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15 February, 2021
Up and Forward: How Ukraine Improved Its Score in the Transparency Rating of the Top World’s Defence Companies

Last week, the global anti-corruption movement Transparency International published the findings of the global Defence Companies Index on Anti-Corruption and Corporate Transparency (DCI). DCI is the only global index that measures the commitment to transparency and anti-corruption of the world’s leading defence companies. The Index assesses 134 world’s leading defence companies across 38 countries. The companies are measured on a scale from A to F where A demonstrates a high level of commitment to anti-corruption and F indicates a low level of transparency.

State defence enterprise Ukroboronprom, the only Ukrainian company represented in DCI 2020, earned a grade of E and scored 28 out of 110 indicating a low commitment to transparency and anti-corruption.   

However, at the public presentation of the Index in Kyiv Deputy Minister of Economy Svitlana Panaiotidi called this result ‘a quantum leap’. And this is why I agree with this. 

Global trends and the Ukrainian context

A vast majority of the world’s largest defence companies show little to no commitment to tackling corruption. Nearly three-quarters of them remain in the ‘area of non-transparency’ as they have a grade ‘D’ or lower. And only 12% have grades ‘A’ or ‘B’ which indicate a high level of commitment to transparency and anti-corruption. The headquarters of almost all ‘transparent’ companies are located in the EU or North America.  

Ukroboronprom has been placed by the Index authors in the same group as Japanese companies Toshiba Infrastructure Systems and Solutions Corporation or Mitsubishi Electric Corporation, the companies which have worked for many years in the country of sustainable democracy. Ukroboronpom’s results are not only better than those of Russian Uralvahonzavod but also of the famous Aerospace Corporation (USA) and the Polish Defence Holding.

It happened despite the fact that since the collapse of the USSR Ukraine’s sector of defence and security continues to exist under the terms of almost absolute secrecy. Only recently systemic changes have started, for example the Parliament adopted the revolutionary Law on Defence Procurement which basically declassifies the State Defence Order. 

Ukroboronprom’s reform as such has taken much longer than it was supposed to. Because at the governmental level the necessary laws and documents are not adopted, here I mean the laws which would enable important and not cosmetic changes in the governance of state-owned enterprises according to the Euro-Atlantic principles. For example, the law #3822 which would allow for the legal transformation of the conglomerate and its member companies and introduction of the corporate governance sector. It was promised that the law would be adopted back in 2020 but the Parliament still didn’t vote for it.   

28 points of 110: the start is good but the company can do better

The aforementioned arguments don’t excuse Ukroboronprom’s result in the Index which is objectively quite modest. However, real steps on the way to transparency do.  

According to the DCI, Ukroboronprom has shown the best results in Leadership and organizational control. It indicates a quite effective role of Ukroboronprom’s management in preventing corruption. 

Ukroboronprom’s commitment to internal controls was assessed as moderate. So, Ukroboronprom has a specific procedure of internal controls but DCI authors have not found evidence to prove that this control is carried out independently, with quality and accountability. The compliance function is still worked upon. Currently, there is only one person who is responsible for compliance.  

Ukroboronprom received a negative assessment for 7 different criteria. For example, it has been revealed that the conglomerate has a high risk of political interference. There are no independent members of the Supervisory Board whereas additional information about the role and/or the process of appointing the members is not published. This creates high risks of political pressure on Ukroboronprom’s activity.  

Over the last years, Ukroboronprom has become much more transparent and much less prone to corruption. If earlier the conglomerate was regularly involved in corruption scandals, now it’s difficult to mention at least one such scandal. 

Within the DCI, Ukraine has progressed considerably. In 2015, it was the last time when Transparency International Defence and Security released its corporate index, Ukroboronprom was not assessed. Instead, the rating measured state aviation enterprise Antonov and the Kharkiv aviation plant. Both are now member companies of Ukroboronprom. Then, both companies scored 0 and appeared in the group with the lowest level of commitment to transparency, ‘F’.  Even though it would not be correct to compare these data, the tendency is absolutely obvious. If we compare Ukroboronprom’s results with Antonov and the Kharkiv Aviation plant, we see that the place of the defence conglomerate is much better.   

In what exactly did Ukroboronprom become more transparent?

Five years ago the author of the Index compiler, the Transparency International Defence and Security Programme together with Transparency International Ukraine founded the Independent Defence Anti-Corruption Committee (NAKO) whose mission was to increase transparency, promote good governance and minimize corruption risks in Ukraine’s defence and security and sector. One of key NAKO’s objectives was to support Ukroboronprom’s transformation from the structure which is totally closed for the civil society into a more transparent less corruption-prone company.

Author: NAKO’s Communications Manager, Emiliia Dieniezhna, Censor.NET