Anything To Hide?: Revelations undercut trust in Poroshenko

Poroshenko spoke on April 6 – and only to Japanese journalists – during a scheduled trip to the Far East. Meanwhile, back in Ukraine, the line of questioning has switched from the president’s business activities to his trustworthiness.

Analysts now say that even if the president was using an offshore company merely to sell his business, Roshen, the secretive way in which he went about it will undermine trust in him, his political party and even in Ukraine itself.

“Trust has been lost, and it has been replaced by suspicion,” Tymofiy Mylovanov, the president of the Kyiv School of Economics, wrote on his Facebook page on April 4.

He added that if the president had been engaging in a regular, ongoing dialogue with the nation, it would have been easier for him to explain the incident in a believable way. Now, “any explanation from the president will be taken by many just as an excuse, and people will not believe him,” Mylovanov said.

Differing reactions

On social media, Ukrainians commented on Poroshenko’s trip to Japan, recalling that Ukraine’s ousted former president, Viktor Yanukovych, flew to China in early December 2013 as hundreds of thousands were rallying against him on the streets of Kyiv during the EuroMaidan public protests.

They also noted the disparity between the reaction in Ukraine and other countries to the massive leak of documents from Panamanian law firm Mossack Fonseca, a scandal dubbed the Panama Papers.

The Organized Crime and Corruption Reporting Project, a Kyiv Post partner, is one of the groups of investigative journalists who broke the Panama Papers investigation involving 11.5 million secret files, 140 politicians from 50 countries connected to offshore companies in 21 tax havens and others.

The scandal has already brought about the resignation of the Icelandic prime minister, Sigmundur David Gunnlaugsson, and put pressure on British Prime Minister David Cameron to disclose the offshore holdings of his father. Investigations have started in several countries following the release of information from the documents.

News of Poroshenko’s secret offshore activity may have influenced the result of the Dutch referendum on April 6, where more than 60 percent voted against the EU’s Association Agreement with Ukraine, on a turnout of about 30 percent.

“No matter what the final turnout at the referendum in the Netherlands is, its result is a verdict personally on Petro Poroshenko,” said Mustafa Nayyem, a former investigative journalist and now a lawmaker in the president’s faction in parliament.

Offshore = tax evasion?

Sociologist Iryna Bekeshkina, the head of the Democratic Initiatives Foundation, told the Kyiv Post that Poroshenko’s popularity rating “will decrease a lot” following the offshore scandal.

At the end of 2015, the president still had an approval rating of over 20 percent, although those who don’t approve of his performance stand at 38 percent. Poroshenko won the presidential elections in May 2014 in the first round with 55 percent of the vote.

The word “offshore” to the average Ukrainian “is a synonym for something negative, related to oligarchs,” Bekeshkina said. “And here we have a chain: oligarch-offshore-tax evasion.”

In one of several ironic twists in this story, the news about the president’s offshore comes as the Ukrainian government is actively fighting the use of offshores, which Washington, D.C.-based Global Financial Integrity says are costing Ukraine $11.6 billion a year in lost tax revenues. That’s more than 25 percent of the government’s national budget.

To minimize the damage from the scandal, Poroshenko should have immediately stepped up to explain everything to the public, Bekeshkina said.

A number of reputable foreign media mentioned Poroshenko in the same paragraphs of their stories as his Russian counterpart Vladimir Putin, although Poroshenko merely failed to mention shares worth about $1,000 in his tax declaration, while one of Putin’s associates has been accused of hiding some $2 billion on offshore accounts of behalf of the Russian president.

But while Putin’s spokesman Dmitry Peskov on April 4 described the Panama Paper allegations against Putin as “common rumor, insinuation and speculation that doesn’t even deserve a reaction,” Poroshenko’s press service failed to give any official reaction at all.
“The Presidential Administration has nothing to do with this,” Andriy Klymchuk of the president’s press service told the Kyiv Post on the same day.

Roshen’s taxes

Poroshenko supporters and the Roshen company seized on its April 1 declaration that the company taxes paid Hr 1.3 billion ($50 million) in taxes to Ukraine in 2015, or about 11 percent of the estimated gross revenue of $450 million for the private company.

