Ukrainians edge a step closer to the rest of Europe with move towards lifting of visa barrier as Brussels seeks to provide Ukraine with tangible results for post-Maidan reforms
The European Commission gave the green light on 20 April to the lifting of the visa barrier on Ukrainian citizens, opening the way for a potentially game-changing breakthrough in Ukraine’s bid for greater European integration.
The European Commission sent an official proposal to the Council of the European Union and the European Parliament to lift visa requirements for the citizens of Ukraine by transferring Ukraine to the list of countries whose citizens can travel without a visa to the Schengen area. This proposal comes after the Commission gave a positive assessment in December 2015, confirming that Ukraine successfully met all benchmarks under the Visa Liberalisation Action Plan (VLAP).
REWARD FOR UKRAINIAN REFORMS
European Commissioner for Migration, Home Affairs and Citizenship, Dimitris Avramopoulos praised Ukraine’s reform efforts in his comments on the decision: “Today we follow up on our commitment to propose short-stay visa-free travel to the EU for Ukrainian citizens with biometric passports – facilitating people-to-people contacts and strengthening business, social and cultural ties between the EU and Ukraine. This is the result of the success of the Ukrainian government in achieving far-reaching and difficult reforms in the Justice and Home Affairs area and beyond, impacting on areas such as the rule of law and justice reform. I am very satisfied with the progress achieved, it is an important achievement for the citizens of Ukraine, and I hope that the European Parliament and the Council will adopt our proposal very soon.”
Once the proposal will be adopted by the European Parliament and the Council, Ukrainian citizens with biometric passports will no longer require visas when travelling for short stays of up to 90 days to the Schengen area. The visa-free travel will apply to all EU Member States except for Ireland and the UK, as well as the four Schengen associated countries (Iceland, Liechtenstein, Norway and Switzerland). The exemption concerns only short-stay visas valid for up to 90 days of travel in any 180-day period for business, tourist or family purposes. The visa exemption does not provide for the right to work in the EU. Other entry conditions for accessing the Schengen area will continue to apply, including the need to be able to prove sufficient financial means and the purpose of the travel.
Visa-free EU travel could serve as a significant victory for Ukraine as the country seeks to move closer to Europe. President Poroshenko has portrayed the removal of the EU visa barrier as a key national objective. If confirmed by the European Parliament and Council of the European Union, the removal of visa requirements would be trumpeted as one of the first tangible positive results of the country’s European pivot following two years of conflict and economic crisis. It would be a huge boost for the business community, enabling ease of travel throughout the EU and facilitating greater connections between Ukrainian and EU businesses. It would also provide the country with a major psychological boost, bringing to an end 25 years of strict visa policies towards Ukraine that have led many to complain of being treated as second-class European citizens.
UKRAINIAN MASS EXODUS UNLIKELY
Critics have warned that the removal of visa restrictions will lead to an EU exodus of Ukrainians fleeing from conflict and poverty. However, The new visa-free regime will only allow for 90-day stays and includes no right to work or receive any social benefits. In other words, any Ukrainian citizen seeking to reside within the EU would face the same barriers and legal obstacles that are currently in place. The only change would be an easing of physical access to those able to demonstrate sufficient funds to travel under the new visa-free terms. This is hardly likely to spark a flood of Ukrainian migrants.
Ukraine’s parliament has approved presidential ally Volodymyr Groysman for the post of Prime Minister, in the country’s biggest political shakeup since a 2014 uprising brought in a pro-Western leadership.
MPs voted by 257 to 50 to approve the resignation of prime minister Arseniy Yasenyuk — condemned by President Petro Poroshenko for losing the public’s trust — and select Mr Groysman.
Mr Yatsenyuk announced his resignation on Sunday, almost two months after surviving a no-confidence vote in Parliament.
A new Groysman-led Government could end months of political infighting that has stalled efforts to tackle graft and delayed billions of dollars in foreign loans.
Speaking ahead of the vote, the former speaker said his Government would be committed to also strengthening ties with the European Union.
