Why Ukraine is tightening anti-graft rules before aid billions start flowing

Good morning. The EU yesterday offered Tunisia more than €1bn in aid, in an attempt to avert an economic crisis in the country — and a desperate effort to stem the flow of migrants fleeing across the Mediterranean to Italy.

Today, we hear from the anti-fraud officials already working to protect the hundreds of billions of reconstruction dollars forecast to flow into Ukraine, and take stock of Europe’s faltering trade relationship with Brazil.

The accountants

Even as the war in Ukraine shows no sign of ending, efforts are already taking shape to ensure that reconstruction money is not siphoned off by fraudsters, writes Alice Hancock.

Context: A joint study led by the World Bank estimated in March that $411bn will be required for Ukraine’s recovery and reconstruction needs over a decade. By comparison, the Marshall Plan — funding from the US to rebuild Europe after the second world war — amounted to about $150bn in today’s money.

“A huge amount of money will be needed to rebuild Ukraine one day. The EU and Ukraine will have to work together to ensure the accountability of that money coming from [EU] citizens,” Ville Itälä, head of Olaf, the EU’s anti-fraud watchdog, told the FT.

The EU has committed to setting up a Rebuild Ukraine fund composed of grants and loans but has not attached a figure to it. A reconstruction conference will be held in London this month.

Ukraine’s president Volodymyr Zelenskyy has been quick to react to hints of fraud in his government as he continues to plead with western partners for support, while a fraud trial opening in London today pitting Ukraine’s largest bank against its former oligarch owners is seen as a key test of Kyiv’s anti-corruption credentials.

Itälä said the difficulty with the reconstruction effort would be in ensuring that money coming from myriad international sources went to worthy projects: “With the Marshall Plan back then it was one donor, now it is many donors.”

Olaf’s offices are busy: Andriy Kostin, prosecutor-general of Ukraine, visited at the end of April to discuss monitoring funds, and talks about Ukrainian access to EU funds dedicated to anti-graft efforts are continuing. Officials from the World Bank will be visiting this week, while Ukrainian officials are expected to come to Brussels to train with Olaf on fighting corruption soon.

Last week, Ukraine set up a group, to be chaired by its deputy prime minister for science and innovation Mykhailo Fedorov, that will oversee the roll out of anti-graft digital tools across its government.

With an eye to its future EU accession, Kyiv has also set in train work on a series of European Commission recommendations to fight fraud, including a state anti-corruption programme and a “de-oligarchisation” law.

“Tailored legislation, strong anti-corruption institutions and digitalisation will foster the necessary trust and confidence of foreign governments, institutions and investors in Ukraine’s reconstruction,” said Vsevolod Chentsov, Ukraine’s ambassador to the EU.

But Itälä warned that every caution had to be taken: “Where there is big money that needs to be spent quickly, fraudsters try to take advantage.”

Chart du jour: Out of time

The world’s remaining “carbon budget” will be exhausted in less than six years at current emissions levels, scientists have warned.

Natural partners?

Commission president Ursula von der Leyen lands in Brasília today for a tour of Latin American capitals as business groups warn that other rivals are usurping the EU’s trade relationship with Brazil, writes Ian Johnston.

Context: Brussels called Latin America its “natural partner” last week as it kicked off a diplomatic push set to culminate in July with the first EU summit with Latin American and Caribbean states since 2015. In those years of neglect, rivals including China have consolidated their position in the region. 

Protectionism and fragmentation risk exacerbating the “unfortunate decline of the relevance of the EU-Brazil commercial relationship in favour of other major competitors”, warn Brazil’s national confederation of Industry, CNI, and lobby group Business Europe.

Europe was once Brazil’s main trading partner but now lies in third place in terms of imports, behind the US and China. Brazil has also fallen behind India and South Korea in the EU’s ranking of trading partners.

Bilateral trade between Brazil and the EU is rising, reaching a record high of nearly €90.5bn last year. But CNI and Business Europe warn that relations are “far below their full potential”.

Ratifying the Mercosur trade agreement would bring the relationship “back on track”, the groups say. Negotiators should show “appropriate flexibility to reach a balanced, time-sensitive agreement that delivers for both societies”. 

But the EU is waiting for the Latin American bloc’s response to requests for stronger environmental commitments. Can von der Leyen’s visit break the deadlock?

What to watch today

1. Nato secretary-general Jens Stoltenberg visits US president Joe Biden.

2. EU-UK Forum annual conference in Brussels, featuring European commission vice-president Maroš Šefčovič, from 1040am.

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