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Pro-Russian party made payments to Manafort's firm

Jack Gillum, Chad Day and Jeff Horwitz, Associated Press

Evidence of Ukraine payouts

Washington

Last August, a handwritten ledger surfaced in Ukraine with dollar amounts and dates next to the name of Paul Manafort, who was then Donald Trump's campaign chairman.

Ukrainian investigators called it evidence of off-the-books payments from a pro-Russian political party and part of a larger pattern of corruption under the country's former president. Manafort, who worked for the party as an international political consultant, has publicly questioned the ledger's authenticity.

Now, financial records obtained by The Associated Press confirm that at least $1.2 million in payments listed in the ledger next to Manafort's name were received by his consulting firm in the United States. They include payments in 2007 and 2009, providing the first evidence Manafort's firm received at least some money listed in the so-called Black Ledger.

They also put the ledger in a new light, as federal prosecutors in the U.S. have been investigating Manafort's work in Eastern Europe as part of a larger anti-corruption probe.

Separately, Manafort is also under scrutiny as part of congressional and FBI investigations into possible contacts between Trump associates and Russia's government under President Vladimir Putin during the 2016 U.S. presidential campaign. The payments detailed in the ledger and confirmed by the documents are unrelated to the 2016 presidential campaign and came years before Manafort worked as Trump's unpaid campaign chairman.

In a statement on Tuesday, Manafort did not deny that his firm received the money but said "any wire transactions received by my company are legitimate payments for political consulting work that was provided. I invoiced my clients and they paid via wire transfer, which I received through a U.S. bank."

Manafort noted that he agreed to be paid according to his "clients' preferred financial institutions and instructions."

On Wednesday, Manafort's spokesman Jason Maloni provided an additional statement, saying Manafort received all of his payments via wire transfers conducted through the international banking system.

"Mr. Manafort's work in Ukraine was totally open and appropriate, and wire transfers for international work are perfectly legal," Maloni said.

He said Manafort had never been paid in cash. Instead, he said Manafort's exclusive use of wire transfers for payment undermines the descriptions of the ledger last year given by Ukrainian anti-corruption authorities and a lawmaker that the ledger detailed cash payments.

Previously, Manafort and Maloni have maintained the ledger was fabricated and said no public evidence existed that Manafort or others received payments recorded in it.

The AP, however, identified in the records two payments received by Manafort that aligned with the ledger: one for $750,000 that a Ukrainian lawmaker said last month was part of a money-laundering effort that should be investigated by U.S. authorities. The other was $455,249 and also matched a ledger entry.

The newly obtained records also expand the global scope of Manafort's financial activities related to his Ukrainian political consulting, because both payments came from companies once registered in the Central American country of Belize. Last month, the AP reported that the U.S. government has examined Manafort's financial transactions in the Mediterranean country of Cyprus as part of its probe.

Federal prosecutors have been looking into Manafort's work for years as part of an effort to recover Ukrainian assets stolen after the 2014 ouster of Ukrainian President Viktor Yanukovych, who fled to Russia. No charges have been filed as part of the investigation.

Manafort, a longtime Republican political operative, led the presidential campaign from March until August last year when Trump asked him to resign. The resignation came after a tumultuous week in which The New York Times revealed that Manafort's name appeared in the Ukraine ledger although the newspaper said at the time that officials were unsure whether Manafort actually received the money and after the AP separately reported that he had orchestrated a covert Washington lobbying operation until 2014 on behalf of Ukraine's pro-Russian Party of Regions.

Also Wednesday, one of the Washington lobbying firms involved in that covert campaign, the Podesta Group Inc., formally registered with the Justice Department under the U.S. Foreign Agents Registration Act. In doing so, it acknowledged that its work at the time could have principally benefited the Ukrainian government. The firm, run by the brother of Hillary Clinton presidential campaign chairman John Podesta, reported being paid more than $1.2 million for its efforts. It cited unspecified "information brought to light in recent months" and conversations with Justice Department employees as the reason for its decision.

Officials with the Ukrainian National Anti-Corruption Bureau have said they believe the ledger is genuine. But they have previously noted that they have no way of knowing whether Manafort received the money listed next to his name.

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Evidence of Ukraine payouts - Albany Times Union

On 11 March 2014, a London branch of the French bank BNP Paribas received a request from a Ukrainian lawyer. He asked the bank to close accounts belonging to his client and transfer their balances to Cyprus.

The accounts contained a mere $23m, and the transaction should have been routine. But although the amount was unremarkable by the standards of the City, the times were not.Ukrainehad just overthrown its president, Viktor Yanukovich, and the world was on the lookout for money that Yanukovich and his associates had stashed abroad.

Yanukovich was a man whose corruption had to be seen to be believed. The colossal greed of the president and his cronies beggared the Ukrainian state and infuriated ordinary citizens. Tens of thousands of people protested in central Kiev throughout the winter of 2013-14, until Yanukovich fled Ukraine that February. After the revolution,protesters who broke into his private residencefound vintage cars, ostriches, a drinking den shaped like a galleon. There were stacks of treasures in the garage; he had had no space left for them in his $30m, six-storey, log-built palace.

The countrys new government accused its predecessors of stealing $100bn, and the west perhaps embarrassed that so much of this money had ended up in its banks promised to do what it could to help return it to Ukraine.

At the end of April 2014, London hosted a summit that would in the words of then-home secretary Theresa May provide practical leadership and assistance to the Ukrainian government as they identify and recover assets looted under the Yanukovich regime ... It is the tangible manifestation of our shared determination to end the culture of impunity, and prevent our open societies and open economies from being abused by corrupt individuals to launder and hide stolen funds.

Dozens of countries sent representatives to the summit, from the United States and the United Kingdom down to the tiniest tax havens: Bermuda, Monaco, the Isle of Man. On the summits final afternoon, Britains then-attorney general, Dominic Grieve QC, made a dramatic announcement: the UK had already joined the fight. A transfer had been flagged as suspicious, and British authorities had frozen the account and initiated a money-laundering investigation.

This week the UKs Serious Fraud Office (SFO) announced that it is investigating allegations of corruption linked to the Yanukovich regime and has obtained a court order to restrain assets valued at approximately $23m, Grieve told the assembled delegates. There will be no effective deterrent for corruption whilst levels of detection of illicit financial flows and recovery of misappropriated assets remain small.

If the frozen $23m was indeed linked to corruption in Ukraine, it would still be only a fraction of what Yanukovich and his associates had been accused of embezzling. But the case was intended to send a message about the wests determination to make sure Ukraine could regain what had been stolen, and that its looters be punished. This pleasingly specific number, $23m, dominated headlines from the summit, where it was held up as concrete proof that the rulers of the west were finally helping the rest of the world fight corruption.

The message is clear, May said. We are making it harder than ever for corrupt regimes or individuals around the world to move, hide and profit from the proceeds of their crime.

For decades, hundreds of billions of dollars have vanished from the worlds poorest countries, finding their way via the tax and secrecy havens ofEurope, south-east Asia and the Caribbean into the banking system, real estate and luxury goods markets of the west. According to the World Bank, between $20bn and $40bn is stolen each year by public officials from developing countries. Rich countries returned only $147.2m worth of these assets between 2010 and 2012 far less than one cent out of every misappropriated dollar. And that may even understate the scale of the problem. Some lawyers involved in asset-recovery cases estimate the volume of money embezzled globally at around $1tn a year, which makes the tiny amount of money recovered look even feebler.

As both a financial centre that launders an estimated 100bn a year and a prime real estate market for the investors of crooked cash, London has a special responsibility in the fight against corruption one that it has rarely accepted. The 2014 summit much like David Camerons highly publicised global Anti-Corruption Summit in 2016 was intended to show Britains determination to live up to its responsibilities.

Instead, the case of the $23m collapsed within a year when a British judge ruled that the SFO had built its case on conjecture and suspicion, and ordered the money returned to its owner. This is the story of how a very high-profile corruption investigation fell apart and what it means for Ukraine and the UK.

