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Who Uses the Offshore World
Offshore World Allows Some to Play Outside the Rules
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Owners of corporations registered in British Virgin Islands include top managers of state-controlled giants.
The deputy prime minister’s wife, as well as top managers of major Russian military contractors and of giant government-controlled companies, are among an array of Russian figures with secretive offshore investments revealed in documents obtained by the International Consortium of Investigative Journalists.
The disclosure puts President Vladimir Putin’s persistent call for curbing offshore investments in a new and ironic light: he is well acquainted with at least one of the offshore investors the documents identify.
Even before the 2012 election returned him to the presidency, Putin was calling for curbs. In February, he introduced a draft law to bar senior Russian officials from holding bank accounts or stocks outside Russia, which has now passed the first stage of adoption in the Russian Parliament. And in his state-of-the-nation address, Putin said Russia’s economy is hurt because so much of it operates through offshore tax havens.
Upon releasing a recent study of the Russian economy, Global Financial Integrity, a Washington research and advocacy organization, said illicit offshore flows of money are so great that they raise "serious questions about the economic and political stability of the nation.”
Ruslan Milchenko, a former Moscow police officer who heads the Federal Information Center for Analysis and Security, a nongovernmental organization, added in an interview: "When top managers of state-controlled corporations linked with the defense sphere become the secret shareholders of offshore companies, it may bring harm to state security. … The question is: What is more important to them, the interests of the state or their private offshore interests?”
ICIJ’s investigation found that owners of corporations registered in the British Virgin Islands included top managers of state-controlled giants including Gazprom, one of the world’s largest extractors of natural gas. Others in the documents include relatives of ranking Russian officials and prominent private business people.
None of the Russians named in the documents responded to requests for comment about the purposes of the companies. Among the offshore investors were these well-connected luminaries:
Olga Shuvalova, wife of Igor Shuvalov, who has served as first deputy prime minister since 2008. In 2007, the documents show, she became a shareholder in Severin Enterprises Inc., which was registered in the British Virgin Islands and owned at least two other offshore companies that owned still others. The dealings of one of the companies, called Sevenkey Ltd., were laid out in a 2011 investigative article in Barron’s, which tied the company to her husband, who has denied wrongdoing. But new documents identify corporations beyond those Barron’s discovered.
Valery Golubev, deputy chair of the management committee of Gazprom. The documents show that he held half of the shares of Sander International Inc., which was registered in the British Virgin Islands in 2008 and was dissolved later the same year. His personal ties to Putin go back to the 1990s, when they worked together.
Boris Paikin, the general director of a Gazprom construction subsidiary called Gazprom Sotsinvest that builds such projects as a $200 million stadium in St. Petersburg and an Olympic ski resort. He also held Sander International shares.
Andrey Reus, a former director general of Oboronprom, a part of the Russian Technologies State Corporation whose products include helicopters, jet engines and power plants. He is also a former deputy minister of industry and energy. The documents show him as a shareholder in a BVI corporation called Dreemlover Ltd. He could not be reached for comment.
Vladimir Margelov, a member of the board of administration for the Russia-Belarus joint venture Defense Systems, a state-controlled group of developers and manufacturers of air defense systems. The documents show him as a shareholder and director of Winkind Technology Development Ltd. in 2005 and Innovation Tech Group Ltd. in 2008.
The ICIJ documents, the largest collection of secret offshore corporate documents ever made public, identify many Russian businessmen as owners of companies incorporated in the British Virgin Islands.
Much that happens offshore is illicit — money laundering, tax evasion and bribery. But wealthy Russians have other reasons to do their business offshore.
After the Soviet Union collapsed, the weak Russian state in the 1990s offered little structure for business or for protection of money, and much of the money made by the "oligarchs” — the early Russian business figures who made billions by privatizing state-owned businesses — was shipped offshore for protection.
Alexander Zakharov of Paragon Advice Group, a private firm that offers tax advice to Russian businesses and high net worth individuals, said that for legal matters the wealthy much prefer the courts of Great Britain, which oversees many of the tax haven islands, to those of Russia. Further, he said, offshore jurisdictions conclude deals much faster than Russian financial institutions do.
Raymond Baker, director of Global Financial Integrity, agrees with Putin that offshore dealings hurt Russia. "Hundreds of billions of dollars have been lost that could have been used to invest in Russian health care, education, and infrastructure,” Baker said in announcing GFI’s recent report. "At the same time, more than a half trillion dollars has illegally flowed into the Russian underground economy, fueling crime and corruption.”
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