Humanitarian aid policies in Ukraine under scrutiny, await revision

by Irene Jarosewich

JERSEY CITY, N.J. - Humanitarian aid is hardly the stuff of controversy. People helping people, strangers helping strangers - humanitarian aid is decent, rooted in the moral principle that one human should, and must, help another human in need. Not managed properly, however, humanitarian aid can become the tale of corruption and confusion.

On February 19, two months after Ukraine's Verkhovna Rada issued radical revisions to procedures that regulate the receipt of humanitarian aid by levying heavy value-added, excise and customs taxes on all shipments of relief, it conceded that the changes had been too abrupt and suspended the revisions. In order to curb corruption in the process of humanitarian relief, revisions to the original 1993 procedures had been approved on December 17, 1996. The revisions were harsh; many legitimate aid providers felt that they were being unfairly penalized in the process.

The background

The mechanics of receiving humanitarian aid are relatively new to Ukraine. The "early days" (defined by senders of aid as the years between 1989 and1992), were times of innocence. Officials in Ukraine seemed surprised that anyone would actually want to give away something for free; getting through customs was relatively easy. However, the times of the proverbial "free lunch" were short-lived as the costs of uncontrolled entry became apparent.

Along with countless examples of genuine and generous aid, the early days were also accompanied by scandals: the dumping in Ukraine of worthless goods (broken equipment, outdated medicine, raggedy old clothing and bed linens, junk food, including diet aids and non-nutritious snack drinks); the disappearance of portions of, or entire, shipments; the diversion of aid from the intended recipient to other destinations. The age of innocence came to an end.

Ukraine passed legislation and several government resolutions beginning in early 1993 that included the establishment of a separate Humanitarian Aid Committee under the Cabinet of Ministers to oversee shipments of aid. Shipments had to be accompanied by certain documentation and required a signature of approval by the committee's chair, Bronyslav Ometsynskyi. Customs and import regulations were tightened; recipients of aid, also known as consignees, had to be listed with the Cabinet of Ministers.

Early in his administration in 1994, the newly elected president, Leonid Kuchma, whose campaign platform emphasized anti-corruption measures, again began to point to the still relatively loose customs and bureaucratic controls surrounding the shipment and receipt of humanitarian aid as an area vulnerable to corruption. Along with the good, apparently, there was a substantial amount of bad.

Phoney foundations

According to Ukrainian government sources, a number of foundations were in fact front groups for profitable businesses.

Organizations outside Ukraine would send commodities to their phoney foundation partners in Ukraine, which instead of then donating the commodity to needy people, would sell it.

Or, a genuine, legitimate local charity, in a rural oblast far from Kyiv, would be approached by a donor/businessman with a proposal: agree to be a recipient of "humanitarian aid," sign some documents, and get a certain percentage of the shipment. Unfamiliar with the world of value-added taxes, excise taxes and custom duties, to a small rural civic group, this didn't sound like such a bad deal.

Furthermore, because of existing customs reporting and inspection processes, and the lack of trained inspection personnel, the "humanitarian aid" route was an advantageous way in which to smuggle distinctly non-humanitarian aid such as cases of alcohol, cartons of cigarettes and chocolates, and boxes of expensive leather shoes.

Legitimate aid organizations appealed to Ukraine's president, to the first vice prime minister, Vasyl Durdynets, and to the vice prime minister for humanitarian affairs, Ivan Kuras, to enact reforms. International organizations, such as the World Bank and the International Monetary Fund, began to insist on the reform and tighter enforcement of customs and border procedures as part of their funding packages. Members of U.S. congressional committees expressed their concern about corruption in Ukraine, including in the area of humanitarian aid, to Ukrainian officials traveling in the U.S. And among elected and administrative officials in Ukraine, the drumbeat to crack down on corruption and to control the flow of taxable goods masquerading as humanitarian aid increased.

The Verkhovna Rada acts

On December 17, 1996, the Verkhovna Rada approved revisions to the 1993 procedures to take effect on January 8, 1997. In essence, from the government's point of view, the approach to humanitarian aid was flipped 180 degrees, from "OK, if you say it's humanitarian aid, we pretty much believe you" to "no way it's humanitarian aid unless we say so." All humanitarian aid was suddenly subject to a cocktail of excise, value-added and customs taxes, depending on the commodity, ranging from 20 percent to more than 30 percent to be paid by the recipient. In addition, new documentation would be required. Shipments would be stopped at point of entry, their contents reviewed and assessed. No exceptions.

The abruptness and rapidity of the decision caused strong, immediate reaction from legitimate aid providers who felt they were unfairly being lumped in with those who abused the process. A month of confusion began.

Among the first to react was the U.S. Embassy in Ukraine. Germany and the U.S. are the largest providers of humanitarian aid to Ukraine. The U.S. government provides its aid in the form of commodities, or directly subsidizes the transport of private donations. At the time of the Ukrainian Parliament's decision, several hundred containers of U.S.-supported aid were en route to Ukraine.

According to officials at the U.S. Department of State and the U.S. Agency for International Development (USAID) office in Kyiv, U.S. Ambassador William Green Miller was in continuous contact with government officials in Ukraine. Ukraine's sudden change in policy meant that the U.S. would incur substantial costs in additional storage and shipping time, as well as the cost of additional taxes. Besides the additional expense, the concept of taxing humanitarian aid was unacceptable to the U.S.

