Ukraine vies for top honor in crony capitalism index
It ’s progress of a sort, much the way that going from an F grade to a D+ grade is an improvement for a student.
Ukraine has dropped from 3rd to 5th place among 22 nations ranked in The Economist newspaper’s ranking of crony capitalist countries.
The crony-capitalism index, published in The Economist’s May 5 issue, lists world economies by the wealth of billionaires in so-called “crony industries” as a percentage of the country’s overall gross domestic product.
In other words, out of the world’s econ- omies, Ukraine still ranks among the most afflicted by cronyism.
In 2014, in the magazine's previous ranking, only Malaysia and Russia were worse than Ukraine.
Now, in the 2016 ranking, Russia took the gold medal followed by Malaysia, the Philippines and Singapore.
The power of cronyism
Since the 2014 Euromaidan Revolution, cronyism in Ukrainian politics has come to the forefront of the country’s fight for change.
News about more active tax cooperation, the possible abolishment of bank secrecy, and the relatively new concept of “de-offshorization” has recently flooded international business media. While this does not imply that global tax havens are on the way to extinction, businesses should be prepared for the consequences of this global tendency. Ivanna Pylypyuk, a managing partner at the International Consulting Group consultancy, defines de-offshorization as a process of gradually decreasing the use of offshore companies for tax optimization, asset protection, and other business purposes. De-offshorization also stands for a set of international and intergovernmental agreements, implemented via national laws, intended to increase control over companies’ cooperation with offshore and tax haven enterprises. Intergovernmental organizations will be able to place countries violating international tax cooperation rules on “black” or “gray” lists, which may harm state's reputation significantly, turning a country from a quiet haven into a blatant violator of international law. So these jurisdictions are now trying to strike a balance between maintaining their reputation and supporting their offshore business. A trend specific to 2016 is stricter Due Diligence requirements, which means essentially one thing — beneficiary identification. There will be no indulgences this year — banks will demand ever more documents about the beneficiary and other company stakeholders. Open beneficiary registers are already planned in some European countries. Global data exchanges between banks and tax authorities are being intensified; the banks are gradually increase information requirements, asking their clients to give their tax residence status and confirm sums of money were legally obtained. Proving the “substance” of a company, or its actual existence beyond paper, is becoming another demand. In the light of the recent global economic crises, such measures aimed at combating tax evasion and filling state budgets are becoming popular, building a new reality for international business — a reality of transparency and accountability. In such circumstances, it is ever more important to play according to the rules, as tax and reporting compliance is becoming a crucial prerequisite for a successful business.
A worker at a Donetsk metallurgical plant. (Ukrafoto)