Servant of the People Splits Over "Kolomoisky Question"
30 October, 2019
Oligarch Ihor Kolomoisky at the Yalta European Strategy forum in Kyiv, Ukraine on September 13. Vitaliy Salo / UNIAN

The governing party, and the president who leads it, has long been the target of rumors that it bears undue loyalty to one of Ukraine’s more infamous oligarchs, Ihor Kolomoisky. Kolomoisky, the former owner of Ukraine’s largest bank, Privatbank, left Ukraine under the administration of Petro Poroshenko, entering self-exile when the bank was nationalized due to a $5.5 billion hole in the bank’s finances – the money Kolomoisky allegedly stole. However, his return the previous month has sparked concerns that the oligarch is looking to put pressure on the new government, which resulted in the Office of President putting out an official statement saying that there is no basis for the bank’s return.

READ MORE: “No Basis to Return Privatbank to Kolomoisky” - Zelenskyy Administration

In early October, the president did not rule out an "amicable agreement" between now state-owned Privatbank and its former owner Kolomoisky. Such an agreement, however, is kind of a red line for Ukraine’s international partners. Indeed, an International Monetary Fund (IMF) mission visiting Ukraine at the end of September was expected to come to an agreement regarding a $6 billion loan package, but instead left without fanfare, due to what some commentators think was the risk of Privatbank’s re-privatization or return to Kolomoisky. 

READ MORE: "International Experts Should Decide on PrivatBank" – Ukraine’s Zelenskyy

Kolomoisky and the IMF have had an adversarial relationship, with the former advising Zelenskyy to "risk a default" if necessary, while the IMF has consistently made the return of funds from Kolomoisky to the nationalized bank a cornerstone of its loan conditions. But the Zelenskyy team – which contains high-profile officials formerly connected to Kolomoisky (such as Chief of Staff Andriy Bohdan) – is working to calm Ukraine’s partners and creditors. And not just with official statements (repeated at a recent investment forum in Mariupol), but with a new law, designed, it seems, to target oligarchs and Kolomoisky in particular. 

Ukrainian President Volodymyr Zelenskyy (L) and his Chief of Staff Andriy Bohdan assure Ukraine's international partners that there are no grounds for the return of Privatbank to its former owners. Picture shows Zelenskyy and Bohdan during a parliamentary session on August 29. Photo: Volodymyr Gontar / UNIAN

A New Bill Brings Intra-Party Conflict

This law, nicknamed “deoffshore-ization”, has revealed fault lines in the Servant of the People’s party. It’s meant to “counter tax base erosion and tax avoidance on profits” by forcing beneficiaries of holding or managing companies located offshore to pay taxes as individuals instead of as legal entities, according to the bill’s sponsor, Chairman of the Parliamentary Committee on Finance and Servant of the People MP Danil Getmantsev. 

READ MORE: Privatbank Remains a Key Obstacle for the Zelenskyy Administration - Economist Timothy Ash

And while the law doesn’t discriminate, Kolomoisky remains the only oligarch who doesn’t have a holding company registered in Ukraine – instead, he is the ultimate beneficiary of a network of offshore firms. But Getmantsev says that the law is not specifically pointed at Kolomoisky. Speaking to Hromadske, the MP said that the law is “unprofitable for all oligarchs. It doesn’t differentiate.”

The leadership of the Servant of the People faction prepare to look at the so-called "deoffshore-ization” laws, authored by MP Danil Getmantsev (C). Photo: Volodymyr Strumkovskyi / UNIAN

The first hearing on the law is planned to be held this week, and will serve as a ‘marker’, according to comments made by the leader of the Servant of the People parliamentary faction David Arakhamia. Arakhamia said that the bill has even attracted “different groups who walk around offering up to $30,000 to MPs.” 

But a group of 11 MPs from Servant of the People on the Finance Committee have shown an unwillingness to cooperate, dissenting on another bill involving the removal of electronic middlemen and government-owned real estate. Their dissension on the bill has drawn the attention of the specialized anti-corruption prosecutor’s office, which has opened investigations into the 11 MPs. And Arakhamia even called for all 11 MPs to undergo lie detector tests, which has been sharply countered by one MP from the group, Oleksandr Dubinsky, who retorted that Arakhamia himself should take the test.

READ MORE: “NABU and SBU Should Do Their Job on Privatbank” – EBRD Vice President

Dubinsky, who also once worked at the Kolomoisky-owned 1+1 channel, also referred to allegations that MPs from Servant of the People are paid under-the-table, instead of legally, allegations echoed by Kolomoisky in comments to Hromadske on the “deoffshore-ization” law: “Let them first pay from their shady incomes in envelopes,” said the oligarch.

MP Oleksandr Dubinsky takes a lie detector test on October 23 in Kyiv, Ukraine. Photo: UNIAN

Whether or not Kolomoisky really has influence on the Servant of the People party, or in the president’s office, will become clear once a vote on the “deoffshore-ization” bill is held in the coming weeks. And action on that bill will send a clear message to Ukraine’s partners – whether the new government is committed to reforming the country, or if it’s only passing fig-leaves over the old system of oligarchs and patronage.

/Original article by Maxim Kamenev, adapted by Romeo Kokriatski