Oliver Bullough, a British journalist claims that 10% of the world economy is hidden in the so-called offshore zones. Instead of being allocated to the local budgets, the funds end up in offshores, and the corrupt officials can efficiently cover the tracks of their unlawful enrichment. In Ukraine, offshore companies are mostly associated with the oligarchs, runaway oligarchs, and defendants in criminal cases.
According to DOZORRO, the ProZorro system of electronic public purchasing enlisted 350 companies whose beneficiaries are registered in offshore zones; such companies won 30 billion Hryvnias worth of tenders. The companies registered in the so-called blacklisted countries won 670 million Hryvnias worth of tenders.
The offshores historically pop up in relatively small-sized countries or on the islands, such states consider offshores to be an efficient way to make money. The British Virgin Islands with a population of 25 000 people, for example, enlist 800 000 enterprises. Offshores, however, are present all around the globe. Similarly, not only the former or modern-day United Kingdom overseas territories such as the Cayman Islands, the British Virgin Islands, the Bermudas can be considered offshores, but also such European countries as Switzerland, Luxembourg, Cyprus, and others can be classified as tax havens. The USA also boasts some offshore zones within the country (some of the states can be classified as tax havens), Panama, the American Virgin Islands, the Marshall Islands.
It is absolutely legal to register an enterprise in an offshore. Financial dealings of such companies, however, face rigorous scrutiny. Paying fewer taxes in the offshore zones also allows companies to make more profit. Such profit schemes are often used by corporations, various enterprises and the rich.
Organized Crime and Corruption Reporting Project (OCCRP) journalist Miranda Patrucic indicates that the post-Soviet countries are interested in offshores due to the fact that they allow keeping the illegally obtained funds and information concerning the real proprietor of the enterprise well hidden from the citizens or the law enforcement. After laundering the funds are brought back to Ukraine through legal channels.
Global offshore zones
The world officially recognizes three offshore zones lists: the one composed by the EU and two others composed by the Financial Action Task Force on Money Laundering (FATF) and The Organization for Economic Co-operation and Progress (OECP). Every listing is divided into two sublists: the black one and the grey one. Countries that do not comply with the tax transparency criteria are blacklisted as those failing to combat money laundering and falling under the risk of financing terrorism. The countries that have the pending review status are compiled into grey lists.
The EU blacklist is composed of the countries that failed to efficiently alter their legislature to curb tax avoidance as requested by the EU.
ProZorro estimates such companies won 470 million Hryvnias worth of tenders (5 companies based in Vanuatu and the UAE). FATF, however, blacklisted just one Iranian company that procured a single contract worth 89 000 Hryvnias. YouControl provides a detailed list of the offshore zones accompanied by their description.
Offshore zones list compiled by Ukraine
Ukraine also compiled two additional listings regarding the offshore zones.
The list of countries is compiled in the Order №143-r of the Cabinet of Ministers of Ukraine titled “On the States Included in the List of Offshore Zones”. The financial dealings with the countries from the list are strictly monitored under the law “On Prevention and Counteraction of Legalization (Laundering) of Proceeds from Criminal Activities”. The countries include Belize, the Bahamas, Seychelles, Samoa, and others. The Ukrainian listing partially echoes the EU blacklist. ProZorro registered 200 million Hryvnias worth of tenders with the enterprises registered in the blacklisted countries (28 companies in 4 countries).
The list of tax havens is identified by Act №1045 of the Verkhovna Rada of Ukraine. It compiles the list of countries with the income tax 5% lower than that in Ukraine and where there is a lack of tax information sharing between the said countries and Ukraine. All financial operations with the countries identified in Act №1045 will be strictly monitored. The regulatory agencies receive authority to inspect the tax information necessary to verify the authenticity of the taxpayers’ tax returns. The list includes Cyprus, the Bahamas, Belize, Vanuatu, HongKong, Iran, Kyrgyzstan, Turkmenistan, Laos, Cuba, Lichtenstein, Morocco, and others. Numerous countries, such as Belize or Vanuatu, for example, can be found in both Ukrainian listings. ProZorro registered 7,6 billion Hryvnias worth of tenders with the enterprises registered in the blacklisted countries (216 companies in 11 countries).
The most popular tax haven for Ukrainian companies interacting with the state through ProZorro is Cyprus. Over 140 enterprises are registered there. Cyprus registered beneficiaries hold ownership over the factories, construction companies, pharmaceutical companies, etc. Quite a few of them are tied to the Ukrainian oligarchs.
Kremenchuk Steel Works Plant owned by Serhii Tihipko is classified as one having ties with the Cyprus tax haven. The plant sold 900 million Hryvnias worth of spare train parts and components to Ukrzaliznytsia. Titan Ukraine plant owned by Dmytro Firtash is also among the enterprises in the listing. According to the Radio Svoboda journalist investigation, controlled by the oligarch state-owned plant, Sumykhimprom as a result of the bidding process ended up paying to Titan Ukraine 836 million Hryvnias. The investigative journalists previously wrote how Zaporizhzhia Titanium and Magnesium Combine bought steel barrels from Titan Ukraine paying twice the market value for them.
