Collective Action in the Financial Sector: Application in Post-Soviet countries

Introduction

This essay addresses the conceptualisation of collective action theories and how non-state actors used collective action to tackle corruption in the financial sector. The central question is whether, and under what circumstances, collective action might be possible in less developed economies, such as post-Soviet countries. To better explore collective action, two examples of collective action will be explored: the Wolfsberg Group, formed by global private banks, and the Joint Anti-Money Laundering Intelligence Taskforce, formed by public and private actors. This essay will contribute to the existing literature on the application of collective action outside of Western Europe.

Post-Soviet countries have consistently topped corruption rankings since becoming independent and exhibit weak development of the private sector and corporate culture and underdeveloped financial institutions (Radnitz 2010). Led by Russia, from 2003 to 2014 illicit financial flows through financial institutions were highest in these countries (Bugnacki 2015). The World Bank Institute places the post-Soviet countries after Africa in terms of corruption and bribery at the national level (NORAD 2011). 

Collective action is a novel approach to tackling corruption in the financial sector, especially in post-Soviet countries, because it changes incentives. By participating in collective action, the participating actors will benefit by not losing their competitive advantage to those breaking the law or suffering reputation damage. The financial sector is one of the most highly regulated sectors in the economy, but corruption and fraud cases are numerous in this sector, especially in former Soviet countries. It is in the interest of every post-Soviet country (including financial institutions) to have less corruption because corruption imposes costs on doing business, it damages reputations and because of the complexity of the financial system, individual actors can often “out-smart” regulations. Corruption has a negative impact and reduces economic growth (Mauro, 1995: p.704). Corruption can also be seen as the “sand in the wheel of commerce,” which causes the financial sector ability to operate inefficiently (Cuervo-Cazurra, 2018). Corruption is especially prevalent in the private sector and has many forms (Klitgaard 1984). One of the main forms of corruption in the financial sector, especially in international business, is bribery, as “exchanges between government actors who demand bribes and business actors who supply them, in return for privileged access to government resources, whether contracts, licences, or favourable regulation” (David-Barret 2019: p.151). With the World Bank estimating that the global cost of corruption in the private sector is $1 trillion per annum, the importance of fighting corruption cannot be overstated (World Bank 2012). Collective action among private sector companies has emerged as a constructive way to fight against corruption. 

The collective action problem occurs when a group of people or countries wants to reach a common goal but cannot agree collectively. It is when all the participants desire a common good but must share it among the members of the group. This applies to the business world when companies want to work together, but they want to be the best and most profitable. The collective action initiatives launched primarily in Western countries were successful for various reasons.  First, private firms and companies have become strong actors in bringing change in these economies and were considered equal partners to the public sector. In addition, governments listen to their voices, and private firms have greater resources in allocating funds in compliance teams and programmes. International groupings like the G7 and Anti-Bribery Laws were founded in their cultural-informational space.  Furthermore, it was easier for them to resist in paying bribes than smaller companies and this practice can effectively be implemented in sophisticated Western Europe. Private firms join anti-corruption clubs because corruption cases bring about reputational damage to large multinational companies. For collective action to be successful, the participating actors must trust each other and share strongly held desires to achieve collective benefits. 

Financial Action Task Force (FATF)

Anti-corruption policies are perceived to be the government’s job (public sector prerogative) and most anti-corruption strategies have two features – they are controlled by government agencies and they are focused on the demand side of public officials (Dixit, 2014). However, the public sector and non-governmental organisations are not the only actors involved in tackling corruption. Private sector actors can equally be active in combating corruption and can lead the global fight against it (Burger and Holland, 2006). Daniel Kaufman (2005) concludes that there is a significant role private enterprise can play in tackling corruption and they can be reliable partners in the public sector’s fight against bribery and corruption.