According to Catholic News Service, Caritas, the Catholic humanitarian relief organization, vigorously protested the taxation of humanitarian relief and in late January redirected relief bound for Ukraine to Bulgaria, Moldova and Romania to avoid the new taxes and delays.

In Ukraine, more than 20 evangelical religious organizations in mid-February sent a letter of protest to President Kuchma. Ukrainian embassies and consulates in Western Europe and North America received a deluge of calls. And the government of Germany, in early February, suspended all shipments of humanitarian relief to Ukraine pending clarification of the situation.

Ukrainian government officials began to understand that they were being misunderstood.

Some clarifications

Legitimate aid would still be let through and not taxed, Bronyslav Ometsynskyi assured Dr. Anatol Lysyj, chairman of the Minnesota chapter of the Coordinating Committee to Aid Ukraine, when the two met in Kyiv on January 23. However, more scrutiny will be applied, Mr. Ometsynskyi said.

In remarks to this publication's Kyiv correspondent in mid-February, Mr. Ometsynskyi conceded that the policy change had created confusion, and in the near future would be suspended, but explained that the abrupt and unannounced change in policy was necessary to block attempts to sneak in taxable goods.

On January 31 First Vice Prime Minister Durdynets announced that all U.S.-supported aid would be exempt from the new taxes. However, questions about the fate of private (non-government supported) aid from the U.S. remained unanswered.

On February 15 Viktor Suslov, the chairman of the Banking and Finance Committee of the Verkhovna Rada, in remarks to the newspaper Den, promised that the confusion would soon end; he reiterated that abuse of the dispensation from taxes of humanitarian aid was substantial.

On February 19 at a meeting of the Humanitarian Aid Committee at the Cabinet of Ministers, it was agreed to recommend suspension of the new taxes. Nonetheless, shipments still needed to be approved; an ad hoc committee was established to meet twice a month to review requests. Shipments not approved are still subject to tax. The Humanitarian Aid Committee also recommended that a closer working relationship be established between committee members and foreign representatives that send aid to better insure that Ukraine actually gets the aid it needs, not useless or dangerous items of which Ukraine would need to dispose.

Later that day, the Verkhovna Rada approved temporary measures with regard to the receipt of humanitarian aid that included the release from taxes of all humanitarian aid that had come in, and to exclude approved future shipments until new legislation is passed. Discussion of new legislation is scheduled to begin in March. The Parliament also decreed that items in relief shipments must be labeled "Humanitarian Assistance. Sale Prohibited."

The U.S. government has always required detailed shipping manifests for any shipment it supports, and USAID officials in Kyiv strongly support Ukraine's attempt to resolve problems with their customs procedures. Though questions remain even with the new temporary procedures, U.S. officials hope to work closely with the Humanitarian Aid Committee to prevent future confusion.

Though Ukraine runs the risk that donor organizations will direct relief to countries with more stable and less onerous customs procedures, donor organizations have also expressed support for Ukraine's attempts to stop corruption in the humanitarian aid process - even if it means an increased administrative burden on them.

Donors react

Walter Wess, an audiologist from New Jersey and president of the Adopt-a-Hospital Foundation (unrelated to the Ukrainian American Veteran's Adopt-a-Hospital Program), said he was "dumbfounded" when he initially learned of the tax on humanitarian aid, and only later, after some information gathering by phone, did he understand the government's motives.

However, the contribution by Mr. Wess, who acknowledges he knew almost nothing about Ukraine until he went there on a medical site visit in 1992, is an example of a private donation that got caught up in the confusion. His foundation had sent a donation of protective clothing from the New Jersey-based GPU Oyster Creek Nuclear Generating Station to a hospital associated with the Energodar Nuclear Power Station in Zaporizhia. He says he hopes his humanitarian aid will never be used; the safety suits are intended to be worn by medical personnel when treating victims of a nuclear accident.

At press time, his shipment was still detained in a small port outside Odesa and he is being asked to fullfill a new documentation requirement: to obtain a "sanitation" letter from the recipient organization.

This letter must state that the recipient organization agrees to pay for the disposal of the contents of the container if, after review, the contents do not meet sanitation and safety standards. In this way, government officials hope to transfer some of the cost of disposing of useless goods, as well as send out a message to discourage their shipment in the first place.

Over all, this latest glitch won't deter Mr. Wess; he looks forward to more work with Ukraine.

Nadia Matkiwsky, executive director of Children of Chornobyl Relief Fund (CCRF), also applauds the Ukrainian government's efforts to curb corruption and feels that legitimate donors of high quality aid have nothing to fear. Recognized by the government of Ukraine as the largest provider of relief to the victims of Chornobyl, CCRF will send $1.7 million of aid on March 10. According to Mrs. Matkiwsky, CCRF is more than willing to tolerate this rough spot in Ukraine's process of reform since it will help "smoke out" some of the sham organizations that speculate for profit on the tragedy of Chornobyl.

Both Mrs. Matkiwsky and Mr. Wess concur that foundations such as CCRF and Adopt-a-Hospital, which followup their contributions with personal site visits and photos, interview people after the delivery, require receiving documents, and are genuinely concerned about the effectiveness of their aid, provide the type of attention to details that distinguishes phoney foundations from those that provide aid because they care.

Copyright © The Ukrainian Weekly, March 2, 1997, No. 9, Vol. LXV

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