Report – Detection of Cases of Elite Corruption and Governmental

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Report – Detection of Cases of Elite Corruption and Governmental
DETECTION OF CASES OF ELITE
CORRUPTION AND GOVERNMENTAL
PRESSURE ON BUSINESS
DETECTION OF CASES OF
ELITE CORRUPTION AND
GOVERNMENTAL PRESSURE ON BUSINESS
The views, opinions and statements expressed by the authors and those providing comments
are theirs only and do not necessarily reflect the position of Open Society Georgia Foundation.
Therefore, the Open Society Georgia Foundation is not responsible for the content of the
information material.
2012
CONTENT
Introduction...................................................................................................................................................................................... 5
Main Findings................................................................................................................................................................................... 6
I – Court Statistics........................................................................................................................................................................... 9
II – Business-Related Criminal Cases...................................................................................................................................13
III – Forms and Methods of Using Plea Bargain..............................................................................................................15
IV – Concrete Examples of Typical Problems of Business.........................................................................................16
Conclusions and recommendations....................................................................................................................................21
INTRODUCTION
This report has been prepared by the Economic Policy Research Centre (EPRC) with the support of
Open Society Georgia Foundation within the framework of the coalition1 project - Detection of Cases
of Elite Corruption and Governmental Pressure on Business.
Even though reforms have been implemented in Georgia during the period between 2003 and 2012,
elite corruption still remains one of the main problems in the country. This problem is also the focus of
a report published by the Transparency International in October 2011.2
After the parliamentary elections held on 1 October 2012, the goal of the project has been partially
modified. Now, the aim of the project is not only to expose concrete tendencies but also, for the purpose of prevention, to identify those threats and challenges which such tendencies may bear in the
future as well. The aim of the project also is to assess the impact of elite corruption on the country’s
economy.
Within the framework of this project, the information was sought on the judicial practice in the fight
against economic crime in Georgia to conduct statistical and contextual analysis of administrative and
criminal cases.
This report provides the analysis of the data for the years 2011 and 2012 as well as concrete court cases
taken from the period between 2008 and 2012.
International and local statistical and scientific researches have also been scrutinized, involving the
analysis of roots of elite corruption and of economic tendencies.
1 Partner organizations in the coalition project are: Georgian Young Lawyers’ Association, Transparency International Georgia, Economic
Policy Research Centre and Green Alternative.
2 The Corruption Perceptions Index 2011, report by the Transparency International Georgia.
5
MAIN FINDINGS
1. Opinions about Georgia’s business environment are not uniform among the international
community and experts. On the one hand, they speak about a favorable business climate and
attractive environment for foreign investments in Georgia. On the other hand, the absence of
open and free competition is noted with monopolies existing in every large sector of the Georgian economy. That problem is highlighted in the Enterprise Survey (2008) of the World Bank and
International Monetary Fund, in which 52 percent of interviewed companies say that they have to compete with “unregistered firms.” Thus, even though the size of informal economy has notably decreased
in Georgia, the role of actors in the unobserved economy who may get protection from the state still
remains an acute problem.
2. Elite corruption is mainly manifested through embezzlement of public monies by public officials and abuse of official powers3. Such instances of elite corruption give rise to state favoritism
and internal deals with separate business representatives4.
The proof of such deals is, for example, existing monopolies and unequal treatment of business representatives, also, discriminatory attitudes in the imposition of sanctions or court proceedings. The 2011
report of the US State Department, for example, based on the information provided by representatives
of non-governmental organizations and political opposition, noted that the tax pressure on companies
in Georgia had political motives; tax authorities penalized companies because of their political views.
The tax authorities applied penalties as means of intimidating those companies which had ties with
representative of the political opposition of that time5.
The above said can be illustrated by examples of high-profile cases from media business:
ØBy granting tax amnesty in 2010, the state wrote off up to GEL 36 million of indebtedness of
the TV companies Rustavi 2, Imedi and Georgian Public Broadcaster (GPB); the state did the
same in October 2012.