Yanukovich was not the first Ukrainian politician to engage in corruption, but he was certainly the best at it. In fact, the word corruption is a misleading one for Ukraine, since it implies a dishonest cancer afflicting an otherwise healthy organism, whereas in this case it was the other way round. Corruption was the system, and it metastasised into any parts of the state apparatus that remained healthy.

In the three years after Yanukovich took office in 2010, Ukraine slipped from an already disastrous 134th onTransparency Internationals corruption perceptions indexdown to 144th putting it level with countries such as the Central African Republic and Nigeria, which are synonymous with shadiness and mismanagement. But the financial damage that Yanukovich and his predecessors did to Ukraine is hard to measure in simple numbers. At the time of its independence in 1991, Ukraines economy was almost as large as Polands; now, it is a third of the size.

Yanukovich and his allies controlled the countrys legal system, within which prosecutors have broad discretionary powers to initiate or block investigations providing unlimited opportunities for extortion. They could deny export licenses, delay tax rebates, inflate medicine prices and demand bribes in return. To outside observers, it seemed that the only opposition came from investigative journalists and activists who revealed the backroom deals that had carved up Ukraines economy.

To frustrate any potential investigations, Ukraines rulers became masters of the offshore worlds network of tax havens. Once money was stolen, it was invested in European and American assets hidden at the end of intricate chains of shell companies, registered through tax havens in the Indian Ocean, Europe and the Caribbean. It is Cyprus, rather than Russia, Germany or America, that dominates the Ukrainian economy: an astonishing 92% of Ukraines outward investment flowed into the Mediterranean tax haven in 2014.

The secrecy of these offshore centres allowed the oligarchs around Yanukovich to keep the precise details of their deals hidden from the public but ordinary Ukrainians knew enough to be angry. If Ukraines 2014 revolution was about any one thing, it was about this corruption. Yanukovich and his allies had stolen as much as they could; more than they could ever need. And even the most apolitical citizens could see that infrastructure was rotting, medicines were scarce, schools were falling apart. The armed forces were so demoralised by the degeneration of the homeland they were supposed to defend that whenVladimir Putin invaded Crimea, a Ukrainian admiral defected as soon as Russia asked him to.

The UK government trumpeted the freezing of the $23m for two reasons. First, it was meant to be the initial installment of many billions that would eventually help to rebuild Ukraine. If that sum could be confiscated and returned, perhaps so too could the hundreds of millions stashed in London, Latvia, Luxembourg, Liechtenstein and elsewhere. Second, the successful prosecution of a regime insider would send a message to the worlds kleptocrats: your money isnt safe in London any more.

The $23m was held in bank accounts at BNP Paribas belonging to two companies, which were in turn controlled by a Ukrainian politician named Mykola Zlochevsky. A large man with a shaved head, Zlochevsky wears boxy suits, dislikes fastening the top button of his shirt, and has been a fixture of Ukraines public life for two decades. In 2013, according to the Ukrainian news weekly, Focus, which almost certainly understated his fortune, he was Ukraines 86th richest man and worth $146m.

In 2010, after Yanukovich won the election, Zlochevsky became natural resources minister. That position gave him oversight of all energy companies operating in Ukraine, including the countrys largest independent gas company, Burisma. The potential for a conflict of interest should have been clear, because Zlochevsky himself controlled Burisma. But there was no public outcry about this, because almost no one in Ukraine knew about it. Zlochevsky owned his businesses via Cyprus, a favoured haven for assets unobtrusively controlled by high-ranking officials in the Yanukovich administration.

In response to my questions about the freezing of Zlochevskys $23m, his London law firm, Peters & Peters, insisted that their client never benefited personally from the decisions that he took while in office. Mr Zlochevsky has followed the letter and spirit of the law in his role as civil servant and has, at all times, held himself to the highest moral and ethical standards in his business dealings and public functions, Peters & Peters said in a statement. Our clients have fallen victim to an entrenched and a cynical programme of smear campaigns and misinformation.

Mr Zlochevskys wealth is not a result of corruption or criminal conduct, the law firm told me. He made his wealth before entering office.

It is true that Zlochevsky was a wealthy man before 2010. Burismas website makes clear that the periods when it has performed best have consistently coincided with the high points in its owners political career. During a previous Yanukovich government, in 2003-5, Zlochevsky chaired the State Committee for Natural Resources, and companies under his control won licenses to explore for oil. Then Yanukovich fell from grace, and the new government tried to strip Zlochevskys companies of their oil exploration rights and he had to sue the government in order to keep them. Yanukovich won the presidency in 2010 and Zlochevsky became a minister. The good times returned: Burisma gained nine production licenses and its annual production rose sevenfold. After the revolution, Zlochevsky left the administration.

According to a court judgment from January 2015, the $23m in the account that had been frozen in London was the proceeds of the sale of an oil storage facility, which Zlochevsky had owned via a shell company in the British Virgin Islands, a tax haven that does not reveal who controls the many thousands of companies based there.The $23m arrived in London from Latvia, a minimally regulated Eastern European country, where banks are famously welcoming towards money from the former Soviet Union.

On 14 April 2014, the money was frozen at a special court hearing in London requested by the Serious Fraud Office. As described in the later court judgment, the SFO argued that there were reasonable grounds to believe that the defendant [Zlochevsky] had engaged in criminal conduct in Ukraine and the funds in the BNP account were believed to be the proceeds of such criminal conduct.

The SFO investigator Richard Gould claimed in the April 2014 court hearing that Zlochevskys dual position in Ukraine as both a politician and a businessman gave rise to a clear inference of a wilful and dishonest exploitation of a direct conflict of interest by a man holding an important public office such as to amount to an abuse of the publics trust in him.

The SFO further argued that the complicated pattern of offshore holding companies established when he was still a serving minister was effectively to conceal his beneficial ownership of Burisma, which it deemed inherently suspicious.

By 20 May 2014, Gould had obtained 6,170 electronic documents from BNP Paribas related to Zlochevskys money, and assembled a special team to examine them. He also wanted evidence from Ukraine, so he wrote to the head of the international department of the general prosecutors office, Vitaly Kasko, in Kiev.

A lean man with a sharp chin and luxuriant head of black hair, Kasko had been invited into the prosecutors office after the revolution, and made responsible for negotiations with all the western countries that had promised to help at the London summit. He had previously served as a prosecutor, but quit when Yanukovich came to power in 2010 this ensured that Kasko was personally untainted by corruption. He was also popular with activists, since he provided legal support for protesters dragged before Yanukovichs courts during the revolution.

Ukraine was at the time in a state of turmoil. Russia had annexed the peninsula of Crimea, and was aiding pro-Russian rebels in Ukraines eastern provinces. Kiev had lost control of Donetsk and Luhansk, two of the countrys most important cities, and protesters barricades still dominated the centre of the capital. The country needed a new president and, that May, elected a magnate named Petro Poroshenko. Although he had served as a minister under Yanukovich and was himself a billionaire, Poroshenko pledged to sell his confectionery business, to govern only in the interests of the people, to prosecute the corrupt former insiders and to bring an end to the old way of doing things, including in the prosecutors office. For too long, prosecutors had been acting essentially as gangsters in uniform, rather than investigating crimes.

Considering how central prosecutors had been to Yanukovichs corrupt regime, there were significant doubts over both the honesty, and competence of Ukraines lawmen, but Kasko was hopeful that his colleagues would see the importance of regaining the $23m and thus do all they could to help the SFO. He told me that he translated the British request, sent it to his boss, and awaited results.

The investigation began but, no matter how much we pushed the investigators, it was not effective, Kasko told me. Even when Zlochevskys lawyers announced they would contest the freezing of the $23m in a London court, the Ukrainian prosecutors still failed to send the SFO the evidence it needed to maintain the freezing order. First the British wrote to me, then the Americans, with questions about what was happening with the investigation, Kasko remembered.