Another Cyprus-registered enterprise is Amadeus Co, the proprietor of the so-called Yanukovych helicopter deck. The company is being sued by the Asset Recovery and Management Agency (ARMA). In 2017 the Public Joint-Stock Company “National Public Broadcasting Company of Ukraine” (PJSC NPBU) leased the Parkovy Center for 1 million Hryvnias.
Poltava City council charged Symbol Systems company with implementing the electronic ticket in the public transportation system. According to Poltavske TV Symbol Systems appears as a defendant in criminal cases for alleged financing of terrorism and legalization of income derived from criminal activities.
Established in 2015 IQusion IT, just months before it received its first suspicious tranche from Lviv City Council providing payment for the implementation of the electronic document management system, from 2016 till the present day the IT company won public tenders worth 318 million Hryvnias. It is worth mentioning that in 2016 SBU opened a criminal case against a company with a similar name, IQusion, that also was registered in Cyprus and specialized in software development.
The Cyprus listing also includes Alfatech, which since then became insolvent. The firm based in Slobozhanske urban village, tied to Vadym Yeromalaiev, a millionaire from Dnipro, sold 200 million worth of heavy machinery.
Belize is included in both Ukrainian listings and the EU blacklist.
The beneficiary of Chas Mrii company established in 2014 is Anhelika Pasenidu, a Belize citizen. Belize is a Central American country neighboring Mexico. Anhelika acted as a secretary in a Cyprus-registered firm QUICKPACE LIMITED, a defendant in “Onishchenko gas case” alleging 157 million US dollar public funds embezzlement perpetrated by Serhii Kurchenko, Serhii Arbuzov, Oleksandr Onyshchenko: the Viktor Yanukovych close associates. Chas Mrii won just one out of 27 ProZorro public auctions securing a 24 million Hryvnias tender to provide catering services for children who suffered from Chornobyl accident in Volynska oblast. Chas Mrii together with several other firms who took part in public tenders acted as a defendant in a criminal case. According to the prosecution they “in the period from 2015 till 2018 were party to contracts to supply food and provide catering services based on the public tenders for the public sector (Defence Ministry of Ukraine, National Guard of Ukraine, Kyiv Regional State Administration) with the public funds and engage in foreign currency translation through an elaborate network of fictitious enterprises and transit operations in order to receive excess profit”.
The Liky Ukrainy LLC, established in September 2018, profited from the actions of Andrii Bunin, the Head of the department of municipal property in Chernigiv Regional State Administration. In February 2019 he shamelessly transferred to the company the property of the Municipal State-Owned Enterprise Liky Ukrainy. The CheLine news portal estimates that the pharmacies, labs, and housing properties transferred to Liky Ukrainy LLC are worth more than 140 million Hryvnias. Since then Liky Ukrainy LLC won 176 public tenders out of 445. The tenders are worth 17 million Hryvnias. Liky Ukrainy LLC enlist as its beneficiary the Belize-registered company with the same address as the firm that benefited from the actions of illegal agricultural raiders and took over the Nyva-2010 LLC based in Kropyvnytsky district in 2017.
Yet another Belize-based entrepreneur is the runaway oligarch Sergii Kurchenko. He owns Lounge-FM subsidiary, Ukrainian Media Holding publishing house, and Ukrpoligraphmedia. The beneficiary listed is Bradley Matthew Adrian. In September 2019 Kyiv Pechersk District Court transferred media assets obtained from the runaway businessman of the Viktor Yanukovych era to the National Agency of Ukraine for finding, tracing and management of assets derived from corruption and other crimes.
The United Arab Emirates is included in both the EU blacklist and the Ukrainian listing №1045. Founded in 2001, Odessa company Telecommunication Technologies Ltd. is registered by the Cyprus company Panoramicbit Limited with Panoramicbit Limited (registered in Dubai, the UAE) and Pavlo Marakhovskiy as its beneficiaries. Marakhovskyi Pavlo manages the Smart City project and oversees innovations with the electronics manufacturer Infomir Group. Telecommunication Technologies Ltd. has won dozens of tenders to provide the watt-hour meters throughout Ukraine. The company has made 374 million Hryvnias worth of contractual agreements with the state. The company has allegedly embezzled funds allocated to arrange repairs in the notorious Victoriia camp.
Vanuatu is a state neighboring Australia in the Pacific. The country is included in both the two Ukrainian listings and the EU blacklist. Central Department Store ALC operating in Dnipro also has a Cyprus beneficiary and is considered to be a brunch of a Cyprus firm tied to Ihor Kolomoiskyi. In the public sector, the company works exclusively with the Dnipro municipal company Blahoustrii Mista (Municipal Improvements). In 2017 the municipal company within a single day signed four identical 169 000 Hryvnias purchasing agreements and bought 24 kiosks from Central Department Store.
The offshore companies lists were provided to ProZorro by Yaroslav Garaguts, Clarity-Project developer.