As Georgia Bids To Become A Tax Haven, Critics Worry It's All To Protect Oligarch Ivanishvili

TBILISI -- The Georgian capital has been rocked by weeks of protests, sparked by a controversial "foreign agents" bill that critics say mirrors Russian law and could deal a firm blow to the Caucasus country's chances of joining the European Union and NATO.

But while eyes at home and abroad were riveted to that bill, the Georgian parliament quietly passed tax legislation that opponents warn could be just as dangerous.

They say the changes to the Tax Code passed by the Georgian Dream majority in parliament on April 19 could not only attract shady foreign funds but also allow Bidzina Ivanishvili, the ruling party's founder and Georgia's wealthiest individual, to evade possible Western sanctions if relations continue to sour.

EU calls for sanctions on Ivanishvili and "his closest associates" could grow louder as Georgian Dream and its allies approve legislation that would label NGOs, campaign groups, and media outlets that receive more than 20 percent of their funding from abroad "agents of foreign influence."

A nearly identical push by Georgian Dream in March of last year was aborted after protests that turned violent.

But the new tax changes may be just as worrying. Backers -- most of whom are from Georgian Dream -- say the amendments will allow Georgia to open its doors to domestic and foreign companies now registered in tax havens but jittery about the security of their funds amid a growing international crackdown on those doing business offshore.

Critics claim transforming Georgia into a tax haven will mean attracting dirty money, funds whose provenance is unclear.

"Georgia is becoming a tax haven for black money, not just an offshore, but more than an offshore -- a hub to bypass offshores," Aleksandra Aroshvili, a social policy researcher, wrote on Facebook on April 18.

It's not the only sign that Tbilisi could be preparing for tougher Western measures, experts and critics say, including by boosting gold reserves. The country's central bank also last year changed its rules for cooperating with international sanctions slapped on Georgian nationals.

Georgia was granted EU candidacy status in December, while Ukraine and Moldova were given the green light to begin negotiations to join the bloc.

However, a report in January said since the Kremlin launched its full-scale war against Ukraine in 2022, Tbilisi has exhibited a "penchant for appeasing Russia."

The report by the Eastern Partnership Civil Society Forum, a Brussels-based NGO, published on January 24 says Georgia "has flatlined in its overall EU approximation because of serious backsliding in fundamental freedoms, democracy and governance-related indicators, the government's evident disregard for civil society and its penchant for appeasing Russia, which is at odds with the EU consensus."

Moving Quickly

Despite objections from critics, the amendments to the Tax Code were passed by the Georgian Dream majority under a fast-track procedure.

Backers envision transforming Georgia into a bustling tax haven in hopes of taking a cut of the world's estimated $11 trillion held "offshore," according to a 2020 study by the Paris-based Organization for Economic Cooperation and Development (OECD). Regardless of that money's provenance, those missing funds crimp government coffers. Tax havens collectively cost governments between $500 billion and $600 billion a year in lost corporate tax revenues, according to the International Monetary Fund (IMF).

Georgian MPs voted in favor of the proposal to change tax laws. (file photo)

But opponents allege it is a poorly veiled attempt to protect Ivanishvili, who became prime minister in 2012, when his newly created Georgian Dream party won a parliamentary majority in an upset victory. He left office after roughly a year, telling a party congress at the time, "I am leaving politics but will remain an active member of society."

According to a 2021 report by Transparency International Georgia, Ivanishvili owned 20 offshore companies. Ivanishvili also figured in the Panama Papers, 11 million leaked secret financial documents that in 2016 exposed how some of the world's richest people hide their wealth.

A June 2021 report by Transparency International Georgia said Ivanishvili's Brightsone Finance Ltd., established in 2015 according to the Pandora Papers, a similar data leak published in 2021, is a controlling shareholder of Georgia-based Eurasian Invest LLC, a company that through several other firms holds sizable stakes in Poti Free Industrial Zone, a tax haven near the key Georgian port of Poti.

Ivanishvili has never been charged with any wrongdoing over his purported offshore holdings.

