Lawyers say that the secretive Aug. 21, 2014 creation of a British Virgin Islands company by President Petro Poroshenko leaves a lot of unanswered questions, not least of which is whether the offshore firm exists as a way to evade taxes.
The existence of the company, Prime Asset Partners Ltd., was revealed on April 3 and based on the Panama Papers, a massive leak of documents from the Panama-based Mossack Fonseca consulting firm that specializes in registering companies in offshore tax havens.
Poroshenko’s firm was reported by the Organized Crime and Corruption Reporting Project, a Kyiv Post partner, and Hromadske TV, on April 3.
The failure by Poroshenko, who has also used offshore schemes in the past, to declare the offshore company raises questions about what he might have been trying to hide.
Poroshenko, as well as investment bank ICU and the Avellum law firm, which represent him, have denied accusations of tax evasion as groundless and said the president is in full compliance with Ukrainian and international law.
But numerous discrepancies in the explanations provided by ICU and Avellum have triggered speculation that something shady was taking place. ICU and Avellum declined to comment on the issue.
The president’s claims that he had transferred his confectionery company, Roshen, to a blind trust have also been disputed because of a lack of documentary evidence provided by Poroshenko so far.
Hidden cash
Prime Asset Partners Ltd. owns the Cyprus-based CEE Confectionary Investments, which in turn owns the Netherlands-based Roshen Europe.
ICU told the OCCRP on March 22 that all three firms were shell companies that were not being used. But just three days later, Poroshenko’s Ukrainian assets were transferred to Roshen Europe, prompting critics to speculate later that something odd had been going on.
According to a share registry document dated Aug. 25, 2014 published by the OCCRP, Prime Asset Partners’ capital comprised 1,000 shares with a par value of $1 each. A certificate of incumbency dated Dec. 8, 2015 provides the same information.
Lawyers interviewed by the Kyiv Post argue that Poroshenko should have declared his investment in Prime Asset Partners under Ukrainian law. However, it was not included in his property declarations for 2014 and 2015.
ICU has argued that Poroshenko was not required to declare the investment, as the shares had no par value.
ICU claims that the share registry document reflected a mistake that was corrected on Aug. 22, 2014, when the par value was changed to zero. However, this alleged correction pre-dates both of the documents published by the OCCRP, in which the shares do have a par value – a discrepancy that ICU has so far failed to explain.
The OCCRP reported that there had been cases in which Mossack Fonseca, the Panamanian firm that registered Prime Asset Partners Ltd., had changed and backdated documents when its clients were in trouble and allowed customers to hide their assets.
Poroshenko’s failure to declare the offshore firm may indicate intentions to hide something and possibly minimize or evade taxes, Inna Rudnyk, a lawyer at the Lavrynovych and Partners law firm, told the Kyiv Post.
“When funds are transferred (to an offshore jurisdiction), Ukraine’s State Fiscal Service and other authorities lose control over transactions with them,” Rudnyk said. “Nobody knows what happens to the money later, where it goes, and how it’s distributed.”
A shady jurisdiction
Poroshenko’s choice of the British Virgin Islands as the place to register the firm has also raised eyebrows.
“Everyone chooses the BVI to minimize taxation,” Rudnyk said. “It’s very easy, simple and clear there, and requirements are lax.”
She said that the scheme would have been a legal case of tax optimization if it had been reported.
“The problem is that it wasn’t done in a clean way,” she added.
Anna Antonenko, a lawyer at the Jurimex law firm, told the Kyiv Post that the United Kingdom and Cyprus would be more transparent and respectable jurisdictions in which to open a holding company.
Setting up a company in the British Virgin Islands could allow one to evade taxes on the future sale of the company, Antonenko said.
Another possible method of tax optimization or evasion would be to transfer trademarks and brand names to the Netherlands, where one of Poroshenko’s holding companies is registered, Antonenko said. The Netherlands does not tax royalty payments in some cases, she added.
Paying fair taxes?
In an effort to fend off accusations of tax evasion, Roshen on April 4 published a statement that says it paid Hr 1.3 billion — some $50 million — in taxes in 2015.
