that must be repaired as quickly as possible during the initial recovery phase.

Ukraine’s reconstruction would require at least $283 billion more still. This would include a significant upgrading of the energy, agriculture, and transportation sectors. These estimates do not even include the full restoration costs for environmental damage, estimated to be greater than $50 billion. The war has created hundreds of “Superfund” sites, where high concentrations of toxic and hazardous chemicals pollute the soils and groundwater of the devastated cities of Bakhmut, Bucha, Avdiivka, Kherson, and broad swaths of agricultural areas, thereby greatly increasing future risks to human health.

Aid to Ukraine is currently being managed effectively, as a great deal of oversight is provided by multiple inspectors general of each U.S. agency furnishing aid: the Defense Department, U.S. Agency for International Development, State Department,  and Treasury. Legislation has been introduced in the U.S. Congress to coordinate the work of all the agency inspectors general. Aid from the European Union is also being coordinated and tracked carefully. Both Europe and the United States have also begun planning to coordinate their respective roles in Ukraine’s recovery and reconstruction, with meetings of the Ukraine Multi-Donor Coordination Platform Steering Committee and the European Commission’s Multi-agency Donor Coordination Platform.

On corruption, too, Ukraine is on the right track. Under pressure from the EU, the Ukrainian government undertook a vigorous campaign against corruption, pursuing “deoligarchization” and anti-corruption policies while mounting an all-out defense against the Russian invasion. What helped was that the war greatly reduced the value of oligarch assets in Ukraine. In rapid succession, Ukraine’s parliament passed several laws that reformed business practices and launched legal proceedings against several oligarchs.

The Ukraine Recovery Conference is underway in London, discussing both peace proposals and funding for Ukraine’s reconstruction. What seems likely is that while the United States will continue to play a major role in providing funding for Ukraine’s recovery, the burden of that recovery will likely tilt toward Europe during the long-term reconstruction phase. EU taxpayers will likely underwrite the bulk of funding for rebuilding and Europeanizing Ukraine’s economy, primarily because of the EU’s commitment to make Ukraine a member.

Nonetheless, in order to more effectively curb the inevitable corruption that will accompany the many billions of dollars that the United States will offer for Ukraine’s recovery, swift legislative action by Congress is required to set up both an independent office, such as the USOCO, and an in-country management office for disbursing U.S. funds. These steps will promote accountability and transparency during what is sure to be a long and costly process of reconstructing a war-torn nation.

Additional analysis was provided by Carter Andress.