It was hardly the mutual trust and cooperation supposedly created by the London summit. US and British diplomats were begging Ukraine to investigate a case, which, if it were successful, would benefit Ukraine, and yet nothing appeared to be happening. Eventually, six months after Gould first wrote to him, Kasko stepped decisively outside his area of responsibility, and wrote to his boss in the prosecutors office to demand action.

I said I wanted this to be investigated properly, that the Brits be told about it, and they get what they wanted, recalled Kasko. He said, If you want, get on with it. It was hardly the most enthusiastic of endorsements, but it was enough for Kasko. He forced investigators to work evenings, and weekends. They put together a dossier of evidence that Kasko felt supported the SFOs argument that the defendants assets were the product of criminal wrongdoing when he held public office, sent it to the SFO, and announced officially that Zlochevsky was suspected of a criminal offence in Ukraine.

It was only thanks to Kasko that the SFO had received any useful documents from Ukraine at all. I asked the Brits, What else do we need to do? Kasko remembered. And they said: Thats fine, thats more than enough to defend the freezing order in court.

Their confidence was misplaced.In January 2015, Mr Justice Nicholas Blake, sitting in the Old Bailey, rejected the SFOs argument. The case remains a matter of conjecture and suspicion, he wrote in his judgment. To confiscate assets, prosecutors have to prove that the frozen money related to a specific crime and, he ruled, the SFO had totally failed to do so.

It was a humiliating reverse for British law enforcement, and for Gould, the lead investigator, who then moved to another agency. (Gould told me in July 2015 that he was personally disappointed, but declined to comment further.) The judge unfroze the $23m and handed it back to Zlochevsky.

The British government had made a big announcement of the original decision to seize the funds, but did not publicise this reversal. It is not hard to understand why. It was, after all, an embarrassing setback for the UK, which had held up this particular case as a sign of its commitment to confiscate money belonging to Yanukovichs allies and return it to the people of Ukraine.

When I contacted the SFO in May 2015, a spokeswoman told me: We are disappointed we were not provided with the evidence by authorities in the Ukraine necessary to keep this restraint order in place, but declined to comment further because she said the investigation was ongoing. In January of this year, I contacted Dominic Grieve, who had made the dramatic announcement of the asset freezing. He is still an MP, but no longer in the government. He told me he had no recollection of the case.

Zlochevskys lawyers at Peters & Peters told me that the judge had ruled unequivocally that there was not reasonable grounds to allege that our client had benefited from any criminal conduct. Burismas lawyers have since repeatedly referred to the ruling as evidence of their clients vindication, which calls into question the decision of the UK government to use this particular case as an example of its determination to recover assets and return them to Ukraine, when it had been unable to prove that there were sufficient grounds to keep the $23m frozen.

When Kasko read the judges ruling, he had questions, but of a rather different nature. At the hearing, the tycoons lawyers had not just attacked the case against their client, but also produced evidence of his innocence, evidence that came from the unlikeliest of sources. Justice Blakes 21-page judgment made reference half a dozen times to a letter, dated 2 December 2014, signed by someone in the Ukrainian prosecutors office, which stated baldly that Zlochevsky was not suspected of any crime.

Kasko felt this was bizarre. Everyone in a senior position at the prosecutors office must have known he was leading a frenzied investigation into Zlochevsky at that precise time, so how could anyone have signed off on a letter saying that no investigation was going on? The letter appeared to be crucial to the judges ruling, which stated that Zlochevsky was never named as a suspect for embezzlement or indeed any other offence, let alone one related to the exercise of improper influence in the grant of exploration and production licenses.

As Kasko saw it, his colleagues had failed to help him when he begged them to investigate Zlochevsky. But when it came to writing a letter to help the tycoon, he believed they had happily done so.

According to Kasko, there were really only three possible reasons for why a senior Ukrainian prosecutor would have written a letter for Zlochevsky rather than assisting Kasko. He was either incompetent, corrupt or both. Peters & Peters did not respond to specific questions about the letter (the allegations implied by your questions are untrue and entirely without foundation).

Whatever the explanation for this mysterious letter, the case highlighted a crucial flaw in countries efforts to cooperate across borders. Even in the rare cases when the UK does freeze a foreign officials property, it is dependent for evidence from colleagues abroad who usually have fewer resources, less training and a decades-long tradition of institutionalised corruption. That means that any misconduct or incompetence by the Ukrainian prosecutors can undermine a case in the UK as surely as if the same actions were committed by the SFO.

Zlochevsky is not the only former Ukrainian official to have assets frozen abroad. As part of western assistance to the new Ukrainian government, European countries have blocked the assets of Yanukovich and a couple of dozen others. The asset freeze was intended to give Ukrainian prosecutors time to investigate and prosecute, and thus prevent the individuals involved burying assets in their favourite tax havens. The totals involved around 220m in cash and property would buy a lot of medicine and build a lot of roads.

The man in Ukraine responsible for gathering the evidence against many of the individuals whose assets have been frozen abroad is Sergei Gorbatyuk, head of the prosecutors special investigations department. When we met in April last year, he looked tired and crumpled in a baggy grey suit; it was late in the evening, the only time he had free after a long day. Unusually for a high-ranking official in the prosecutors office, he has a reputation for honesty, which is why several anti-corruption activists recommended that I talk to him.

Our main problem is that these high-ranking officials assets are all registered abroad, in Monaco, or Cyprus, or Belize, or the British Virgin Islands, and so on, and we write requests to them, we wait for three or four years, or theres no response at all. And thats that, and it all falls apart, he said. The asset has been re-registered five times just while were waiting for an answer.

Even when foreign officials did reply to his letters, Gorbatyuk explained, he then had to find a way to understand what they had written. The authorities in Monaco for example had forwarded him 4,000 pages of documentation relating to one oligarch in French, Arabic and English, which he had received eight months previously but was yet to read. The official translators had waited for four months to tell him they were too busy to do the job, then an outside contractor proved incapable of managing it, and, he says, his bosses kept blocking the other suggestions he brought them. This is the insanity of our whole system, this is everywhere. I get the impression no one wants anything to happen, he said.

And if previous cases are any guide, progress will continue to be slow. In one of the few examples of a Ukrainian corruption-related charge that has gone to court, ex-Prime Minister Pavlo Lazarenko was found guilty in California in 2004 of money laundering, and sentenced to 97 months in prison. Lazarenko had fled Ukraine back in 1999, when he fell out of favour with the then-president. He tried to claim asylum in the United States but instead became the first foreign leader convicted of laundering money through the American financial system.

Although the conviction was successful, the asset recovery process remains blocked. A total of $271m of Lazarenkos money is frozen in Guernsey, Antigua, Switzerland, Liechtenstein and Lithuania, but Washington has been unable to recover it for a decade. And this is not an unusual case. The World Bank has an asset recovery database, which shows that cases have dragged on in western courts for more than 10 years in connection to money from Liberia, El Salvador, Kenya, Democratic Republic of the Congo, the Philippines, Zambia and elsewhere.

In evidence submitted to a parliamentary committee last year, the Serious Fraud Office said the obstacles put in its path by offshore jurisdictions were a key cause of these delays. Top tier defendants are highly sophisticated and operate internationally. They are likely to be acutely aware of those jurisdictions with an environment that is favourable to them, and from which it is very difficult (and in some cases impossible) to either trace benefit or recover assets, the SFO said. Such defendants are also likely to be astute in their use of financial products and other devices which they use to disguise their economic benefit from any crime.

On 8 March 2015, David Sakvarelidze, then Ukraines first deputy general prosecutor, appeared on a Ukrainian news programme and made a dramatic accusation that Ukrainian prosecutors had taken a bribe to help Zlochevsky.

The source for Sakvarelidzes claim was an unnamed foreign consultant working within Ukrainian law enforcement. A high-ranking official in the prosecutors office told him [the consultant] he suspected that one official had taken a bribe of $7m, Sakvarelidze alleged in his television appearance. Its shameful of course. People like that should not represent this country. (Sakvarelidze did not respond to interview requests. The allegation has not been proven, but it is the subject of an investigation by the newly establishedNational Anti-Corruption Bureau of Ukraine.)

