VZCZCXYZ0362
RR RUEHWEB

DE RUEHKV #0632/01 0871235
ZNR UUUUU ZZH
R 271235Z MAR 08
FM AMEMBASSY KYIV
TO RUEHC/SECSTATE WASHDC 5291
INFO RUCPDOC/USDOC WASHDC
RHMFIUU/DEPT OF HOMELAND SECURITY WASHINGTON DC
RUEHMO/AMEMBASSY MOSCOW 0324
RUEHCH/AMEMBASSY CHISINAU 0154
RUEHWR/AMEMBASSY WARSAW 0196
RUEHSK/AMEMBASSY MINSK 0168
RUEHBM/AMEMBASSY BUCHAREST 0015
RUEHSL/AMEMBASSY BRATISLAVA 0010
RUEHUP/AMEMBASSY BUDAPEST 0046
RUEHBJ/AMEMBASSY BEIJING 0016
RUEHAK/AMEMBASSY ANKARA 0023

UNCLAS KYIV 000632 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EUR/UMB, EUR/ACE, AND ISN/ECC (YWONG, BGOLDEN) 
STATE PLEASE PASS TO USTR FOR PBURKHEAD 
USDOC FOR 4231/ITA/OEENIS/NISD - CLUCYCK 
DHS FOR CBP/INA - KCHAISSON 
 
E.O. 12958: DECL: N/A 
TAGS: ETRD ECON UP
SUBJECT: UKRAINE: CUSTOMS HEAD SERIOUS ABOUT REFORM 
 
REF: KYIV 196 
 
SENSITIVE BUT UNCLASSIFIED; NOT FOR INTERNET PUBLICATION. 
 
¶1. (SBU) Summary: The head of Ukraine's Customs Service 
Valeriy Khoroshkovskiy outlined his plan for Customs reform 
during an introductory meeting with Ambassador on March 21. 
Khoroshkovskiy boasted of the early success of his anti- 
smuggling campaign, which was meant to increase customs 
revenues and secure government support for broader reform 
of the Customs Service.  Ambassador outlined USG assistance 
available to Customs and urged Khoroshkovskiy to move 
toward modern principles like risk analysis and post- 
clearance audits.  Khoroshkovskiy agreed and expressed a 
desire to follow up with USG project implementers. 
Khoroshkovskiy described information sharing for obtaining 
customs valuation information from other countries as a 
priority; Ambassador encouraged him to leverage U.S. 
assistance to gain access to Europe's New Computerized 
Transit System (NCTS).  Khoroshkovskiy was sensitive to 
Ambassador's concerns that the anti-smuggling campaign not 
hurt legitimate business, although he cautioned that some 
disruptions were unavoidable.  Overall, Khoroshkovskiy 
appeared serious about Customs reform, and we will do what 
we can to support this goal.  End Summary. 
 
¶2. (U) Ambassador met with Valeriy Khoroshkovskiy, Chairman 
of Ukraine's State Customs Service, on March 21. 
Khoroshkovskiy has been in office since December 24, 2007 
and has received wide media attention for his plans to 
reform the Customs Service.  (Bio Note: Khoroshkovskiy is 
one of Ukraine's most well-known businessmen, as he owns 
substantial assets in the country's media sector.  In 
particular, he owns 61% of one of Inter, one of Ukraine's 
leading TV channels, and 100% of TV channels K1, K2, 
Megasports, Enter-music, and Enter-film.  Khoroshkovskiy 
also served as President of Evraz Group, a top Russian 
steel and mining company, from 2004 until 2006.  Focus 
magazine recently rated Khoroshkovskiy as the 17th richest 
Ukrainian, with his wealth estimated at $1.2 billion.  He 
previously held government positions as Minister of Economy 
and European Integration (2002-2004) and Deputy Secretary 
of the National Security and Defense Council (2006-2007). 
End note.) 
 
New Sheriff in Town 
------------------- 
 
¶3. (SBU) Khoroshkovskiy described how upon assuming his 
position he was "shocked" by the poor performance of 
Customs.  He highlighted a lack of specialized personnel 
and rampant corruption as particularly difficult problems. 
Khoroshkovskiy described how the government's STOP Campaign 
to halt smuggling was targeting both "black goods" -- those 
smuggled across the border without being stopped -- and 
"grey goods" -- those whose declared customs value is 
intentionally lowered to avoid customs fees. 
 
