On the Way to Frozen Accounts: Corruption in PACE was Illustrated on Ukrainian Example

¨Large-scale money laundering and related corrupt acts through pristine appearing financial instruments and institutions undermine the rule of law and respect for human rights” – this was the beginning of the testimony declared before the Council of Europe Parliamentary Assembly by Erika Razook, an expert from New York Open Society Institute.

Mrs. Razook explained the European scheme for laundering corrupt money, and started with Ukraine, particularly with the description of the scheme used for the infamous purchase of shelf rigs conducted by Chornomornaftogaz.

Council of Europe MP’s heard about smart Ukrainians who bought a rig 150 million dollars more expensively than the market price. In regard of the fact that the purchased rig was delivered to Ukraine a year later than the set term, European politicians had a good opportunity to understand the measure of Ukrainian officials’ impudence.

However, the illustrative story also takes a dig at developed European countries: laundering the money from the poor Ukraine’s budget was possible thanks to the schemes involving British and Latvian men of straw and formal managers. This all happened because The UK and Latvia neglected the demands of their national legislations against money laundering. It is prominent that the public prosecution office of Latvia has initiate criminal proceedings against the Latvian fake company.

Some skeptics might say: “Speaking about Boyko Rigs at the meeting of PACE is not a really big achievement. But when will relevant accounts go frozen and seized? When will Europe apply personal sanctions to corrupt Ukrainian officials?”. To cause problems for Ukrainian corruptionists, the EU does not have to apply any sanctions to them, if it requires long political discussions and political will. The formula is much easier: the EU member-states just need to follow the regulations of their own legislation.

Thus, our key role on the way to freezing the accounts is pointing on the problem correctly and describing it in clear words the EU countries will understand.

What Language Is Spoken in Europe?

Arab spring — a riot of people against political dictators in North African countries — has been a signal that forced Switzerland freeze corrupt accounts. By October 2012 the government has discovered 140 bank accounts that are related to the former leaders of Tunisia and Egypt. More than 1 billion dollars from these accounts were frozen. Now they have moved to the procedure of confiscating these assets and returning them to the new governments of North African countries. Similar things will happen to the capital of the Ukrainian “family” in case the unrestrained “improvement” could bring the country to a riot. It is no wonder that the Ukrainian government is in such a horror of peaceful protests that it hides behind trams, special forces and judges. However, revolution is not the only way to leave the officials without their Western accounts.

Step one — to make EU countries’ law enforcement work by persuading them that banking institutions and various intermediaries (lawyers, brokers and formal managers) are copartners in the crimes of huge political corruption. In her speech, the expert from OSI made a special stress on Switzerland’s inability to implement efficient control measures in regard of the provision of financial services in the country. Particularly, this includes a legal requirement that obliges banks to identify the beneficiary clients, and to check the source of their incomes in case they turn out to be politicians. If at least this regulation were applied in practice, the criminal capital of Gaddafi and Mubarak wouldn’t anchor in Switzerland.

The UK got an even harder blow to its image. In PACE they spoke about several front companies that were founded by a dead and gone citizen of Russia. The companies were used for laundering 1.2 billion dollars from the budget of Kyrgyzstan in 2 years. At the same time, 3/4 of British banks have no relevant control over high risk accounts, which mainly include those of politically exposed persons. And this all is a violation of both British law and international requirements for financial control. In order to visualize the problem well and explain it in words that the EU politicians can understand, the British organization “Global Witness” has issued a special report called “Grave Secrecy”, where it describes key schemes and juggleries that use British front companies for laundering money from the budget of Kyrgyzstan.

At request of OSI the Anticorruption Action Centre in cooperation with international experts and investigation journalists has provided the PACE with the information about Boyko rigs in clean legal terms.

What’s Next? Step Two.

The law is in our favour — and this is our weapon. We don’t need to ask the EU to introduce sanctions: neither personal against Ukrainian politically exposed persons, nor against the state of Ukraine. It is enough to demand from the EU member states to abide by their own legislation against money laundering as explained in the Directive 2006/70/EC and Directive 2005/60/EC.

How can we demand that? We have to gain support of partners residing in the countries that are used for money laundering schemes. For instance, the other day the court of Austria charged the broker Johann Wanowitz with a 5-year duress. The broker arranged the scheming with Telekom Austria stock. As it was reminded by Serhiy Leshchenko, Johann Wanowitz is also involved in the structure of property rights for the Mezhyhirya residence. Obviously, this is a resonant case for Austria, but it will get even more resonant and shift to the agenda of key country’s politicians, if the Ukrainian MP’s and Austrian journalists, NGO’s and experts will demand Austrian law enforcement agencies to investigate the role of Wanowitz as a professional intermediary in the corrupt scheme property rights for the Mezhyhirya residence.

If the EU cannot see any corrupt nature in this regard, our task is to describe it in clear legal terms (in English), and to bring it to the wide range of key politicians in Austria and other European countries.

The Directives of the EU foresee the state control, monitoring and audit not only for banks, but also lawyers, brokers, formal managers, trust directors who professionally serve the “schemes” of money laundering. Moreover, Austria currently gets many claims from the EU, particularly in regard of declassifying suspicious bank accounts and abusing complicate corporate structures.

Even Luxemburg, the biggest financial centre of Europe, has recently declassified banking information, put under the pressure of the EU. Now it’s the turn of Austria, which is supposed to be the European “tax bay”. Latvia and the UK are currently also put under incredible pressure. All we have left is to fuel the flame and illustrate this discussion with bright examples of laundering Ukrainian budget money, which are our taxes.

Daria Kaleniuk, Vitaliy Shabunin, Halyna Senyk for Ukrainska Pravda

OSI testimony at PACE on Abuse of the corporate entity, secrecy jurisdiction arbitrage and under-regulated
financial services.
by Anti-corruption Action Centre

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