Sakvarelidze, an ethnic Georgian, had been hired just weeks earlier to help clean up the law enforcement system and he set to work. Progress was slow, however. In fact, it was so slow that the US ambassador to Ukraine, Geoffrey Pyatt, decided to make an astonishingly forthright interjection. In September 2015, speaking in the southern Ukrainian city of Odessa, Pyatt stated that prosecutors were asked by the UK to send documents supporting the seizure of the $23m, but instead sent letters to Zlochevskys attorneys attesting there was no case against him. Those responsible for subverting the case by authorising those letters should at a minimum be summarily terminated, he said.

The allegation was part of a long and damning speech, in which he laid out just how little Ukraine had reformed its law enforcement bodies, something that makes recovering the millions stashed overseas unlikely if not impossible.

Ukraines national finances are currently dependent on the International Monetary Fund, where the dominant voice belongs to the United States. Pyatt was not just any ambassador therefore, but the local representative of the governments paymaster. He was putting Ukraine on notice sort out the prosecutors office, because America is getting annoyed. But it didnt work. Rival prosecutors opened criminal cases against two of Kaskos investigators, and their allies in other institutions. Sadly, the protection racket we uncovered turned out to be just the tip of the iceberg, Sakvarelidze wrote on Facebook in October 2015.

Change could only be won when international lenders forced President Poroshenko to act. It was tough talk from the west that obliged Ukraines parliament long referred to sarcastically as the biggest business club in Europe to create the anti-corruption bureau and a dedicated anti-corruption prosecution service. And it was only the bluntest of language from US officials that forced the Ukrainian government to fire crooked prosecutors. According to a valedictory interview by the former vice presidentJoe Biden in the Atlantic, Poroshenko only sacked the lawman blocking Kaskos reforms because Biden made a direct threat. Petro, youre not getting your billion dollars, Biden said he had told Ukraines president. You can keep the [prosecutor] general. Just understand, were not paying if you do.

Biden was Washingtons point man on Ukraine throughout the Obama administration, and consistently encouraged reformers and chided their opponents. In a speech in Ukraines parliament in December 2015, he said the country could not hope to reform itself on European lines or regain its money, if it did not do something about its entrenched corruption. You cannot name me a single democracy in the world where the cancer of corruption is prevalent, he told parliament. Its not enough to set up a new anti-corruption bureau and establish a special prosecutor fighting corruption. The Office of the General Prosecutor desperately needs reform.

By then, however, almost two years had passed since the revolution and many Ukrainians had become disillusioned. The credibility of the United States was not helped by the news that since May 2014, Bidens son Hunter had been on the board of directors of Burisma, Zlochevskys company.

The White House insisted the position was a private matter for Hunter Biden, and unrelated to his fathers job, but that is not how anyone I spoke to in Ukraine interpreted it. Hunter Biden is an undistinguished corporate lawyer, with no previous Ukraine experience.Why would a Ukrainian tycoon hire him?

Hunter Biden failed to reply to questions I sent him, but he told the Wall Street Journal in December 2015 that he had joined Burisma to strengthen corporate governance and transparency at a company working to advance energy security. That was not an explanation that many people found reassuring. TheWashington Post was particularly damning: The appointment of the vice presidents son to a Ukrainian oil board looks nepotistic at best, nefarious at worst, it wrote, shortly after Hunter Bidens appointment. You have to wonder how big the salary has to be to put US soft power at risk like this. Pretty big, wed imagine.

In September last year, a court in Kiev cancelled the arrest warrant against Zlochevsky, ruling that prosecutors had failed to make any progress in their investigation. That same month, the Latvian media reported that Ukraine had not helped a police investigation into money laundering, so 50m frozen euros had passed into the Latvian state budget instead of being returned to Ukraine.

I get the impression our foreign partners are disappointed by our failure to make progress tackling corruption, and thats why they are paying us less attention, said Kasko, who is now back in private practice, as he was during the Yanukovich years. Meanwhile, President Poroshenkos approval rating is stuck in the low teens. He has failed to fulfil his promise to sell off his business empire, and was revealed in thePanama Papersleaks to be still engaged in structuring his assets offshore. His London law firm has recently been sending out threatening letters to journalists tempted to repeat accusations of corruption levelled at him by a former insider who has fled to the UK.

Kasko resigned on 15 February last year, accusing the prosecutors office of being a hotbed of corruption. Sakvarelidze was sacked a month later and charged with a gross violation of the rules of prosecutorial ethics. The whole reforming team came and went, without jailing anyone or recovering a single oligarchs foreign fortune. Kasko told me he had resigned because he saw no point in waiting around impotently while his superiors undermined his cases. I didnt want to stay there like the Queen of England and watch, he said. The biggest problem in the prosecutors office is corruption. Sakvarelidze and I went in to fight against it, and they threw us out.

Last year, Kaskos successor formally apologised to the SFO on behalf of the Ukrainian prosecutors office for its role in the failure of the case of the $23m.

All in all, the UK chose an unfortunate way to demonstrate a strong commitment to the people of Ukraine, as Theresa May stated in April 2014. But this unseemly episode highlights many of the reasons why so little of the cash stolen from poor countries is ever returned to them. Money can flow unhindered between countries, but police officers cannot, so it is always more difficult to prosecute a crime than to commit one.

At the start of each year, Ukraine budgets for the money it plans to reclaim from its deposed rulers, and at the end of the year activists from the Anti-Corruption Action Centre (an NGO that oversees recruitment of Ukraines new anti-corruption detectives) calculate how much of that money prosecutors actually found.

In the first nine months of 2016, the government intended to confiscate 250m. They actually retrieved just 4,500 0.0018% of the planned total.

They are not alone in struggling to get a grip on fraud. In its report to parliament last year, the SFO said it was failing to retain key investigators in the face of competition from banks, private investigators and other well-resourced City companies, something that complicates already tricky cases. If even the SFO considers itself under-resourced and out-gunned in the battle against the kleptocrats and their offshore empires, then the problem is still more severe in Ukraine. Things are likely to get worse as the window of opportunity provided by enthusiastic foreign assistance is closing fast. Joe Biden is gone now from the White House (although Hunter remains on the Burisma board), and Pyatt has left Kiev for a new ambassadorial posting.

With Donald Trump in power, the tiresome American pressure for reform in Ukraine may well be a thing of the past. Among European allies, France and Germany have elections this year and thus other things to worry about, as of course does post-Brexit Britain. When I sought comments on what the government was now doing to help Ukraine regain its assets, I was batted back and forth between the Home Office and the Foreign Office for a few days, before they eventually provided a joint statement sourced to a government spokesperson, confirming that Britain was committed to everything it has always been committed to.

The UK is a strong supporter of the Ukrainian governments reform process, and in particular the fight against corruption, which needs to proceed quickly, they said, by email. That is undoubtedly true, but sadly the global situation is looking ever less favourable.

Ukrainian politicians have consistently failed to keep their resolutions without foreign governments stiffening their resolve and, with that pressure fading away, there will now be little to stop them returning to their old ways. The old oligarchs appear to be feeling as secure as they have done for a while, and Ukrainians who have long been on the defensive are reaching out for new friends.

On 19 January, the day before Trumps inauguration, Zlochevskys gas company announced it was becoming a funder of the Atlantic Council, a prominent Washington think tank. TheAtlantic Councildeclined to say exactly how much money the tycoon had offered, only that his donation had been between $100,000 and $249,000. A month later, Burisma hired a new director. Joseph Cofer Black does not appear to have any more experience of Ukraine than his colleague Hunter Biden but as an ex-ambassador and a former director of the CIAs counterterrorism centre under George W Bush he is likely to have lots of useful contacts in Washington.

