Archive for April 4th, 2016


Panama Papers, Mens Rea, national and regional implications

April 4, 2016

As anticipated when the OCCRP, (a rightfully respected institution that goes to great lengths with regard to due diligence), went public with the data leak from Mossack Fonseca almost instantaneous righteous indignation and chest thumping flooded the Ukrainian MSM and social media regarding the “revaluations” surrounding President Poroshenko.

A natural enough reaction with him being the most senior Ukrainian figure mentioned – despite there being almost two dozen in total.  (Indeed if readers are rightly wondering why a populist like Ms Tymoshenko wasn’t immediately making political capital at the president’s expense, the answer is that she too gets named in the data leak.)

However, as tweeted by this blog immediately prior to the disclosure, any tax avoidance revelation was unlikely to dethrone President Poroshenko.  Tax avoidance in Ukraine is a national sport engaged in by all, from lowly shopkeeper and hotelier, to the oligarchy and highest echelons of the political class.  Theft of $1 or theft of $1 million remains theft.  Tax avoidance of $1 or $1 million remains tax avoidance.  Indeed as a percentage of income, it is not beyond the realms of probability that the lowly shopkeeper avoids more tax than the higher echelons.

What would shock the nation would be a revelation that a public figure actually paid all the tax that they are meant to without any attempt to avoid it.  That is a revelation that would rock the nation to the core – rather than confirmation of long known and/or held beliefs that such tax avoidance occurs as a matter of course.

It also has to be clearly stated that off shore companies are not illegal as far as Ukrainian legislation is concerned.  In the 1990’s, with the termoil of newly found independence, naturally off shores were used by the corrupt political and business class to hide their nefariously acquired cash – after which passed legislation providing for tax breaks to encourage FDI.  Thus some of that cash then returning “cleaned” to buy up the State assets on the cheap and gather in the tax breaks created for themselves.

As much as this blog is very much against anonymously owned corporations and companies and their specific use in tax avoidance or other nefarious deeds, it will concede that under certain circumstances, off shore companies make sense if transparently owned and run.

That President Poroshenko – or as is more likely those with Power of Attorney charged with acting for his best interests, created 3 off shore companies (Prime Asset Partners Limited, CEE Confectionery Investments Limited, and Roshen Europe BV) is beyond doubt.  Nor will it be denied.  There is no way the OCCRP would put its name to anything that didn’t stand up to its extremely thorough due diligence, and there is no point in denying what is contained in the data leak.

That these three off shore companies have a combined total share capital of $3085 is a matter of record within the leaked data.  $3085 however is a trifling sum and is the minimum possible capital required to create these entities.  It is difficult to imagine President Poroshenko personally scanning his passport and electronically sending funds to create these off shores – ergo those with the Power of Attorney probably did all the work on behalf of their client whose best interests they are there to act for.  Although all these entities were officially registered on specific dates in 2014, their creation and their function in the scheme of things may have been pre-planned long before – or not.  How long the administrative time from inception to delivery is unknown.

There is thus far nothing found within the data dump that suggests these entities have been involved in any transactions whatsoever since their incorporation.  If that be so, then nothing can as yet have been laundered, otherwise nefariously used, nor tax avoided through them.

If information does come to light regarding transactions through them then the questions are what, how much, and why.  As of the time of writing however, it appears they have not (yet) been used for tax avoidance or anything else.

It may thus be that the OCCRP information was released prior to the activation/employment of these off shore vehicles in any presidential acts – or more probably the acts of those with Power of Attorney.  Preparatory these off shore vehicles clearly are.  Preparatory for what and why – not so clear.

In short, we now enter the realm of “intent” or mens rea.

Is it simply that they were created for the purposes of tax avoidance and/or hiding continued ownership?  Maybe – or maybe not.

Were they created as part of an elaborate, or even necessary scheme, regarding the sale of the President’s Roshen empire, or part of it, or for another entity entirely?  Perhaps they were created as entities under which to house the Roshen assets in Russia, separately from the rest of the Roshen empire – for obvious reasons.

Undoubtedly there will be statements from lawyers and experts (and innumerable “experts”), but when it comes to proving evidence of mens rea beyond reasonable doubt, it will be almost impossible.  Setting up off shore companies is probably not enough to be classed as an act more than merely preparatory to the commission of a crime/tax avoidance – if a crime/tax avoidance was the intention.

However to simply look at Roshen is to take a narrow view.  What about all the other entities and shares owned by President Poroshenko that seem ill-fitting with Article 103 of the Constitution?

In the grand scheme of things, on the legal plane, this information will go nowhere domestically – as it would go nowhere in many other legal systems.

Politically, the fall out domestically will also be far more limited than external pundits may think.  Of the Ukrainian political class, then of those most capable of capitalising upon such revelations the Biblical expression “Let he who be without sin cast the first stone” cometh to mind.

