From Panama, via London, with love


The Panama Papers implicate more than just a few select international leaders. They demonstrate how offshore finance and corrupt leaders in the post-Soviet space thrive off each other.

Maxim Edwards Mikhail Kaluzhsky Natalia Antonova Thomas Rowley
4 April 2016

This much is clear: the Panama Papers are going to shine a hard light on post-Soviet democracy. Last night’s simultaneous revelation of offshore accounts and companies linked to the rulers of Azerbaijan, Georgia, Kazakhstan, Russia and Ukraine is unprecedented in its confirmation of what we’ve suspected and possessed partial information of for years — how authoritarian elites in the post-Soviet space are using the UK’s deregulated financial system to hide billions of dollars. 

The following question, among many, emerges — what do these leaks tell us about the trajectories these countries have travelled since transition? Clearly, the past 25 years have witnessed the potential for a democratic future slip violently away from many post-Soviet societies’ grasp. But what was less clear is the British state’s role as a key actor in that disenfranchisement.

This money, in direct and indirect forms, has been a constituent part of how domestic media and financial sectors have been reshaped in favour of ruling elites in the post-Soviet space. The UK’s domestic political settlement is thus inextricably linked to unfair and unfree states, and Russia, to take one example, is another player in the global neoliberal game

The question of impact is more difficult. While the mainstream media in the UK may finally be ready to countenance a reality long-charted on the pages of Private Eye and the OCCRP website, how will the societies of Azerbaijan, Georgia, Kazakhstan and Russia react? 

With friends like Putin’s, who needs a personal fortune?

The two billion dollar international money trail that leads to Putin’s close circle is, perhaps, less of a revelation and more of a confirmation. There have been investigations into Putin’s wealth going as far back as 1992, but now we can see exactly how the system works — through friends, family, confidants and international finance. 

The former is something which has repeatedly cropped up in speculations about the president’s personal wealth.

One of the most amazing parts of the Panama papers concerns Sergei Roldugin, a cellist and close personal friend of Putin’s (he even introduced him to his future wife Lyudmila), whose fortune was hitherto completely unknown. Rodulgin once told journalist Steven Lee Myers that he didn’t have millions and, in a way, he was right: he controls billions, indirectly and directly, via two BVI-registered shell companies. 

As we read the front-pages of Russia’s state media this morning, there was nothing on Putin’s alleged offshore money

Sources of finance for these were “donations” from key Russian businessmen and loans from a Cyprus-based bank owned by Russian state bank VTB. One of Roldugin’s offshore companies, Sandalwood Continental, lent millions of roubles to Russian companies linked to another early Putin acquaintance, Yuri Kovalchuk. These loans were then spent on a number of luxury investments, from yacht clubs to ski resorts.

There are other friends financially connected to Putin’s circle such as Mikhail Lesin, the former media minister and head of Gazprom Media who was found dead in a Washington hotel in November 2015. As we wait for the reaction in Russia to these revelations, we should remember that Lesin is one of the media managers responsible for bringing Russia’s media in line with the Kremlin’s wishes during the 2000s. 

From 1999 to 2014, as minister of the press, presidential media adviser, advertising executive and media company chairman, Lesin conglomerated independent and critical media into a system that follows the Kremlin’s lead. And, true to form, as we read the front-pages of Russia’s state media this morning, there was nothing on Putin’s alleged offshore money. Lesin’s work has paid off. 

The Panama Papers investigation thus demonstrates how an alliance between independent journalism and civic organisations can be effective. Little wonder that Putin and his peers in Eurasia have kept up the offensive against media and NGOs, as an integral part of their politics. 

Against exceptionalism 

On 21 August 2014, on the same day as Ukrainian soldiers were fighting, and dying, in the Ilovaisk pocket, southeast of Donetsk, Petro Poroshenko registered a holding company in the British Virgin Islands for the offshore transfer of his confectionery company Roshen.

Today's sensational reminder of a failed 2014 election promise will not play well when confidence in the president’s ability or desire to combat the country’s systemic corruption is at an all-time low. It is also a grim reminder of the dealings of Poroshenko’s predecessor, who, as we reported in 2012, channelled ownership of his ostentatious Mezhyhiria estate to a front company in the UK.

Ukrainian media is reporting on the Panama Papers to a far greater degree than their Russian counterparts

Thankfully, though, there is some room for hope here: Ukrainian media is reporting on the Panama Papers to a far greater degree than their Russian counterparts. 

Nevertheless, major Ukrainian news outlets owned by leading politicians and oligarchs (whether Akhmetov, Kolomoisky, Pinchuk or even the president himself) were either slow to report on Poroshenko’s corruption or have neglected to do so at all. Interestingly, anti-corruption crusader and governor of Odessa Mikheil Saakashvili has also lost his thunder. 

It’s not as if such behaviour from the Ukrainian elite comes as a surprise to the country’s population, though it could not come at a worse time. 

The corruption trail that leads south

Further revelations can be found in the South Caucasus and Central Asia. At this stage, the absence of Azerbaijan’s ruling Aliyev family from such an investigation would be an even greater surprise.

The country is now in the throes of a protracted economic crisis, and there is no hope that its elite will tighten their belts any time soon. President Aliyev’s daughters have been linked to Panamanian and BVI holdings with a major interest in the country’s gold fields, while registration details for his sister link her to an address in an area of west London where average house prices reach nearly nine million dollars.

The Kazakh political elite have not been above moral grandstanding, urging their fellow citizens to “pay taxes” in another selective post-Soviet style “anti-corruption” drive

In Kazakhstan, the currency has floated and lost more than half its value in January 2016. And the Kazakh political elite have not been above moral grandstanding, urging their fellow citizens to “pay taxes” in another selective post-Soviet style “anti-corruption” drive. 

Yet the president’s family has had no qualms hiding its wealth in offshores. A case in point is Nurali Aliyev, grandson of president Nursultan Nazarbayev, who became deputy chairman of the Development Bank of Kazakhstan on his 24th birthday. The bank’s loan portfolio exceeds $4 billion. 

A truly bizarre revelation concerns the Georgian oligarch Bidzina Ivanishvili, widely regarded as the brains and the wallet behind the country’s ruling Georgian Dream coalition. Having made a fortune in Russia, Ivanishvili returned to the country of his birth in 2004, and has since made his mark on landscapes both political and physical. Ivanishvili’s glass palace overlooks the Georgian capital Tbilisi, while recent images of an upright tree transported by ship across the Black Sea to another of his pleasure gardens are testament to an opulence of the likes of Ukraine’s disgraced Viktor Yanukovych. 

Ivanishvili was eager to keep one particular holding in his portfolio (Lynden Management Ltd) at arm’s length. Ivanishvili was acknowledged as its beneficial owner in 2011, and a scan of his passport was requested for a money laundering investigation. Refusals followed for four years.

Georgia faces parliamentary elections this October, and Ivanishvili’s Georgian Dream may face yet bleaker prospects. 

The opulence of those implicated in this scandal makes a good story, but it cannot obscure the whole picture. The behaviour of elites across the post-Soviet space is reprehensible. But the consequences cannot end at justified moral outrage at these individuals — they have been enabled, and they have been enabled by a financial network which benefits many more outside the fiefdoms of the Aliyevs, Putins or Poroshenkos of the world. 

We shouldn’t forget that the Panama Papers have revealed documents leaked from one of many firms based in one of the numerous offshores. The leak as a whole amounts to 2.5 terabytes of data. No doubt, there will be more news to follow.

Standfirst image: (c) Diego Cervo / Shutterstock. All rights reserved.

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