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Kyiv Post’s closure leaves a vacuum of accountability in Ukraine

Oligarchy is a weekly newsletter tracking how the super rich are changing the world for the rest of us. Also in this edition: Why Dubai might not last as a tax haven

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KYIV POST

Regular readers of this newsletter will know I often talk about Ukraine. Partly, this is because it’s such a great country, but also it’s because it was working in Kyiv that helped me understand how corruption works, and what kleptocracy is (this is why Ukrainians feature so much in my book, “Moneyland”). 

I speak Russian, too, so, when working in Kyiv, I have always been able to take advantage of its remarkable bilingualism, which means people happily flip over and chat in Russian when I explain I can’t speak Ukrainian. That means I can understand what’s going on in a way I can’t in most countries. However, for obvious reasons, official documents and many media outlets are in Ukrainian, and there’s only so much Google translate can do.

That’s why many journalists, diplomats, aid workers, businesspeople and others loved the Kyiv Post. Not many of us spoke enough Ukrainian to read local media, but, fortunately, there was a reliable, independent and gutsy local newspaper to help us understand what was happening in the country. This is what I wrote about it back in 2014. Sadly, that story is no longer true, and the Kyiv Post is no more.

  • “We’ve gone after presidents, prime ministers, general prosecutors, CEOs, oligarchs. We gave them tough coverage — we believe fair, but they often didn’t — and they would complain. But in Ukraine, because there’s such a custom that owners control, or should control everything their journalists do, they often go to the owner,” Editor Brian Bonner told the Columbia Journalism Review. “I think he got tired of it.”

The Syrian-born businessman Adnan Kivan closed the paper two weeks ago, after a dispute with journalists over the launch of a Ukrainian-language version, with a totally different editorial set-up. He has promised that the Kyiv Post will be back, but its journalists say they have all been fired, and are furious.

  • “We see this as the owner getting rid of inconvenient, fair and honest journalists,” the editorial team said in a statement.

In some ways, that is intensely depressing. The Kyiv Post has survived very dark times, and it’s grim to think that it will finally succumb to pressures it has previously resisted. However, in a different way it’s quite heartening, because, although the paper has gone, the journalists are refusing to give up without a fight. 

To demonstrate that point, they have announced that they will be going it alone with a new publication to continue where they left off: the Kyiv Independent.

  • “Ukraine needs on-the-ground English-language journalism of the highest quality and our community needs a news source it can trust,” the team said in a post asking for help funding the publication via Patreon.

Even in its heyday, the Kyiv Post needed assistance from its owner to stay afloat, thanks to its revenues being restricted: firstly, because of the limited size of Ukraine’s expat community and, therefore, the relatively small number of weekly readers; secondly, because of the journalists’ laudable habit of annoying many of the businesses that could afford to advertise between their articles, with their no-holds-barred reporting. 

So, if you think it’s important to help Ukraine in its effort to conquer corruption and you believe in the importance of free speech, please consider helping them out. This small team of journalists has done as much as anyone to tell the outside world the real story of Ukraine, a place that remains one of the most important frontlines in the conflict between democracy and kleptocracy, which will — in my opinion — be the conflict that defines the next few decades. 

SHELL COMPANIES

Dominica is not the only state that’s abandoning the “International Business Corporation” model of shell company, under pressure from rich countries cross about losing their tax base.

  • “Dozens of jurisdictions have amended and/or removed specific provisions of their tax legislation deemed ‘harmful’ or ‘potentially harmful’, including traditional offshore jurisdictions. The latter have started to make significant changes in their tax and business laws in order to avoid being blacklisted as a non-cooperative jurisdiction by the EU,” it says here.

Of course, many of these companies were not just used for tax dodging, but also for money laundering, including — notoriously — by acting as the partners for a Scottish Limited Partnership, and creating a hybrid anonymous company that looked legitimate, but really was nothing of the kind. It was these U.K.-registered structures (plus, the related Limited Liability Partnerships), which moved so much money through the banks of Latvia, Estonia and Lithuania in the biggest money laundering scandals of recent years. Funnily enough, however, the efforts to prevent the abuse of anonymous companies have been targeted at small places like Dominica and the Baltic States, and not at places like the U.K.

  • “Evidently, it’s much quicker to reconfigure the banking systems of three Baltic countries, and the companies law of numerous offshore tax havens, than it is to amend a few relevant sections of the UK’s LP and LLP legislation,” emailed Richard Smith, who understands offshore skulduggery better than anyone.

Substantive and meaningful reform to the U.K.’s companies law has been due “when parliamentary time allows” for the past seven years. It’s long overdue to wonder whether the absence of parliamentary time is the real problem here.

DUBAI 

I am fascinated by how countries become tax havens, and particularly how they are so often part of a federation: whether it’s Delaware in relation to the rest of the US; Jersey in relation to the UK; Ireland in relation to other EU members; and so on. If they have a mind to, federation members are able to exploit their position in the union to undercut their neighbors in all sorts of ways, and make a living out of it. 

When money can move freely between jurisdictions, but laws, regulations or tax rates cannot follow, you get the kinds of mismatches that rich and powerful people really love. As long as they can afford a lawyer, wealthy people have traditionally been able to earn money in a high-tax part of the federation (New York, London, Germany, etc), then move it to the low-tax bit, where it doesn’t get taxed, scrutinized or much else.

