Ukraine a no-show as rest of world takes aim at Swiss banking secrecy.
In the past two years, the U.S. and European Union have cracked down on Switzerland serving as a haven for money linked to financial crimes.
Ukraine, however, has not followed suit in attempting to stop financial outflows from its massive shadow economy, which is drowning in corruption.
Switzerland has for almost 80 years held the reputation as the undisputed leader in housing the world’s fortunes – sometimes ill-gotten.
Around $2.1 trillion, or 27 percent, of offshore wealth in 2010 had been stashed in Switzerland, according to findings by the Boston Consulting Group recently cited by the Economist magazine.
The small mountainous state of some eight million inhabitants eased its banking secrecy laws in 2009 under mounting international pressure.
The toughest stance has been taken by the U.S.
Its Internal Revenue Service has already returned $780 million from Switzerland in fines on tax evasion and has passed an act that obliges foreign banks to report on their citizen’s accounts, which comes into force next year.
Germany and Britain took a softer but safer path by negotiating a deal with Switzerland to implement a tax on offshore accounts that will be returned to the account owners’ country.
Meanwhile, Ukraine’s State Tax Service wouldn’t even discuss what actions they plan to take to stop money from Ukraine being siphoned out to Swiss banks, referring to their undertaking as “confidential.”
Every politician who opens his mouth on the TV has a foreign bank account, opened one way or another –Yaroslav Lomakin
founder of the Moscow-based consulting firm Honest & Bright
But the scale is estimated to be substantial.
“Every politician who opens his mouth on the TV has a foreign bank account, opened one way or another,” said Yaroslav Lomakin, founder of the Moscow-based consulting firm Honest & Bright that provides services of opening bank accounts in Switzerland for customers in Russia and Ukraine.
Tracking the real volume or origin of Ukrainian money in Swiss bank accounts is next to impossible, as the notorious secrecy is still in place.
“Swiss banking secrecy had been lessened for Americans only, but in a strict confidentiality and with a great deal of limiting clauses,” Lomakin said.
On the other end, there are all the necessary conditions in Ukrainian legislation for the money to legally flow out though offshore schemes to be safely tucked away in Switzerland.
The major channel of such transactions is Cyprus, courtesy of a double taxation avoidance treaty with Ukraine.
Technically, in order to place money into a bank account in Switzerland, a license issued by the National Bank of Ukraine is obligatory.
But its restrictions of no more than Hr 600,000 for an individual and only one year of validity make it dysfunctional.
“The procedure for receiving the license is there, but in practice our oligarchs don’t use it, because it’s unreal,” said Roman Stasiv, a lawyer with Clifford Chance law firm who specializes in international banking transactions.
Instead “they transfer money through offshore [countries], using a front man or directly by themselves. As a result, money accumulates in Cyprus, and from there you can easily transfer it to different countries, including Switzerland.”
Ukraine’s government failed four times to vote for a denunciation of the treaty with Cyprus, which has existed since 1982.
Serhiy Teriokhin, an opposition lawmaker and first deputy head of parliament’s banking and finance committee, says this happens because government officials are the ones who use those channels: “A majority of parliament’s members have interests in offshore zones. Therefore they wouldn’t violate their own interests.”
The most recent abolishment attempt took place in 2011.
“Symptomatically, the [pro-presidential] Party of Regions did not vote for this draft law unanimously, [nor did] head of parliament Volodymyr Lytvyn,” Teriokhin said. Experts expect the scenario to repeat when a new vote is held on the issue in the near future.
The reasons for continuously failing to block significant money outflows which bypass Ukraine’s budget in the form of tax evasion, bribery and embezzlement, are similar to the absence of action in tracking them in Swiss accounts.
One of the few such cases that did come into the public spotlight was that of Pavlo Lazarenko, Ukraine’s prime minister in the mid-1990s. He was convicted in 2006 by a U.S. court of fraud and laundering about $200 million out of Ukraine. Some allege much more money was involved.
“Half a billion dollars went through intermediary accounts, a part of which was then transferred to Lazarenko’s private Swiss bank accounts,” said Mykola Obikhod, the former deputy chief prosecutor that investigated the case.
Lazarenko is now months away from going free after having served his term in a U.S. prison. Meanwhile, Ukraine has failed to return any of the funds.
“Pennies are returned… around $6 million by the decision of the Canton of Geneva,” Obikhod said. Lazarenko was named the eighth most corrupt political leader in recent history by the Transparency International, the global civil society organization leading the fight against corruption.
But Lazarenko’s case was only one of the many alleged dictators and corrupt politicians using Swiss banking secrecy to hide siphoned state money, despite the tough anti-money laundering legislation in Switzerland.
Nicolas Giannakopoulos, president of anti-corruption watchdog Inside.CO, said that even though Swiss banks have very high requirements in checking the beneficial owner and origin of the money, the crime has to be proven in the client’s home country for action to be taken.
“The verification is done here, but at a judicial level when they [dictators, politicians] are in charge nobody can do anything, except for a country itself,” Giannakopoulos said. “And since this person is a [high governmental official] it means you will never have any document that would prove money laundering.”
Kyiv Post staff writer Maryna Irkliyenko can be reached at i[email protected].
