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Panama Papers and the implications for Central and Eastern Europe

April 3rd 2016 saw the advent of an unprecedented international revelation when Munich-based newspaper Süddeutsche Zeitung published information regarding the “Panama Papers” in conjunction with the International Consortium of Investigative Journalists (ICIJ) located in Washington, DC. These papers are a data breach of 11.5 million confidential files compiled by Mossack Fonseca, the world’s fourth largest offshore law firm, which was founded in 1986 and is based in Panama City, Panama. The files contain data regarding more than 214,000 offshore companies. These data demonstrate how wealthy and/or powerful individuals in various countries have, until now, hidden their assets from their fellow citizens’ and governments’ view.

May 5, 2016 - Stuart Feltis - Articles and Commentary

panama papers

Photo by dennizn / Shutterstock.com

The data spill was provided to Süddeutsche Zeitung in early 2015 by an anonymous source whose identity remains unknown. ICIJ shared this information with various international news sources, including the Guardian and BBC. Its reporting partners in Central and Eastern Europe include Poland’s Gazeta Wyborcza, Hungary’s Direkt36, the Czech Centre for Investigative Journalism(CCIZ), Ukraine’s Kyiv Post, Russia’s Novaya Gazeta and Vedemosti, Serbia’s Crime and Corruption Reporting Network (KRIK), Slovenia’s Delo, Bulgaria’s 24 Chasa, Romania’s Rise and the Maryland-based Organised Crime and Reporting Project (OCCRP, an international investigative consortium which focuses on Eastern Europe, Central Asia and Central America).  

ICIJ has made known that Mossack Fonseca is a leading player in the vast cryptic industry which many of the world’s wealthy and/or powerful often use to conceal assets and bypass rules by setting up front companies in remote jurisdictions. The information revealed in the April disclosure should be a matter of concern for citizens and governments of the many countries with nationals involved for several reasons. First, Mossack Fonseca has helped firms using offshore tax havens supply oil to militants involved in the Syrian Civil War (ICIJ states that mostly to President Bashar al-Assad’s forces). This conflict, as many sources have reported, has killed between 250,000 and 470,000 people and displaced approximately another 11 million. Mossack Fonseca has been quick to claim it has never knowingly allowed its company to be used by individuals with a relationship to the Syrian Civil War. It says it swiftly reports suspicious activity, co-operates with authorities and “does not offer assistance to clients whose purpose is to hide unlawful acts such as tax evasion”. The Panama Papers, however, reveal that many of Mossack Fonseca’s clients have been involved in bribery, arms deals, drug and human trafficking, financial fraud and tax evasion.

Panamanian President Juan Carlos Varela, in an attempt to protect his country’s image as a place to invest in, issued a letter to the New York Times titled “Don’t Blame Panama. Tax Evasion is A Global Problem”. This was an attempt to mitigate the negative image of Panama’s recent past which has seen corruption scandals such as that of former President Ricardo Martinelli who has been accused of fraud and embezzlement, as well as the 2010 Lucom Affair involving the late Hilda Piza de Arias and her children (the latter are members of Panama’s influential Arias family, who fought a court battle in South Florida to seize 50 million US dollars which Ms. Piza’s deceased husband Wilson Lucom left to Panamanian orphans in his will). Banking, commerce and tourism form Panama’s main economic pillars, distinguishing it from most of its less affluent Central American neighbours (with the notable exception of Costa Rica). 

In regards to Europe, various countries have businessmen and politicians who have been revealed to be Mossack Fonseca’s clients and thus become suspect of possible tax evasion and/or fraud. In Western, Southern and Northern Europe, these countries include Belgium, France, Greece, Iceland, Ireland, Luxembourg, Malta, Spain, Switzerland and the UK.

As far as Central and Eastern Europe’s countries are concerned, Russian oligarchs have been among those who have received the most attention, since important figures, many of whom have close ties to President Vladimir Putin, have been cited as clients of Mossack Fonseca (though Putin himself has not directly been revealed to be one of these). These figures include construction billionaires Arkady and Boris Rotengberg, professional musician Sergei Roldugin, business magnate Alisher Usmanov and billionaire Gennady Timchenko.

Russian oligarchs have not been the only regional actors revealed to be Mossack Fonseca’s clients, however. The Panama Papers show that on August 21st 2014, Ukrainian President Petro Poroshenko had Mossack Fonseca set up an offshore company named Prime Asset Partners Ltd in the British Virgin Islands. Poroshenko had his candy company Roshen move there (which he had told Ukrainian citizens earlier in 2014 he would sell if elected). This transfer was able to save him millions of dollars on Ukrainian taxes. Ukrainian analysts have claimed the furtive way Poroshenko set up these accounts will be sure to weaken trust in him, his “Solydarnist” party and outsiders’ trust in Ukraine itself. Oleh Lyashko, the leader of Ukraine’s populist Radical Party, urged lawmakers to begin impeachment proceedings against him.

