Corruption in Crimea: Another reason to keep fighting phantom firms

Yanukovych’s seized estate in Ukraine. Photo: Aleksandr Andreiko

If you’ve been watching the news this month, you’ve probably heard about the dispute between Ukraine and Russia for control of the Crimean peninsula in the Black Sea.  Amongst the political upheaval, stories of alleged corruption are being unearthed, including a revelation that involves the phantom firms ONE members in Europe are currently campaigning against. In fact, phantom firms may be part of the reason why the US is unable to level effective sanctions against Vladimir Putin.

Recently ousted President Yanukovych of Ukraine enjoyed an opulent lifestyle at his private estate of Mezhygirya.  Now, Ukranian investigative journalists have revealed a shady ownership structure for the palace compound that involved phantom firms based in the UK – anonymous shell companies that hide the real identity of the owner.  Just like in many developing countries, these legal loopholes allow corrupt politicians and dodgy businesses to siphon off assets worth billions into international bank accounts, cleaning up the money in the process.

Nearly a week after Yanukovych was ousted by Parliament, Switzerland, Austria and Liechtenstein froze the assets of 20 Ukrainians, including those belonging to Yanukovych and his son. The EU followed suit, freezing the assets of 18 senior Ukrainian officials on 6 March, 12 days after Yanukovych was removed from power, plenty of time for funds to be transferred elsewhere. Ukraine’s new Prime Minister Arseny Yatseniuk has accused the former President of embezzling as much as $37 billion during three years in office. All of this begs the question – why did banks accept billions of dollars of funds embezzled from the Ukrainian state in the first place? Anti-money laundering laws require banks to check out their customers and their assets. Unfortunately, it’s relatively easy for corrupt politicians to access the financial system, and it’s easy for banks to turn a blind eye and accept funds.

The dispute between Ukraine and Russia for the Crimean peninsula spurred the United States to put in place economic sanctions, which froze the US assets of seven Russian government officials and banned them from doing business with American companies. However, the US did not target Russian President Vladimir Putin, whose fortune of an estimated $70 billion is reportedly hidden in opaque corporate structures. While phantom firms exist, it will remain impossible for the US government to know if Putin has holdings here, or to control his access to them, rendering economic sanctions against him useless.

We have repeatedly seen leaders use the secrecy provided by phantom firms to hide illicit funds from the law – like these in Libya, DRC, Equatorial Guinea, and the Philippines. The steps taken in recent weeks to recover embezzled Ukrainian state funds show how difficult it is to recover these assets after they’ve been hidden in phantom firms.

See how ONE members in the UK are fighting phantom firms