A draft law recently submitted to the Ukrainian parliament offers an easy way for the rich and corrupt to legalize their ill-gotten wealth.
Written by members of Ukraine’s parliament Andriy Shinkovych and Hennadiy Chekita from the 135-seat bloc of President Petro Poroshenko, the largest faction in parliament, the legislation offers individuals immunity from prosecution if they voluntarily declare illegally obtained assets and pay a 2.5 percent tax.
The authors cite the success of an Italian tax amnesty “Scudo Fiscale” (tax shield) to legitimize the idea. A 2001-2002 campaign encouraged Italians to declare their assets hidden in offshore bank accounts, mostly in Switzerland, for a flat 2.5 percent tax. As a result, some 78 billion euros of flight capital were returned to Italy.
Ukraine, meanwhile, is still struggling to get back an estimated $40 billion stolen by former President Viktor Yanukovych and his cronies before the EuroMaidan Revolution ousted him from power in 2014. It’s been a largely fruitless struggle, with no high-profile corruption convictions so far.
Shinkovych and Chekita say their laws will help to return money siphoned from Ukraine to various tax havens and tamp down Ukraine’s shadow economy, estimated at 40 percent of the country’s gross domestic product.
But while the amnesty might lure money back into the country, civil watchdogs raise red flags.
“The proposed legislation will allow legalization of corrupt wealth,” Olena Scherban from the Anti-Corruption Action Center said. “Such amnesty should not apply to public officials and their relatives.”
The bills offer many ways for filers to avoid public scrutiny. The voluntary declarations guarantee the filers confidentiality. They can’t be used as a foundation or as evidence for investigations unless the filer testifies as a witness in a case. And filers are not obliged to disclose the sources of their ill-gotten gains.
In other words, if these laws pass, public officials can flaunt their luxury cars and mansions with little fear that the National Anti-Corruption Bureau of Ukraine will open a pesky investigation into their illegal income sources. In fact, it is unclear if the NABU will be able to continue any of its ongoing investigations on public officials’ illegal enrichment if the bills pass.
As it stands in Ukraine now, owning assets unsubstantiated by an official income statement is grounds for a five-year jail term—for public officials.
Furthermore, said Scherban, corrupt officials, judges, and law enforcers can use the bill as a way to conceal their wealth on their annual e-declarations of assets, which have become obligatory—and often publically embarrassing—since 2016.
“They may file a secret declaration on the property and funds which were not included in the main e-declaration,” she said.
As Ukraine is facing pressure from international partners to fight corruption, the proposed amnesty seems like an attempt to keep top officials out of prison.
The International Monetary Fund has been pushing for the creation of an anti-corruption court as a condition for lending another $1.9 billion tranche to Ukraine.
A long-overdue bill that would create the court passed its first reading in March. But the possibility of an anti-corruption court is facing stiff resistance. Sergey Fursa, an investment banker with Dragon Capital, said officials are anxious.
“Illegal enrichment is easier to prove. So the officials are afraid to go to prison en masse and want to legalize their wealth,” said Fursa. “They are even ready to pay for it a 2.5 percent tax.”
Fursa says that a tax amnesty must be one-off and carried out by trusted people and agencies.
Inna Taptunova, a partner at Kyiv-based law firm KM partners, questioned whether the amnesty is the right move, given the state’s inability to protect its citizens’ property.
“Tax amnesties work only when there is trust in the government,” she told the Kyiv Post. “In Ukraine, people don’t trust that the government can protect their property rights and protect them from raider attacks. Therefore, money won’t return to Ukraine. So I reckon only politicians and public officials will take advantage of these bills.”
She added that the draft bills seem just “an attempt to solve the problems of corrupt individuals.”
“They are raw and raise many questions,” she said. “Such as, why the authors chose a low tax rate of 2.5 percent like it was in Italy, not 10 or 12 percent like in some other countries where tax amnesties were successful too.”
One of the draft bills says that income from corruption can’t be legalized—if there’s a court judgment proving it as such. But Ukrainian courts produce few corruption convictions.
“It would be unfair if one person diligently paid a 20 percent tax, and another stole a million dollars, declared it, and paid a 2.5 percent tax,” Taptunova said.