ØIn the same period, the TV company, Kavkasia, was forced to pay its tax arrear of GEL 30,000
by means of a lien in spring 2007. In 2011, the Revenue Service seized amounts from the bank
accounts of Kavkasia TV company on the 21st day of the month for those taxes which were recognized in the declaration submitted by Kavkasia on the 15th day of that month. A tax balance
of GEL 2.5 was also seized by means of a lien.
The above examples of double standard clearly illustrate the government favoritism which impedes
free competition.
3 Betselmann Foundation, 2010
4 Freedom House, 2011
5 http://www.state.gov
6
3. The reform of judiciary was declared as a top priority by the government of Georgia. Nonetheless,
the court system is perceived as the most problematic system in the country that clearly lacks independence. The level of trust of businesses towards courts is also low. The proof of it is the 2011 report of
the US State Department, which recommends entrepreneurs interested in starting up a business in Georgia
to specify in contracts the international arbitration as a body for dispute resolution6.
According to the Global Competitiveness Report 2011-2012 by the World Economic Forum (Heritage
Foundation 2012), entrepreneurs contend that the courts in Georgia lag well behind a whole number
of countries by the level of their independence. Despite reforms, the court system remains under a political influence. The government pressure on dispute resolutions is strong. Decisions taken by courts
under the government pressure are often illegal, which means that the court system is not independent in the country7.
The same Global Competitiveness Report negatively assesses the situation with the protection of private property in Georgia. It notes favoritism of courts toward certain companies and public servants,
which is an alarming signal in terms of the protection of private property. Facts analyzed by EPRC also
support those conclusions:
ØThe number of administrative complaints submitted to courts of first instance in Georgia is
high. The majority of applicants (almost 60 percent) are individuals and legal entities. However,
individuals and legal entities significantly lag behind administrative bodies in terms of rulings
in their favor (the ratio between court decisions in favor of administrative bodies, on the one
hand, and individuals and legal entities, on the other, is approximately 2 to 1). Especially noteworthy are tax disputes where, according to 2011-2012 data, almost 81 percent of cases were
decided in favor of administrative bodies.
ØThe low level of trust can be well discerned in the following statistics: according to the court
statistics for the first nine months of 2012, the majority of court cases involving businessmen –
90 percent, ended in plea agreement. The assessment of the institution of plea bargaining and
the above data can never be clear-cut. On the one hand, plea bargain is a means of resolving
a dispute in a rapid and effective manner. But the study has shown that this mechanism of dispute settlement has been distorted in Georgia.
ØThe majority of cases of those people, who are on the list of 147 businessmen, published by
the Businessmen of Georgia for Free Business (that list was published during the period of this
study), ended with a plea bargain. These cases reveal one main trend: before the legal proceedings were instituted, all these people represented large businesses whereas today, most
of these businesses are either owned by another person (or persons) or are closed down. Consequently, those cases can be legitimately analyzed in the context of governmental pressure.
6 http://www.state.gov
7 National Integrity System, 2011
7
ØCases involving relationship between the business and the state, property disputes, which end
in the imprisonment of businessmen or forfeiture by the businessmen of their property, can be
considered as one of the forms of pressure on the business from the state. In this report, we will
analyze court cases related to this topic. There is one more thing to note: the study revealed
several cases where government pressure was conspicuous. In parallel with that it is also obvious that there are doubts regarding the origin of seized property. Nevertheless, it is the fact
that it was not possible to seize that property through a court decision and the state resorted
to illegal forms of pressure. This tendency is especially interesting today as the issue of restoration of justice is topical again. It is important to conduct the process of the so-called return of
property and restoration of justice within the limits of law and to avoid repetition of violations,
discussed in this report, in the name of justice.
