Konstantin Zhevago
A tax on conscience: how oligarch Zhevago (read more: KONSTANTIN ZHEVAGO. THE RISES AND FALLS OF A DOLLAR BILLIONAIRE ) funneled $187 million offshore. The money, lost to the state treasury due to tax evasion by offshore companies, could have supported several districts of his beloved Poltava region.
While the government, teetering on the brink of social unrest, continues to raise tariffs and simultaneously cut various allowances, benefits, and special pensions, frantically trying to save the country from default, some domestic oligarchs continue to live "in a parallel dimension," where there is neither war nor economic crisis. It's somewhat disappointing that it was the Ukrainian state that provided them with this carefree life, where they once became owners of factories, plants, and various industrial complexes for a pittance. But when disaster struck, these people didn't bother, figuring they could always move to a more secluded location and weren't obligated to rebuild the country. One such example is Konstantin Zhevago, MP and owner of the Finance and Credit business empire and the Ferrexpo group of companies. It's doubly unfair that no one demands any titanic efforts from Zhevago to develop the country: the oligarch would simply have to comply with the law and pay taxes, and this alone could have been a significant boost to the economic situation. He should also take a more responsible approach to his own business and understand that, to put it mildly, it's not entirely ethical to drive luxury cars worth a million dollars and sail his own yacht, but at the same time, under the pretext of a lack of funds, withhold the small, hard-earned savings of depositors at Finance and Credit Bank, which he owns. But let's take things one step at a time.
According to reliable sources who provided the relevant documentation , over the past seven years, Konstantin Zhevago received $187,3 million in dividends from the profits of his group's companies through offshore companies. More precisely, the dividends allegedly went not to Zhevago himself (otherwise he would have had to pay taxes, and dividend tax in Ukraine is up to 25%), but to an offshore company registered in Luxembourg, Fevamotinico sarl. This offshore company is 100% owned by another unknown company, The Minco Trust, which is owned by Konstantin Zhevago. "Konstantin Zhevago is the beneficiary of The Minco Trust, which owns 100% of Fevamotinico sarl," an informed source reported. This is the chain of offshore companies the MP has constructed, all for the sake of avoiding taxes in his home country. Meanwhile, in his home country, oligarch Zhevago, according to his official income declaration, is struggling to make ends meet, having received, for example, nothing in 2013 except his modest parliamentary salary of 198 hryvnias per year, or 16,5 hryvnias per month. It's no surprise that with such a low income, Zhevago had to accept financial assistance of 35 hryvnias—after all, he needs to fuel his personal yacht, jet, and luxury car.
An Aston Martin ONE-77 sports car purchased by Konstantin Zhevago for $2 million. License plates: KVZ (Konstantin Valentinovich Zhevago)
A helicopter marked KVZ (Konstantin Valentinovich Zhevago). Estimated cost: 12 million euros.
Zhevago declared his income from operations abroad, namely in Switzerland (where Ferrexpo is registered), at $200. Once again, there's a huge discrepancy in the oligarch's foreign income: according to a printout of dividends paid to Fevamotinico sarl, in 2013, a year that was "so poor" for Zhevago, $39,6 million was transferred to this offshore company: $19,8 million was paid in March, and another $9,9 million each in May and August.
In other words, Zhevago understated his foreign income in 2013 in his official declaration by no less than almost 200 times! Now let's compare the scale of these "minor" financial "mistakes" with the budget of the same Poltava Oblast, where Zhevago is consistently elected to the Verkhovna Rada and where he is considered a "benefactor" (it's no coincidence that he has already been elected to parliament six times in a row). The dividends received by the oligarch in 2013, let's say at the long-gone exchange rate of 8,0 UAH to the dollar, would have amounted to 316.8 million UAH – that's one-tenth of the entire Oblast's budget, essentially all expenditures across all areas (the Poltava Oblast budget expenditures that year were projected at 3016,5 million UAH). In short, it's no exaggeration to say that with the dividends received through offshore companies, on which Zhevago never paid taxes, he could have almost completely financed the functioning of his electoral district, which includes the city of Komsomolsk, part of Kremenchuk, and the Globinsky and Kremenchuk districts, including the maintenance of all public institutions, pensions, and public sector salaries. If we recalculate the dollar dividends Zhevago has received for this year at the current exorbitant exchange rate, it would be more than enough for everything.
