Divorce won’t save: how to close the loopholes officials with assets abroad

On the background of the “Panama” offshore scandal, in which he was involved, and Russian officials, the government tightens restrictions for local officials owning foreign assets. After nearly three years of legal uncertainty, the Ministry of Finance for the first time clarified the concept of “foreign financial instruments” which cannot be own or to use the Russian officials and parliamentarians. Developed by the financial services authority the project was approved by the government Commission on legislative activities at the end of March (before the “Panama” of leaks), but the content of amendments to the government’s statement was not disclosed. managed to read the text of the bill, from which it follows that the government wants to close the remaining loopholes to circumvent the ban — such as the use of trusts and registration of assets by relatives and former spouses.

Six points

Ban the officials to open accounts, store cash and values in foreign banks, and to own and use “foreign financial instruments” operates in Russia since 2013. The law covers a very wide range of officials — from the President and the Prime Minister, Ministers and their deputies to heads of city districts, and in addition, top managers of state companies. The ban also applies to state Duma deputies, Federation Council members and municipal Council members. But the concept of “foreign financial instruments” in the law is still not defined, although President Vladimir Putin two years ago was instructed to deal with this problem.

Developed by the Ministry of Finance the list of prohibited tools has six points. Including fall under the ban of any securities, shares or shares in foreign companies; concluded with the foreign loan agreements or credit agreements; derivatives (as defined in the law “On securities”), where one of the parties to the transaction is a foreign person or entity.

Violation of the prohibitions, as follows from the bill that threatens employees with dismissal, while MPs — loss mandates. However, during the period of the law positions or mandates lost only two — Senator Vitaly Malkin and Deputy Vladimir Pekhtin — both after activists discovered they have undeclared property abroad. The deputies of the current Duma’s nothing to worry about — until the election of the new convocation of the chamber is less than six months, but the bill has yet to receive government approval and to pass through the Duma. But because he comes only six months after the publication of postponement referred to in the bill.

The bill will help to combat corruption, says the government. To receive the comment of the press Secretary of Prime Minister Dmitry Medvedev at the time of delivery of the material failed. The press service of the Ministry of Finance requests to comment on the content prepared by the office document did not answer. The assistant Minister did not respond to calls.

Contentious trusts

Among other things, the Finance Ministry plans to ban officials transfer property to foreign trusts and foundations, to the bill. The question of the legality of the use by officials of the trusts were actively discussed in the state Duma in 2013, after the trust was found in MP-Asare Sergey Petrov. The state Duma were even made a request to the Supreme court, but he has found the use by officials of such legal instruments (see extract below).

Literally prohibit the officials to use foreign trusts in the bill of the Ministry of Finance. But he proposes to deny them the use of “foreign structures without formation of legal person”, taking the definition of such structures from the Tax code. In article 11 of the Tax code, this concept stands for “the Fund, trust, partnership, Association and other forms of collective investment”.
“Foreign structures without formation of legal person” is, really, including, trusts, says senior Manager, forensic KPMG in Russia and the CIS Farrukh Abdullakhan, so with this wording, the use of foreign trusts by deputies and officials will be impossible.

Russian law does not know any “trusts or funds”, and the norm in the Tax code such a definition does not, and merely refers to the law of a foreign state objects managing partner Paragon Advice Group Alexander Zakharov. The lawyer believes that prohibit the use of foreign trusts with such vague wording in the law will fail: “the Law should explicitly establish the trusts and the funds and should determine these concepts. If this determination is no, and accordingly there is no prohibition”. Criticizes the wording of the bill and the bar Council A2 Mikhail Alexandrov: in his view, trust is “a financial instrument”. “This is one of the forms of asset ownership. Conventionally, there is your apartment and you live there. Then ceased to live and began to pass — was not the same apartment from this “financial tool”. And trust: there can be accounts, securities, real estate, anything”, — says Aleksandrov.