And although being out of office hasn't stopped him from exerting political influence, he has announced a political comeback ahead of Georgia's parliamentary elections this fall.

Preparing For The Worst?

Tbilisi has already taken steps that could shield it from Western sanctions.

In September, the National Bank of Georgia changed its rule on complying with international sanctions. This move came after the United States on September 14 imposed sanctions on Otar Partskhaladze, a former Georgian prosecutor-general.

Partskhaladze, who also holds Russian citizenship and has businesses in Russia, became the first Georgian to be hit by sanctions by Washington in connection with Russia's full-scale war on Ukraine. The State Department said Partskhaladze, who has close ties to Georgia's political elite, had helped the Kremlin exert "malign influence" on Georgia. The State Department claimed Russia's Federal Security Service (FSB) helped Partskhaladze secure Russian citizenship and used him to "influence Georgian society and politics for the benefit of Russia."

At first, members of Georgian Dream denied any current ties to Partskhaladze, stressing he had not held public office since 2013, when he stepped down as prosecutor-general after it emerged that he had a criminal record and had served a prison term in Germany.

Otar Partskhaladze (file photo)

Members of the opposition, however, argued the U.S. action was more aimed at Ivanishvili, with whom Partskhaladze is reported to have close ties. "In effect, one hand of Bidzina Ivanishvili had been sanctioned," said Tsotne Koberdize of Girchi-More Freedom, an opposition group.

After first denying any ties to him, members of Georgian Dream came to the defense of Partskhaladze.

Parliament speaker Shalva Papuashvili and other officials demanded the United States produce evidence of Partskhaladze's alleged wrongdoing.

The People's Power party, an anti-Western spinoff of Georgian Dream, declared the move was part of "hybrid warfare waged by the United States on Georgia."

On September 18, Georgian Dream Chairman Irakli Kobakhidze, warned the National Bank against freezing Partskhaladze's assets, claiming such a move would violate Georgia's constitution.

One day later, the National Bank changed its rules on complying with international sanctions. Under the changes, only an indictment by a Georgian court can trigger the freezing of assets of a Georgian national facing international sanctions.

Despite that move, many banks in Georgia said they intended to comply with the U.S. sanctions regardless of the change of the regulation by the National Bank.

Turning To Gold

It's not the only action taken by the National Bank to perhaps safeguard the country from sanctions, experts say.

Just within the past two months, the bank acquired 7 tons of gold worth $500 million, which should be transferred from vaults in London to Tbilisi.

A spokesperson at the National Bank told RFE/RL's Georgian Service that the move was "in no way related to any domestic factors or sanctions."

However, Roman Gotsiridze, an opposition lawmaker who served as president of the bank from 2004 to 2007, speculated to RFE/RL that the bank's recent gold purchases were connected to Georgian Dream's fears of being hit by sanctions.

Georgia's central bank has recently increased its gold reserves. (illustrative image)

"Now it's clear why the NGB purchased 7 tons of gold and are repatriating it to Georgia. They are awaiting sanctions," Gotsiridze told RFE's Georgian Service after the parliament introduced changes to the tax law. "These concerns are exacerbated by the fact that they repatriating gold."

But Georgia is not alone in loading up on gold and storing it at home. An increasing number of countries are repatriating gold reserves as protection against the sort of sanctions imposed by the West on Russia, according to a survey by Invesco -- a U.S.-based investment firm -- of central bank and sovereign wealth funds published in July 2023.

More than $300 billion in Russian assets have been frozen since shortly after Russia launched its all-out invasion of Ukraine in February 2022. Most of those assets are in banks in Germany, France, and Belgium. More than $6 billion in frozen Russian assets are sitting in U.S. banks, and both houses of Congress have passed legislation that would authorize President Joe Biden to seize those assets, although it is unclear whether he will act on it.

Back in Georgia, Salome Zurabishvili, the country's pro-Western president, has not stated publicly whether she would veto the changes to the tax law. Even if she did, Georgian Dream lawmakers would likely have the votes to override it.