“I understand the threats that face us. In particular I would like to highlight three threats — corruption, ineffective governance and populism, which do not pose less of a threat than the enemy in eastern Ukraine,” he said, referring to a pro-Russian separatist rising.
“I will show you what leading a country really means.”
New Cabinet to strengthen Poroshenko’s economic influence
The rebooted Cabinet under Mr Groysman, an ally of Mr Poroshenko, appears to strengthen the President’s influence on the economic side of policy-making.
Oleksandr Danylyuk, who is set to become Finance Minister, is the deputy head of Mr Poroshenko’s administration, while the Economy Minister position will be given to Stepan Kubiv, who is currently the President’s representative in Parliament.
Addressing Parliament, Mr Poroshenko said the new government must honour reform commitments made under a $US17.5 billion bailout program from the International Monetary Fund, which has held back payments since October due to the political crisis.
“I stress the imperative and inviolable necessity of continuing cooperation with the IMF and other international lenders,” he said.
Some economists worry that Mr Grosyman may lack the toughness needed to stand up to a handful of tycoons who have dominated Ukrainian politics.
Mr Yatsenyuk won early renown for his scathing criticism of Russia during its March 2014 annexation of Crimea and the pro-Moscow eastern insurgency that broke out a few weeks later.
However, he saw his party’s approval plunge to around 2 per cent due to a broad public perception that he was working in tandem with the very oligarchs who had enjoy enormous clout under previous administrations and whom he had vowed to fight.
Poroshenko protégé Groysman expected to become Ukraine’s next Prime Minister after Arseniy Yatsenyuk finally quits post
Outgoing PM calls for quick transition and praises ‘best government in Ukrainian history’ while thanking society for ‘patience’ and ‘endurance’
Ukrainian Prime Minister Arseniy Yatsenyuk announced his resignation on 10 April, bringing to an end long-running speculation over his future. Uncertainty over Yatsenyuk’s position had been a central theme of the political crisis that has unfolded in Ukraine since early 2016, paralyzing the government and stalling reforms while preventing the delivery of much-needed international financial support.
Yatsenyuk’s resignation brings to an end a two-year reign as head of the Ukrainian government that has seen him at the helm during some of the most turbulent times in the country’s history. Despite his relative youth, Yatsenyuk is not among the new faces to enter Ukrainian politics following the Euromaidan Revolution, having previously served as head of the National Bank and held various posts at ministerial level during the 2000s.
He was one of the leaders of the Euromaidan Revolution and first held the post of Prime Minister within the interim government that took office in the immediate aftermath of the revolution and the flight of former President Viktor Yanukovych. Yatsenyuk famously declared his interim administration to be a ‘kamikaze government’ due to the necessity of extreme measures to save the country from bankruptcy and Russian occupation. However, rather than committing political suicide, Yatsenyuk thrived in the crisis environment, eventually staying on as Prime Minister following his party’s unexpectedly strong performance in the October 2014 parliamentary elections.
REFORMS AND DISILLUSIONMENT
As head of the current government, Yatsenyuk has overseen a number of important structural reforms, notably bringing ruinous energy sector subsidies under control. Nevertheless, he has been widely criticized for failing to make further progress on the post-revolutionary reform agenda, and has been tied to a series of corruption scandals that have led to widespread public exasperation and disillusionment.
Yatsenyuk’s public approval rating figures have long been in the low single digits, leaving him vulnerable to political intrigue. His party’s strong position as the second-largest faction within the ruling parliamentary coalition had hitherto helped to protect his position, but the resignation of key reformers from his cabinet and the subsequent collapse of the parliamentary coalition in early 2016 appear to have combined to make his position untenable.
Ukraine’s current Parliamentary Speaker Volodymyr Groysman, a protégé of President Poroshenko, is widely expected to replace Yatsenyuk. Talks on the structure of the new-look Ukrainian government are at an advanced stage, with the priority now likely to be a smooth and timely transition. Ukraine will be looking to establish a new government within days in order to avoid further dangerous instability and secure delayed IMF funding. Key concerns among reformers and Ukraine’s international partners will likely centre on the increasingly dominant position of President Poroshenko, who will effectively have control over parliament and the government if his candidate Groysman is voted in as PM.
