Watchdog Concerned over Anonymous Company Ownership, Corruption Risks

Transparency International (TI) Georgia, a local anti-corruption watchdog, raised today concerns over anonymous company ownership, exposing risks of corruption, money laundering, and secret deals between public officials and the company owners.

The watchdog found that some 3,200 companies, including up to 160 large and medium-sized enterprises – among them giants like IDS Borjomi and Silk Road Group Holding – are fully or partially owned by an offshore company, making it impossible to trace their owners.

Meanwhile, such companies are awarded public contracts, receive important licenses and permits, participate in state programs, and benefit from exemptions granted by the state, according to the watchdog. This means that the people are unaware of who the final recipients of public funds are, TI Georgia stated.

TI Georgia observed that 38% of all foreign direct investment coming to Georgia between 2011 and 2020, a total of USD 5.2 billion came from countries with offshore hideaways.

Referring to then Finance Minister Ivane Machavariani’s 2019 statement that 60-70% of FDIs in Georgia are in fact local investments taken out of the country and then funneled back, the watchdog suspected that the anonymous company ownership might be used to conceal the origins of money to then use it “for various corrupt purposes,” including to pour it into politics.

The watchdog stressed that anonymous companies in Georgia have allowed for “secret, unhealthy influence” of private business interests on state institutions and strategic projects. An unhealthy overlap of business and public interests, expressed in backdoor deals “provides a healthy ground for high-level corruption,” TI Georgia warned.

The watchdog named former Prime Minister, Georgian Dream founder, billionaire Bidzina Ivanishvili as the “key example of this, as his influence over the country’s government and the majority of public institutions despite his formal withdrawal from politics should be assessed as state capture.”

The watchdog noted that Ivanishvili, using offshore havens is a beneficial owner of at least 20 companies, 12 of which hold 70 firms in Georgia. TI Georgia observed that 31 directors of these 70 companies donated almost GEL 2.97 million (USD 960,000) to the GD.

It also pointed out that the Anaklia Deep Sea Port project, a possible competitor with the Poti Port, came to a halt “as a result of the government’s effort,” while Pandora Papers leak confirmed that Ivanishvili had stakes in the Poti Free Industrial Zone, a tax haven nearby the Poti Port.

Highlighting that Ivanishvili did not include the information in his asset declaration during his premiership in 2012-2013, TI Georgia stressed the “ineffectiveness” of the existing declaration system that cannot detect and reveal anonymous ownership of companies by officials.

To combat the secretive ownership, the watchdog called on the Georgian Government to develop a public register of beneficial owners, who are ultimately in control of the companies registered offshore. According to TI Georgia, the authorities have not yet heeded a relevant recommendation by the Organization for Economic Cooperation and Development.

According to the watchdog, the register would provide journalists and watchdogs with new mechanisms for holding officials accountable and uncovering possible corruption-related crimes, while also allowing investigative bodies to easier locate perpetrators and seize stolen money.

In addition, TI Georgia said, the registry would provide businesses with information as to who exactly they are dealing with, in that mitigating risks of informal deals and improving the business environment.

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