You're reading: Poroshenko defers to lawyers, consultants to explain his offshore firm

President Petro Poroshenko on April 4 denied violating the law when setting up an offshore company in the British Virgin Islands but failed to explain the specifics, saying that his lawyers and consultants would provide the information.

The Organized Crime and Corruption Reporting Project on April 3 reported on Poroshenko’s Prime Asset Partners, Ltd., as part of a series of investigative journalism reports called Panama Papers. OCCRP is a Kyiv Post partner.

The investigation raises questions about whether Poroshenko, whose fortune is estimated at close to $1 billion, violated Ukrainian law with the intent to evade or avoid taxes in setting up the offshore firm through Mossack Fonseca, a Panamanian firm specializing in the registration of firms in tax havens.

Reacting to the investigation, lawyers, anti-corruption watchdogs and politicians accused Poroshenko of illegal or unethical business activity, violating laws on property declarations and possible tax evasion. They also reminded the public that Poroshenko has not lived up to his 2014 election campaign promise of selling his Roshen confectionary business or transferring it to a blind trust.

Poroshenko: ‘In full compliance’ with law

Poroshenko set off with an official visit to Japan on April 4. He neither publicly addressed the nation nor posted a statement on the presidential website. Poroshenko posted on his Facebook page that “relevant consulting and law firms” would later give details on the issue.

“I believe I might be the first top office official in Ukraine who treats declaring of assets, paying taxes and conflict of interest issues profoundly and seriously, in full compliance with the Ukrainian and international private law. Having become a president, I am not participating in management of my assets, having delegated this responsibility to the respective consulting and law firms. I expect that they will provide all necessary details to the Ukrainian and international media.”

His law firm, Avellum Partners, flatly denied accusations of tax evasion.

“The creation of a foreign structure does not affect the tax liabilities of the Roshen group in Ukraine, which continues to pay taxes,” the firm sad in an emailed statement. “Any allegations of tax evasion are groundless.”

What’s the problem?

Poroshenko’s Prime Asset Partners was set up in August 2014. Offshore companies can be legal and are certainly a widespread practice for big Ukrainian businesses.

However, Poroshenko could have violated rules on income declarations, Inna Rudnyk of the Lavrynovych & Partners law firm and Ihor Chudovsky, president of the Chudovsky and Partners law firm, told the Kyiv Post.

Poroshenko did not include any foreign investments in his income and property declaration for 2014. Local officials can lose their jobs for such violations under Ukrainian law, Rudnyk said.

“His failure to declare his investment in the capital of an offshore company is a violation of anti-corruption standards,” Oleksiy Khmara, head of Transparency International Ukraine, said in a statement.

Avellum Partners, a law firm working for Poroshenko, claimed late on April 4 that the amount was not included because the shares do not have a face value. But the company’s documents indicate that the shares were worth $1,000, according to the OCCRP.

Avellum added that the offshore scheme was the only possible way to transfer Roshen’s assets to an international trust.

“The creation of a foreign entity doesn’t influence the payment of taxes by Roshen group, which keeps paying taxes under Ukrainian law,” Avellum said in a statement that also denies the president evaded paying any taxes.

Another possible violation is that article 103 of the Constitution bans the president from running a business, including opening an offshore company, Chudovsky and Viktor Chumak, an independent lawmaker, told the Kyiv Post.

Khmara argued that “the creation of businesses by (Poroshenko) while carrying out presidential functions is a direct violation of the Constitution.”

Moreover, article 14 of the law on preventing and fighting corruption requires the president to get rid of businesses and shares within 10 days after he is elected.

However, Rudnyk argued that “current law doesn’t limit Ukraine’s president from owning corporate shares.”

Poroshenko pledged to sell most of his businesses if elected as president as he was on May 25, 2014. In January, he told Deutsche Welle that he had transferred his shares in Roshen to a blind trust called the Rotchschild Trust.

But in March Poroshenko’s lawyers told the OCCRP that the transfer of Poroshenko’s assets to the blind trust was still under way.

“We elect a parliament of businessmen, we elect a businessman as president and then we expect them to stop doing business? Then we are naïve people,” Chumak said.

Yet another legal issue is whether Poroshenko has received a license from the National Bank of Ukraine to invest in Prime Asset Partners. The bank said on April 4 it cannot disclose this information.

Moral dimension

Timothy Ash, an analyst with Nomura International, said the moral problem might be the most serious one.