WHAT NOW FOR YOUTHFUL VETERAN?
At just 41 years of age, Yatsenyuk is likely to remain a prominent figure in Ukrainian politics for many years to come. Over the past eighteen months, he has clearly lost the confidence of the Ukrainian public and the country’s political classes. However, once the dust has settled on his resignation, he may well benefit from a more balanced appraisal of his leadership during a period of existential challenges for the Ukrainian nation.
FULL ENGLISH-LANGUAGE TEXT OF YATSENYUK RESIGNATION ADDRESS:
“I have taken the decision to resign as Prime Minister of Ukraine.
On Tuesday, April 12, my request will be submitted to the Parliament. The political crisis in the country was created artificially. The desire to change one person blinded politicians and paralyzed their political will for real change. The process of changing the Government turned into a mindless running in place.
We cannot allow destabilization of the executive branch during a war. This would be inevitable, if after this resignation a new Government of Ukraine is not selected immediately. The Parliamentary faction of the Block of Petro Poroshenko has nominated Volodymyr Groysman to the post of Prime Minister. Having done everything to ensure stability and continuity of our course, I declare my decision to transfer the obligations and responsibilities of the Head of Government of Ukraine.
This Government is the best in the history of Ukraine. Both of the last two Cabinets were unique. They were the first manifestations of New Ukraine. I thank those colleagues who have acted honestly and selflessly.
Over the past two years of war, my fellow party members from People’s Front faction have been a pillar of support to the Government in Parliament during difficult and unpopular but necessary reforms. I thank People’s Front for its support. Please support my decision and continue our joint work together. People’s Front remains in the coalition because today it is the only way to defend the state.
I thank our nation, society, civil society activists, volunteers; I thank each and every one of you for your endurance and patience.
As of today, my goals are broader than the authority of the Head of Government. New electoral law. Constitutional reform. Judicial reform. Coalition control over the direction of the new Government. International support of Ukraine. Ukraine’s membership in the European Union and NATO. This is only a part of my program.
The core of our problems is not purely political. It is ethical. As in our everyday lives, politics is the result of morality – our ethical standards. If dignity and morality require changing the political rules, then changing these rules is certain to occur.”
AUSTRALIAN companies and individuals are being investigated by the ATO after leaked documents revealed how the world’s super-rich hide their cash.
More than 800 Australian clients of the secretive Panama based law firm, Mossack Fonseca & Co, where the documents came from, are being investigated by the ATO.
An international coalition of media outlets published an extensive investigation into the offshore financial dealings of the rich and famous, based on a vast trove of documents —the so-called Panama Papers — provided by an anonymous source.
The International Consortium of Investigative Journalism, a non-profit organisation based in Washington, said the cache of 11.5 million records detailed the offshore holdings of a dozen current and former world leaders, as well as businessmen, criminals, celebrities and sports stars.
And now the Australian Taxation Office is targeting hundreds of Australians as a result of the leak.
The ATO is examining the dealings of 800 Australian high net worth individuals and has linked more than 120 of them to an associated offshore service provider situated in Hong Kong, The Australian Financial Review reported on Monday.
The ATO told Fairfax some cases may be referred to the Serious Financial Crime Taskforce.
Labor senator Sam Dastyari said the revelations show a broken tax system and a “cat and mouse game”.
“What is so concerning is that some of this activity may even fall within the law,” he told ABC Radio.
Senator Dastyari said tax avoidance was not a victimless act, because every dollar that was siphoned off, didn’t go into Australian schools or hospitals.
The tax office must be congratulated for taking a strong stance, he said.
