Military Procurement: Why Mediation Doesn’t Work Against Corruption

State enterprises, contractors, and the “peaceful settlement” of embezzlement

The fourth year of the great war. Ukraine holds the front line, rebuilds its energy infrastructure after missile strikes, seeks allies and resources. And at the same time, it continues to fight corruption, which didn’t disappear with the invasion but merely changed forms.

Eggs at 17 hryvnias apiece, jackets that never reached soldiers, billion-dollar contracts for shells that were never delivered, the recent Operation Midas in the energy sector — scandals erupt with alarming regularity. The Ministry of Defense, the State Service of Special Communications, strategic state enterprises, regional administrations. In 2025, Ukraine scored 35 out of 100 on the Corruption Perceptions Index, and European partners are increasingly demanding explanations.

Exposing corrupt officials is a good sign. It means anti-corruption bodies are working, journalists are investigating, the system hasn’t completely rotted. But another question arises: how many schemes remained unexposed? How many “disputes” between state enterprises and contractors were resolved quietly, behind closed doors, without criminal cases or public scandals?

This is where mediation enters the stage — an alternative dispute resolution method that Ukraine has been actively implementing in recent years. A civilized European approach, saving time and money, preserving business relationships. Sounds great. But are we ready to apply it where state funds and national security are at stake?

When Secrecy Doesn’t Serve the State

Mediation rests on three pillars: voluntariness, mediator neutrality, and confidentiality. The latter makes the procedure attractive for business: you can resolve a conflict without public scandal, preserve reputation, keep dirty laundry private.

Ukraine’s Law “On Mediation” of 2021 is clear: everything discussed in mediation stays in mediation. The mediator cannot testify in court. No protocols are kept. No recordings are made. Ideal conditions for frank conversation between parties.

But imagine a situation: a state enterprise signed a contract with a military equipment supplier. The supplier received payment but delivered defective goods — or nothing at all. A classic scheme we’ve seen dozens of times in recent years.

What happens next? In a normal world — court, investigation, criminal case. But if both parties are “in on it” — both the official and the contractor — they benefit from quietly “reaching an agreement.” Mediation provides the perfect tool for this: behind closed doors, an agreement is reached where the contractor “returns” part of the money or “delivers” part of the goods. Everyone’s satisfied. Except the state and the army, of course.

How It Works in Practice

The scheme for “peaceful settlement” of corruption looks roughly like this:

Step one. A state enterprise signs a contract with the “right” company. The price is inflated, terms favor the supplier. Everything is properly documented, paperwork is in order.

Step two. The supplier receives an advance or full payment. The goods are either not delivered, delivered defective, or delivered partially.

Step three. When exposure risk emerges — an audit, journalistic investigation, complaint — the parties “initiate” mediation. They claim it’s a commercial dispute they want to resolve in a civilized manner.

Step four. In mediation, they agree: the contractor “returns” 10–20% of what was stolen, the case is closed. No publicity, no criminal cases, no accountability.

Step five. The scheme participants split the remainder and prepare for the next contract.

Sounds like conspiracy theory? Let’s look at real numbers.

What the 2023–2025 Scandals Reveal

The “17-hryvnia eggs” case. In January 2023, journalists discovered that the Ministry of Defense was purchasing food for the army at prices 2–2.5 times higher than market rates. The scandal cost Minister Reznikov his position along with several deputies. But the key point — it only became possible because information reached the public space. Had the parties “agreed” quietly, we would never have known.

The Hrynkevych case. Lviv businessman Ihor Hrynkevych was charged with embezzling 1.5 billion hryvnias on ammunition procurement. According to investigators, his companies received state funds for contracts they only partially fulfilled or didn’t fulfill at all. Bail was set at 429 million hryvnias. Here too, publicity did its job.

Drone procurement. NABU exposed a scheme where the State Service of Special Communications purchased drones at prices 70–90% above market rates. Damages — 90 million hryvnias. Money was funneled to accounts of controlled companies, including abroad.