In the US, the Bank Secrecy Act (1970) defined that financial institutions should keep accurate records of each transaction and report each domestic and international banking transaction if the transaction exceeds the permitted amount. It was adopted in as the Reagan Administration in the US was ramping up its War on Drugs. The Bank Secrecy Act criminalises modifying a transaction amount to be below the reporting threshold established by the UN Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances (1988). During the G7 Group Summit in Paris, the Group established the Financial Action Task Force (FATF) in 1989 to combat the misuse of financial institutions by persons laundering drug money and also to covers other bank-related offences. In the coming decades, FATF started focusing on transnational crime, financing of terrorism, the proliferation of weapons of mass destruction, and to a lesser degree, financial exclusion. FATF objectives were set up to: “set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the financial system” (Cox 2014; p.21). There are 37 full members, nine regional groupings and 28 observer bodies (Nance, 2018)

Between 1996 and 2000, FATF developed other group priorities and started focusing on offshore centres, non-cooperative countries and territories, rather than just focusing on norm-setting and promoting standards in the financial sector. At the same time, the anti-corruption NGO Transparency International put forward an initiative on the misuse of financial institutions for the facilitating slush funds, payments of bribes and money laundering. In the 1990s, the US, Switzerland, the UK and Luxembourg were found to lack compliance with anti-money laundering procedures (Borlini 2012, p.6). Reputation damage to the sector and to individual private banking firms was significant. These developments led to private banking firms joining forces in Switzerland under the Wolfsberg Group and in the UK under the Joint Money Laundering Intelligence Taskforce.

CONCEPTUALISING THE COLLECTIVE ACTION

According to Mancur Olson’s book ‘The Logic of Collective Action’ (1965) “corruption occurs when even if it is in their best interest of all individuals in a group to act collectively towards a common goal, group members do not do so” (Olson, 1965 p.). He concludes that rational actors would not work together to reach collective goals except if certain conditions are met. 

Individuals must sometimes act collectively in order to achieve their collective goals even though it is in their selfish interest not to be involved in - to contribute to the provision of the collective good (Hindmoor, 2006). The World Bank explains collective action: (a) “as collaborative cooperation among stakeholders”; (b) “it increases the impact of individual action, brings vulnerable individual players into an alliance of like-minded organisations and levels the playing field between competitors”; and (c) and “it complements weak local laws and anti-corruption practices in developing countries” (World Bank, 2008).

Collective action can be framed as follows: if the companies work together, they can achieve greater results in anti-corruption activities and promote positive change and align with competitors and other private sector actors. This is an effective method to highlight best practices in anti-corruption compliance (Nero, 2019). It can also be a proactive approach by participants to an initiative with a common goal that by implication is acknowledged by the participants from the beginning (Aiolfi, Bauer, 2012). In the Wolfsberg Group, industry banking sector competitors come together to inspire companies to join anti-corruption collective action (Nero, 2019). 

Game theory explores strategic interactions among rational actors through modelling. Under the prisoner’s dilemma game, two rational actors will choose to cooperate if one can count on the cooperation of the other because they know that they will benefit from the cooperation (Rueschemeyer, 2009: p.170). This helps us to understand the logic of collective action; by cooperation between two prisoners (A and B), one can expect that the other side will do the same to achieve a positive outcome. There are four possible strategy combinations: (1) no contributions; (2) B alone contributes a unit; (3) A alone contributes a unit; (4) or both players contribute a unit (a contribution) for a total of two units. If the players could agree to cooperate and contribute, then all would be better off by four over the Nash equilibrium. However, if A knows that B will abide by the agreement (set of rules, behaviour) and contribute, A is better off not contributing (enjoying at the expense of others) and free riding, since a payoff of 6 exceeds that of 4 (Sandler, 2004).

