KIEV, Ukraine — Here in Ukraine, one revelation from the Panama Papers has attracted more attention than any other: In August 2014, when Ukrainian soldiers were trapped under artillery bombardments during the battle of Ilovaisk, President Petro Poroshenko, a candy magnate, was setting up a corporate vehicle in the British Virgin Islands. While young men were dying to defend Ukraine, their commander-in-chief was looking for ways to deny Ukraine taxes from his own business empire.
But the Mossack Fonseca files have an even bigger story to tell: Generations of Ukrainian politicians, dating back to the earliest days of independence, have kept assets offshore. In 1998 — around the time some of the soldiers killed in Ilovaisk were probably starting school — the company [Mossack Fonseca] was already suspected of arranging the affairs of Ukrainian politicians.
In 2006, a court in California sentenced Pavlo Lazarenko, Ukraine’s prime minister in 1996-97, to nine years in prison for misusing his post to extort tens of millions of dollars from Ukrainians. By the time he was released in 2012, hundreds of millions of dollars more had been stolen from Ukraine.
It’s difficult to chart the precise dimensions of this corruption. It is a submerged leviathan, and small bits of it are only occasionally exposed by brave Ukrainian investigators or forensic probes from abroad.
The Anticorruption Action Center, Ukraine’s most prominent anti-graft NGO, has found that prices for H.I.V. drugs were inflated by more than 27 percent in 2013 because of middlemen scamming the health ministry. In an investigation of the food-processing company Archer Daniels Midland, the U.S. Department of Justice discovered that the firm sometimes couldn’t secure VAT repayments in Ukraine unless it paid up to 20 percent of the total in kickbacks to officials.
Corruption on such a scale, economy-wide, would cripple any state, let alone one as fragile as this one. In 1991, Ukraine’s G.D.P. was about two-thirds of Poland’s G.D.P.; now, it is less than one-quarter. Corruption has ruined this country, dooming a generation of Ukrainians to poor education, unsafe streets and blighted careers.
If health care had been adequately funded, perhaps Ukraine wouldn’t have one of the world’s fastest-growing H.I.V. epidemics. If Ukrainian leaders had not been so dire, perhaps there wouldn’t have been a revolution, let alone two. If the country had not been so asset-stripped, perhaps its troops could have defended Crimea from Russian annexation.
The blame doesn’t lie with unscrupulous Ukrainians alone: There wouldn’t be this much corruption without offshore centers like Panama. If you steal money, you need somewhere to launder it; otherwise it’s useless.
Since the 2014 uprising that drove out President Viktor F. Yanukovych — in what Ukrainians call the ‘Revolution of Dignity’ — Western politicians have lined up to offer Kiev moral and technical advice on battling both corruption and Russia. They have frozen the assets of Mr. Yanukovych and his intimates. They have imposed sanctions on Kremlin insiders, including close advisers of Vladimir V. Putin.
When Vice President Joseph R. Biden Jr. addressed the Ukrainian Parliament in December , he came close to lecturing his audience: “You cannot name me a single democracy in the world where the cancer of corruption is prevalent.” Yet every time a Western politician makes that kind of speech, one wonders: Where exactly do they think the dirty money goes?
The cash isn’t in Ukraine. It’s not in those tax havens either. If Panama kept what gets routed there, it would be one of the richest places on earth. If even a fraction of the money stolen from Ukrainians stayed on the Isle of Man, the place would not be the dour, grey lump of rock that it is.
Offshore jurisdictions are only pipelines, conduits, entrepôts. Money pours through them, but it does not stay, except for the fraction that pays the lawyers and the accountants who handle the deals — the plumbers who keep the system running.
If you’ve gone to the trouble of stealing millions of dollars, you want to keep them somewhere more secure than Panama. You want the money in Manhattan, Zurich or London. You want it somewhere with excellent hospitals, top-ranking schools, A-list celebrities and world-class events. You want it somewhere you can enjoy yourself.
Ukraine is trying to battle this system [sic]. In late 2014 it passed a law requiring Ukrainian companies to declare who really owns or controls them. No more anonymous holding shells registered offshore. “This is a crucial tool for revealing the real links between politics and business,” said Daria Kaleniuk, co-founder of the Anticorruption Action Center.
Other countries are following suit: Britain, Norway and Denmark plan to require companies to disclose ultimate ownership, so-called beneficial ownership. As of June , the people who have significant control of companies in Britain will have to be named on a public register. Prime Minister David Cameron is pushing for Britain’s overseas territories to require the same. The U.S. Treasury Department is considering similar regulations, after a pilot project to identify secret buyers of luxury real estate in Manhattan and Miami.
These laws cannot be put in place fast enough, because the main enabler of corruption in Ukraine isn’t Mossack Fonseca, or even Panama; it’s the West. As long as the world’s kleptocrats are allowed to use anonymous corporate vehicles to buy yachts, penthouses and mansions, lawyers will continue to set up those vehicles in tax havens from Delaware to the Seychelles.
If Western countries start requiring transparency about corporate ownership, crooks will stop stashing their money in the West, because they will no longer be able to hide their true identities. This will let daylight into Western economies, and send those who prefer the dark scurrying elsewhere.
Oliver Bullough is a writer specializing in corruption, tax havens and the former Soviet Union, and the author of ‘Let Our Fame Be Great’.
Much worse than the Panama Papers: How America became a world leader in tax avoidance, by David Dayen, Salon.com, April 5, 2016
Panama Papers: WikiLeaks’ Kristinn Hrafnsson calls for data to be released in full, The Belfast Telegraph, April 5, 2016 (featuring information on RT.com‘s ‘Going Underground’ program of April 6, 2016)
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