The Organized Crime and Corruption Reporting Project, a Kyiv Post partner, on Nov. 5 published findings that refute Ukrainian President Petro Poroshenko’s claims that his offshore firms were not intended to minimize taxes and did not hold any assets or cash, and that Poroshenko is not involved in their management anymore.
George Ioannou, Poroshenko’s Cyprus lawyer at Dr. K. Chrysostomides & Co., said the firm would have no comment for this story, citing confidentiality and client privilege rules.
The investigation is based on the Paradise Papers, a major new leak of documents from two offshore services firms based in Bermuda and Singapore, as well as from 19 corporate registries maintained by governments in secret offshore jurisdictions. The documents were obtained by the Süddeutsche Zeitung and shared with the International Consortium of Investigative Journalists.
The latest investigation on Poroshenko comes after two other OCCRP investigations on his offshore firms released in April and May 2016. They were based on a massive leak of information from Panama’s Mossack Fonseca firm, known as the Panama Papers.
The Paradise Papers show that on June 17, 2014 – 10 days after Poroshenko’s inauguration – Vadim Medvedev, a lawyer working for the Avellum law firm in Ukraine, emailed Sean Dowling, managing partner of law firm Appleby in the Isle of Man office, on behalf of the president.
“We are looking for a service provider to establish an offshore holding company for a client who is a PEP [politically exposed person],” he wrote. “The matter itself is extremely sensitive. … The client’s name is Petr Poroshenko. We are working on restructuring of his confectionary business (Roshen).”
Medvedev explained that Avellum preferred a BVI jurisdiction, but that a company in the Isle of Man would also work. Then the Ukrainian lawyer spelled out the structure they envisioned:
“In order to obtain access to international markets, we are going to establish a new holding company for the group in the Luxembourg. Underneath will be a Dutch sub-holding, which will hold all operating companies. For tax purposes, there will be a Cypriot entity on top of the LuxCo, which will be owned by [the proposed] offshore company.”
Poroshenko’s Avellum lawyer was telling Appleby that they wanted to set up a holding company in the BVI or on the Isle of Man to receive dividends from the whole operation. It would sit atop a chain of companies that led from Roshen through multiple jurisdictions. The plan was designed to provide Roshen with efficient access to the international market at the lowest possible tax rate.
The holding company would own a Cyprus company for tax purposes, as Cyprus typically has the near-lowest corporate tax rate in Europe. The Cypriot company would own a Luxembourg company that would give the business access to international markets. The Luxembourg company would own a Netherlands-based company, which itself would own a Kyiv-based company that would hold shares of the Ukrainian companies that actually make the products.
“This structure is needed for selling – in order to optimize the income from selling,” Bogdan Borovyk, a lawyer from Borovyk and Partners, told the OCCRP. He said that the president’s lawyers wrote about the “tax purposes” of the Cyprus company in this structure and explained the role of every company.
“The Dutch company is the owner of the Ukrainian companies, to defend them (the business) from possible attacks by the state organs or corporate raiding. It is owned by companies in Cyprus and BVI are needed for tax optimization. They can avoid taxes when there is some kind of profit.,” said Borovyk. Profit can be generated by paying dividends or if these companies are sold.
He also said that, in order for the structure to work, the companies would have to open bank accounts.
Poroshenko has claimed that the offshore firms mentioned in the Panama Papers did not have any assets or bank accounts.
In contradiction to Poroshenko’s claims, Medvedev said that the proposed offshore would be handling assets: “Offshore company will be rather passive holding vehicle – it will hold the shares and receive dividends. Sale of the shares at certain moment is possible (provided there is an investor offering a good price).”
From Appleby, Dowling replied: “Will discuss in morning. Have requested worldchecks etc.”
The OCCRP investigation also provides possible evidence that refutes the claim by Poroshenko and Rothschild Trust that Poroshenko’s assets were transferred to the trust in January 2016.
Rothschild Trust became a shareholder of Poroshenko’s Cyprus company on April 27, 2016, according to the local registry, nearly a month after OCCRP’s first Panama Papers investigation was published.
The findings of the OCCRP investigation also contradict Poroshenko’s claim that he “does not take part in the managing process of Roshen Corporation” and “he also does not have any information about the composition of the corporation‘s management, the management or any managerial decisions made by the trustee (Rothschild Bank).”
The records for Roshen Europe B.V, the umbrella company in the Netherlands, still show Sergii Zaitsev, Poroshenko’s acquaintance and long-time top manager, as the company’s director, the OCCRP said.
Meanwhile, in May 2016 the OCCRP published a report indicating that nearly 4 million euros had been moved out of Ukraine to a Poroshenko company in Cyprus in a combination of cash and in-kind payments.
The transaction, made on March 25, 2016 by Prime Assets Capital, a Ukrainian fund owned by Poroshenko, was for the purchase of 18,000 shares of his Cyprus-registered company, CEE Confectionary Investments Limited, at €218 per share – far above the share’s face value of €1.
In response to OCCRP’s report, Poroshenko’s advisors accused reporters of misinterpreting and even mistranslating the form, denying that cash had been part of the transaction. They insisted that only shares (an “in kind” payment) were sent.
But a number of Cyprus lawyers and registry officials asked by OCCRP to interpret the transaction said the paperwork for the payment of almost €4 million clearly shows that it contained both cash and in-kind forms of payment.
Marios Georgiou, a Nicosia-based lawyer, said that the document filed with the registry “has all the safeguards of an authentic document” and that “part of the money was paid in cash.”
If true, this cash deal violated the National Bank of Ukraine’s regulations, and Poroshenko violated disclosure rules by not declaring the cash account, which he was required to do.
Moreover, CEE Confectionary Investments hasn’t filed a single annual return or financial statement since its establishment in 2014.
Another finding of the Paradise Leaks is that Sergiy Oleksiyenko, a former financial whiz who has held several posts in Ukraine’s oil and gas industries, set up an offshore foundation last year in an attempt to circumvent the country’s currency controls. In 2016, Oleksiyenko planned to use Isle of Man lawyers to transfer $1 million to the foundation, the leaks show.
The Paradise Papers, a trove of 13.4 million records, also exposes ties between Russia and U.S. President Donald Trump’s billionaire commerce secretary, the secret dealings of Canadian Prime Minister Justin Trudeau’s chief fundraiser and the offshore interests of the queen of England and more than 120 politicians around the world.
One offshore web leads to Trump’s commerce secretary, private equity tycoon Wilbur Ross, who has a stake in a shipping company that has received more than $68 million in revenue since 2014 from a Russian energy company co-owned by the son-in-law of Russian President Vladimir Putin.
Moreover, the offshore ties of more than a dozen Trump advisers, Cabinet members and major donors appear in the leaked data.
Billionaire Ukrainian President Petro Poroshenko’s use of a web of offshore companies for his Roshen business, the nation’s largest confectionary, appear to be a way to evade taxes, despite his denials.