Operation Midas. In late 2024, anti-corruption bodies exposed a massive scheme at Energoatom — a strategic enterprise on which the country’s energy security depends. The scandal touched the highest levels of power and became, according to experts, the most serious domestic political challenge for President Zelensky.

What unites these cases? All became possible thanks to publicity — journalistic investigations, whistleblowers, open data. Mediation with its principle of absolute confidentiality would have made them impossible.

Prozorro vs Secret Agreements

The best proof that transparency works is the Prozorro system. When in June 2023 the Ministry of Defense returned to open bidding through this system, savings amounted to 8 billion hryvnias. Almost half — on food tenders. The same ones where “17-hryvnia eggs” once flourished.

Transparency isn’t a panacea. But it creates conditions where theft becomes harder to hide. Civil society organizations, journalists, competitors — everyone can see who buys what and for how much.

Mediation is the opposite of transparency. It creates a “safe space” for negotiations where no outsider can intervene. In private disputes, this is a blessing. In public procurement — a potential catastrophe.

What the Law Says (and Doesn’t Say)

Formally, the Law “On Mediation” contains a caveat: agreements must not violate “state interests or public interests.” Mediation is not conducted in disputes affecting third parties’ rights.

But who verifies this? The mediator has no right to disclose information. Courts don’t see what happens behind closed doors. Oversight bodies have no access to mediation agreements.

The only guarantee is the good faith of the parties themselves. And if both parties are interested in concealing violations — there are no guarantees whatsoever.

In the United States, defense procurement legislation explicitly prohibits confidentiality agreements that prevent employees from reporting fraud. Section 883 of the National Defense Authorization Act of 2021 prohibits the Pentagon from contracting with companies that force their employees to stay silent about violations.

Ukraine has no such protection. Theoretically, a mediation participant who discovers corruption can report to law enforcement. Practically — they would breach the confidentiality agreement and risk legal consequences.

Who Benefits from “Peaceful Settlement”

Let’s be honest: who benefits from mediation in defense procurement?

Corrupt officials — because it allows them to avoid criminal liability and keep their ill-gotten gains.

Unscrupulous contractors — because it allows them to “buy their way out” with part of what they stole and continue working with the state.

Intermediaries and “fixers” — because it creates a new market for “problem resolution” services.

Who loses?

The state — because it loses money and the ability to punish the guilty.

The army — because it doesn’t receive equipment that was paid for.

Taxpayers — because their money goes into fraudsters’ pockets.

Society — because it loses trust in institutions.

What Should Be Done

Mediation is a useful tool. But not a universal one. There are areas where confidentiality is unacceptable. Defense procurement is one of them.

A direct legislative ban on mediation in public procurement disputes is needed. Not a “recommendation,” not a “caveat” — but a clear prohibition. At the same time, mediators should be required to report detected signs of corruption to law enforcement. Yes, this contradicts the classical understanding of confidentiality. But when state money is involved, public interest must prevail.

A separate direction is creating a registry of mediation agreements involving state enterprises. Not necessarily disclosing all details — but the fact of an agreement and its basic parameters should be public. And finally — whistleblower protection. A person who reports corruption should not fear legal consequences for “breaching confidentiality.”

In Conclusion

War is a time when every hryvnia counts. Every jacket that didn’t reach a soldier is a potentially lost life. Every shell that was paid for but never received is an advantage for the enemy.

Under these conditions, “peaceful settlement” of theft is not compromise. It’s betrayal.

Mediation was created to help people reach agreements. But when corrupt officials sit at the negotiating table, it helps them avoid accountability.

Transparency is inconvenient. It creates scandals, damages reputations, complicates officials’ lives. But it also saves state money and human lives.

Ukraine cannot afford the luxury of secret agreements where the country’s defense is concerned. Therefore, mediation in defense procurement — no.