Meanwhile, club theory has been applied to collective action initiatives. James Buchanan (1965) defines this as "a theory of co-operative membership, a theory that will include as a variable to be determined the extension of ownership consumption rights over differing numbers of persons” (p.1). If economic theory is all about private property, in which all goods and services are privately used, in club theory the services are to be shared and consumed exclusively by members. “For any good or service, regardless of its ultimate place along the conceptual public-private spectrum, the utility that an individual receives from its consumption depends upon the number of other persons with whom he must share its benefits” (Buchanan, 1965. p.). If one brings additional members into the club, then it reduces the cost that the single person will face. As a result, a symmetrical cost-sharing scheme is suggested (where optimal exclusion is possible). The success of the clubs happens in certain conditions – club size, club members and quality of services (Berglas, 1976: p.118). Club theory was advanced 30 years later by Sandler and Tschirhart (1997), who looked at how “voluntary groups derive mutual benefits from sharing one or more of the following: production cost, members' characteristics or a good characterised by excludable benefits.” Club theory has been widely applied to military alliances, international organisations, recreation facilities, infrastructure, national parks (Sandler and Tschirhart, 1997), almost all spheres of the economy and politics. Exclusion mechanisms and club goods are key elements in club theory. Actors join a club because they perceive a net benefit from participation – a pareto optimum.  The benefit derived from goods is exclusionary – to use the club goods the sharers must join the club first and share its principles/ideals. Club goods possess an exclusion mechanism which is costless, but non-paying individuals do not receive the benefit of the good (Sandler, 2013. P.267). 

Voluntary programs have recently attracted a great deal of attention from scholars. Private actors who participate in voluntary programs, promise to create positive social externalities beyond what the state or regulation requires: many companies join one or another kind of voluntary program of collective action. This provides a way to persuade firms to do socially desirable and responsible things at lower costs and with fewer conflicts (Potoski and Prakash, 2006)

Over the last few decades, the global community has experienced the growth of civil regulation in global governance. Vogel (2009: p.151) identifies the development of civil regulation as a political response by private actors to state institutions to tackle good governance problems as bribery and corruption and also “shortcomings of the global and national governance of global firms and markets” (p.152). The type of civil regulation varies and can be a private, non-state, or market-based regulatory framework to govern global firms. The actors involved in civil regulation persuade a large number of global firms to accept non-state regulatory standards.

Civil regulation is based on private law, not public sector authority. In essence, the violators do not face legal sanctions but rather market or social penalties. The motivation of private actors to join civil regulation lies in the assumption that it is an essential source of leveraging over global business activity and national state governments. A good example of industry-based civil regulation is the Forest Stewardship Council (FSC) (Vogel, 2009). Disappointed by the outcome of the United Nations Conference on Environment and Development in Rio (Earth Summit) in 1992 and in not reaching an agreement on forestry regulation, a group of NGOs led by the NGO the World Wide Fund for Nature negotiated with foresters, scientists and private firms who established the FSC to set a certification standard body in the forestry industry. Similarly, in curbing corruption, in 2002 a group of NGOs launched the campaign Publish What You Pay to pressure global firms in the extractive industry to publish payment to host countries. 

However, there are certain limitations on collective action. It has been established that when voluntary programs do not have binding obligations or monitoring mechanisms, they are more likely to fail (Pieth, 2006). Voluntary standards do not provide sanctions for noncompliance, and instead expect participants to follow self-imposed rules. (Pieth, 2006; Van Shoor 2017). 

FIGHTING CORRUPTION COLLECTIVELY IN THE FINANCIAL SECTOR

a.   Wolfsberg Group

In 1999, Peter Eigen, Fritz Heimann and Mark Pieth addressed US banks to develop anti-money laundering standards in the financial sector.  Not receiving support from the US banks, they later directed this concern to global private banks in Chateau Wolfsberg in north-eastern Switzerland. These private firms were “committed to creating guidance for the management of the effective financial crime risks management, management of the financial crime risks, KYC (know your customer), Anti-Money Laundering and Counter-Terrorist Financing policies” (Pieth 2006; www.wolfsberg-principles.com).

