Andrey Kolodyuk speaks to EU Today at European Business Summit 2023

At the Brussels Business Summit 2023 I met with Andrey Kolodyuk, Chairman of Ukrainian Venture Capital and Private Equity Association (UVCA), entrepreneur, investor, and founder of the Brussels-based Free Ukraine Foundation. I wanted to get his thoughts on a major issue, particularly in relation to Ukraine’s accession to the EU: that of corruption in Ukraine, writes Gary Cartwright.

The author with Andrey Kolodyuk.

We are all aware of the fact that when it comes to the reconstruction of Ukraine in the aftermath of the current conflict with Putin’s Russia, there are going to be billions, if not trillions of euros, dollars, and pounds on the table.

And we are also aware of the influence of Ukraine’s notorious oligarchs.

We are aware of very weak ownership laws, property ownership, intellectual rights that make it possible for corporate raiders, aided by corrupt notaries, to steal profitable companies.

My perception is that there is a great deal of vulnerability there for future investors in Ukraine.

I asked Andrey Kolodyuk, is corruption in Ukrainian governance now institutionalised? What might that mean for Ukraine’s aspirations to join the EU?

He told me, “Your questions are important, and you’re talking to someone who for two decades has been continuously investing in Ukraine. So we know all the problems. Not only do we know them, but we’ve been fighting them for two decades.

“And of course we share this knowledge with the European Commission and with other investors.

“Obviously we all understand that these issues can not be dealt with overnight.

“However, we have two tracks on how you can tackle this corruption issue today.

“Number one, our government does not have any institutional capacity or legal capacity to manage any money based on their current setup.

“For example, the State Property Fund, they are able only to sell some property, state-owned, by auction, but not to manage investment and development money.

“So who is going to rebuild Ukraine? Entrepreneurs, that is who.

“All the rest can help facilitate to make this happen easier in terms of doing business, etc., but at the end of the day, none of the government agencies have the capability to manage any investment and development money.

“So who does? What’s happening now?

We have, for the last nine years, not only built the seven unicorns (a privately held start up company with a value of over $1 billion – Ed.) as an ecosystem.

“But also more than 300 international funds invested alongside with us, with Ukrainian investors.”

What legal protection investors have in Ukraine, compared to in the EU?

“If you talk to, for example, the institution that, like the European Investment Fund, which manages public money, they will tell you that fund managers that put all money into the fund are obliged legally, they have a full fiduciary duty.

“If some corruption happens on the level of the portfolio company the fund manager invests in, this is very serious.

“He’s not only going to lose his money, but he’s going to lose his reputation if that happens.

“So that means that through the funds that are investing in Ukraine, 17 funds that are raising capital, from big ones like BlackRock to the small ones, are currently raising investments.

“You can use the same institutional and legal framework to deploy all the capital from international community through this legal framework, which has already anti-corruption guidance, etc.

“On top of this we are, as investors, proposing to channel all this money also with something which is very important, namely legal resolutions, which are going to be done by commercial courts with an international judge sitting there to solve the disputes for all the money coming from the European Union, especially public money.”

So, does the sector needs international arbitration, I asked?

“Yes, international arbitration,” he replied, “but done in Kyiv.”

“We have cases like this in Kazakhstan. When you look at the Astana International Financial Centre, it involved a judge from England, who judged based on the English law.

“So this is how you can protect your money, because we are managing the money.

“Private investors, public investors. We are an association of the fund managers, venture capital, private banking, etc.”

Does Ukrainian corruption reach government level? If so, to what extent?

“We are the businessmen, we are entrepreneurs, we know that our government in many fields, at many levels, is corrupted by the system,” he answered without hesitation.

“You can put the Mother Teresa in our system and she’s going to be corrupted!

“Here I am not joking, because this is a system that has been built for 30 years by our oligarchs as a beneficiary and the governments,

“Regrettably, they were just custodians of this old system.

“So we, as Ukrainian investors, international community, are fighting this old system by introducing a new one.

“And I’m not only blaming the politicians, I’m not blaming the old press, I’m saying how you can do this, how it can be done today by channeling money through the funds, with all the governance applied, etc.

“And as I said, government does not have any institutional capacity.

“So why would they manage the money?

“Because they want to do this!”

“They manage our humanitarian aid, etc. Of course, this is what they do, and I’m not going to judge that, it’s not for me. But when we talk about investment money, it should be done by the private sector together with the institutions, with the development financial institutions, right? EIB, EIF, EBRD, all of these, they manage public money.

“They are also investing in the funds, okay? So they know how to manage the capital through the fund managers.

“So this is the answer, not only just opinion, but the answer as to how it could be solved and how it could be solved today.

“So Ukraine will be rebuilt not only by entrepreneurs, but also by the hundreds of funds.

