Paradise Papers highlight kleptocracy’s corrosive impact on democracy



Credit: ICIJ

huge leak of financial documents revealed by a group of about 100 media organizations on Sunday provided deep insights into some of the mechanisms used by top politicians and celebrities to escape paying taxes, The Washington Post reports:

Offshore funds are often used to avoid paying high taxes and their use is not necessarily illegal, though when they are being used by the same people who set those tax rates, it tends to raise eyebrows. The majority of the individuals featured in the leaks come from the United States, followed by Britain.

It’s called the Paradise Papers: the latest in a series of leaks made public by the International Consortium of Investigative Journalists shedding light on the trillions of dollars that move through offshore tax havens, The New York Times adds:

The core of the leak, totaling more than 13.4 million documents, focuses on the Bermudan law firm Appleby, a 119-year old company that caters to blue chip corporations and very wealthy people. Appleby helps clients reduce their tax burden; obscure their ownership of assets like companies, private aircraft, real estate and yachts; and set up huge offshore trusts that in some cases hold billions of dollars.

A major investor in Twitter and Facebook had financial ties to two Russian government-owned firms known as vehicles for the Kremlin’s politically sensitive dealings, the newly unearthed documents show, the ICIJ’s Spencer Woodman writes:

The records show that one of the Kremlin-owned firms, VTB Bank, quietly directed $191 million into an investment fund, DST Global, that used the money to buy a large stake in Twitter in 2011. They also show that a subsidiary of the Kremlin-controlled energy giant Gazprom heavily funded an offshore company that partnered with DST Global in a large investment in Facebook.

DST Global’s founder, Russian billionaire Yuri Milner, and other partners in the deals reaped large gains when they sold their stakes shortly after Facebook’s initial public offering in 2012 and Twitter’s in 2013. There is no indication that the Kremlin gained influence over Twitter or Facebook or received inside information about the firms as a result of investments associated with Milner. But the disclosure shows that years before Russia meddled in last year’s U.S. presidential election, the Kremlin had a financial interest in American social media.


In an interview with the Guardian, Daniel Fried (right), an assistant secretary of state for European and Eurasian affairs under George W. Bush said that [revelations of] connections with “cronies of Putin” threatened to undermine U.S. measures to reign in Russian aggression. “I don’t understand why anybody would decide to maintain this kind of relationship going into a senior government position,” Fried said.

Gazprom Investholding is “used for politically important and strategically important deals for the Kremlin,” said Ilya Zaslavskiy, a contributor to the Kleptocracy Initiative, a project of the Hudson Institute, a conservative think tank in Washington. Both VTB and Gazprom Investholding’s parent, Gazprom, are under United States sanctions stemming from Russia’s support of separatists in eastern Ukraine in 2014, The New York Times adds:

Over several years, Gazprom Investholding and a subsidiary made hundreds of millions of dollars in loans to a company called Kanton Services, according to records from the Panama Papers, the trove of leaked documents from the law firm Mossack Fonseca. Kanton, in turn, owned one of the DST investment vehicles used to buy shares of Facebook. While it is unclear precisely when Kanton first received its stake in the DST entity, Kanton received $197 million of the Gazprom Investholding loans three months before Facebook announced its first deal with Mr. Milner, the records show.

VTB is also known as a player in Russia’s political system. VTB’s chairman, Andrei Kostin, is a Putin ally, The Irish Times adds.

“On the one hand it’s a bank, on the other it’s an instrument of the Kremlin,” Sergey Aleksashenko, a Russian banking expert with the Brookings Institution who served on VTB’s board of directors in the 1990s , told ICIJ. “Whatever the Kremlin wants, VTB is ready to do.”

The Paradise Papers further confirm the kleptocratic nature of the Russian state and the threat that covert financial flows pose to democracy, analysts suggest.

 Under Putin, Russia has become a toxic mix of a pragmatic kleptocracy and a nationalistic “mobilization state,” according to Mark Galeotti, a senior researcher at the Institute of International Relations Prague.

At home, kleptocracy tends to trump state interests; abroad, kleptocracy is mobilized for the state. It is not just that corrupt Russians rig deals, covertly buy assets, and launder their dirty cash in global markets,” he told a recent symposium organized by the National Endowment for Democracy’s International Forum for Democratic Studies.

“I would be cautious to apply such terms as “kleptocracy” or “corruption” to the Russian political regime, said Lilia Shevtsova (right), an associate fellow for the Russia and Eurasia program at Chatham House and senior scholar at the Davis Center for Russian and Eurasian Studies at Harvard University.These terms mean deviation and abnormality in the political fabric,’ she told the forum.

“On the contrary, the use of power and state resources for personal interests, and the fusion between power and property, have been genetic characteristics of the Russian system and its normal way of existence,” she added. “One cannot eradicate kleptocracy and corruption in Russia without transforming the whole system and rejecting its main premises.”

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