“On this kind of stuff, offshore funds, it is pretty black and white, and if politicians want to stand for high office, they should realise that they have to play by the same rules as everyone else and, in fact, set a good or even better examples,” Ash wrote in emailed remarks. There are always discussions over what is legally correct, and then what is morally acceptable but I think the latter is pretty clear cut for politicians in this instance…I don’t think we really need to think or debate around it that much. We don’t need new financial rules for politicians, the existing ones are fine. But maybe we need a new bunch of politicians who can understand the moral as well as legal constraints/requirements of high office.”

Legal consequences

If Poroshenko violated the law, he can be impeached by the Verkhovna Rada under the Constitution, Chudovsky said. However, this is currently impossible because there is no impeachment law.

Yegor Sobolev, a lawmaker from the Samopomich Party, has called for impeaching Poroshenko over the accusations, while critical Poroshenko Bloc members Mustafa Nayyem and Sergii Leshchenko have proposed setting up a parliamentary commission to investigate the offshore scheme.

Vladyslav Kutsenko, a spokesman for the Prosecutor General’s Office, said that prosecutors do not have legal authority to investigate the president.

Chudovsky disagreed, arguing that the Prosecutor General’s Office has powers to investigate Poroshenko.

Kutsenko said that “the prosecutor’s office has investigated information on the president’s allegedly illegal activities and has found no crime.”

The Prosecutor General’s Office is seen as heavily dependent on the president, and Kutsenko has repeatedly lambasted Poroshenko’s critics.

But the National Anti-Corruption Bureau and the anti-corruption prosecutor’s office, which are seen as more independent, are planning to look into the offshore scheme, Ukraine’s chief anti-corruption prosecutor Nazar Kholodnytsky said on April 4.

Under the law, the bureau can investigate the scheme itself but cannot file a notice of suspicion or arrest the president.

Meanwhile, the authorities of the United Kingdom, the Netherlands, Australia and New Zealand have opened investigations regarding the leaked data.

Political consequences

Ukraine loses $11.6 billion in state budget revenues due to offshore schemes per year, the OCCRP estimated.

Critics say that Poroshenko wasn’t being honest when using an offshore firm after claiming that business needs to be brought out of shadows.

Recent amendments to tax legislation put some restrictions on using offshore schemes, while still keeping this way of business registration lucrative, Rudnyk said. “The country’s leader is putting the burden of filling the state budget on the shoulders of Ukrainian businessmen,” Rudnyk added.

Even the fact of being involved in the offshore scandal brought Iceland’s prime minister, Sigmundur David Gunnlaugsson, under massive pressure to quit. But Chumak, a lawmaker, said the scandal will hardly lead to any serious consequences for Poroshenko and his party regardless of the moral aspect of the issue. “In our society the moral standards are much lower,” he said.

Many political analysts say the scandal damages the president’s reputation, as well as the reputation of Ukraine on the international arena.

Yaroslav Yurchyshyn, a political analyst and expert at Transparency International Ukraine, said Poroshenko promised to campaign for de-oligarchization but instead is using offshore schemes.

“Taking into account the sensitivity of the corruption problem, the mere possibility of the president’s involvement in tax avoidance, making mistakes in the declaration and using offshore firms damages his image,” Yurchyshyn said.

Meanwhile, former coalition parties like Oleg Lyashko’s Radical Party and Yulia Tymoshenko’s Batkivshchyna Party will surely use the scandal to increase their ratings. Future partners in the coalition might raise their stakes in negotiations for the new parliament majority, and pressure might increase for early elections.

Yurchyshyn says news about Poroshenko’s offshore company hit the headlines at an awkward time for Kyiv, which is simultaneously campaigning against Eurosceptics in the Dutch referendum due on April 6, holding talks with the International Monetary Fund and facing accusations of slow reforms and a lack of results in fighting corruption.

“The position of Ukraine on the international arena has significantly weakened as President Poroshenko is the key representative of the country,” a Transparency International representative said.

Oleksandr Palii, a political expert, believes that there will be no political consequences for the president.

“The fact that journalists did not find any bigger accusations against Poroshenko proves that he is quite a law-abiding citizen,” he said.

Meanwhile, Viktor Taran, who heads the Center for Political Studies and Analysis, says that what matters is how Poroshenko will behave in the future.

“If he says that this is ‘a hybrid war’ and he and his lawyers start explaining that he acted within the legal framework, that will ultimately politically destroy him,” Taran said. “Another option for him is to step out, recognize his guilt… and demonstrate that he has political will to destroy offshore legislation.”