Roshen’s revenue fell 26 percent year-on-year to $450 million in 2015, according to preliminary results, the company’s CEO Vyacheslav Moskalevsky said in January.
However, Roshen spokeswoman Nataliya Panova refused on April 7 to disclose its official financial results, which makes it impossible to calculate its effective tax rate, the only meaningful figure according to tax experts.
Lawyers say the company’s statement on tax payments hardly proves anything. Rudnyk said that it is impossible to find out whether Roshen has disclosed all of its revenues or only part of them.
Other explanations
Other reasons why businesspeople move their assets to offshore jurisdictions are high and unstable tax rates and the lack of rule of law in their own countries, Rudnyk said.
“Most potential investors look for understandable structures in terms of the possibility to make investment agreements and carry out litigation in foreign courts,” Kostyantyn Likarchuk, a lawyer at the Kinstellar law firm and ex-deputy head of the State Fiscal Service, told the Kyiv Post.
Blind trust saga
Under Ukrainian law, the president is required to sell his assets or transfer them to independent managers within 10 days of his election. Poroshenko claims that he did that even back in 2005.
However, the independence of Ukraine’s Prime Assets Capital, which owned Poroshenko’s assets until March, and Fusion Capital Partners, which in turn managed Prime Assets Capital, has been questioned.
Prime Assets Capital, which should not be confused with the British Virgin Islands company with a similar name, is run by Poroshenko’s father, while Fusion Capital Partners is co-owned by his long-time friends and business partners Oleh Gladkovsky and Ruben Melkonyan.
In November 2015, Poroshenko claimed that a blind trust had already been created. Then he said on Jan. 14 that an agreement to set up such a trust had been signed.
But later, in March, Makar Paseniuk, ICU’s managing director, told the OCCRP that the trust had yet to be created under an agreement with the Rothschild Trust.
Poroshenko’s claims about the trust being created in November 2015 were also contradicted by the Rothschild Trust, which told Swiss journalists on April 6 that an agreement on setting up the blind trust had only been signed on Jan. 14, 2016.
Poroshenko has not yet disclosed any documents confirming the trust’s existence, or given any details about the trust.
A trust can be discretionary or non-discretionary – i.e. trustees may have the right to determine the amount of money the beneficiaries get from it or not. Trusts are also divided into revocable ones, which can be transferred back to the original owner, and irrevocable ones, which cannot.
To be fully transparent and independent, a blind trust must be irrevocable and discretionary.
Antonenko said that, based on the information leaked as part of the Panama Papers, Poroshenko’s intention in setting up Prime Assets Partners could have been to sell Roshen, rather than set up a trust for the company’s management.
She said she saw no reason to create such an offshore company to set up a blind trust. Likarchuk said that “all these structures are used for two main purposes – one of them is tax optimization, and the other one is basically the preparation of a business for sale, or investment into this business.”
No legal responsibility
If Poroshenko’s offshore schemes violated Ukrainian law, he can in theory be impeached under the Ukrainian Constitution. However, this is currently impossible because parliament has not passed a law on impeachment nearly 25 years since Ukraine became independent.
Law enforcement agencies cannot file a notice of suspicion for Poroshenko, but they have the right to investigate the scheme itself, Yaroslav Tolkachev, a lawyer at the Jurimex law firm, told the Kyiv Post.
But the law enforcement bodies have failed this test of their independence so far, critics say.
The Prosecutor General’s Office said on April 4 that it had no right to investigate the scheme.
Ukraine’s chief anti-corruption prosecutor, Nazar Kholodnytsky, said on the same day that his bureau was considering opening an investigation.
The bureau did not reply to a request for comment on whether it has started an investigation.
What is known about Ukrainian President Petro Poroshenko’s offshore web raises questions as Roshen switched its holding company from Prime Asset Capital to Roshen Europe when ICU, a financial adviser to Roshen, was contacted by journalists about the existence of Prime Asset Partners Ltd. on March 22. Rothschild says it has a blind trust fund with Prime Asset Partners Ltd., yet the details are not revealed.