Zlochevskys last public appearance was in June 2016 at a Burisma-organised alternative energy forum, co-hosted in Monaco by Prince Albert II, who made the keynote speech. Photographs of the event showed Hunter Biden posing with various comfortably retired ex-politicians, wearing a blue suit twinned with highly-polished brown shoes. Zlochevsky was tanned and healthy in an open-necked shirt, while a more formally dressed Prince Albert placed a solicitous hand on his back.

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The Money Machine: How a High-Profile Corruption Investigation in Ukraine Fell Apart - Pulitzer Center on Crisis Reporting

NEW YORK Ukraine has partnered with global technology company the Bitfury Group to put a sweeping range of government data on a blockchain platform, the firm's chief executive officer told Reuters, in a project he described as probably the largest of its kind anywhere.

Bitfury, a blockchain company with offices in the United States and overseas, will provide the services to Ukraine, CEO Valery Vavilov said in an interview on Wednesday.

Ukraine's blockchain initiative underscores a growing trend among governments that have adopted the technology to increase efficiencies and improve transparency.

Blockchain is a ledger of transactions that first emerged as the software underpinning digital currency bitcoin. It has become a key global technology in both the public and private sector given its ability to permanently record and keep track of assets or transactions across all industries.

Ukraine and Bitfury signed a memorandum of understanding on Thursday.

Though Vavilov said he was unable to estimate the cost of the project, he said it was by far the biggest government blockchain deal ever. It involves putting all of the Ukraine government's electronic data onto the blockchain platform.

"A secure government system built on the blockchain can secure billions of dollars in assets and make a significant social and economic impact globally by addressing the need for transparency and accountability," said Vavilov.

There are other countries that have started blockchain programs, but they are smaller in scope involving one or two sectors, such as land titles and real estate ownership. Countries that have launched blockchain programs include Sweden, Estonia, and Georgia.

"This agreement will result in an entirely new ecosystem for state projects based on blockchain technology in Ukraine," Oleksandr Ryzhenko, head of the State Agency for eGovernance of Ukraine, said in an emailed response to Reuters questions.

"Our aim is clear and ambitious -- we want to make Ukraine one of the world's leading blockchain nations."

Ukraine's deal with Bitfury will begin with a pilot project to introduce blockchain into the country's digital platform. The areas being explored for the pilot project are state registers, public services, social security, public health, and energy, Vavilov said.

He expects the pilot scheme to launch late this year.

Once the pilot is complete, the blockchain program will expand into all areas, including cyber security.

This is Bitfury's second government blockchain project. In April last year, Bitfury signed an agreement with Georgia to pilot the first blockchain land-titling registry.

ANKARA Turkish President Tayyip Erdogan ruled out on Friday extraditing German-Turkish journalist Deniz Yucel to Germany while he is in office, repeating his assertion that Yucel is a "terrorist agent".

A Wisconsin man accused of stealing an arsenal of weapons from a gun shop and sending an anti-government manifesto to President Donald Trump has been arrested after a massive manhunt, the Rock County Sheriff's Office said on Friday.

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Ukraine launches big blockchain deal with tech firm Bitfury | Reuters - Reuters

Published on Thursday, 13 April 2017 10:06 Category: Articles and Commentary Written by Yuriy Hanushchak, Oleksii Sydorchuk and Andreas Umland

Ukraines decentralisation was one of the first, fastest and most comprehensive reforms initiated by the initial post-EuroMaidan government in March 2014, and its then vice-prime minister and today head of government Volodymyr Groysman. While amounting to a deep transformation of state-society relations in Ukraine, the underlying ideas and first successes of this large restructuring of Ukraines governmental system have so far been hardly noted outside Ukraine. Contrary to widespread Western belief, neither the concept nor the initiation of decentralisation had much to do, as some believe, with Ukraines Association Agreement with the EU signed in July 2014, or with the Minsk Agreements signed in September 2014 and February 2015. Now entering its third year, the ongoing reorganisation of Ukraines local public administration, instead, had already been hotly discussed, meticulously planned and unsuccessfully attempted for many years before the 2013-2014 Revolution of Dignity.

Thus, in 2005, following the Orange Revolution, a law on a new administrative and territorial set-up of Ukraine had been drafted. In 2009, Ukraines government approved the Concept for Local Self-Government Reform. Yet, when Viktor Yanukovych took over as president a year later, the imminent re-organisation of Ukraines regional governmental system came to a halt. These and other earlier developments, nevertheless, prepared Ukrainian society and politics to move ahead quickly once Yanukovych was out. Only little more than one month after the victory of the Revolution of Dignity on February 21st 2014, the new government of Arseniy Yatsenyuk adopted a modified Concept for the Reform of Local Self-Government and Territorial Set-Up of Power that kick-started the decentralisation reform.

The many years of discussion and eventual start of implementation of decentralisation reforms in April 2014 were primarily motivated by the excessive concentration of powers and resources in the centre. When Ukraine became independent in 1991, it inherited from the Tsarist as well as Soviet systems of rule an allocation of almost all prerogatives in the capital. Until today, features of the previous over-centralised and semi-colonial governmental system can be found in many officially state-socialist and post-socialist countries across the globe. Arguably, decentralisation is therefore no less important for post-Soviet countries to overcome their Tsarist, Leninist and Stalinist legacies than liberalisation, decolonisation, democratisation, privatisation and Europeanisation (i.e. the adoption of the EUs acquis communitaire).

The overconcentration of competencies in the capital does not only lead to a number of political, administrative, economic, legal, cultural, behavioural and even mental pathologies in the post-Soviet world. It is, above all, the main reason for the low quality of public services throughout Ukraine, including such fields as primary as well as secondary education, healthcare, road construction or social support. It is also one of the causes for the slow economic development of many Ukrainian regions, during the last 25 years. Ukraines local authorities often lacked and are partly still lacking sufficient funds, powers and skills to address even the most basic infrastructural needs of their communities. Ordinary citizens had and often still have little opportunity to influence decisions affecting their most urgent immediately local matters. Since 2014, the government has thus adopted a whole battery of parallel measures to change previous centre-periphery relations. These multiple re-directions and novel regulations, taken together, amount to a comprehensive decentralisation reform.

First, local authorities are now receiving far larger revenues through redistribution of tax income from the central state budget to municipal and communal accounts. For instance, during 2015, the monetary volume of local budgets increased by 42 per cent compared to 2014 from 70.2 billion hryvnas (around 2.5 billion euros) to 99.8 billion hryvnas (around 3.5 billion euros). In 2016, the local communities revenues increased additionally by 49 per cent reaching 146.6 billion hryvnas (five billion euros). In fact, they earned 16 per cent more than had been initially projected for that year. This unexpected rise of local revenues, especially via personal income tax (PIT), was the result not only of inflation, but also of new taxation formulae that motivated businesses to pay their taxes properly and to get away from handing out salaries in envelopes. In addition, a new model of competitive distribution of inter-budget transfers is aimed at fostering both the support of weaker regions and economic rivalry among local communities.

Second, in order to increase the institutional and financial capacity of local authorities, the government initiated a process of voluntary unification of small counties into administratively more potent and larger political subunits called amalgamated territorial communities (ATCs). That was a highly necessary step to get away from the large number of over 11,000 Ukrainian primary level counties. For instance, before the reform, 6,000 local communities had fewer than 3,000 residents. Within 5,419 budgets of local self-government, subsidies from the centre exceeded 70 per cent. 483 territorial communities were at 90 per cent or more maintained via support from central state budget funds.

No wonder that this part of the decentralisation reform, once unification became possible, quickly got off the ground. Already by the end of 2016, the so far entirely voluntary amalgamation process had rendered impressive results: 15 per cent of the previously existing local counties had on their own initiative and without any pressure, though with some financial incentive, from above fused into 367 amalgamated territorial communities (ATCs). Apart from new competencies, the new ATCs received additional tax revenues and direct state subsidies for developing infrastructure, improving healthcare, and implementing educational projects. Due to their new revenues, those 159 amalgamated communities that had been created during 2015 increased, as Ukraines Ministry for Regional Development proudly reported, their budgets more than six-fold, during the first nine months of 2016 when compared to the analogical period of 2015. The new entities received various types of revenues, especially PIT, and additional competencies to direct their expenditures.