ØOne of the forms of pressure on business also is such instances where the state is not directly
involved in a dispute but the behavior of state bodies and court speaks about the interest of the
state. For example, a speedy manner of considering cases by a court so that depriving a party of
an opportunity to mobilize; registration of a deal in a speedy manner and during non-working
hours by the Civil Registry; supplying court decision to a party with a delay, thereby restricting
the right of a person to appeal a decision within the term set by the law, etc. Such cases are discussed throughout this report. Moreover, those cases we discuss involve a defense lawyer who,
after the October parliamentary elections, admitted that he was engaged in one of high-profile
cases (not any of the cases we discuss below) on behalf of the prosecutor’s office for the aim of
exerting pressure.
ØThere are instances when a dispute with the state does not end up in a total loss of the property
although the imposition of a lien on the property is used as a lever to pressure the business.
There are cases from the period between 2008 and 2010, where procrastination of a dispute
with the state and a lien on a property or business constitute a breach of property rights of citizens. Examples of such cases can be found in the 2011 annual report of the Public Defender of
Georgia; however, despite the Public Defender’s appeal to investigate them, part of those cases
are still left unattended.
ØYet another important violation in relation to tax disputes is the situation wherein tax bodies
disregard the requirements of the 2004 Law on Tax Amnesty and Legalization of Undeclared
Tax Liabilities and Property and revisit tax liabilities prior to 2004. After corresponding fines
have been imposed, the amount to be paid by an entrepreneur by 2012 reaches such a size
that may easily lead to the stoppage of a business. Moreover, such unequal attitude towards
the business directly involves the threat of corruption.
The report provides analysis of concrete statistical data related to all the above listed issues, expert
opinions and cases.
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I – COURT STATISTICS
The statistics of the Supreme Court of Georgia provide data on courts of every instance.8 The data
shows quite a high number of cases filed to the courts.
For example, the number of administrative cases considered by the court of the first instance during
the first nine months in 2012 comprises 5,922, compared to 5,890 in the corresponding period in 2011.
Interestingly, in the US state of California, the total of 9,652 cases, both administrative and criminal,
were filed with the lower courts over the period of 2009 and 2010, and almost the same number of
cases were heard. The population of California counts some 37 million people, almost 10 times higher
than that of Georgia. It is thus clear that Georgian courts have to consider many more cases than in
California, which may be explained by a low respect of the rule of law by Georgian citizens or may
indicate a high government pressure on the part of controlling bodies.
CASES FILED IN 2011 IN COURTS OF
FIRST INSTANCE
3149
CASES FILED IN 2012 (9 MONTHS) IN COURTS
OF FIRST INSTANCE
2004
2741
3918
Individuals and Legal entities
Individuals and Legal entities
Administrative Body
Administrative Body
In Georgia, individuals and legal entities are in the lead among those who file cases in the first instance courts.
Even though individuals and legal entities file more cases in the courts of first instance than any other
parties, decisions taken by courts speak against them: in 2011, cases decided by first instance courts in
favor of administrative entities exceeded 2.5 times the cases decided in favor of individuals and legal
entities. The year 2012 shows a little improvement in a corresponding indicator.
8 Source of information: webpage of the Supreme Court of Georgia. http://www.supremecourt.ge/statistics
9
APPEALS APPROVED BY THE COURTS OF FIRST INSTANCE
1426
4120
2011
2230
3395
2012
In favor of individuals and legal entities
In favor of the administrative entity
That is the general statistics. The data on tax disputes, however, look worse for individuals and legal
entities.
APPEALS APPROVED BY THE COURTS OF FIRST INSTANCE
340
284
1731
2011
1530
2012
In favor of individuals and legal entities
In favor of the taxation authority
The court statistics for the 2011 and 2012 show that almost 81 percent of tax disputes were decided in favor of administrative entities. That, naturally, affects the degree of confidence of complainants in courts and consequently, their determination to appeal decisions to higher courts.