HOW INFORMATION WAS LEAKED
The leaked records came from the Panamanian law firm, Mossack Fonseca & Co. The firm is one of the world’s top creators of shell companies, which can be legally used to hide the ownership of assets. The firm has offices in 35 cities around the world, including in Hong Kong, Miami and Zurich.
German newspaper Sueddeutsche Zeitung first received the data more than a year ago.
The Munich-based daily was offered the data through an encrypted channel by an anonymous source who requested no monetary compensation and asked only for unspecified security measures, said Bastian Obermayer, a reporter for the paper.
Obermayer said that over the course of several months Sueddeutsche Zeitung received about 2.6 terabytes of data — more than would fit on 600 DVDs. The newspaper said the amount of data it obtained is several times larger than a previous cache of offshore data published by WikiLeaks in 2013 that exposed the financial dealings of prominent individuals.
“To our knowledge this is the biggest leak that journalists have ever worked on,” Obermayer said.
The report is based on a data leak of 11.5 million records for 214,488 entities connected to people in more than 200 countries or territories. The leak includes emails, financial spreadsheets, passport information, corporate records and other sensitive information. It spans nearly 40 years, from 1977 through to the end of 2015.
“In the largest media collaboration ever undertaken, journalists working in more than 25 languages dug into Mossack Fonseca’s inner workings and traced the secret dealings of the law firm’s customers around the world,” the report said.
“They shared information and hunted down leads generated by the leaked files using corporate filings, property records, financial disclosures, court documents and interviews with money laundering experts and law-enforcement officials.”
The consortium said it will release the full list of companies and individuals identified in the data in early May.
The report into the documents revealed a network of secret offshore deals and vast loans worth $2.6 billion has laid a trail to Putin, reports The Guardian.
According to the report, an unprecedented leak of documents shows how this money has made members of Putin’s close circle rich.
The report revealed associates of Russian President Vladimir Putin have moved as much as $2.6 billion through offshore accounts.
The offshore trail reportedly starts in Panama, darts through Russia, Switzerland and Cyprus — and includes a private ski resort where Putin’s younger daughter, Katerina, was married in 2013.
In Russia, the Kremlin last week said it was anticipating what it called an upcoming “information attack.”
Putin’s spokesman, Dmitry Peskov, told reporters that the Kremlin had received “a series of questions in a rude manner” from an organisation that he said was trying to smear Putin.
“Journalists and members of other organisations have been actively trying to discredit Putin and this country’s leadership,” Peskov said.
WORLD LEADERS, CELEBRITIES CAUGHT OUT
But Putin isn’t the only one who has been exposed.
The leak has impacted more than 200,000 companies, foundations and trusts.
— Offshore companies have been linked to the family of Chinese President Xi Jinping.
— Icelandic Prime Minister Sigmundur David Gunnlaugsson and his wife secretly owned an offshore firm holding millions of dollars in Icelandic bank bonds during the country’s financial crisis.
— The law firm of a member of FIFA’s ethics committee, Juan Pedro Damiani, had business ties with three men indicted in the FIFA scandal: former FIFA vice president Eugenio Figueredo, as well as Hugo Jinkis and his son Mariano who were accused of paying bribes to win soccer broadcast rights in Latin America.
— Argentine football great Lionel Messi and his father owned a Panama company, Mega Star Enterprises Inc., a shell company that had previously not come up in Spanish investigations into the father and son’s tax affairs.
At least 33 people and companies in the documents were black-listed by the US government for wrongdoing, such as North Korea and Iran, as well as Lebanon’s Hezbollah, the ICIJ said.
Names also figuring in the leak included;
— The deceased father of British Prime Minister David Cameron.
— Former Egyptian President Hosni Mubarak.
— Syrian President Bashar al-Assad.
— The president of Ukraine Petro Poroshenko,
— The king of Saudi Arabia.
— Former Libyan leader Muammar Gaddafi.
— The prime minister of Pakistan Nawaz Sharif.
— Argentine President Mauricio Macri.
— Pilar de Borbon, the sister of former Spanish King Juan Carlos.
— Spanish film director Pedro Almodovar.