Some rapid physical developments in the first amalgamated territorial communities represent the, so far, most visible results of the decentralisation. The officials of the new ATCs used much of the additional resources they now had at their disposal for infrastructural projects in order show their communities inhabitants quickly the benefits of their novel political functions and administrative prerogatives. For instance, in 2016, more than twice more road surface was laid, in Ukraine, than during the two previous years (though this was also a result of the general economic recovery that had begun in mid-2016). The central government provides financial assistance to amalgamated communities in the form of state subsidies which amounted to approx. one billion hryvnas (35 million euros) in 2016 and will be around 1.5 billion hryvnas in 2017. The ATCs have been using the additional funds for the reconstruction and repair of educational and healthcare facilities as well as for other public works.

Another aim of decentralizing and bundling decision-making has been to enable ATCs to attract larger investment projects. So far, these have, however, been rare, and reflect the generally low amounts of FDI that Ukraine is receiving. That has, perhaps, less to do with Ukraine governmental structure than with the countrys poisoned international image as an allegedly war-torn and still super-corrupt country features that are certainly present, yet often overdrawn in international press reports.

A recent amendment to the law on the amalgamation of communities allows now so far non-amalgamated counties to join already amalgamated communes via a simplified annexation procedure. It is, therefore, expected that by the middle of 2017, the number of ATCs will grow to more than 60 per cent of their envisaged final number for the whole of Ukraine. If that indeed happens, it will signal that this critical component of the decentralisation reform will become irreversible. Over the next two years, the government also expects to enlarge the sub-regional territorial units, the so-called rayons (districts), that Ukraine inherited from the Soviet administrative system. Together with further progress in the amalgamation of communities, the reorganisation of the rayons would largely finalise the territorial reform as a key component of the decentralisation drive, until the end of 2018.

Other aspects of the reform package, however, remain frustratingly incomplete, as the parliament has so far failed to adopt a critical constitutional amendment. The modification of Ukraines basic law is necessary to complement and support the already enacted changes in ordinary legislation and ongoing changes in the local communities everyday life. While originally not connected to the resolution of the armed conflict in the Donets Basin (Donbas), the constitutional changes related to decentralisation were, in 2015, bundled together with one of Ukraines political commitments, under the Minsk process. The latter concerns the provision of a highly controversial special status for the Donbas territories currently controlled by Russia and its proxies, in eastern Ukraine. Against the background of Moscows demonstrative and continuous violation of the Minsk Agreements since 2014, a large majority of MPs in Ukraines parliament, the Verkhovna Rada, so far refuses to support the comprehensive constitutional reform package. That is insofar regrettable as this legal bundle also includes several decentralisation clauses, unrelated to the Minsk process.

In fact, a final vote on these constitutional changes may, in view of Ukraines growing frustration about Russias continuously aggressive behaviour during the last three years, never happen. Allowing for an unclear specificity in the conduct of local government in several regions of Lugansk and Donetsk region, as prescribed in the draft amendments, is by many politicians considered as illogical, unjust and subversive. It creates the possibility for a transfer of more power to separatist-held Donbas areas than to the communities in the Ukraine-controlled part of the region. The Minsk Agreements provisions to allow the currently occupied territories to appoint their own armed local militias, city procurators and other such organs not subordinated to central government were forced upon Ukraine, in February 2015, at gun-point. These special regulations are now being more and more outspokenly rejected by many of Ukrainian societys crucial stakeholders, including political parties, leading intellectuals, and economic actors.

The constitutional bill also ran into opposition from some parliamentarians because of a clause that introduces, into Ukraines administrative system, a new organ the so-called prefects. These are president-appointed regional public officials who will be monitoring the legality of the local authorities decisions and who can suspend them and refer them to the courts. The authors of the draft amendment argue that appointment of such prefects is necessary for preserving state control over newly empowered local governments, which could abuse their novel competences. Critics, on the other hand, fear that through the prefects, the president may unduly enhance his political influence over local authorities and undermine genuine communal self-government. Such worries so far rather hypothetical could be taken care of in the future should lawmakers were to design a transparent system of selection of prefects by open competition allowing them to be independent from the president. As the exact competences of the president, government, prefects and parliament are, in the draft for the amended constitution, more clearly delineated than in the current basic law, abuses of power would probably altogether decline rather than increase.

Despite the only partial and, so far, largely voluntary implementation of the reform package, many Ukrainians have already started to note implications of decentralisation. According to a November 2016 poll by the Kyiv International Institute of Sociology, for instance, 46 per cent Ukrainians saw positive changes from the use of new funds obtained by local authorities, while 43 per cent saw no change, and five per cent saw changes for the worse. Twenty-five per cent pointed to improvement of public services in their communities compared to 58 per cent who didnt notice any changes and eight per cent who felt there had been deterioration of public services. While a clear majority of Ukrainians of 64 per cent support decentralisation and empowerment of local authorities, 61 per cent are still not satisfied with the slow pace of the reform.

In early 2017, Ukraines decentralisation reform has entered a critical phase marked by a recent adoption of several new laws aimed at fostering amalgamation of communities. This encouraging legislative success offers hope that the already impressive practical progress will continue. To date, decentralisation has already improved the financial well-being of many local communities in different regions in Ukraine and laid the foundation for a better quality of life for Ukrainians living outside the richer metropoles like Kyiv, Odesa and Kharkiv. While the idea of rapid decentralisation does not enjoy unconditional support from all parliamentary parties, the numerous stakeholders of the ongoing reform among public officials, elected mayors and new councillors, as well as the population at large, bode relatively well for the future of local administration reform. In addition, various Western states and international organisations, above all the EU, are resolutely supporting Ukraines decentralisation via a broad variety of instruments and with funding amounting altogether to approximately EUR200 million. If the accelerating changes take root at the local level, decentralisation will contribute to changing post-Soviet Ukrainian state-society relations, at its core.

Yuriy Hanushchak is Director of the Institute for Territorial Development at Kyiv, and an expert for Ukraines NGO umbrella association Reanimation Package of Reforms.

Oleksii Sydorchuk is a political analyst at the Ilko Kucheriv Democratic Initiatives Foundation, a Ukrainian non-governmental think-tank, at Kyiv.

Andreas Umland is a research fellow at the Institute for Euro-Atlantic Cooperation in Kyiv, and editor of the book series Soviet and Post-Soviet Politics and Society.

The authors are grateful to Dominik Papenheim (U-LEAD project), from the EU Delegation at Kyiv, for some useful advice on an earlier draft of this article.

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Ukraine's most underreported reform - New Eastern Europe

On a sunny afternoon in Toretsk, a mining town near the front lines in eastern Ukraine, a small, wiry man in his 60s staggers down a potholed street, playing the accordion and busking for change. Hes unshaven and disheveled, sporting a camouflage cap, baggy sweatpants and a grubby telnyashka the striped undershirt worn by Soviet and Russian troops. He passes by as I chat with a group of Ukrainian government soldiers on a corner opposite the local barracks. The men eye him with disdain; one tosses him a cigarette, and he drifts off.

Lumpen proletariat , says Aleksandr Lubichenko, a Ukrainian military press officer. Hes an old separatistI can tell a mile off. Small man, big gun.

But hes only holding an accordion, I say.

Hes only holding an accordion now. But give him some money, and the first thing hell buy is an AK-47.

Strained encounters like this are common here in Donbass, Ukraines easternmost region on the Russian border. This is the nations industrial heartlanda windblown steppe of coal mines and smokestacks that tower over vast fields of sunflowers. For three years, government forces and Russian-backed separatists have been locked in a war thats killed roughly 10,000 and forced 2 million from their homes. Despite a 2015 peace deal, the two sides continue to trade fire along a 280-mile front line.