According to the Supreme Court data, 90 percent of cases end with plea bargain. It is therefore logical
10
that the appeal courts receive a very small number of complaints challenging decisions of lower courts
on tax disputes. In particular, during the first nine months in 2012, the total of 67 tax complaints were
considered, while in 2011, that number stood at 194. More than 90 percent of cases heard by the appeal
courts were decided in favor of administrative bodies.
The ratio between won and lost cases looks better in the case of the Supreme Court. According to data
on the appeal of cases on tax issues, 74 complaints were considered during the nine months of 2012.
Of these cases, 32 were ruled in favor of tax bodies whereas 34 cases were won individuals and legal
entities.
And one more interesting detail is that the statistics on cases filed with appeal courts in 2012 show
that the higher the value of dispute the less the number of complaints lodged with the appeal
courts. Decisions made by appeal courts almost equally - 50/50, favor the parties. In Particular:
REVIEWED CASSATION ON TAXATION CASES 2012 (9 MONTHS)
3% 9%
Up to 50 thousand GEL
4%
50000-100 000-GEL
11%
100 000- 500 000 GEL
59%
14%
500 000-1000 000 GEL
1000 000 and above
No amount indicated
The dispute ended in favor of tax bodies in 32 cases. There were 13 cases with the value of up to GEL
50,000; six cases with the value ranging from GEL 50,000 to GEL 100,000; four cases with the value
from GEL 100,000 to GEL 500,000 and one case from GEL 500,000 to 1,000,000. One case with the value
above 1 million is not a cassation case while in four cases the amount is not specified.
The dispute ended in favor of physical or legal persons in 34 cases. There were 25 cases with the value
ranging from GEL 50,000 to GEL 100,000; four cases with the value from GEL 100,000 to GEL 500,000;
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one case with the value above 1 million is not a cash dispute while in three cases the amount is not
specified.
A general idea about the scale of government pressure can be obtained from the data on the
imposition of administrative sanctions on businesses. According to the National Statistics Office
– Geostat, the number of businesses operating in Georgia today amount to 58,591.9
In 2011, according to the official data, 826 administrative cases were filed in the courts, which
make up 1.4 percent of total number of entrepreneurs. Consequently, one cannot speak of massive pressure in that regard, though the amount of administrative fines, which is rather high in
Georgia, is a separate issue.
In general, most frequent administrative violations, according to 2011 data, are violations of the
rule of entrepreneurial activity, Breach of rules of trade (service) and tax-related violations can
be seen among administrative complaints, over the same period.
ADMINISTRATIVE CASES FILED IN 2011 TO LOWER COURTS
175
Violation of laws on entrepreneurial activities
Administrative violations in trade and finance sectors
651
Violation of trade (service) laws by entrepreneurs – 0
Taxation related violations – 0
9 Source: Webpage of the National Statistics Office of Georgia – Geostat. www.geostat.ge
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II – BUSINESS-RELATED CRIMINAL CASES
According to representatives of businesses as well as defense lawyers in business-related cases, one
of the methods to exert pressure on business is to institute criminal proceedings for business-related
wrongdoings. The 2011 data on criminal indictments and relevant statistics of cases filed with the lower
courts are as follow:
ØMisappropriation or embezzlement (article 182) - at the beginning of the year the balance (i.e.
cases filed in previous years) stood at 33. In 2011, the total of 125 cases was filed with the courts.
Decisions were taken on 115 cases. One case was appealed upon the prosecutor’s request. The total
116 cases were completed. The end of year balance of pending cases comprises 42.
ØTax evasion (Article 218) – at the beginning of the year the balance was at 24. In 2011, the total
of 59 cases was filed in the courts. Decisions were taken on 54 cases. Proceedings were terminated on one case. The total completed cases comprised 55.
ØBreach of customs rules (Article 214) – at the beginning of the year balance was six. In 2011,
the total of 51 cases was filed with the courts. Decisions were taken on 50 cases.