The Wolfsberg Group is an industry-driven collective action standard-setting initiative to prevent bribery in private banking and to develop common practices and policies in private banking (Aiolfi, Bauer, 2012). It unites key financial policy sector players with the regulators and international members as a best practice of the banking industry. At present, it includes 13 banks: ABN Amro Bank NV, Banco Santander Central Hispano, SA, Barclays Bank, The Chase Manhattan Private Bank, Citibank NA, Credit Suisse Group, Deutsche Bank AG, Hongkong Shanghai Bank Corporation (HSBC), JP Morgan, Sociète Generale and United Bank of Switzerland (UBS) AG (Hinterseer, 2001: p.25). In addition, within the Group, The Wolfsberg Forum gathers banks worldwide and creates discourse on standard-setting civil regulation initiatives. 

The primary purpose of the Group was initially to provide anti-money laundering guidelines for private banking, but they later expanded the scope to include provisions and guidance on terrorism financing, correspondent banking and the risk-based approach to AML, among other measures, to develop policies and procedures that prevent the use of banks for criminal activities and to safeguard their reputations (Bello, 2016). In October 2000 The Wolfsberg Group launched its first guidelines, the Global Anti Money Laundering Guidelines for Private Banking (Wolfsberg Principles), as the group’s starting point. The Wolfsberg Principles are a significant collective initiative of several leading players in the financial market. The Wolfsberg Principles lay out “a set of best practice guidelines governing the establishment and maintenance of the relationship between private bankers and clients” (Hinterseer, 2001). The Group has developed 17 standards covering various topics of banking and corruption (which can be found at https://www.wolfsberg-principles.com/wolfsberg-group-standards). 

After 9/11, priorities among countries (especially within FATF) were changed toward financing counterterrorism and recommendations on how the financial sector should work better to contribute to the fight against the financing of terrorism, and how banks could work better. The standardisation in the following areas became in the interest of the collective: principles of correspondent banking, trade finance, risk assessment, risk-based approaches and other aspects of credit and cash cards (Aiolfi and Bauer, 2012).

JMLIT

The UK financial system, as a major financial hub, attracts a huge level of investment from all over the world, including criminals seeking to hide the proceeds of crime. Unless there is strong and comprehensive regulation, it faces complex organised crime such as money laundering, which requires not only law enforcement but an active public-private partnership between government and financial sector actors in the form of the creation of a task force. Robert Mazur, a former FBI agent, suggested in 2010 that the US establish a similar multi-stakeholder task force (Mazur, 2010). After the publication of the Panama Papers in 2016, Scandinavian countries also planned to follow suit with similar practice.

The Joint Money Laundering Intelligence Task Force (JMLIF) was launched in 2015 “to create an environment in which the financial sector, government and law enforcement can exchange and analyse information and intelligence to better detect the movement of terrorist funds” (Allen, 2019). It is a collective action initiative to foster greater collaboration between finance and law enforcement, improving information sharing with other organisations (FCA, 2016: AML Annual Report 2015-2016) and considered best practice globally in preventing corruption (NCA, 2019). The idea is to make the financial sector in the UK a hostile environment for criminal activity, build international cooperation and help to recover the proceeds of crime faster and more efficiently. The mechanism created follows the following objectives: Detect (by allowing the banking sector to work with law enforcement in line with their regulatory requirements and improve collective understanding of the money laundering threat); Protect (by improving prioritisation of risks by financial institutions and inform the strengthening of banking systems and controls); and Disrupt (by informing the prosecution and disruption of money laundering activity and allowing enforcement to establish a comprehensive understanding of financial information relating to a case) (NCA, 2019) 

The initiative is aimed at improving intelligence sharing arrangements to help in the fight against money laundering (NCA, 2019). For a successful joint anti-corruption initiative, public and private sector involvement is essential (Nero, 2016).