The leaked data provides what the ICIJ described as a “never-before-seen view inside the offshore world.”
“These findings show how deeply ingrained harmful practices and criminality are in the offshore world,” said Gabriel Zucman, an economist at the US-based University of California, Berkeley, cited by the consortium.
Most of the services the offshore industry provides are legal if used correctly the ABC reported but as the leaked documents show some will go to extreme lengths to hide the true owners of companies which makes it hard for authorities to investigate money laundering.
Mossack Fonseca says it had never been charged for criminal wrongdoing in its efforts to help clients launder money, dodge tax and circumvent financial sanctions.
One of the law firm’s founders, Ramon Fonseca, told AFP the leaks were “a crime, a felony” and “an attack on Panama”.
“Certain countries don’t like it that we are so competitive in attracting companies,” he said.
Panama’s government said it had “zero tolerance” for any shady deals, and vowed to “vigorously cooperate” with any legal investigations.
NEW ZEALAND A TAX HAVEN
The leaked documents also revealed that New Zealand is being used as a tax haven by foreign politicians.
Malta energy minister Konrad Mizzi and the prime minister’s chief of staff Keith Schembri set up two offshore trusts in New Zealand in 2015 through the firm.
The two trusts are linked to Panama-based companies.
The revelations triggered wide-scale protests in Malta last month, with thousands taking part in a rally demanding the resignations of the two political figures.
Mizzi admitted in February that he and his wife had set up a trust in New Zealand to manage their assets.
He said he would close down his company in Panama but retain his trust in New Zealand.
There are reportedly thousands of foreign trusts registered in New Zealand — which do not pay local tax on offshore earnings — with their beneficiaries not registered with any public body.
The New Zealand link forms part of a larger investigation into the document dump, dubbed the Panama Papers, which were obtained by German newspaper Sueddeutsche Zeitung.
Sueddeutsche said an employee at the law firm had leaked the data, telling the newspaper he risked his life in doing so. The employee was not identified in the report.
When Ukrainian President Petro Poroshenko ran for the top office in 2014, he promised voters he would sell Roshen, Ukraine’s largest candy business, so he could devote his full attention to running the country.
“If I get elected, I will wipe the slate clean and sell the Roshen concern. As President of Ukraine I plan and commit to focus exclusively on welfare of the nation,” Poroshenko told the German newspaper Bild less than two months before the election.
Instead, actions by his financial advisers and Poroshenko himself, who is worth an estimated US$ 858 million, make it appear that the candy magnate was more concerned about his own welfare than his country’s – going so far as to arguably violate the law twice, misrepresent information and deprive his country of badly needed tax dollars during a time of war.
Poroshenko did this by setting up an offshore holding company to move his business to the British Virgin Islands (BVI), a notorious offshore jurisdiction often used to hide ownership and evade taxes.
His financial advisers say it was done through BVI to make Roshen more attractive to potential international buyers, but it also means Poroshenko may save millions of dollars in Ukrainian taxes.
In one of several ironic twists in this story, the news about the president’s offshore comes as the Ukrainian government is actively fighting the use of offshores, which one organization says are costing Ukraine US$ 11.6 billion a year in lost revenues.
Details about the Roshen deal can be found in the Panama Papers, documents obtained from a Panama-based offshore services provider called Mossack Fonseca. The documents were received by the German newspaper Süddeutsche Zeitung and shared by the International Consortium of Investigative Journalists (ICIJ) with the Organized Crime and Corruption Reporting Project (OCCRP).
And in a more painful irony, the Panama Papers reveal that Poroshenko was apparently scrambling to protect his substantial financial assets in the BVI at a time when the conflict between Russia and Ukraine had reached its fiercest.
Poroshenko’s action might be illegal on two counts: he started a new company while president and he did not report the company on his disclosure statements.
According to documents from Mossack Fonseca, on Aug. 4, 2014, George Ioannou, then a senior associate of the law firm Dr. K. Chrysostomides & Co LLC, sent an email to the Mossack Fonseca’s incorporation department asking to register a new company for “a person involved in politics.”