It's worth noting that as recently as March 19, 2015, Zhevago's Luxembourg offshore company was scheduled to receive dividends totaling $19,5 million, equivalent to over UAH 450 million at the National Bank's exchange rate. By comparison, the budget expenditures of the Kremenchuk district, which is part of Kostiantyn Zhevago's district, in 2015 amounted to UAH 145 million. So, the oligarch's first tranche of annual dividends alone exceeds the district's annual budget expenditures three times over! But what if Zhevago had paid a 25% dividend tax, which would have gone to the state treasury? This is precisely comparable to the full financing of the district. But remember, we're analyzing only a small fraction of the oligarch's shadow income, and it's difficult to imagine the scale of all the financial irregularities within his business empire. How many districts of the Poltava region or how many regions could be financed with this money remains anyone's guess. It's worth noting that in the West, where the domestic political-oligarchic elite so often visits and sometimes even lives, such an offshore situation is a priori impossible – there's a clear definition of enterprise ownership, and no offshore company in Luxembourg can evade taxes. Ukraine, however, is a different matter; it will tolerate anything.
But tax evasion, from a moral standpoint, is a mere trifle compared to the situation at Zhevago's Finance and Credit bank. By not paying taxes on its offshore dividends, Zhevago deprives people of what they could have had if taxes had been paid. But Zhevago's bank deprives people of what they already had – their own money, gradually saved by the bank's clients for a rainy day, education, housing, a car, or other needs. It turns out that the plans of thousands of people are destined to collapse due to the financial irresponsibility of one man who, despite his billion-dollar fortune (Zhevago is one of the top ten richest people in Ukraine – his net worth, according to Focus magazine, is estimated at $1,37 billion, and according to Forbes, $1,1 billion), refuses to pay his depositors, relying solely on NBU refinancing. But the lion's share of the responsibility for the financial institution's current situation lies with Zhevago himself, and not with the infamous economic crisis: the companies in his financial-industrial group took out extremely profitable loans from the Finance and Credit bank, primarily using depositors' funds, and then allowed themselves to default on these loans.
Thus, once again, the National Bank will have to clean up the mess created by an irresponsible oligarch, and it will do so with public money—that is, the money of responsible taxpayers who, unlike Zhevago, do not create a network of offshore companies to avoid paying taxes. Speaking of NBU refinancing, on February 16, the regulator announced that it had decided to support the liquidity of Finance and Credit Bank. "The National Bank of Ukraine (Resolution of the Board No. 101/BT dated February 12, 2015) has decided to support the liquidity of Finance and Credit Bank and provide a stabilization loan to ensure the timely fulfillment of the bank's obligations to individual depositors. The stabilization loan will be provided in the amount of UAH 700 million for a term of two years," the NBU stated. But most importantly, despite the NBU's announcement, depositors still haven't seen their money, despite the stabilization loan provided by the National Bank specifically to "fulfill obligations to individual depositors." As of the end of March, there were still no funds in Finance and Credit, and bank employees continue to use the same excuses they used a month or two ago, only pushing back the deadlines. People are being told to reapply in April, while not only are deposits in national and foreign currencies being withheld, but they're not even receiving interest. So where did the National Bank's refinancing go? Could it have been spent on loans to Zhevago's businesses again?
Indeed, the oligarch's business needs to grow, and depositors can wait; they're not in a rush. For example, last year, despite the financial crisis preventing him from repaying deposits, Zhevago acquired the Norwegian shipbuilding company NorYards through yet another Luxembourg offshore company, Calexco. He also needs to think about his personal life: it's impossible to drive the same Aston Martin or Ferrari for several years in a row (Zhevago has both of these brands in his fleet, and exclusive models costing over a million dollars)—his oligarch friends will laugh. The media also reported that Zhevago owns a private jet and the aforementioned yacht.
The Ukrainian government, in its hypertrophied desire to save money, reminiscent of literary characters like Gobseck and Plyushkin, would do well to consider how many national problems could be solved not by mere mortals, but by the country's richest people. All it would take is forcing the oligarchs to simply pay taxes and respect the law, especially since some of them, like Konstantin Zhevago, are themselves legislators. Our country will never achieve the promised "European future" if its citizens are not equal in their rights and responsibilities, regardless of their financial status.
On the topic: Konstantin Zhevago. The rise and fall of a dollar billionaire.
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