Spokeswoman Natalia Panova cited the amount of taxes paid as evidence that Roshen and its owner are responsible corporate citizens. “The numbers speak for themselves,” Panova said.
But tax experts said that the most important figure is the effective tax rate, which is calculated by dividing the total tax paid by taxable income.

Evil spirit

The reports of OCCRP, a Kyiv Post partner, and Hromadske TV were published late on April 3.

The disclosures seemed to have taken Poroshenko’s office by surprise, even though journalists asked the president’s press office for comment in late February and early March.

Coming just after the president’s much-ridiculed description of a March 31 New York Times editorial that criticized him as an example of “hybrid war,” the reaction to the offshore scandal highlighted poor presidential communications.

“It looks like some evil spirit has settled in the Presidential Administration,” said lawmaker Viktor Chumak, commenting on the presidency’s clumsy public relations. Chumak recently left the Poroshenko faction in parliament, saying he was disillusioned with the corruption scandals and non-transparent decision-making there.

Speaking at the April 6 press conference in Japan, Poroshenko announced plans to launch “a major reform to make the use of offshore accounts in Ukraine impossible.”

But that just left many Ukrainians wondering why it had taken the president almost two years to come up with his big reform idea, and just after a scandal involving an offshore company.

Others said the scandal proved Poroshenko remained a businessman first, and the country’s president second.

“As long as our president is a tradesman, we won’t win the war, won’t tackle corruption, won’t handle de-oligarchization, won’t manage to conduct reforms, won’t have a working parliament coalition, won’t get an effective government,” philosopher Sergiy Datsyuk wrote in his blog on one of Ukraine’s leading news websites, Ukrainska Pravda.

Consequences

Poroshenko has said he is ready to face any investigation into his affairs, as revealed by the Panama Papers scandal, but experts say the president runs next to no legal risk in doing so.
Under the constitution, the president has immunity from prosecution, which can only be removed in the case of his impeachment. Impeachment, in turn, can come about only if it can be proved that the president committed a crime or treason against the state, which legal experts doubt in the case of the offshore scandal.

Besides, while Ukraine’s constitution mentions impeachment, there is no legislation that specifies the procedure.

Tetiana Ostrikova, a lawmaker of the Samopomich party faction in parliament and a member of parliament’s tax committee, said giving incorrect information in a tax declaration would at most make the president liable for a fine, not criminal prosecution.

“Formally, there are no elements of a crime being committed by the president here, so impeachment over this issue is impossible,” she told the Kyiv Post.

But while legal consequences for Poroshenko’s offshore activities are unlikely, political consequences are unavoidable, experts say.

Bekeshkina said the rating of Poroshenko’s party will definitely fall in the wake of the scandal.
In October 2014, Poroshenko’s Solidarnist party won almost 22 percent of the vote in the parliamentary elections. But as of late March, its rating was just under 11 percent, polls by the Razumkov Center and Kyiv International Institute of Sociology show.

The three other big political forces in parliament – Samopomich, Batkivshchyna and the Opposition Bloc – have similar ratings, which means that in the case of snap parliamentary elections, pro-presidential forces would lose dominance in the Verkhovna Rada.

Now, despite over a month of political backdoor negotiations, Poroshenko would hardly be able to replace Prime Minister Arseniy Yatsenyuk by his long-term ally, parliament speaker Volodymyr Groysman, as planned.

“The most likely scenario is that Yatsenyuk stays as prime minister, with Natalie Jaresko staying as minister of finance, so Verkhovna Rada Speaker Volodymyr Groysman hopes to become prime minister fall by the wayside for the time being,” said Timothy Ash, an analyst at Nomura International.

Moreover, the decline of Poroshenko’s party would probably bring a rise in support for the Opposition Bloc and Vidrodzhennia, the parties formed predominantly by former allies of Yanukovych, Bekeshkina said.

Disillusionment with new authorities always brings nostalgia for the past, she said.

“Every time, in situations like this, people start thinking: ‘It never used to be as bad as this,’” Bekeshkina said. n