“The company will be the holding company for his business … and will have nothing to do with his political activities,” Ioannou wrote, inquiring whether the registration agent would accept the job.
Seventeen days later, a new company with Ukrainian origins was submitted to the local registry of the British Virgin Islands.
Called Prime Asset Partners Ltd., a name similar to that of Poroshenko’s Ukrainian holding company, it was located in the Akara Building in Tortola, an address used by thousands of offshore companies from around the world. The sole shareholder of the company was Poroshenko with an address in Kyiv. A copy of his passport confirmed that the beneficial owner was indeed the Ukrainian president.
Mossack Fonseca records specify that Prime Asset Partners would serve as the holding company for the Ukrainian and Cyprus companies of Roshen confectionary corporation, with “proceeds from the business trade” of the corporation being its source of funds.
Oleksii Khmara, executive director of Transparency International Ukraine, told OCCRP that this is a big problem, calling it a conflict of interest and apparent violation of both the constitution, which bans the president from business activities, and the corruption laws, which ban all public officials from conducting private business.
“If a new business is created (after the election) and a public official is listed as the beneficiary, that means he’s actively engaged in business,” says Khmara. “This is a violation of the law, no matter what the conditions (under which it’s registered) or the jurisdiction used.”
The president also failed to report the newly registered BVI company and additional companies in his 2014 asset disclosure statements, a second possible violation of the law. The information is also missing on the 2015 asset forms. The Kyiv-based financial service group ICU (the president’s financial advisers) disclosed there were two more companies: one in Cyprus called CEE Confectionery Investments Ltd., registered in September 2014; and a second, registered in the Netherlands in December 2014, called Roshen Europe B.V. The BVI holding company holds the Cyprus company which in turn holds the Dutch company.
Meanwhile, the president’s income declaration for that year gives no mention of either foreign income, or investment in the statutory funds of foreign companies.
According to an email from Makar Paseniuk, managing director of ICU, this is because “shares in (BVI) Prime Asset Partners Limited have no par value, and the declaration for 2014 required only shares having a par value to be included.”
But the documents obtained by OCCRP show that starting from the registration date of Aug. 21, 2014, Prime Asset Partners Ltd.’s shares indeed had a total value of US$ 1,000 and listed Poroshenko as the sole shareholder. Its Cyprus subsidiary CEE Confectionary has shares with the total value of €2,000, while the Dutch Roshen Europe has the statutory capital of US$85. While the amounts are small, they still must be reported, experts say. When Poroshenko’s advisers were asked about the discrepancy, the advisers told an OCCRP reporter that his information was inaccurate.
Had the new president listed new foreign assets in his declarations at such a critical time in Ukraine’s war with separatists, it might have raised difficult questions for him.
Yevhen Cherniak, an analyst with Transparency International Ukraine, looked at information provided by OCCRP on the BVI, Cyprus and the Netherlands’ companies established by Poroshenko and pointed out that the president’s 2014 income declaration doesn’t say “a single word about foreign companies” in the section disclosing company shares.
Cherniak said that the failure to disclose shares held by Poroshenko in the BVI Prime Asset Partners Limited constitutes a “blatant” violation of an administrative code article “Violation of Financial Control Requirements,” which deals with the submission of false information in income declarations by public officials, as provided under the anticorruption law. He added that Poroshenko was only liable for the violation for one year and that year passed on March 30 of this year, so he can’t be fined for 2014.
As for the subsidiary companies in Cyprus and Netherlands, Cherniak explained that the old anticorruption law, which was in place last year, is vague about the term “beneficiary ownership.”
The president’s 2015 declaration published on April 1, 2016, which was filed according to the old law, likewise makes no mention of his BVI company, or foreign income from selling its shares. According to the Panama Papers, he continued to be a direct shareholder holding $1,000 worth of shares in the BVI Prime Asset Partners Ltd as of December 8, 2015. No further changes to the shareholding structure were recorded throughout the rest of 2015.