The JMLIT participants are from the financial sector, and also include the National Economic Crime Centre, National Crime Agency, City of London Police (other institutions such as HMRC, Financial Fraud Action, CIFAS) and the following private banks: Lloyds Bank, Metro Bank, Deutsche Bank, JP Morgan, Santander, HSBC, Nationwide, the Post Office, The Royal Bank of Scotland, Barclays, Citigroup, BNP Paribas and Standard Chartered. Banks share intelligence information for the prevention and detection of financial crimes (Ref: NCA,2019). 

            The initiative covers 93% of retail market transactions and a wide range of international correspondent banking networks, and targets factual inquiries and can obtain access to tactical and strategic intelligence and responses. JMLIT is a successful initiative, as the weaknesses of one actor can be balanced by the services of other actors; and the initiative has helped to seize 34 million pounds in illicit funds (Euromoney, 2019) to identify 486 money laundering cases, human trafficking, and links to terrorism. Private sector members identified over 5,000 suspect accounts linked to money laundering (Euromoney, 2019). Without multi-stakeholder public-private approaches, its success would not have been possible in complex, multi-institutional and jurisdictional corruption cases. 

One success story was with the 23 June 2017 London Bridge attack. The UK National Crime Agency (Financial Intelligence Unit) responded immediately, and within 12 hours JMLIT gathered to brief on the matter. Later the same day financial institutions identified payment details and spending patterns of money transactions. Without private actors, it would have usually taken a longer period for law enforcement to act.

APPLICATION OF COLLECTIVE ACTION IN POST-SOVIET COUNTRIES (Corruption and Collective Action in post-Soviet countries)

Post-Soviet countries usually refer to the 15 national territories which obtained independence in 1991 after the breakup of the Soviet Union[1]. However, in the context of this essay we are looking at the countries which joined the Commonwealth of Independent States and share a Russian language legacy. These countries share a similar political culture, similar economic and political development (Gel’man, 2008: p.158). 

The political regimes in these states didn’t change as much as many anticipated but remained similar to the Soviet Union in that they are authoritarian, and it is unlikely that this will change in the near future. 

In 1988 and 1989, under Gorbachev, the financial sector in the Soviet Union was reformed and state banks were reorganised into central banks (Gosbank USSR) which controlled financial management and oversaw monetary policy. Gosbank supervised the five specialist banks: Vnesheconombank (Foreign Trade); Promstroybank (Industry and Building), Agropriombank (Agro-Industry), Zhilsotsbank (Communal Services) and Sberbank (Savings Bank) (Lane, 2001; Djalilov and Piesses, 2011). The financial systems of the Soviet republics were essentially branches of the five major Soviet banks. The reforms also allowed the Soviet republics to establish new banks. After 1992, the branches of these banks became independent state banks and subsequently privatised by various groups. Privatisation procedures were unclear, which encouraged dysfunctional managerial activities and private expropriation of public assets, and which led to declining real investments. Problems included managers having to learn new roles in the transition from a communist economy to a market-oriented economy. Banking firms came to be controlled by oligarchs or people close to the ruling elite in each country.

The financial sector of the post-Soviet countries in the 1990s was characterised by high inflation, budget deficits, a shift from a planned economy to the market economy, dollarisation of market transactions, and ‘divorce’ from Soviet institutions (Krivogorsky and Eichenseher, 1996). In a time of uncertainty caused by the collapse of the Soviet Union, state enterprises soared in debts, taxes, unpaid wages and unpaid bank loans. 

Sadly, it is notable that post-Soviet countries today are among the most corrupt nations in the world, and given their geopolitical power, financial importance and international importance, this fact is somewhat alarming.  Corruption has seeped throughout politics, economics, and the criminal underworld since most post-Soviet countries embraced capitalism (Dawisha, 2015).   While it may be easy to blame the rise of capitalism for corruption being so prevalent in countries like Russia, one must always look through history to find the true genesis of something that is so pervasive.  While capitalism definitely plays an enormous role in corruption, communism is the root of the widespread corruption throughout such countries (Fel?shtinskiy and Litvinenko, 2007).

