“The incident will, however, accelerate the public debate in Ukraine about its outdated corporate governance laws, potential conflicts of interests and political accountability among officials in the highest offices,” write Tymofiy Mylovanov, an associate professor of economics at the University of Pittsburgh, and Zoya Mylovanova, a lawyer and a member of the VoxUkraine Law team, in an article titled “Here is what the 'Panama Papers' tell us about the President of Ukraine,” published by The Washington Post.
On Sunday, a number of media outlets published analysis of leaked documents referred to as the “Panama Papers” that implicate multiple international leaders in using offshore companies to manage their assets. The president of Ukraine, Petro Poroshenko, is among the names listed. Unlike the president of Russia, who is alleged to be connected to a $2 billion dollar network of assets siphoned off the Russian banks, or the prime minister of Iceland, who is suggested to have concealed a major conflict of interest, the transgressions of the president of Ukraine appear to be more of a technical nature.
They remind that the OCCRP and ICIJ journalists made a conclusion based on leaked documents of Panamanian company Mossack Fonseca that 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.
Indeed, under the Constitution of Ukraine, the president may not engage in any entrepreneurial activity. The president may own shares, but it is unclear whether restructuring assets is exempt. The irony here is that Poroshenko had promised to divest his assets and thus in order to keep his promise, some business activity is inevitable.
Read alsoUkraine's State Fiscal Service to check reports on Poroshenko's offshore firmsThe authors also note that the public has raised another concern, which is that perhaps the restructuring of the president’s assets was intended to decrease taxes paid in Ukraine. This specific type of restructuring is typical for businesses in Ukraine and is usually driven by poor corporate governance and property rights protection in the country and tax optimization.
The article doubts that the president intended to underpay tax. “At the same time, there may be scenarios under which the future sale of business will result in loss of tax revenues by Ukraine,” the article reads.
Read alsoPoroshenko’s legal advisors: creating offshore companies only way to transfer Roshen into "blind trust"While the choice of the British Virgin Islands, Cyprus and even the Netherlands for subsidiaries can be in full compliance with Ukrainian business practices, it shows poor political judgment. Such structures are typically used to sell profitable businesses with the capital gains taxed at a minimum level and outside of the country in which the profit is generated.
The article notes that Roshen group also generates significant tax revenues for Ukraine. “In 2015, the chocolate business of the president was ranked 74th among top taxpayers of the country, with payments over UAH 1.3 billion.”
“In one surprising aspect, Poroshenko has deviated from business as usual in Ukraine. He chose to indicate himself as a direct shareholder of an offshore company. By contrast, the standard is for the real owners to stay behind foundations, trusts or nominee shareholders, not unlike the schemes alleged with respect to the other “rich-and-famous’’ individuals revealed in the leak,” reads the publication.
Read alsoPoroshenko’s financial advisers: Roshen transferred into trust, President has nothing to do with management of RoshenThe authors conclude: “So far, the leaked documents have not revealed any major wrongdoing by the president. The offense is essentially technical in nature. The incident comes at a time of the most severe political crisis in Ukraine after the Euromaidan. The president is vulnerable and he might be struggling to keep the situation under control. The revelations depict the president (or his business consultants) as a shrewd businessman, but the extent to which this is what the country wants out of its president remains an open question.”
It is added that the incident is “one of the many recent dramatic political events in Ukraine. Jointly, they make early parliamentary elections more likely.” “They will also likely force Ukrainians to reflect on their expectations about the leaders of the country, conflicts of interests, the separation of business and politics, and more generally about the institutions and laws they should create in the new Ukraine,” the authors say.