ØOther economic crimes (Articles183, 185,196, 198, 199, 213. 215, 221) – at the beginning of
the year balance was 27. In 2011, the total of 226 cases was filed with the courts. Decisions were
taken on 217 cases. Proceedings were terminated on one case. One case was appealed upon
the prosecutor’s request. The total completed cases comprised 219.
BUSINESS VIOLATION RELATED CASES FILED IN 2011
51
59
Misappropriation or embezzlement
226
125
Tax evasion
Breach of customs rules
Other economic crimes
It is worth noting that main complaints of human rights watchdogs regarding criminal cases are more
related to remanding businessmen detained on the above listed charges in pre-trail custody rather
than to the content of cases.
Defense lawyers assert that the pressure was exerted during that very period of pre-trial detention,
causing businessmen to forfeit property and businesses by means of plea bargains.
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It should be noted that it is quite difficult to analyze such cases. First of all because those cases which EPRC
requested from the courts are in the majority not open to the public, rendering them useless for a detailed
analysis. Moreover, businessmen shun speaking openly about their positions (and as it has been observed,
the largest segment of businessmen does the same today, even after the change of government).
Therefore, to analyze court cases EPRC, in parallel with requesting the official information from courts,
obtained additional information though the following sources: face-to-face interviews with defense
lawyers working on business-related court cases; information provided by parties to disputes; reports
of the Public Defender of Georgia; media reports, etc. One of the sources of information is the initiative
group of human rights defenders - the Businessmen of Georgia for Free Business, which, during the reporting period, published the list of 147 businessmen, who, as the group asserts, were arrested illegally.
It is, naturally, impossible for a non-governmental organization to study all the cases. However, in EPRC’s
view, the list provided by the Businessmen of Georgia for Free Business does reveal one main trend:
before the legal proceedings were launched, all these people represented large businesses whereas
today, most of these businesses are either owned by another person (or persons) or are closed down.
Consequently, it is legitimate to analyze those cases in the context of government pressure.
ØThe analysis of grounds for detaining of accused businessmen shows that in contrast to the
above provided official statistics, a segment of large business representatives are accused of
such crimes as bribery (article 339 of the Criminal Code of Georgia); espionage (article 314); illegal preparation, production of drugs, the analogy or precursor thereof (article 260). The general
picture is the following: a segment of businessmen serve sentences for the crime punishable
under article 210 that is for the forgery or use of credit or settlement card.
ØThen comes article 194, which provides punishment for legalization of illicit income, that is,
money laundering.
ØA segment of businessmen is arrested for forgery (article 180) and misappropriation or embezzlement (article 182).
ØThere are also businessmen serving sentences for the violation of rule on maintenance of computer, computer system or their network (article 286).
ØEntrepreneurs are also accused of espionage (article 314), drug-related crime (article 260), formation or leading of or participating in paramilitary units (article 223), as well as for false entrepreneurship (article 193) and breach of customs procedures (article 214).
Without thorough analysis of cases, it is, of course, impossible to judge whether the court decisions
were well founded or not. However, a certain tendency can still be outlined: EPRC compared those
articles under which these people were punished with the severity of punishment envisaged by those
articles. The analysis showed that for the same crime some businessmen were sentenced to one or two
years in prison while others faced even 17 years of imprisonment.
The majority of cases ended in plea agreement, which, virtually, renders civil control on those cases
impossible.
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III – FORMS AND METHODS OF USING PLEA BARGAIN
The analyzed cases show that the majority of cases involving businessmen end in plea agreements. The
court statistics show that the overwhelming majority of cases, almost 90 percent, end in plea agreement. In particular:
The Supreme Court statistics show that in the first nine months of 2012, the total of 7,668 cases was
filed with the courts of first instance countrywide; of these cases 6,703 resulted in plea agreements,
which makes up 88.1 percent of all the cases being filed with courts in the corresponding period.
In the first nine months of 2011, plea bargaining was used in 9,209 cases, i.e. 87.3 percent of the total
number of criminal cases filed with the court during that period.