¶4. (SBU) His first goal, said Khoroshkovskiy, was to double 
customs revenues in the first quarter of 2008, and data 
showed the Customs crackdown had done just that.  He 
explained that this major push was only the first step in 
his strategy, as the increased revenues would earn him the 
support of the government to pursue more difficult, 
structural reforms. 
 
USG Ready to Help 
----------------- 
 
¶5. (U) Ambassador reviewed USG assistance available to 
Customs through the State Department's Export Control and 
Related Border Security Assistance (EXBS), the DoD Defense 
Threat Reduction Agency (DTRA), and DoJ's International 
Criminal Investigative Training Assistance Program 
(ICITAP).  Khoroshkovskiy expressed serious interest in 
leveraging this assistance and offered to meet personally 
with EXBS Advisor to follow up. 
 
¶6. (SBU) Ambassador noted concerns that the GOU was not 
making full use of two X-ray scanners provided by EXBS to 
Customs, particularly at the Odessa port.  Khoroshkovskiy 
explained that the failure to properly use the equipment 
was symptomatic of larger structural problems, as the 
entire setup of the Odessa port was "broken." 
Khoroshkovskiy said he planned to construct a new, inland 
facility to alleviate crowding at the port itself and to 
allow Customs to make use of more advanced equipment.  EXBS 
Advisor agreed on the need to develop such inland 
facilities and encouraged Khoroshkovskiy to move away from 
the practice of conducting such a high percentage of 
customs examinations at the border. 
 
¶7. (SBU) Ambassador and EXBS Advisor emphasized the 
importance of using risk analysis and post-clearance audit 
functions in reforming Customs to match European practice. 
Khoroshkovskiy agreed but said such reform would only come 
slowly, as the nature of commonly-used customs duty evasion 
schemes involving assembly in Ukraine made the audit 
process difficult. (Comment: In reality, a fully developed 
post clearance audit capability is Customs' best offense 
against such schemes.  End Comment.) 
 
Information Sharing a Priority 
------------------------------ 
 
¶8. (SBU) Khoroshkovskiy described as a priority getting 
access to Europe's New Computerized Transit System (NCTS) 
and the creation of other customs valuation databases, as 
he saw such information as key to combating valuation 
fraud.  He noted, however, that he was facing resistance 
both internally and from other countries.  Ambassador 
encouraged Customs to work with ICITAP to pursue a pilot 
project to link Ukraine to the NCTS, as Russia had already 
done. 
 
¶9. (SBU) Khoroshkovskiy said he planned to meet with the 
Chinese and Turkish Ambassadors to request valuation 
information and that, if they refused, he would seek to 
limit imports from those countries in retaliation.  (Note: 
Khoroshkovskiy did not repeat his previous request for the 
United States to provide customs valuation information 
(reftel).  Following Khoroshkovskiy's request, we had 
informed the GOU that U.S. exporters were not permitted by 
law to disclose information contained in the Shipper's 
Export Declaration (SED).  End Note.) 
 
Damage to Legitimate Business 
----------------------------- 
 
¶10. (SBU) Ambassador also encouraged Khoroshkovskiy to be 
sensitive to the negative impact on legitimate business of 
the government's anti-smuggling campaign.  Many companies 
were facing export/import delays as a result of the 
campaign, said the Ambassador, and he noted as an example 
how Customs had recently caused delays for express delivery 
operator DHL.  Khoroshkovskiy recognized that some 
legitimate trade had been affected -- he said he had 
personally looked into the DHL case and would hold the 
Customs officer involved "accountable" -- but argued that 
some problems were inevitable given the need for such 
radical reform of Customs' operations.  Khoroshkovskiy said 
he planned to create a separate division within Customs to 
serve as a liaison with intermediaries, such as brokers and 
transportation companies, because they played such an 
important role in the customs clearance process. 
 
Comment: A Breath of Fresh Air 
------------------------------ 
 
¶11. (SBU) Khoroshkovskiy appeared genuinely interested in 
reforming the Customs Service and said all the right things 
in this introductory meeting.  As a businessman, rather 
than a career Customs official, Khoroshkovskiy might be 
more inclined to tackle the systematic problems at Customs. 
His initial prosecution of the anti-smuggling campaign, 
while slowing some legitimate trade, has shown he can be 
effective and has clout within the Tymoshenko government. 
His openness to accepting USG advice is in stark contrast 
to many of his predecessors.  We will follow up with 
Khoroshkovskiy and his staff to try to take advantage of 
this opportunity for reform. 
 
TAYLOR