In Russia, currently, there are three main sources of corruption.  The first, and probably most dangerous, is political corruption.  Russian politics is notorious for corrupt practices like wide-scale voter fraud and using political power for personal gain.  This form of corruption is a long-standing tradition throughout Russia, and can easily be traced by to the communist administration of the USSR.  The second source of political corruption is in private subdivision.  Successful capitalists, particularly oligarchs, control vast industries which mean they acquire massive wealth on an annual basis, which they use to engage politicians in bribery and also bribe public authorities for their own interests.  Finally, the criminal world rounds out the corruption triad of Russia. The criminal body has impacts in the political and financial realm of Russia, and constantly uses this to their benefit. All of these forms of corruption allow others to survive and flourish.  With these three bastions of corruption, the average Russian stands a small chance at success.  All of these forms of corruption first became truly widespread in post-communist Russia, yet the foundation for them can be traced to the communist era (Dawisha, 2015).

Corruption is prevalent throughout all of Russia, it is seen throughout the government and private sector.  The current government, under Vladimir Putin, has been grabbing more and more power since his rise to power around the turn of the century.  What power remains belongs to the oligarchs and other wealthy businesspeople. This leaves little to no influence for the common people, who have to make do with whatever rights and liberties are left to them, which seem to be steadily decreasing. A clear example of how prevalent corruption is throughout Russia is recent legislation passed through Russia’s lower house of parliament which increases the fines for protesting from $60 to $9,000 (Dawisha 2015). This is more than three times the cost of stealing a car, 120 times the cost of being caught soliciting, and is even 40 times more than being caught storing nuclear waste illegally (Fel?shtinski? and Litvinenko 2007). This is just one example of the extreme amount of power that is bestowed on the government. Other common corrupt practices of the government include widespread voter fraud, officials accepting bribes just to do what they’re supposed to do, and government officials using their power to bully businessmen. These forms of corruption are shockingly similar to the corrupt practices of the communist leaders and officials of the USSR.

In the financial sector, money laundering has posed a threat to the development of post-Soviet countries. Illegally obtained money is injected back into the economies of such countries, and this vice is well-rooted in such countries, causing an imbalance in their economies. Illegal money in countries like Armenia is obtained from the sale of natural resources, illegal gambling, extortion and abuse of power. Although tracking such cases is quite difficult due to corruption, there is an effort towards curbing the growth of the illegal trade. For instance, in Armenia, the legislation allows confiscation of property obtained through illegal trade, property obtained for the purposes of committing a crime, or as a result of a crime the suspect was committed in.

A new civil case can be opened if there is difference of more than $50,000 between the individual’s declared income and the total value of the property they own (Olson, 2012). The assumption that the property was acquired through illegal means can default when the individual presents papers to prove the legal acquisition of the property in question. Although the legal process is yet to gain speed, efforts towards convicting such crimes show a positive move towards curbing illegal acquisitions in Armenia. The general approach that we have in natural science is like this: It has some necessary conditions and assumptions, and this theory can be applied to many different societies and explain the various social, economic, and political phenomena.

Counterfeit goods and drug trafficking are among other issues reckoned in post-Soviet countries. In countries like Latvia and Estonia, these vices have greatly affected their economies. Counterfeit goods seized in their economies often reach sums of billions of dollars (Olson, 2012). This has led to the loss of revenue to both governments since the money in circulation is not usually accounted for. Both governments have put in place measures to seize counterfeit goods. Counterfeit goods often include basic consumable products. The money earned from the trade is later laundered hence becoming impossible accounting for economic growth in such countries. Seizing the counterfeit goods in the two countries is one of the solutions both governments have resorted to. With the collective effort from companies, both governments are able to identify and track the sources of illegal products before they find their way to the markets (Esanu, 2013).