In 2011, the total of 14,264 cases were filed with the courts of first instance, of which 12,718 ended in
plea agreements, which comprises 87.5 percent of all criminal cases heard countrywide.
The attitude towards the institution of plea bargaining is not uniform in Georgia. In terms of
transparency, it is problematic because details of plea agreement do not become public; on the
other hand, that is a means for fast and efficient resolution of disputes.
Defense lawyers working on business-related disputes, who were interviewed10 by EPRC during
this study, say that plea bargaining was indeed seen as a step forward in 2004, when it was established, however, that tool of settlement has been distorted over the time.
According to defense lawyers, the plea bargaining, which implies that an accused person pleads guilty,
cooperates with the investigation in establishing other crimes and thereafter pays a certain agreed
amount, is used not only for its direct purpose today; it is often used as tool of coercion in order to detain a person without court and exert financial pressure on him/her.
According to defense lawyers the actions of revenue services, during a dispute with tax or financial
authorities, were legitimate indeed and the crime was apparent, especially given that non-payment
of taxes was practiced at a larger scale in the past than in 2011-2012. The lawyers, however, are unhappy about the form in which assets have been seized, first, and then, confiscated.
Defense lawyers working on business-related crimes speak about yet another problem in disputes between businesses and the state: the majority of businessmen prefer not to speak up and to deal with the state through negotiation in order to maintain their business. Those who did not do so have to leave Georgia and loose their businesses anyway. However, a problem also is that tax-punitive measures are not applied to companies only once.
The companies who entered into a deal with the state came to face the same problem again some time later.
10 Within the framework of the project Face to face interviews were conducted with the following lawyers: Dimitri Gabunia, Tamaz Inashvili, Lili Gelashvili, Nana Pridonashvili, Malkhaz Jangirashvili.
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IV – CONCRETE EXAMPLES OF TYPICAL PROBLEMS
OF BUSINESS
The cases analyzed and face-to-face interviews conducted by EPRC revealed typical problems which
will be discussed in the form of concrete examples.
The first case is related to Bakur Kighuradze, one of those 147 businessmen list published by the Businessmen of Georgia for Free Business. This case is analyzed on the basis of court decision, letters sent
from the prison by Bakur Kighuradze, official documentation provided by the lawyer of Bakur Kighuradze (agreements, opinions of expertise), decrees of the government and mayor’s office and other
public information.
1. Cases of disputes between a business and the state, which end in the arrest of a businessmen and
forfeiture of the business, can be considered as one of the forms of government pressure on business. Bakur Kighuradze’s case is interesting in that regard.
Bakur Kighuradze was the general director of Uta LTD. At the same time, he is a founder of non-governmental organization International Institute for Globalization Studies. On 13 June 2010, Bakur Kighuradze was arrested on espionage charges and was sentenced to nine years of imprisonment. The aim of
the authors of this report is not to draw conclusions regarding the espionage charges, especially considering that that case is classified and it is unknown for what crime or on the bases of what evidences
Bakur Kighuradze was imprisoned. The arrestee considers himself innocent, does not plead guilty and
intends to prove his innocence in the European Court of Human Rights. The Strasbourg Court has already admitted the case for consideration.
A fact that is interesting for this report is the following: in parallel with the charge of espionage, several
disputes regarding the confiscation of his property have been heard at Georgian courts. A defense
lawyer in one of those cases is Giorgi Kavlashvili, the lawyer who after the 1 October parliamentary elections said on the radio Obiektivi that he was engaged in illegal deals of high officials from the Ministry
of Justice. Kavlashvili was involved as a lawyer in the last dispute related to Kighuradze, as well as in the
dispute related to the TV company Pirveli Stereo.
The above quoted fact somewhat supports the claims of Bakur Kighuradze about the pressure on the
part of the state, which he describes in his letters from the prison. Therefore, we believe that this case
must become a matter of interest of law enforcement bodies.