Of the domestic constituency, few if any are genuinely surprised by attempts or successful tax avoidance by anybody – as stated already, it is a national sport participated in by all.  The swift appointment of a constituency pleasing Prosecutor General, a few convictions of high placed public figures, a just outcome in the “Diamond Prosecutors” case, and a swift spurt along the reform path before the Verkhovna Rada becomes unworkable again will mitigate much of the perceived damage.  Throw in a parliamentary inquiry calling international experts, or maybe even including them, and that will be more than sufficient to radically reduce the damage – particularly over time.

Internationally, atop the political and diplomatic hierarchy, whatever private thoughts there may be, publicly support for President Poroshenko will be unaffected in the absence of any criminality.

In short, President Poroshenko will survive the revelations – particularly as there appears to be neither crime nor tax avoidance having taken place.  The genuine reasoning behind the mens rea will remain forever questioned.  Other matters will take precedents rather quickly in both political and public realms.

Of the other Ukrainians that appear within the leaked data matters may not be so simple.  Few will have “unused” off shore entities.  Even less will have 20 off shore companies connected to their name, and even fewer having used a Russian Passport to open them.


Thus Odessa Mayor Trukhanov has ahead a far more difficult task of explanation and/or mitigation than President Poroshenko..

By his own public admission he is not unknown to mafia Dons such as Alexander Angert or Alexander Zhukov (whose daughter Daria is the current wife of Roman Abramovich), nor unknown to companies related to organised criminals, nor does he shun either as a quick search of the blog’s archives ably display:

“I have not studied his biography , his past , I did not take a certificate from the district department of his criminal record. I did not care about people’s past.  He worked openly, he was not hounded by the authorities.  In a word, a decent, normal person.  Since then, (1990’s ed) we have a relationship.  He’s a free man, and I do not attach any significance to talk about his criminal past.” – Trukhanov on Angert.

“I have no relationship with this company , even though I know it well.” – Trukhanov on a company called Рост (or Growth in English).

There is no need to list all the known local, regional or national mafia figures long associated with Mayor Trukhanov – and it would rightly be a stand-alone entry if it were ever written.  A reader can already draw their own conclusions, just as they will draw conclusions from the apparent necessity of his being associated with 20 off shore companies of which several have organised crime connections.

The revelations surrounding Mayor Trukhanov such as these are not really revelations, so much as (further) corroboration of what was already known by some, and far more widely believed by many.  (That includes his possessing a Russian passport that historically he has consistently denied but that has now been revealed during the data leak.)  The local constituency is not as naive as some may think when it comes to those that have risen among them.

Neither do the 20 off shore companies bring any revelations in tying Mayor Trukhanov to people, or people to Mayor Trukhanov.  He would not fill his “Trust the Deeds” local political party with those that have not earned their place through joint “deeds” through which a mutual if nefariously founded “trust” was forged.

He doesn’t engage in petty corruption, the risk/reward ratio simply doesn’t interest him.  His interests and his trusted partners operate upon a higher scale.

With regard to Mayor Trukhanov however, with so many active and inactive off shores over such a long period, it certainly provides not only additional corroboration but new perspectives to view the web, and vibrations that occur within it, that surround him.  (Presumably off shore numbers 21 and beyond when required will be created via a different off shore provider henceforth.)

Mayor Trukhanov will have a far more difficult task in explaining away the data leaked that surrounds him than Presdient Poroshenko will.  Therefore it is unlikely that Mayor Trukhanov will try to explain it away and will simply carry on regardless as none of what has been released changes the existing perceptions about him – despite the revelations surrounding him being (prima facie) a red rag to the Governor Saakashvili bull.

Indeed there will be little in the revelations that will not have already been known to Governor Saakashvili when it comes to Mayor Trukhanov.  It would be unwise to underestimate the sources and/or information that feed the Governor.  The question is how and whether the Governor will use such information considering he has no need to protect the source in this instance.

For Mayor Trukhanov the question will be whether previously bottled criminal investigation genies can or will remain bottled – or indeed whether new investigations now begin.

There is also the issue of how to mitigate the “Vichy” perception of a Mayor whose Russian passport details, and thus citizenship, are no longer something known only to the few but were a commonly a belief of the masses, and have become commonly known to the masses.  Neither nationalists nor patriots are likely to let that matter drop.

Perhaps there will be some real revelations that will come to light, perhaps not.  Whatever the case the data leak is certainly a victory for the transparency champions globally – and perhaps will bring new energy to those internal of Ukraine who are engaged in overt battle with opaque and nefarious interests.

One expected outcome will be currently long pending draft legislation on the use of off shore companies in Ukraine, will in true populist fashion swiftly come to the vote in the Verkhovna Rada.

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