“So, are you finally happy with Putin now?” everyone asks me, referring to his threatening remarks yesterday against offshore schemes and the fact that I supposedly praised those remarks. Let me explain. What I’m pleased about, rather, is that Putin has at least started saying out loud what the Anti-Corruption Foundation had submitted as draft legislation two years ago. However, I have very serious doubts that these proposals to de-offshorize the economy will actually be implemented, rather than remaining just another set of Putin’s empty promises. So let’s listen to and read together what Putin said about offshore schemes:
The offshore nature of the Russian economy has become a byword. Experts call this phenomenon flight from jurisdiction. By some estimates, nine out of ten major deals concluded by large Russian companies, including, incidentally, companies with state ownership, are not regulated by domestic law. We need a whole system of measures to de-offshorize our economy. I instruct the Government to submit comprehensive proposals on this issue. “Political competition is an unquestionable good for the country. We need to formulate a kind of code of fair political competition.” We need to achieve offshore transparency and disclosure of tax information, as many countries do in negotiations with offshore jurisdictions and by signing the relevant agreements. All of this can and should be done. But if, when choosing a jurisdiction, the decision is made in favor of foreign legislation, then we must, of course, admit that we need to correct our own shortcomings in the judicial system, in lawmaking, and in the practice of enforcing laws. Only by honestly acknowledging this can the situation be changed radically. http://kremlin.ru/transcripts/17118 That is what Putin said yesterday in his annual address....... WAIT A SECOND, HE DIDN’T SAY THAT YESTERDAY. This was the 2012 annual address. In other words, he said it a year ago. And this year he repeated it all. ...about the tasks of de-offshorizing the economy. Another subject I wanted to draw your attention to, and one I believe it is necessary to return to today as well. Why, frankly, are the results still barely noticeable? Let me remind you of this year’s massive deal worth more than $50 billion. The sale of stakes in TNK-BP took place outside Russian jurisdiction, even though the sellers are known—they are Russian citizens—and the buyer is also well known: one of Russia’s largest companies. According to experts, last year Russian goods worth a total of $111 billion passed through offshore or semi-offshore jurisdictions—that is one-fifth of all our exports. Half of the $50 billion in Russian investment in other countries also went to offshore jurisdictions. Behind these figures are capital outflows that should be working in Russia and direct losses to the state budget. Since nothing substantial has been done in this area over the past year, I have proposals. Here they are. The income of companies registered in offshore jurisdictions and owned by a Russian proprietor, the ultimate beneficiary, must be taxed according to our rules, and those tax payments must be made to the Russian budget. And we need to devise a system for extracting that money. There are such methods, by the way; there is nothing unusual about this. In some countries such a scheme is already being introduced: want to use offshore jurisdictions—fine, but the money comes here. This is being introduced in countries with developed market economies. And the scheme works. http://www.rg.ru/2013/12/12/poslanie.html Once again, experts told him everything was very bad. Once again, nothing was done. It feels as though the work was supposed to be done by little gnomes you summon by hanging a candy on a string by your bed overnight, rather than by his own prime minister sitting in the front row:
from here And especially wonderful is the hand-wringing over the biggest deal in the country’s history (TNK), carried out in offshore jurisdictions. Apparently that deal, too, was prepared and approved by gnomes, not by Putin’s close henchman Sechin—a crook and thief—who jumped from the ranks of officials into the highest-paid “managers” in Russia and receives 1.6 billion rubles a year.
Two years ago, RosPil (ACF, the Anti-Corruption Foundation, did not yet exist then) submitted amendments to the Federal Contract System law, and even then we were talking about the importance of de-offshorizing public procurement. We demanded that all participants in public procurement established through offshore entities should, at a minimum, publicly disclose their beneficiaries (ultimate owners). We demanded that all subcontractors disclose their beneficiaries before receiving a contract, and so on. Back then, Dmitry Medvedev’s wonderful government and United Russia all argued in chorus that this was completely impossible and couldn’t be done at all. The only thing we achieved was that the winner of a large public procurement contract would disclose its beneficiary only to the customer itself (not to all of us), and if it spat on the requirement and refused, there would be no sanction. And even that still looks like a revolution. That’s it—there have been no other real moves forward. And I doubt there will be under Putin’s regime, because what we most need to de-offshorize is not the economy, but the state sector. Contractors, subcontractors, any suppliers must disclose their owners—not only in public procurement, but also when working with state corporations and companies with state ownership. Officials should not be in shady relationships with offshore companies. What is this?
This is a diagram of the offshore empire of Yakunin, head of Russian Railways and Putin’s crony from the Ozero cooperative (a dacha cooperative whose members included several of Putin’s close associates). Even Yakunin’s dacha belongs to the Cypriot offshore company Mirolo, which in turn belongs to two Panamanian offshore companies. And what is this?
These are the astonishing offshore schemes that allowed the wife of another of Putin’s associates—Shuvalov—to somehow miraculously earn hundreds of millions of dollars. And so on and so forth. This is what needs to be de-offshorized, not some IT company that opened a headquarters in the Netherlands to optimize taxes and operations. So the real question is not, “Will Putin de-offshorize the economy?” but, “Will Putin de-offshorize his friends—the thieves?” I doubt it. His thief-friends have continued doing better and better, while Mr. Promise just keeps making promises.