Moreover, one thing needs to be mentioned here: Looking at Bakur Kighuradze’s business biography
and activities, doubts may arise about the legality of ways through which he acquired state assets.
However, the problem is that the court decisions and the history of those disputes show that illegality of the origin of a certain part of his property and the misappropriation of assets have not been established and the court, in most cases, has not delivered its decision on that part of the case. The fact
16
that the court has not made a final decision yet, is rather typical in the practice of state-businessmen
rivalry in Georgia. Moreover, this case also involves the fact of imposing a business-partner.
To double check that information we tried to reach Giorgi Kavlashvili but he has not answered the
phone calls.11 Eventually, this process and the search of investor ended in dispute on shares. Later, Bakur Kighuradze was detained. The ceremony of laying the foundation of the Delisi shopping mall was
attended by the President though the construction has been stopped.
To sum up the above case, it is clear that a businessman who was a holder of quite a large property and business before 2003, is actually left without business or property as a result of court decisions or “deals” with the
state which occurred between the period from 2007 and 2012. The court dispute is still in progress on a part
of property. The businessman himself is arrested for espionage. Moreover, in his letters, the businessman
identifies concrete persons as well as mediators (whom we will abstain to name) and speaks about forms of
pressure exerted from the state. We think, that case needs to be revised and additionally investigated.
One of the forms of pressure on business is also the instances where the state is not directly
involved in a dispute but the behavior of state bodies and court speak about the interest of the
state. Such instances can be illustrated by such cases as those of Maka Asatiani and TV company
Pirveli Stereo. We are not going to speak in this report about the state interference in an assertive way. We will provide a rather detailed overview of Maka Asatiani’s private dispute12 and the
role of the state in that dispute.
On 23 August 2012, at an oral hearing, the Supreme Court of Georgia left the case of AKA Ltd (№ -10801012-2012) unconsidered, thereby enforcing the ruling of the appeal court, dated 11 June 2012, according to which 20 percent of the shares owned by Maka Asatiani, Salome Asatiani and Luiza Tavartkiladze in AKA Ltd (a Mercedes representation in Georgia) was impounded in favor of a former partner
Davit Dzotsenidze.
It is worth noting that:
Davit Dzotsenidze filed his complaint with the Tbilisi city court in 2008. This partner of AKA Ltd initiated
11 That Giorgi Kavlashvili was engaged in illegal dealings of high officials of the Justice Ministry, was officially declared by the lawyer himself on the radio Obiektivi. According to Kavlashvili, he, as a director of Gama Ltd, purchased the company Burji upon the instruction of
the then Chief Prosecutor, Murtaz Zodelava. The company Gama purchased the company Burji, which was under the lien, at an auction
for GEL 8,761,513 in August 2012. However, according to Kavlashvili, Gama did not actually pay the amount for the purchase of Burji.
The company Burji is a company of Bidzina Ivanishvili and it was considered by the court as an illegal contributor for providing transportation and office refurbishment services to the political parties united in the Georgian Dream political coalition, and fined it with more than
GEL 10 million. The National Enforcement Bureau traded the company Burji at the auction on 26 July 2012. On the same day, the Public
Registry registered a new company, Gama Ltd. It was the latter company that purchased the property of Burji for GEL 8,761,513 on 2
August. It is noteworthy that Giorgi Kavlashvili was also involved in a court dispute concerning the TV company, Pirveli Stereo. When
the director of the TV channel, Davit Zilpimiani, was fired and a new director, Vasil Kobaidze, was appointed, Kavlashvili was assigned to
Kobaidze as his legal representative.
12 The analysis of this case relies on the court decision, public speeches of Maka Asatiani, materials provided by Asatiani’s lawyer, Dimitri
Gabunia.
17
his claim after 12 years of severance of partnership ties with the company, i.e. after the expiry of the
term of statute of limitations.
Maka Asatinai and her lawyer explain that fact with the interests Maka Asatiani showed in the Maestro
TV Company. We cannot assert that opinion positively but these two developments have coincided in
time indeed.