The unrest began in March 2014, not long after massive, pro-European demonstrations in Ukraine toppled the authoritarian government of Viktor Yanukovych, a Kremlin loyalist. In response, Russia seized Crimea and stirred up counterprotests in Donbass. These morphed into a full-fledged insurrection as the Kremlin sent arms, soldiers and intelligence to help separatist forces.

A 19-year-old accounting student with her fingernails painted in the colors of the pro-Russian separatist flag and the Donetsk People's Republic's flag is held by her boyfriend, who dropped out of school to join the military. Geovien So/Pacific Press/LightRocket/Getty

War has turned large swathes of the area into a militarized rust belt full of contested ghost towns, bombed-out factories and flooded mineshafts. But even before the conflict, jobs were scarce in eastern Ukraine, which had been crumbling since the fall of the Soviet Union. Many here feel abandoned by their government (despite the billion-dollar subsidies Kiev has injected into the regions ailing coal-industry). While activists in the capitals Maidan Square rallied against corruption and Kremlin influence, striving to become a part of Europe, many in the east have more in common with their neighbors in Russia. Some in government-held Donbass see the Ukrainian soldiers patrolling the streets as guardians against the Kremlins machinations, but others regard them as part of an unwanted, even foreign, occupation.

The divisions in Donbass put Ukrainian lawmakers in a bind. Privately, some admit they would like to discard the territory, to jettison any hope of a unified nation. But losing the east could create more dysfunction and even encourage further uprisings, leading to more lost territory and a return to full-blown war.

To secure the region, the Ukrainian military and civilian activists are trying to win over their eastern compatriots who may secretly back the separatists. This effort has acquired a new sense of urgency; despite the recent U.S. airstrike in Syria, Kiev still fears the Trump administration could align itself with Russian President Vladimir Putin. In this volatile climate, Ukrainian troops are using classic hearts-and-minds tacticslike the ones the U.S. has tried in Iraq and Afghanistanon their own soil.

The problem: Neither of those conflicts has turned out well.

In a backyard on the outskirts of Toretsk, surrounded by run-down cottages with corrugated roofs, two Ukrainian soldiers kick a soccer ball around with a dozen children. At sunset, the group heads into a large, neighboring home that two missionaries from Florida have turned into a youth center. Clad in full army fatigues, one of the soldiersAleksandr Drolsits chatting with the kids while his stocky, bearded colleague hands out freshly baked cupcakes.

A quiet, intelligent major in his mid-30s, Drol works as an outreach officer in Toretsk with the Civilian Military Cooperation, an offshoot of Ukraines armed forces, funded by the countrys Defense Ministry and trained by NATO instructors. He is among 120 personnel tasked with gaining the trust of the populace along the frontfrom the port city of Mariupol in the south to the small, battle-scarred Stanitsa Luhanska in the northeast.

One of the groups biggest tests is in Toretsk, a town thats a microcosm of the wider crisis. In 2014, separatists grabbed this coal-mining town, with a prewar population of around 35,000; Kievs troops retook it that summer. Today, it has some of the largest pro-separatist support in government-controlled Donbass. Even its former mayor, Vladimir Sleptsov, stands accused of assisting pro-Russian militants several years ago. Authorities have since hung a bevy of Ukrainian flags around the city, and occasionally hold patriotic concerts in its main square, but tense undercurrents run beneath this towns seemingly calm surface. Many people keep their views to themselves, Drol says. If asked whom they support, they just say, Im for peace. [But] the militants didnt even have to fight for the town in 2014.

In Toretsk, Drol runs a multipronged charm offensive: holding town halls, delivering aid, evacuating civilians from front lines, clearing unexploded munitions and helping repair damaged power lines, homes, hospitals and schools. In the early days of the conflict, before the West sent nonlethal military aid to Kiev such as Humvees, combat trainers and body armor, Ukraines armyplagued by years of corruption and neglectcould barely support its troops, let alone help the local population. This caused much bitterness and disappointment in eastern Ukraine, where the fight for hearts and minds is crucial, says Gustav Gressel, a senior policy fellow at the European Council on Foreign Relations, a Berlin-based think tank.

Humanitarian supplies are stored in a school gymnasium on February 3 in Avdiivka, Ukraine. Brendan Hoffman/Getty

Drol wouldnt be able to do his job without the help of activists like Sima Dzhoy , who moved from Kiev to manage the youth center. She supervises after-school classesfrom history to danceto keep teenagers out of trouble and convert them into patriots. Locals tend to have a bad opinion about Ukrainian soldiersthey resent the constant military presence and find their guns intimidating, says Dzhoy. They regard our boys as an occupying force, even though the soldiers are in their own country.

Activists in Toretsk say the town is still run by a cabal of pro-separatists in Moscows thrall, despite the arrest of the former mayor. I ask another Civilian Military Cooperation officer, Captain Alexander Teslenko, how best to root out these individuals. Deadpan, he replies: Slam their fingers in the door till they change.

Rolling his eyes, Drol explains how he once renovated a playground after the authorities ignored a teachers request for help. Small acts like that go a long way here, he says. We cant stop the shelling, but if we can turn just five civilians to the Ukrainian side, then, for us, thats a victory.

Some 20 miles from Toretsk, in the half-deserted, government-controlled village of Karlivka, soldiers at an army checkpoint hunch over in the morning rain as military trucks rumble past them toward the front lines. Nearby, down a muddy lane, theres a derelict water utility converted into a pirate radio station. Inside the studio, hard rock music blares out amid a jumble of wires, turntables, cologne and family photos. On the walls, a calendar of topless models hangs next to Ukrainian flags and patriotic slogans.

This is the headquarters of Tryzub (Trident) FM. On the ground floor, Igor Yaschenko, an activist and part-time dentist, offers free care to servicemen and civilians. Upstairs, in his cramped bedroom, he wages a one-man information war against Russias powerful, state-run media that dominates the airwaves in Donbass. Patriotic songs for a patriotic impact! he yells with a grin, cranking up the volume of a Ukrainian song.

Despite Yaschenkos enthusiasm, his efforts only highlight the limitations of Ukraines attempts to win over the denizens of Donbasstough working-class people who have long lived in Russias orbit. In the late 19th century, when Czar Alexander II ruled the area, tens of thousands of Russiansalong with Greeks, Croats, Poles and other European migrantspoured into the region to extract coal, construct railways and toil in steel foundries. In the 20th century, Soviet authorities glorified Donbass as the utopian powerhouse of the USSR, but the collapse of Communism hit the region hard. The chaotic 1990s ushered in a predatory class of gangster capitalists who blurred the lines between business, politics and the criminal underworld.

A volunteer dentist talks with Ukrop Dental founder Igor Yaschenko, right, on September 20, 2016 in Karlivka, Ukraine. The mural on the kitchen wall is a pastoral scene that includes a Kalashnikov-style rifle leaning against a house. Pete Kiehart

Despite living in Ukraine, many in Donbass still heavily identify with Moscow, and most speak Russian as their first language. Yet figures also show how this populace prizes its independence. As of the 2001 censusthe only survey in post-Soviet Ukrainemore than half of Donetsk provinces inhabitants saw themselves as Ukrainian, but nearly 40 percent saw themselves as Russian, compared with 17.3 percent across the country. When given the option of a regional identity as the journalist Tim Judah notes in his book In Wartime 41 percent here opted for Ukrainian, 11 percent for Soviet and 48 for a local reference such as Donbass. The population [of government-held territory] dont welcome the Ukrainian army and they wouldnt welcome separatists explains Mikhail Minakov, a Ukrainian philosopher and political scientist. For them, any kind of authority is foreign and unwelcome.

Yet given their ties to Russia, it is natural for some in Donbass to look east, not west. And in the years since 1991, when Ukraine gained its independence from the USSR, industrial paralysis and subsequent war have left many to romanticize the old Soviet order. This puts them at odds with their western countrymen eager to join the European Union. As Galina Studelkova, a pro-Ukrainian activist in Toretsk, tells me: "Theyve never known Europe or what it stands foreven less so when they watch all this [Russian] propaganda."