In neighbouring Moldova, former Prime Minister Ion Sturza and businessman Constantin Lutsenko have also been made suspect. Two years after Sturza withdrew from politics (in 2000), he went into business with the late Romanian billionaire Dinu Patriciu, former head of the Rompetrol Group multinational oil company. Sturza and Lutsenko worked at Rompetrol from 2002 to 2009. According to the Panama Papers, both men were partners in hidden offshore companies during those years (Markside Holdings Ltd. and Chandler Group Holdings, registered in the British Virgin Islands). Sturza insists he did not receive a profit from his affiliation with these companies.


Elsewhere in the post-Soviet sphere, the South Caucasus saw revelations made regarding some of their own public officials. In Georgia, Davit Kezerashvili, a former defence minister during President Mikheil Saakashvili’s tenure, was signalled. The Swiss newspaper Tribune De Geneve noted that when Kezerashvili was appointed minister in 2006 he was of relatively modest means, owning only one flat. After his resignation in December 2008, several months after the South Ossetia War, his trustees founded three offshore companies. Millions of dollars obtained from oil sales from one of these companies were transferred to Swiss, Dutch and French bank accounts.

Former Georgian defence minister Davit Kezerashvili

implicated in the Panama Papers.

Photo (CC) commons.wikimedia.org 

In 2013 Mossack Fonseca registered and backdated Kezerashvili’s documents, and before facing trial for corruption, Kezerasvhili transferred his assets to his two other companies. Former Prime Minister and oligarch Bidzina Ivanishvili was also revealed to have links to a company named Lynden Management located in the British Virgin Islands, a fact which he did not disclose during his government tenure.

In Azerbaijan, the Panama Papers reveal that President Ilham Aliyev’s daughters Leyla and Arzu both hold shares in Exaltation Limited, a clandestine offshore company in the British Virgin Islands set up in April 2015 with the objective of “holding UK property”. Child & Child, the London law firm that registered this company and obtained directors for it though the Bailiwick of Jersey’s branch of Mossack Fonseca, falsely claimed Leyla and Arzu had no political connections. ICIJ states that Aliyev’s family leads “a charmed, glamorous life, thanks in part to financial interests in almost every sector of the economy”.

In neighbouring Armenia, Mihran Poghosyan, the Major-General of Justice and head of Armenia’s Compulsory Enforcement Service, was shown to have connections with or ownership of three companies registered by Mossack Fonseca: Sigtem Real Estates Inc., Hopkinten Trading Inc. and Bangio Invest S.A. Poghosian resigned from his post on April 18th, saying it was unacceptable that he had caused Armenia’s name to be mentioned alongside Azerbaijan’s, which Armenia has continued to have conflict with in Nagorno-Karabakh.

Regarding Visegrad and EU member states, in Poland, businessman Marek Profus, media mogul Mariusz Walter and former mayor of Warsaw Paweł Piskorski have been revealed to be Mossack Fonseca clients. Poland’s General Inspector of Financial Information Wiesław Jasinski said he has decided to probe the Polish aspects of the Panama Papers. Profus, Walter and Piskorski have been swift to deny any hints of financial impropriety amid tax evasion speculations. Meanwhile in Hungary, Zsolt Horváth, a former member of his country’s National Assembly, obtained offshore firms in the Seychelles through Mossack Fonseca both before and after leaving the National Assembly.

Things have not been at a standstill since Süddeutsche Zeitung’s and the ICIJ’s April 3rd release. One of the most important developments has been the announcement that on May 9th ICIJ will release the Panama Papers database to the public, allowing people to search information regarding companies, foundations, funds and trusts associated with Mossack Fonseca’s clients in more than 200 countries around the world.

“The Offshore Leaks Database gives ICIJ an opportunity to reach journalists and regular citizens in every corner of the world, particularly in countries most affected by corruption and backroom deals,” ICIJ stated. The ICIJ claims their work on the topic is not finished and more disclosures, based on information yet to be revealed, are expected to be published in forthcoming months.

This new database and further disclosures will no doubt help Central and Eastern Europe’s citizens and governments (as well as those in other parts of Europe and elsewhere in the world) further their discussions about how to hold members of their business and political elite publically accountable regarding tax evasion, fraud and other dubious activities with offshore law firms like Mossack Fonseca now and in the future.  

Stuart Feltis is an editorial intern with New Eastern Europe. He holds a BA in International Studies from the American University in Washington, DC with a focus on politics and Latin America as well as an MA in European Studies from the Jagiellonian University in Kraków, Poland.



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