Poroshenko’s adviser Paseniuk said in a March 22, 2016 response to OCCRP that when the new law is enforced, “all companies beneficially owned by the client will be properly declared.”
A Changing Story
Poroshenko and his advisers have told an evolving story. His campaign-trail promise to sell his company was soon dropped in favor of a plan to create an independent trust to operate the company.
During a news conference in Kyiv last January, Poroshenko said that in 2016 all his Roshen shares had been put in a blind trust managed by a “respectable first-league foreign bank” which will “own, control and manage the assets.” Even earlier, he made the same claim in an interview with Deutsche Welle in November of 2015, saying the trust was a done deal.
Those statements now appear premature.
A new story emerged when OCCRP was referred by the president’s office to his financial advisers. Paseniuk’s response on behalf of the president mentioned difficulties with the sale of Roshen corporation, citing investors’ caution amid “the volatile geopolitical and economic environment.” As a result, the offshore structure was created to sell the president’s business and “improve attractiveness of the Roshen group.”
Paseniuk also told OCCRP that the trust was still a work in progress. “The stake in Roshen will be transferred into a trust after all legal formalities are completed,” he said.
He said the BVI company has already set up subsidiaries in Cyprus and the Netherlands, though none of them “holds any assets at the moment.”
Regarding the use of offshores, Paseniuk said “As a matter of practice, Ukrainian businesses commonly use similar structures.”
On March 21, a day before Paseniuk’s letter arrived, Ukraine’s National Bank, and the country’s fiscal and anti-monopoly agencies announced they had agreed to work jointly towards “de-offshorization” of Ukrainian business.
According to Global Financial Integrity, a Washington-based tax-haven watchdog, between 2004 and 2013 Ukraine lost an average of US$ 11.6 billion a year, due to illicit financial flows. In 2013, this equaled to nearly a quarter of the country’s budget.
OCCRP spoke to legal and tax experts who said setting up a holding company offshore – whether for trust purposes or sale – comes with a huge tax advantage.
Daniel Bilak, managing partner of the Kyiv office of the international law firm CMS Cameron McKenna, did not discuss the specifics of Poroshenko’s case but said saving on taxes is a key reason for moving assets offshore and setting up a trust.
“Such jurisdictions as the British Virgin Islands, Panama, and Malta are in general considered offshores, because they have very flexible laws for managing assets and company registration, while keeping maximum confidentiality and minimal taxation,” Bilak says. “And this way I’m allowed to limit paying taxes.”
Yaroslav Lomakin, managing partner of the Honest&Bright consulting group which operates in London, Moscow and Kyiv, calls setting up a BVI-registered holding company the simplest and cheapest way to protect assets, albeit “bad for image and reputation.”
“In general, there is a presumption that trusts are created for better protection of assets and lowering of tax obligations,” Lomakin says. “The corporate income tax both for BVI and trusts is approaching zero. While the most interesting and multi-level (options) begin when it comes to profit distribution.”
But just because politicians can sometimes create offshore trusts, should they?
Andreas Knobel, an expert with the Tax Justice Network, says the potential problems with politicians and offshore holdings or trusts can only be resolved by transparency. Any politician with a trust shall “disclose the existence of a trust, the laws under which it was created (to check if an abusive regime was chosen), and … all trust assets to find out what companies, stocks are held there.”
Knobel adds that while in general incorporating a company in a tax haven may be based on valid reasons such as lowering the tax rate or benefiting from laxer laws, many will use them for tax avoidance, tax evasion or corruption.
“It would be interesting to inquire the reasons for establishing those companies,” Knobel says. “Was it a tax reason? Secrecy? Why not hold everything from Ukraine?”
On April 3, Organized Crime and Corruption Reporting Project published an investigative story about an offshore company registered by Ukrainian President Petro Poroshenko in 2014. The report raised questions about whether his actions violated Ukrainian law and whether the firm is a vehicle to avoid paying millions of dollars in taxes to Ukraine. He denied the charges on April 4.