Of course, the dynamic high-tax bits hate this and often work hard to stop it, which is why the advantages of tax havens tend to eventually disappear as tax authorities find ways to prevent them exploiting their privileged relationship. The dynamic that gives rise to tax havens (rich people wanting to dodge taxes; criminals wanting to dodge justice) don’t disappear, however so, inevitably, other places find a way to make a living from it, and new tax havens appear, such as Dubai.

  • “The UAE, de facto, tolerates illicit flows and trades that other more reputable international financial centres shun,” said Ricardo Soares de Oliveira, a professor at Oxford University, in a comment on this great piece from the International Consortium of Investigative Journalists. “In exchange for its acceptance that dubious players and monies be based in the country, the UAE merely asks wealthy Africans to stay out of local politics and stay within the boundaries of local law.”

Dubai is part of a federation too (the United Arab Emirates), but what’s interesting about it is that — unlike all the other tax havens I’ve mentioned — it is not federated with a major western economy, but striking out on its own. At the moment, it seems to be tolerated by the major economies, possibly because of the Emiratis’ role as reliable partners for all sides in a fractious Middle East, but I would still say it is more vulnerable than previous tax havens to being squeezed, as soon as more diplomatically potent places start fretting about a loss of revenue. If I ran the country, I wouldn’t rely on this money sticking around forever.

On that note, this is a fascinating paper from the EU Tax Observatory, talking about tax competition within the European Union. For years, EU countries have competed for each others’ companies, and for foreign investment, by cutting tax rates on businesses. (The fact that EU members can be tax havens may come as a surprise to the compilers of the EU’s tax haven “blacklist,” which never includes any members of the EU.) A newer development is how a lot of peripheral EU countries, concerned by how many of their young people are heading off to higher-paying places in the centre of the bloc and the resulting loss of tax revenue, have sought to raise money by offering tax deals to wealthy foreigners.

  • “The most harmful ones are the Italian and Greek high-net-worth individual regimes, Cyprus’ high-income regime and the pension regimes of Cyprus, Greece and Portugal. These regimes exhibit long periods of duration, provide significant tax advantages, specifically target very high-income individuals or do not require any real economic activity in a given member state. At present, preferential regimes apply to over 200,000 beneficiaries,” the report states.

At a conservative estimate, these tricks cost national treasuries €4.5 billion per year, the report says, which is the cost of the EU’s Erasmus student exchange program. Interestingly, the report’s main policy proposal is that EU countries follow the U.S. lead and make their citizens pay taxes wherever they happen to be. That would stop, say, a German heading off to Italy once he’s got rich.

  • “Implementing the measures outlined above may be justified simply by pointing out that a taxpayer who has made a fortune in their home country while also benefitting from its educational system, its public infrastructure, and its services, as well as from the prevailing economic, political and legal climate, has a duty to continue to contribute temporarily to the tax revenues of this country, even after moving to a country with a more advantageous tax regime,” the report adds.

Of course, that would be an incentive for people to give up their citizenship for that of a lower-tax jurisdiction, which could well give a fresh boost to the slightly stagnant EU passport-for-sale market. As long as there are rich people keen to dodge taxes, there’s an angle for a tax haven to exploit.

JETS

It’s boom time for private jets, apparently. Yay.

  • “The market is in a position where it has never been before,” said Christopher Marich, co-founder of MySky, an online management platform for jet owners, according to this article from Bloomberg. “For every aircraft out there, there’s two or three buyers for popular models.”
  • “The hunger for pricey jets is just the latest example of the booming billionaires economy, where demand for mansions, boats and many collectibles has surpassed pre-Covid levels,” said the article, in a throwaway explanatory paragraph.

This is, of course, great news for the vendors of jets, mansions, boats and many collectibles, but it’s pretty crappy news for the rest of us. In terms of the gases that cause global warming, private jets are between five and 14 times more polluting per passenger than commercial flights, and 50 times worse than trains.

  • “In just one hour, a single private jet can emit two tonnes of CO2. The average person in the EU emits 8.2 (tonnes) over the course of an entire year,” said this analysis from earlier this year.

The countries assembling in Glasgow for COP26 did discuss the need to limit emissions from aviation, but only came up with some pretty mealy-mouthed commitments (and the fact that the prime minister of the host country flew to London on a private jet, so as not to miss dinner with some chums, sums up how much they actually care). Action is urgent however, and something needs doing now, before too many jets get built and too many oligarchs become committed to zooming around the place in their own planes.

It’s not often I suggest that we can learn from the Swiss, but this might be one of those times, since they have voted to impose a special departure tax on all private jets leaving the country’s airports. The total tax will depend on how heavy the plane is, but should range from 500 to 3,000 Swiss francs ($540 to $3,240), when it comes into effect from January. 

I’d make the tax higher, but it’s a start.

WHAT I’M READING

A couple of weeks ago, I mentioned that I was reading some police novels, and Erica Kane got in touch to recommend the Rivers of London series by Ben Aaronovitch. I am both grateful to her for this (since they’re great), but also slightly cross (because I had all sorts of plans for this last weekend, and, instead,,spent most of my time reading about the magical law enforcement department in the Metropolitan Police). They have no connection to oligarchy of any kind (sorry), but they are fantastic, and I highly recommend them if you need a prolonged break from reality. Or, indeed, even if you don’t.

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Oliver Bullough

Oliver Bullough is an author and journalist from Wales, who specializes in writing about financial crime, often when it has links to the former Soviet Union. His most recent book is Moneyland, why thieves and crooks now rule the world and how to take it back, and he is currently trying to write another one despite lockdown.

@OliverBullough