Tryzub FM airs only morale-boosting news, rebroadcast from other local reports. If a bulletin mentions Ukrainian casualties, Yaschenko drowns it out with any music he can find. We only want positive news for the soldiers, he says. We must give the impression that everything is improving.

Despite Yaschenkos lofty ambitions, the transmitter has just a 10-mile range, making Tryzub FM mostly a symbolic gesture. Ukraine has far bigger broadcasters, of course, but many in the east tune in to Russian stations. These include Rossiya-1, which routinely deploys half-truths and outright falsehoods to sow division and demonize the Ukrainian army. Kievs forces have made terrible mistakes during the warincluding shelling civilian areas in botched attempts to dislodge their enemiesbut Russian state medias horror stories of child crucifixion and far-right death squads are nothing more than fake news. Moscows barrage of broadcasts, however, is expertly produced and delivered in the language of preference of DonbassRussian, not Ukrainianputting Kiev firmly on the defensive.

A statue of Vladimir Lenin is removed from a pedestal in the center of town by crane on December 7, 2015 in Hlukhiv, Ukraine. Symbols of communism, still quite common in the former Soviet state, are being removed under a package of "decommunization" laws passed by the parliament in 2015. Pete Kiehart

As activists like Yaschenko try to win over Donbass residents, Ukraine can draw an important lesson from the U.S.-led, counter-insurgency campaign in Afghanistan. According to experts like Jason Lyall, a political scientist at Yale University, an individuals allegiance is swayed far more by acts of violence than by aid donations. And even if a military power takes great pains to minimize civilian suffering, this is no guarantee that civilians can be won over. Lyall argues that ingrained biases make individuals prone to favor certain armed groups over others. In many cases, these biases cant be fully overcome but can be dampened on the margins by a range of tactics. These include providing compensation directly after an attack, promoting a counternarrative that clarifies your intentions and dividing groups so that some members join your side thus disrupting simple us-vs.-them portrayals. If authorities fail to engage these prejudices, Lyall warns, campaigns to charm hostile populations are likely to be expensive, protracted failures.

So far, Ukraines response to the war has been consistently clumsy, draconian and self-defeating. In January, Kiev blacklisted the independent Russian channel, Dozhd (TV Rain), an organization that has given balanced coverage of the war and provided a platform for Kremlin critics. Elsewhere, red tape has hindered many civilians living on the front lines from accessing pensions and aid. Meanwhile, Kievs program to encourage separatists to defect has had limited success; news of these desertions rarely gets a mention in breakaway territories, where Ukraine would like to convince people to switch sides.

These shortcomings have accompanied a deepening linguistic divide. Before the war, language wasnt a major issue, but propaganda has thrust it to the center of this conflict. In March, a law requiring at least 75 percent of national TV broadcasts to be in Ukrainian passed its first parliamentary reading. While some view the Ukrainian language as central to the country's identity, critics warn that such regulation will simply alienate Russian speakers, including many in Donbass.

In these far eastern reaches, Tryzub FMs Yaschenko knows how language can divide a nation. In his makeshift clinic, he manages a team of volunteer dentists who treat servicemen from the front lines. Civilians occasionally get help too. But this free health care comes at a price. Some dentists say theyre only here to help soldiers, Yaschenko explains. I tell them, Listen, these civilians can barely afford heating and electricity. How can we refuse? And they reply to me: Fine. But on one condition: These patients speak Ukrainian during the checkup.

In a trench dug into the base of a volcano-like slag heap, a Ukrainian soldier named Vasily eats his dinner, beef-and-buckwheat soup, before the nights battles begins. This redoubt provides a fine view of the fields near rebel-held Horlivka strewn with land mines, though the threat of sniper fire means most men keep their heads down. Looming over Vasily (who gave only his first name due to security concerns), this mountain of detritus is cast in a warm, orange glow as the sun sets on the plains of Donbass.

Soldiers of the Ukrainian army in their headquarters near Troitske, one of the closest villages to the front lines of combat in the war in eastern Ukraine, on January 16. Celestino Arce/NurPhoto/Getty

This desolate outpost captures the tragedy of the regions downturn and descent into war. Long the economic lifeblood of Donbass, the coal industry has been in free fall since Ukraine left the Soviet Union. Yet the conflict has also offered quick, easy money to some unemployed miners, albeit temporarily. Vasily, a soldier in his 40s, gestures towards a group of silhouetted figures working beneath the headframe of the mine shaft, which has been ravaged by repeated artillery attacks. We watch the former miners dismantle the tracks and girders of their ruined workplace in hopes of selling the hardware as scrap metal. This will earn them moneyin the short term. After that, their future is far less certain.

The militarys efforts to win over locals will not succeed unless the government can find a way to revive the economy and provide steady work for people like these miners. But rebuilding the region will costs billions, sowith Kievs finances squeezed by war and inflationthe bulk of support must come from international donors and private investors. People need a good standard of livinga decent salary paid on time; destroyed houses repaired without delay, says Yuri Yevsikov, Toretsks acting mayor.

A former miner, he took over Toretsk last summer after special forces arrested his boss for allegedly colluding with separatist militants. I tell him it seems remarkable that his predecessor could cling to power for so long, even after Ukrainian forces had recaptured the town. We needed a strong man who could deal with problems during times of war, responds Yevsikov, an introverted official who helped run Toretsk while under rebel control. I needed to keep working and look after my family. I was a hostage of events.

Yevsikov seems typical of the regions pragmatic leaders who have mastered the art of survival. Likewise, his decaying Toretsk is typical of towns across Donbass that could have benefited from the subsidies and investment that the ruling class siphoned off for years. Yet any urge to start throwing money at the regions problems must also involve attempts at inclusion. Chaos in the east has prompted an outpouring of patriotism across the country but there are peculiareven creepyelements to this resurgent nationalism.

A residential building damaged in a night shelling is pictured on June 9, 2016 in the Donetsk region of Ukraine. Mikhail Sokolov/TASS/Getty

A friend in Kiev showed me an odd questionnaire her sons nursery teacher had given out to assess whether the kids upbringing was sufficiently pro-Ukrainian. Questions included: Do you attend events dedicated to the day of the city? and How often do you and your children sing or listen to poems about your motherland and nature?

This siege mentality is the natural product of three years of armed conflict. Its also deeply damaging. Polls suggest that around half of all Ukrainians favor stronger ties with the EU. Yet less than a quarter of people in government-controlled Donbass prefer this route. War fatigue exacerbates this divide. Ukrainians are tired of the conflictsociety is poorer and much less tolerant, says Minakov, the political scientist. This tiredness leaves many people looking for internal enemies, and the usual suspects are Russian speakers.

The country cannot succumb to more division. Kiev cannot make Donbass Soviet again, but it must somehow resuscitate its rust belt and help its eastern inhabitants thrive. The stakes are too high. If Ukraine loses the region for good, it could set a dangerous precedent for further separatist uprisings. This would force the state to funnel more funds into defensemoney that could be used to weed out corruption and finance education and health care.

Publicly, Ukrainian President Petro Poroshenkos administration demands the return of the eastern breakaway territories, but privately, Kievs pro-European leaders worry that re-integrating the self-proclaimed Donetsk and Luhansk Peoples Republics would bring back hostile voters, thus weakening their grip on power. There is an unspoken consensus among lawmakers that the occupied Donbass should not return to Ukraine. They feel it may hinder their electoral future, Minakov tells Newsweek . Re-integrating Donbass presents many challenges. But, if we dont do this, we threaten the integrity of the entire country.

Back on the front lines, Vasily watches the crew of unemployed miners finish their work. Its pitch black outside, save for the flashes of exploding mortars. Theres still coal in the mine, but the war has destroyed their machinery, so they cant get it out, he says. This is the only way they can make any money now. The poor bastards are out of options.

Much like the Ukrainian government itself.

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Can Ukraine Win Over Pro-Russian Citizens in the Eastand Finally End the War with Separatists? - Newsweek