Vladimir Putin and the Panama Papers

share_of_financial_wealth_held_offshore_chartbuilder

One of the Russian Federation’s big problems is that its millionaires and billionaires are sending their money abroad, adding to Russia’s serious economic problems.

Sergey Roldugin, friend of Vladimir Putin

Sergey Roldugin

The fact that the Panama Papers reveal that one of Vladimir Putin’s oldest friends, a cellist named Sergei Roldugin, is the nominal head of offshore companies controlling billions of dollars in assets, is a big deal – especially since Roldugin does not live the life of a millionaire or billionaire.

Putin said back in 2011 that rich Russians who keep their money offshore are unpatriotic.

The Panama Papers are a trove of documents about shell companies registered in tax havens in the files of a Panamanian law firm called Mossack Fonseca.  The documents were leaked about a year ago by an unknown person to a German newspaper, Seuddeutsche Zeitung, which shared them with other publications around the world and with the International Consortium of Investigative Journalists.  They spent a year picking through the material, and published their findings starting last Sunday.

A tax haven is a jurisdiction with low or zero taxes which provides anonymity and protects financial secrecy.  Drew Schwartz of VICE news explained how a tax haven can be used to hide a money trail.

[Vladimir Putin’s] boyhood friend, Sergei Roldugin—a major-league cellist and the godfather of Putin’s firstborn daughter—is listed as the owner of a slew of offshore companies. They’ve been set up by Mossack Fonseca, and they’ve received innumerable payments worth tens of millions, the papers revealed. However, it appears that the money’s not actually going to Roldugin. Instead, the ICIJ believes, it’s going to Putin’s closest associates—and maybe even Putin himself.

The way that works is tricky. It’s best explained, I think, by a mind-blowing example that the ICIJ highlighted in its reporting:

On February 10, 2011, an anonymous company in the British Virgin Islands named Sandalwood Continental Ltd. loaned $200 million to an equally shady firm based in Cyprus called Horwich Trading Ltd.

The following day, Sandalwood assigned the rights to collect payments on the loan—including interest—to Ove Financial Corp., a mysterious company in the British Virgin Islands.

For those rights, Ove paid $1.

But the money trail didn’t end there.

The same day, Ove reassigned its rights to collect on the loan to a Panama company called International Media Overseas.

It, too, paid $1.

In the space of 24 hours, the loan had, on paper, traversed three countries, two banks, and four companies, making the money all but untraceable in the process. St. Petersburg-based Bank Rossiya, an institution with a majority owner and chairman who has been called one of Putin’s “cashiers,” established Sandalwood Continental and directed the money flow.

International Media Overseas, where rights to the interest payments from the $200 million appear to have landed, was controlled, on paper, by one of Putin’s oldest friends: Sergei Roldugin.

The point is this: Here, somebody with extremely close ties to Putin traded $200 million for $1. That’s just one of several transactions ICIJ uncovered in Mossack Fonseca’s files—totaling at least $2 billion—that involves companies or individuals “uncomfortably close” to Putin.  As ICIJ points out, the money might be changing hands in secret because it’s being used as “payoffs” for aid from the Russian government or big-ticket contracts.  To boil what’s at hand down to a word: corruption.

Source: VICE

Vladimir Putin

Vladimir Putin

None of the shenanigans mentioned above are in and of themselves illegal.  But it is hard to see what aboveboard purpose they could have.

The usual motive for incorporating in a tax haven is to escape taxes in your home country.  Another is to have a financial reserve that your government can’t seize if you fall into disfavor or if there is a revolution.  Governments themselves use corporations in tax havens to finance covert actions and secret intelligence activities.  Conceivably any of these might apply to Vladimir Putin.

Defenders of Putin make two points: (1) Putin is nowhere mentioned by name in the Panama Papers and (2) journalists who focus on Putin rather than the broad issue of tax havens have ulterior motives.

It is true that Vladimir Putin is nowhere mentioned by name in the Panama Papers documents—unlike, for example, Petro Porochenko, the president of Ukraine, who owns a stake in an offshore company in his own name.

But the circumstantial evidence of his involvement is strong, as the Seuddeutsche Zeitung report shows.  How could so many of the people around him hide their wealth in tax havens without his knowledge?

It also is true that prominent Americans, such as Mitt Romney, put their money in tax havens, and this has not been mentioned.  Their names do not appear in the Panama Papers, but Mossack Fonseca is only the fourth largest Panama-based law firm that registered offshore corporations.

I agree that the hiding of wealth by millionaires and billionaires is a much broader issue than Vladimir Putin.  And maybe the leaker of the Panama Papers did have an ulterior motive.  Who knows?  None of this changes the facts about Putin.

LINKS

Putin’s rich friends by Petra Blum, Frederik Obermaier and Bastian Obermaier for Suddeutsche Zeitung.

The Secret Caretaker by Roman Anin, Olesya Schmagun and Dmitry Velikovsky for the Organized Crime and Corruption Reporting Project.

Here’s Why You Should Care About the Panama Papers by Drew Schwartz for VICE News.

The VICE News Guide to the Panama Papers by Tess Owen.

Unlike the secrets exposed by the Panama Papers, big US tax dodging is done in full public view by Matt Phillips for Quartz.

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