A saga of Ukrainian illicit assets
A splendid house made of ecological wood, an extensive parking full of expensive cars, a zoo, a boat - ex-president of Ukraine Viktor Yanukovich left all of it behind after he couldn’t contain protest movements in the capital anymore. He discredited himself as a president after he fled the country to the neighboring Russia. That is how a long saga of the recovery of illicit assets of Yanukovich in European banks started.
By Margaryta Kirakosian
On a territory almost the size of the kingdom of Monaco journalists of the newspaper Ukrainskaya Pravda discovered the property, which was estimated to be worth 9,5 million dollars. According to Ukrainian legislation, the President of Ukraine is supposed to earn no more than $115, 757 per year. During his presidency Yanukovich shared his passion for enrichment with his inner circle, which consisted of family members and friends. Ukrainian and foreign media would refer later to this group of people as the ‘Family’.
According to the statement of the current prime minister of Ukraine Arsenij Yazenyuk, ‘Family’ members illegally withdrew around 70 billion dollars from Ukraine. What happened after Yanukovich and his “Family” members fled Ukraine was predictable: some European banks froze their accounts. After, the question arose: what is next? What will happen to the money which a bunch of politicians stole from regular Ukrainians?
Here comes the money
According to the Ukrainian department of Deutsche Welle, The international Ukraine Forum on Asset Recovery (UFAR) took place on 29th of April, 2014. Teresa May, the UK’s Home Secretary, commented on the event: “Building on our expertise in the field of asset recovery, it will also provide practical leadership and assistance to the Ukrainian government as they identify and recover assets looted under the Yanukovych regime and introduce political and economic reform.” The idea of international help is out there, but how effective could it be in the end?
The truth is Ukraine has been in similar situations before. Ex- prime minister of Ukraine Pavel Lazarenko was accused of money laundering on the territory of the USA in 2004. In the intricate schemes, which included illegal purchase and sale of Russian gas, Lazarenko earned $250 million. Under normal circumstances those costs would be part of the Ukrainian budget. But Ukrainian state is not even first on the list to get financial compensation. The United States Department of Justice has the first right on Lazarenko’s money, as he was caught and accused in US territory. The second claim was from Gasprom, a major Russian gas company, which demanded compensation of $65 million. After those two major players came the company UTICO, which was hired by Ukrainian government to represent its interests. The court process has lasted for eight years already and money is still in the hands of the Washington court. This leads us to inevitable question: why is that the country, which suffered from corrupted politicians, can barely get any money back?
“From the legal standpoint all cases of the international asset recovery should go through three main stages: freezing of the assets, proving those assets are illicit and repatriation,” says a lawyer from Radabank Ukraine, who wanted to stay anonymous. But obstacles make international assets recovery a longer process on every one of these stages.
Obstacle No1: to freeze or not to freeze
Different countries have different laws. The executive director of the Swiss research company MyPrivateBanking, Stefan Binder, stated in his interview to the RBK magazine that in Switzerland the assets can be frozen for three years, in Germany only for half a year, while the US president has the right to arrest the assets of a foreigner for an undefined period of time.
“The arrest of the assets is done according to the laws of the country, where they are discovered,” states an anonymous lawyer from Radabank Ukraine. Ukraine sent enquiries about illegal assets to all countries of the EU. Considering the fact that there are 28 countries, it might take different amounts of time to finalize all legal procedures. What we know from the news is that only Austria and Switzerland actually froze illicit assets connected to the Ukrainian ‘Family’.
There is also no universal legal assistance agreement, which will allow all countries at once to repatriate money to the country of its origin. “In order for Ukraine to get illicit assets, it should have a legal document, a bilateral mutual legal assistance agreement with a particular country,” says Oleg Morozov, Dr. of Historical Sciences in the law department of the Customs Academy of Ukraine.
This would mean at least 28 agreements, if we count only EU countries. Some of those agreements exist already, like the MLA Agreement with China. But in order to sign new ones, Ukraine will need time.
Obstacle No2: playing hard to get
It seems that proving the assets illicit is the easiest part. But it can also be problematic.
“According to the decisions of the EU Council, sanctions were applied to certain Ukrainian politicians,” says Kseniya Smyrnova an Associate Professor of the Department of European & Comparative Law at Taras Shevchenko National University. “But on May 15th the legal case of Yanukovich against EU Council was registered in the EU Court.”
This legal case states that sanctions, which were applied to Yanukovish, are illegal. If
the advocates of Yanukovich prove it to be true, sanctions will be cancelled. The EU Court can adjudicate on such disputes for a couple of years. The EU Council has the right to put sanctions on Yanukovich again, but this time taking into account all possible issues, which Yanukovich mentions in his complaints.
Obstacle No3: trust issues
Even when all legal differences between countries are settled and the illicit origin of assets is proved, repatriation can be problematic. The prolongation of the process can be caused by lack of trust towards new governments. In cases with Swiss banks, the new government should provide a plan for how to it will use money in the right way. The case of the Republic of the Philippines is quite illustrative. According to the online-newspaper Obosrevatel, it took five years for the country to make an investment plan which satisfied the bankers. In the end money reached the Philippines 14 years after the death of the dictator Ferdinand Marcos. The problem with this scenario is the autonomy of the banks when it comes to approving the development plan of the country. There are no clear guidelines which regulate their decision.
It is hard to let the money go
Once assets have entered the legal financial system, it is of utmost importance to trace them and this requires a clear political will on the part of the government agencies and financial services firms involved, states MyPrivateBanking. Indeed the political will of countries, which hold the assets of Ukrainian politicians, is what might be lacking.