“You don’t need to have even the government involved in many infrastructure projects to rebuild. Because nowadays it’s done already by many infrastructure funds all over the world.

“We already see the consequences, when something you donate for humanitarian aid, and we see it on a secondary market. We know this.

“So the only way to avoid corruption, is to channel this money, even donations, through the social entrepreneur and Impact funds.”

You talked about Impact Investments. What do we mean by that?

“It’s an Impact Investment because when you donate something one time, like equipment, medical supplies, anything, it’s not going to be managed.

“But if you put it as an investment and let the entrepreneurs, European, Ukrainian, actually build something, a medical clinic for example, or a water purification plant.

“They’re going to sell the water and will provide it for free for those who are in need, right?

“But our government, I’m sorry to say, they’re not accountable.

“Everybody says, yeah, it’s a war, who cares? You know what’s happening.

“You don’t need to feed such system even for the political scoring.

“This is what I tell to the European politicians. ‘Guys, if you’re going to continue to do this the same way, you’re going to trigger a civil war (in Ukraine – Ed.) even before we get to the end of war with Russia.’”

The question that many are asking in the EU institutions, and in the member state capitals is, How can the EU help?

“The EU has a strong leverage now. You (the EU – Ed.) have leverage to explain how it can be done. To help us finally break the old system by introducing the new one.

“And this is a very serious conversation we are having in terms of how to introduce the new system, because you now have that leverage.

“Of course they don’t want it, but they don’t have no choice. Because they are dependent on the EU money. This is how it is.”

What about the Ukrainian phenomenon of corporate raiders, whereby oligarchs, often aided by corrupt notaries and judges, are able to steal companies. Is this something that new rules, new laws will eradicate? Could those people who have suffered under this will get their money back? Or get their businesses back?

“It’s too early to say, but look, it’s very simple,” he replied. “Of course all the rights protection, anti-raider practices should be applied, so any raider from the system will know immediately that it’s not going to be like in old school, institutional defence mechanisms will immediately start working, they are going to defend the property investment because it comes from your public money, ok?

“Of course some may say, yeah, but you’re not going to attack the foreign ownership at least…?

“But to them what’s the difference between foreign investors and local investors?

“We need to also have a mechanism, a commercial dispute judge, they’re not going to be part of the system.

“That’s the only way to do this, because we’re going to need a whole new judiciary.

“I don’t believe in the good or bad people. I believe in institutional changes. What I’m talking to you about is institutional changes.

“It’s how to overtake the old system by introducing the new system, per se. And it’s all doable. All investors know this. All the institutions know this.

“But we need to also have the political courage to actually introduce this new system.

“The corruption is going to be there. But at least the private money, the developing money, should be going through the new institutional framework.

“We are an investor organization, we are supporters of a new system, because this is how we’ve been operating for the last two decades.

“We know the rules. You have a trusted counterpart in Ukraine that plays by these rules.”

“But of course the system has often overplayed us because they don’t have rules. They have power, but no rules. So this is how we can do this.”

We are familiar with the case of Kazakhstan, because they introduced British law in Kazakhstan.

But in Astana there was such a strong leadership to introduce this, and there was a will to introduce this, as you know, But would there be such a willingness in Ukraine?

“If there is a will from the business community in Ukraine, from the private sector, then business can overrule government,” said Andrey Kolodyuk.

“In Ukraine, Ukrainian business lives in this environment, even now, and they need to perform, they need to make money to spend money on the front line.

“So they are the beneficiary of this system, and they know, that’s why I’m in Brussels, they know, they’re asking, guys, can you finally introduce the new rules, because you have not only veto, you have leverage, to do so. If they say no, then there is no money. It’s very simple.

“But of course our opponents today, they talk politically.

“I say, but ok, you want to talk for 30 more years? 30 more years.

“Because we are having the same talk about Ukrainian reforms for the past 30 years.

“Or you want to finally solve it? If you want to solve it, there is a way to do this. But you need to apply the leverage you have.

“We need to push this. It’s very simple.”

He continued, “We have already the support from the investors, not only Ukrainian, but international investors operating in Ukraine. So we have investors behind us.

Talk to Invest Europe, we have been a part of this organisation for 10 years, so they know us.”

“We need strong leadership from the EU politicians and investors, not just coming to Ukraine and making selfies with Zelensky just for political reasons.

“At the end of the day, if there is no trust on the business level, the rest is irrelevant. The rest will be just more talk.

“We build the trust, build it between investors, between entrepreneurs to implement the projects. Coming back, who’s going to rebuild Ukraine? Entrepreneurs. I didn’t say only ‘Ukrainians’.

“Ukraine is an international project for everybody because it’s very scalable, it’s big, so everybody’s welcome.

“And it is already a €1 trillion opportunity, according to the president of EIB.

“So, everybody’s welcome to join us!”