Georgia's richest man said to be moving funds to avoid sanctions

This spring, as tens of thousands of Georgians protested what they perceived as Russia's clear influence on the country's politics, the Georgian Parliament swiftly passed amendments to the national tax code. This move sparked widespread attention and controversy, with concerns that deeper political intentions were hidden behind it. The public worried about the potential implications of these changes on Georgia's sovereignty and future direction.

The anti-corruption watchdog Transparency International (TI) Georgia wrote at the time that the amendment, which allows the tax-free transfer of assets from offshore accounts to Georgia, may have been introduced for the country's richest man, former Prime Minister Bidzina Ivanishvili. Ivanishvili is the founder and honorary chairman of the ruling Georgian Dream party. "It is now clear that these amendments were tailor-made for him," said Beso Namchavadze, a senior economic analyst at Transparency International Georgia. This raised concerns about the fairness and transparency of the legislative process.

Ivanishvili's wealth is estimated at $4.9 billion (£3.9 billion), and he made a fortune in Russia in the 1990s through computers, metals, and banking. It is believed that most of his wealth is hidden in offshore companies. The passage of this tax amendment undoubtedly intensified questions about Bidzina Ivanishvili and the source of his wealth. The public demanded greater scrutiny of his financial dealings and potential conflicts of interest.

Last May, Georgia plunged into political crisis with daily street protests after Georgian lawmakers passed the controversial "Law on Transparency of Foreign Influence," often referred to as the "foreign agents law." Under this legislation, media and non-governmental organizations that receive more than 20% of their funding from abroad must register as "organizations acting in the interests of a foreign power," accept strict audits, or face punitive fines. This was widely seen as a move to block the influence of the United States and other Western countries on the country. The law sparked international condemnation and fueled concerns about Georgia's democratic trajectory.

Protests have continued after the Georgian Dream-led government won a disputed parliamentary election in October. In early December, protests erupted again when the government said it would suspend negotiations to join the European Union. Hundreds of peaceful protesters were arrested and severely beaten by police. In response to this crackdown, the U.S. government announced sanctions against Ivanishvili at the end of last year. The UK may also impose sanctions. Last month, Liberal Democrat MP James McLeary tabled an early day motion in the UK Parliament calling on the government to impose sanctions on Ivanishvili. The motion expressed "deep concern about Georgia's suspension of the process of joining the European Union and the increasing excessive use of force against peaceful protesters." The international community closely monitors the situation and considers further actions to address the concerning developments.

Transparency International Georgia estimates that if the UK imposes sanctions on Ivanishvili, his entire business empire will be affected because he has holding companies registered in two British overseas territories - the British Virgin Islands and the Cayman Islands. "All his large enterprises in Georgia, whether in the hotel or energy industries, the ultimate beneficiaries of the parent companies of these Georgian companies are registered in these so-called offshore territories," said Beso Namchavadze. He also added that Transparency International Georgia believes that Ivanishvili and other family members are transferring ownership of companies they previously controlled through offshore entities to newly established companies in Georgia. This complex financial structure raises questions about transparency and potential tax avoidance.

According to data released by the Ministry of Finance, nearly $500 million worth of paintings and other works of art were imported into Georgia in January of this year. Many believe these artworks came from Ivanishvili's priceless collection. "For everyone who knows him, it is clear that this is what he values most among all his assets and wealth. He wants to bring the paintings back and doesn't want to pay taxes for it," said Tina Khidasheli, former Georgian Defense Minister and head of the non-governmental organization Civic Idea. The import of these valuable artworks has further fueled public scrutiny and debate.

Pata Kvekvenadze, chairman of the Georgian Parliament's Finance and Budget Committee, recently defended the tax-free transfer of assets from offshore accounts to Georgia. He posted on social media: "If someone benefits from this law, I am happy about it. That is exactly what the law is intended to do: to bring companies back from offshore zones and attract more investment into the country." This statement highlights the government's perspective on the policy and its potential benefits for the Georgian economy.

In response to the UK's proposed sanctions, the ruling Georgian Dream party issued a statement defending Ivanishvili, saying that the threat of sanctions against the founder of a party that brought a "democratic breakthrough" to the country was "unfounded." Meanwhile, Ivanishvili's lawyer announced last month that his client was suing Swiss bank Julius Baer, in part because the bank misinterpreted "so-called" U.S. sanctions, which the lawyer called "political blackmail." U.S. sanctions against Ivanishvili require the freezing of his assets and restrict U.S. citizens and companies from doing business with him personally, but do not affect his companies or family members. The legal battle adds another layer of complexity to the ongoing situation.

For more than a decade, Ivanishvili has been in a legal battle with another Swiss bank, Credit Suisse, over fraud and mismanagement of his funds. Some believe that the billionaire's distrust of the West and his increasing use of conspiracy theories at home, such as accusing opponents of being part of a "global war party" or "deep state," stem from his long-standing financial disputes. Tina Khidasheli said that since he became convinced that Credit Suisse was involved in a massive conspiracy against him, "Bidzina Ivanishvili has made Georgia a victim of his personal financial problems." These long-standing grievances appear to influence his political decisions and worldview.

Experts say that although Ivanishvili's current official position is honorary chairman of the ruling party, it is clearly recognized that he remains the number one figure in Georgian politics. Therefore, sanctions against him are seen as sanctions against the entire government. Nika Gilauri served as Prime Minister of Georgia from 2009 to 2012. He now heads a private company called Reformatics, which advises governments around the world on economic reform. His insights provide valuable context to the current political and economic climate in Georgia.

Gilauri said that Georgia's continued political instability and international isolation are negatively impacting the economy. "We see that foreign direct investment has been very adversely affected, and if you compare the first nine months of 2024 with the first nine months of 2023, we see a decrease of 40%. Therefore, the situation will continue to deteriorate in the future." But the Georgian government paints a different picture. Last month, Georgian Prime Minister Irakli Kobakhidze signed a $6 billion foreign investment agreement with UAE real estate group Emaar. Economy Minister Levan Davitashvili called it the "largest foreign investment agreement" in decades and expects it to contribute 1.5% to economic growth. Prime Minister Irakli Kobakhidze even said that achieving 10% economic growth in Georgia is now "absolutely realistic." The contrasting viewpoints highlight the differing perspectives on the country's economic prospects.

But a recent research report released by Georgian research firm Policy and Management Consulting Group (PMCG) said the outlook for the next six months is not optimistic. The report highlighted the impact of continued political turmoil and said the suspension of negotiations to join the European Union "was negatively evaluated by all economists surveyed." Gilauri of Reformatics said their own analysis shows that Georgia's economic growth this year will be zero. "In the future, we will face budget problems, currency exchange problems. We will face inflation problems. We will face employment problems, job creation problems, and we will face economic recession problems. Holding new elections is the only way out for the country and for Bidzina Ivanishvili personally." The report underscores the challenges facing Georgia and suggests a potential path forward.