“The will of the legislator to eliminate ways around existing prohibitions obvious”, but the technique and control over the observance of the law has the questions, accepts the partner of International Tax Associates Rustam Vakhitov.

Former spouses

Formulated by the Ministry of Finance bans can be directed against another loophole is when foreign assets are made on ex-wives and adult children, points out Zakharov, Paragon Advice Group. Now to own and use foreign financial accounts and instruments are prohibited only by officials, their spouses and children under the age of 18. The Ministry of Finance suggests to forbid to officials to own and use foreign financial instruments not only directly but also “indirectly through third parties.”

This wording potentially includes all, “and ex-wives, and adult children of officials”, — draws the attention of Zakharov. “If the prohibition [on possession of foreign assets] for marriage partners specifically prescribed, the former spouses, it turns out, will now be classified as “third parties”, — explains the lawyer. “As soon as it enters, it turns out that any divorced, you can take a “cushy”, if you find that he continues to live with his wife”, — cites the example of Zakharov. The intention of the legislator, indeed, seem to be aimed at the closure of such a path to circumvent the ban, I agree Vakhitov, but “indirect ownership is a very vague wording, and much will depend on its concrete definition and interpretation”.

Businessmen in power

In 2013, the Chairman of the party “For justice” Vladimir Ponomarenko asked the parliamentary Commission on control over reliability of data on incomes of deputies to check the Deputy “Fair Russia” Sergey Petrov, the founder of the largest Russian car dealer “Rolf”. Ponomarenko, how to write “Vedomosti”, stated that in October 2012, the SR had established in Cyprus, the SAP Fund The Family Trust that owns the holding “Rolf” Delance Ltd. The applicant concluded that Petrov continues to manage the business. However, the Commission found no violation, as the Supreme court, which asked the state Duma to clarify the situation.

“The Supreme court said that it is legitimate form and the owner has the right to transfer in trust management or that the property, — says the Chairman of the Duma Commission on control over reliability of data on incomes and property, submitted by the deputies, Nikolai Kovalev. More of such visits we never had”. “But I think to ban the use of foreign trusts is a step in the right direction. People said that the assets transferred in trust management, and essentially manages itself,” he adds. Now the only beneficiary of the group “Rolf” — the youngest son of its founder Alexander Petrov, a beneficiary of the trust. To receive the comment of the Deputy, whether or not such a scheme to fall under the new ban, failed.

Petrov is not the only one who could theoretically fall under the new amendments about possession using “third party”. For example, father-retired Deputy Andrei Skoch owns, according to Forbes, shares registered in the British virgin Islands USM Holdings Alisher Usmanov. Back in 1999, Skoch, Jr. gave his father a package in “metalloinvest”. “Andrey Skoch is not a shareholder of USM Holdings. Any other statement is untrue”, — said the representative of USM Holdings, refusing any other comment.

Opposition leader Alexei Navalny in 2014 accused the Deputy mayor of Moscow for transport issues Maxim Liksutov in the fictitious divorce. As argued Navalny, in June 2013, shortly after the adoption of the bill prohibiting officials from owning foreign assets, the Deputy mayor sold Transgroup Invest AS (she owned a share in “Aeroexpress”, JSC “City high-speed tram system and RailTransAuto”) to his wife Tatiana. Liksutov said that he divorced his wife, a citizen of Estonia, and that he had no assets that would not correspond to Russian legislation. “These amendments [the bill of the Ministry of Finance] Maxim Liksutov does not affect, as foreign assets and foreign financial instruments has no”, — said the representative of press service of Department of transport of Moscow.

The Minister for open government Mikhail Abyzov in 2010, before he held this post, had a fortune of $950 million, according to Forbes. As a Minister, the Minister claimed that he gave the business to the trust. “All the requirements of today’s legislation by the Minister are strictly enforced, and it is constantly checked by the relevant agencies. Further change or clarification of the legislation, they will also be strictly adhered to,” said his press Secretary Alena Zhukova.