However, Ukraine is a different case and is an exception among post-Soviet states. Taking a markedly differentapproach in opposition to Russian influence, the Business Ombudsman Council has functioned since 2016 (https://boi.org.ua/en/). In addition, the Ukrainian Network of Integrity and Compliance (UNIC 2017: https://unic.org.ua/en/news/vseukrainska-mereza-dobrochesnosti-ta-complaensy-oficiino-rozpochinae-roboty-9/),  is a collective action platform launched in 2017 supported by EBRD and OECD and uniting 59 SMEs from around 46 cities and towns in Ukraine from diverse sectors of the economy including pharmaceutical, agricultural, banking, construction, finance, trade, food, manufacturing, and legal services. “[I]f business behaves ethically; this reduces unlawful acts. One of the key objectives of UNIC is to provide companies with tools and procedures to implant compliance into their business core", stressed Algirdas ?emeta, Business Ombudsman of Ukraine, the initiator of UNIC. He added that the initiative is nationwide and aims at bringing together businesses showcasing integrity in Ukraine regardless of size and region.  (UNIC 2017).

UNIC promotes “responsible business approaches and zero-tolerance to corruption” (UNIC 2017). Members agree to maintain a good reputation, improve their integrity and adherence to transparency practices and assess the corruption risks by implementing an internal compliance program (UNIC 2017). A certification process establishes whether a company meets acceptable standards for implementing a risk-based policy to prevent corruption (Kheruvimova, 2019). This practice should be extended to the financial sector and exported to other post-Soviet countries as well. However, it will take some time before financial institutions become truly independent and purely private (not-quasi government-owned firms).

Pragmatic solutions have been instituted by governments of post-Soviet countries. The application of the solutions is geared towards the realisation of economic development and the realization of progress in different capacities. Although all countries have different approaches to curbing illegal transactions thriving under their noses, corruption seems to be the major hindrance to achieving the targets required. Corruption, in these countries, has its roots in social and political spheres. Nevertheless, comprehensive collective efforts have ensured such vices are curbed, hence development can occur in those countries.

CONCLUSION

These cases have shown that collective action is possible when there are consequences for corruption that is exposed. In the US case, it was criminal exposure that cost money and reputational harm to major banks, leading to the establishment of the Wolfsberg Group. In post-Soviet countries, widespread corruption in the judiciary and state capture means that there typically is not sufficient local accountability for the private sector to suffer consequences when corruption is exposed, and poor freedom of the press limits the impact of naming and shaming. Ukraine stands out from other countries primarily due to its geopolitical circumstances and the fact that it has had two revolutions in the past two decades, both of which had links to public outrage over corruption scandals. 

In Ukraine, there are also clear incentives to cleaning up the private sector and improving its image to international investors, foreign governments and International Financial Institutions. Many Ukrainian firms and politicians support closer integration with Europe as a road to economic development, which further increases the incentive to adopt international norms. This integration into the European and global market can be viewed as a collective good that requires a critical mass of the private sector to regulate itself. Unlike in Russia, there is no resource curse that allows the economy to rely on oil and gas, but economic growth must instead be based on comprehensive private sector development. This requirement for growth serves in part as a shared good that can be achieved through collective action. Case of Ukraine shows that the legacy of communism is not an insurmountable hurdle. 

However, it is different from Russia and most other countries in the region because of its less adversarial relationship with Western countries. In the past twenty years, Ukraine has experienced two revolutions that were in part a response to corruption and the concentration of wealth and power among highly corrupt oligarchs. These revolutions have shown that at least an appearance of public accountability and desire for reform is needed to maintain stability in the country. They have also raised expectations among the public and business community that have the potential to create a backlash against corrupt actors, similar to that which is found in more developed economies. Without similar changes to the socio-political incentives, it is unlikely that other countries in the post-Soviet region will foster collective action to combat corruption. 

[1]The Soviet Union consisted of the following territories: in Eastern Europe, Belarus, Moldova, and Ukraine; in the Baltic Region, Estonia, Latvia, Lithuania; Caucasus: Armenia, Azerbaijan, and Georgia; in Central Asia, Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan; and in Eurasia, Russia.