9 April 2021

54 billion hryvnias [1] and 47,000 servicemen in line [2] – this is one of the biggest challenges the Ministry of Defence of Ukraine faces today. This is documented in the recently published report from the IndependentDefence AntiCorruption Committee (NAKO), “Corruption in the Real Estate Sector of the Ministry of Defence: Risks and Recommendations.”

Back in 1991, Ukraine adopted the Soviet Union’s practice of providing housing for its servicemen who had 20 or more years of service.

Over the past two decades, all countries of the former Soviet Union, except Ukraine, Tajikistan, and Turkmenistan, have renounced the practice of providing military housing in an orderly fashion. The rest, including the Russian Federation, have found more effective ways to address this issue.

However, the promises that Ukraine as a state has already made must be fulfilled, in particular the promises to those who have been and still are risking their lives for the security of their own country. So why is the military housing queue in Ukraine basically “on hold” and practically not moving?

One of the key problems is the lack of transparency and accountability in the Ministry of Defence and, hence, high corruption risks.

In 2016-2017 alone, 1.2 billion UAH was allocated from the state budget to construct and purchase military housing for the Armed Forces of Ukraine. More than 600 million UAH were used inefficiently or were simply misappropriated. More than 32 million UAH were probably misappropriated. These are data provided by the Accounting Chamber [3].

Two of the 17 defence ministers who have held office since 1999 – Dmytro Salamatin and Pavlo Lebedev – have been accused of treason by serving Russian interests. Both were related to the sale of the Ministry of Defence property [4]. It has also been proven that there were corrupt activities by the then-head of Ukroboronbud Vyacheslav Melnyk, who was directly involved in land fraud that resulted in losses of more than 91 million hryvnias [5].

Other problems include the slow pace of new housing construction, inefficient use of funds, the excessive bureaucracy of processes, and the lack of a long-term strategy. Approval of the relevant construction documentation for a new site takes 8 months, on average [6]. The longest process is one year [7]. Thus, there are only a few months left before the start of the next cycle to allocate and assimilate funds, effectively organize tenders to purchase or construct specific projects and allocate resources for projects. Decisions are often made ineffectively, contracts are concluded hastily, and as a result, favorable conditions for new corruption schemes emerge.

It is a common practice for the Ministry of Defence to start new construction with the start of the new fiscal year. However, the previous year’s construction may be unfinished, postponed until “better days”, or accepted by the ministry as it is, unfinished, to then stand for years while slowly decaying, while the queue of applicants for housing grows.

A striking example is in Mykhailivka-Rubezhivka, Kyiv Oblast, where the company BUDKAPITAL LLC built 109 apartments in 2014 as part of a Ministry of Defence tender. Construction was not completed (one part of the apartments was 87% completed, the other was 99% completed), but the ministry accepted the apartments as “completed.” This subsequently led to lawsuits and financial claims from both the customer and the contractor [8].

This practice of providing allegedly “free” housing to servicemen is, in fact, ineffective, exists mostly on paper, and cannot continue as it is now. We hope that the Parliament and the Ministry of Defence, together with independent experts, will be able to design a new effective model to reform the outdated housing arrangement for servicemen.

We have several key recommendations to focus on when starting the reform.

  1. Introduce long-term planning based on real needs. This will help to avoid an inefficient annual planning system, reduce the time spent on bureaucratic procedures, and help to avoid fraudulent decisions that contribute to corruption, fraud, and misappropriation.
  2. Simplify and optimize the budget process. The budgeting mechanism provides for a minimum of 11 steps required for approval. Thus, by the time of final approval, there is little time left for the efficient allocation of funds. Therefore, optimizing the process should go hand-in-hand with improving the planning and strategic decision-making process.
  3. Improve the tendering and contracting process and make it more transparent. The current process has too many gaps, including inaccuracies in defining the criteria for approving or rejecting applications, often ignoring the conditions for amending or terminating a contract, and penalties for non-compliance. In order to ensure greater transparency and control, it is necessary to use an online trading system, such as Prozorro, with clearly defined exceptions related to national security. The tender procurement system should also require companies to disclose information that will allow officials to prevent conflicts of interests.
  4. Continue reforming the Main Housing Directorate of the Armed Forces to ensure expert knowledge is accumulated and institutional memory is consistently developed. Frequent restructuring and assignment of “acting” staff to make key decisions increase the space for fraudulent decisions that create corruption risks. According to experts, the Main Housing Directorate needs to be reformed in accordance with an analysis of Ukraine’s strategic needs in the housing and utility sector.
  5. Strengthen oversight and accountability within and out of the Ministry of Defence. In many cases, employees involved in corruption schemes were not prosecuted by internal Ministry of Defence structures, while external pressure on accountability from the courts or the Verkhovna Rada was ineffective. In order to create an accountability structure that can stop corruption, it will be necessary to involve Ministry structures that are able to investigate internal violations (e.g., the Ministry of Defence’s Main Inspection) or create new bodies. At the same time, the Ministry should respond to the Accounting Chamber’s remarks regarding gaps in the Ministry’s work.

In December last year, a number of measures were planned during a meeting of the Verkhovna Rada Committee on National Security, Defence, and Intelligence, including to improve the military living conditions. However, there is still no information in the public domain regarding progress to introduce these measures. NAKO calls on those responsible to make every effort to take real steps and practical solutions to improve the provision of housing for military personnel.

In turn, NAKO, as an independent non-governmental organization that is a strategic partner of Transparency International Defence and Security in Ukraine, is ready to support the government on the way towards these reforms.

[1] Report “Corruption in the Real Estate Sector of the Ministry of Defence: Risks and Recommendations”, p. 8

[2] Report, p. 4

[3] Report, p. 15

[4] Report, p. 16

[5] Report, p. 29

[6] Report, p. 10

[7] Report, p. 10

[8] Report, p. 25 

Taisiia Alekseeva, Communications Assistant, Independent Defence AntiCorruption Committee