It was one of the many stories that were published simultaneously by journalists around the globe who have obtained access to the leaked emails of Mossack Fonseca & Co., a Panamanian law firm that specializes in registering offshore companies in tax havens.
In Ukraine, the biggest story was the offshore company of Poroshenko, which he failed to mention in his assets disclosure statement.
While the Poroshenko story made it to the front pages of many Western publications, various Ukrainian media reported it unevenly. Many media outlets covered the story quickly and extensively. Others did not.
Channel Five, Poroshenko’s own TV station that he claims is editorially independent, kept silent about the offshore scandal until 4 p.m. on April 4. When it finally broke its silence, it wasn’t to report the story, but to refute it.
Channel Five published a news story on their website describing the leak and quoting Poroshenko’s consultants who said that neither of the foreign companies mentioned in the OCCRP story hold any assets of president’s company, Roshen.
“The creation of two intermediary companies was a part of corporate reorganization before the future sale of Roshen. However some journalists interpreted it as an attempt to evade taxes,” reads the story.
The story then continued with several Facebook reactions from politicians and experts, putting on the top the posts that defended Poroshenko.
Tetyana Danylenko, the Channel 5 TV host and a popular blogger, wrote on Facebook that Poroshenko did nothing illegal.
“The offshore companies they found aren’t a crime,” she wrote. “And from a moral point of view there aren’t many reasons for disapproval and disappointment.”
Most of the other large Ukrainian media outlets reported the story within the first hours after the publication on April 3, including Novoe Vremya, Korrespondent.net, 1+1 TV channel and its website TSN.ua, Ukrainska Pravda and many others.
Many criticized the way the investigation was presented at Hromadske.TV, a partner of OCCRP in Ukraine.
The journalists of its investigative show Slidstvo.info released a video version of the investigation, where the timeline of Poroshenko establishing an offshore firm was paralleled by the events of Russia’s war in eastern Ukraine.
Special focus was put on the massacre known as the Battle of Ilovaisk in August 2014, which coincided in time with the launch of the registration process for Poroshenko’s new company.
Some thought it was too much.
“The attack against Poroshenko tarnishes not only Ukrainian government but also Ukrainian independent journalism,” Natalya Ligacheva, chief editor of media watchdog website Detector Media, wrote in an op-ed on April 4. “The Ilovaisk parallels are absolutely manipulative.”
Another media expert, Ukraine’s representative in the Reporters Without Borders and head of the Institute of Mass Information, Oksana Romaniuk, partly agreed. She said that the story lacked comments from legal and economic experts and doesn’t explain what the president did wrong, instead featuring a war veteran speaking of the Ilovaisk tragedy.
“The investigative reporting in Ukraine was always very credible. And I’m very disappointed by that highly emotional manipulation of our investigators,” Romaniuk said.
Anna Babinets, one of the authors of the investigation, defended the Ilovaisk parallel in her comment to the Kyiv Post.
“Many Ukrainian fighters have cried for Poroshenko’s help those days (in August 2014),” said Babinets. “They protested near the Presidental Administration. But the president, the supreme commander of the army, didn’t hear them.”
Reacting to the criticism, Hromadske TV said it will discuss the story’s compliance with the editorial standards at an editorial board meeting on April 5.
The Kremlin, however, was not bothered by such debates or ambiguities.
Agence France-Presse quoted Kremlin spokesman Dmitry Peskov accusing the investigative journalists who worked on the leaked Panama Papers of being former U.S. officials and secret service operatives.
“We know this so-called journalist community,” Peskov told journalists in a briefing. “There are a lot of journalists whose main profession is unlikely to be journalism: a lot of former officials from the U.S. Department of State, the CIA and other special services.”
According to the Associated Press, the investigation was published by independent newspaper Novaya Gazeta in Russia, but otherwise the scandal faced an effective coverage ban. Russian television on Monday morning made no mention of it, the news agency said.