Double standards in politics can make the issue of the political will even more complicated. In the Ukrainian case with Pavel Lazarenko, the money was never returned to Ukraine, likely because the Americans didn’t want it to be trapped in the hands of Yanukovich’s government. At the same time, on the 29th of April, about three months after Yanukovich’s rule collapsed, US Attorney General Edwin Holder announced the formation of a dedicated kleptocracy squad within the FBI, which investigates and prosecutes corruption cases including those in Ukraine. It seems that the position of American government depends on how good the relationship with the current Ukrainian government is and if this government shares the same beliefs. Ideally this shouldn’t be the case, because stolen money belongs not just to the new government, but to the Ukrainian people.
Another thing to keep in mind is who benefits from the money on the frozen bank accounts. An interesting example in this case is the fortune of the former Chilean dictator Augusto Pinochet. The money was found in British bank accounts and about $1, 7 million has been frozen since 1998. The dark origin of that money was proven, but Great Britain is not eager to return it to Chile. The doubt of the British side is that money will not be properly used for the development of democracy in the country. According to the online-newspaper Obosrevatel, the investigative group of Chilean police, which specializes in money laundering, made a statement that government and financial structures in Great Britain are involved in hiding the illegal legacy of Pinochet. According to investigators, owners of financial structures transfered Pinochet’s money into bank accounts in the British Virgin Islands, Bahamas and Hong Kong. The official reaction of British authorities to this statement is unknown.
That leads us to the suggestion that those countries where the illegal assets are hidden would want that money for their own benefits.“Countries, which have frozen illicit assets, don’t put the lock on them,” says Oleg Morozov. “Banks use that money and get dividends from them. That’s why it is beneficial for them to keep these assets.”
Probably, European governments could find it rather appealing to have all 70 billion dollars at their disposal rather than giving them back to Ukraine right away. To get back Ukraine’s fortune also means causing an outflow of funds from offshore accounts. This fact probably won’t be pleasant for Great Britain, which basically built its financial empire on offshores. According to documents found by journalists from Ukrainian Truth, the luxurious former residences of Yanukovich belong to companies which are registered in Great Britain. And it is up to the British government to decide if the assets really contain corrupted money. Also among countries which froze assets of notorious Ukrainians are Estonia, Bulgaria, Latvia and Luxemburg, which are considered to be tax havens within the EU.
Furthermore, MyPrivateBanking states that Western government often don’t have the political will to prosecute former political allies, as their own collusion could be discovered in the process. That might not be relevant for the current situation between Ukraine and Western countries but rather for Ukraine and Russia. Rumor has it according to news magazine Korrespondent that the ex-president of Ukraine managed to transfer $32 billion in cash to the Russian Federation. Nobody knows exactly if there were Russian bank accounts with illicit assets of the “Family” among them. As Yanukovich was a political ally of Moscow and still hides on Russian territory, Russian authorities would probably be reluctant to share such information. The General Prosecutor of Ukraine even sent a request for extradition of the ex-president. But even that request hasn’t been addressed yet. The relationship between Ukraine and Russia is rather tense at the moment, which makes any chances of the conversation about the financial matters of Yanukovich unlikely.
Is there a way out?
There are at least two practical solutions that make sense in order to prevent international injustice in cases with frozen accounts. The first solution is to eliminate the problem in the very beginning. To achieve that, banks should more carefully watch people with debatable reputations or not let them open accounts at all. The databases of politically exposed persons are a great tool for this. A politically exposed person (PEP) is defined by the inter-governmental Financial Action Task Force (FATF) as an individual who is or has been entrusted with a prominent public function. Many PEPs hold positions that can be abused for the purpose of laundering illicit funds or other offences such as corruption or bribery. According to FATF it is important for financial institutions to know who their customers are. Although introduction of the PEP term is in progress, it doesn’t prevent these people from opening bank accounts.
The second important move is to make sure that frozen money will be returned, if not to the government, but to the people. The scenario implemented in Kazakhstan proves it is possible to bypass the government and give money for the benefit of people. According to the report ‘Time for transparency’ conducted by the non-profit Global Witness, the largest-ever foreign corruption investigation in the US legal history has uncovered a major international corruption scandal that “defrauded the Government of Kazakhstan of funds to which it was entitled from oil transactions and defrauded the people of Kazakhstan of the right to the honest services of their elected and appointed officials.” Swiss.info stated that Switzerland started in 2007 to return $84 million derived from corruption cases linked to oil concessions, to Kazakhstan. The funds were used for an aid program for Kazakh children.
There are many NGOs in Ukraine, which can use the $70 billion of the “Family” for better purposes.
If money doesn’t reach Ukraine soon enough, the European Union might find itself in economical troubles. According to Deutsche Welle, in order to keep the Ukrainian economy afloat, €1, 6 billion in loans are needed. It could be so much better both for the EU and Ukrainian economies to extract that money from frozen bank accounts of light-fingered Ukrainian politicians. But as the judicial processes are so complex and take a lot of time it can hardly happen, because every country has its own laws and procedures. And because of the double standards and personal interests of each country the money will probably never get back to the Ukrainian budget.
The only compensation Ukrainian people can get for now is to take a trip to Mezhyhirya, to see all the tasteless grandeur of the place: peacocks in the zoo, car park, house made of ecological wood, boat, all of it. That will make them bitterly realize: this is what they were working so hard for. What is left is only hope. Hope not to get the stolen money back, but to have a better future.