Apart from the content of the court case, the entire consideration of the case was carried out in an unprecedented hasty manner. In particular, after the appeal court delivered its decision, not overturning
the decision of the lower court, the Supreme Court completed the hearing of the AKA Ltd case within
14 days. The Supreme Court did not overturn the decision of lower courts either and the Asatiani family
was issued the enforcement note on the payment of GEL 859,195 within five days.13
Fast-tracking of the case reinforces the doubts about impartiality of the court. Lawyers of the Asatiani
family believe that their rights to property and to fair trial had been breached in Georgia and therefore,
they applied to the Strasburg Court to seek the truth.
It should be noted here that the party to the dispute, Davit Dzotsenidze, flatly denies any type of deal
with the state in regards with his share in AKA Ltd.
The dispute involving the Pirveli Stereo TV company also shows a speedy consideration of the case
both in court and public entities. This case also shows that a party to the dispute did not receive the
notice on seizing his property in a timely manner, thereby failing to appeal the decision in due time.
The dispute about Pirveli Stereo, 22 percent of share in which was owned by Davit Zilpamiani (he is the
owner of 100 percent of shares in another TV company Stereo+) while 65 percent was owned by Vasil
Kobaidze, arouse from property issues.
According to Davit Zilpamiani, the problems emerged after he, on 11 May 2012, re-registered the TV
company, Stereo+, on the name of his son, a citizen of Italy, and entered into a contract on rendering
technical service to TV company Channel 9. We cannot confirm the authenticity of that claim either but
here as well, there is a coincidence in time as well as in some other details:
13 Civil Procedures Code of Georgia, Article 59. Terms of Implementation of Procedure. Courts consider civil cases within two months of
the submission of application whereas in especially complicated cases, that term can be extended to five months upon the decision of a
court considering the case. Article 201. Obligations of Court to Defendant. 1. To have a case prepared for the hearing, a judge: a) sends
to a defendant copies of plaintiff’s complaint (application) and documents prescribed under this Code; b) sets a term to a defendant for
preparing his/her answer in writing to a complaint and questions therein as well as his/her opinion about documents enclosed to the
complaint, and for submittin them to the court. The set terms shall not exceed 14 days whereas in case of complicated cases shall not
exceed 21 days. Article 401. Examination of Admissibility of Appeal. 1. Within 10 days of receiving appeal, a reporting judge shall examine
whether the appeal is lodged in accordance with the requirements set forth in article 396 of this Code. If the appeal meets the requirements, it will be taken for proceeding on the basis of article 391 of this Code for the examination of admissibility. Article 403. Appointment
of Court Hearing, By a decision on admitting an appeal for court proceeding, the court sets a date of oral hearing and notifies parties of
that decision within three days after the decision is made.
18
A former director of Pirveli Stereo says that he has not received any document notifying him about the
seizure of property. Consequently, he had no opportunity to challenge the decision and submit his
response in writing with regard to those documents.
Moreover, in this case, lawyer Giorgi Kavlashvili is involved again as the defense lawyer of the owner of
the majority share in Pirveli Stereo.
One should note here that after 1 October parliamentary elections, namely on 8 November 2012, the Tbilisi City Court Collegium for Civil Cases, by its decision, satisfied the claim of Davit Zilpamiani against the
defendant, Vasil Kobaidze, the partner in Pirveli Stereo TV company. The complainant demanded that the
protocol of the Pirveli Stereo TV company partners’ meeting be declared void.14
It seems that the delay in supplying a court decision is a well-established method. That restricts
the possibility of a party to appeal the decision. Such instances are observed in the relationship
with tax authorities which, eventually, results in the increase of penalty and seizure of property.
There are also the instances where the dispute with the state does not lead to entire forfeiture of
the property, although the seizure of property is used as a lever of pressure on business. In the period between 2008 and 2012, instances are observed when the procrastination of a dispute with the
state and seizure of business or property of a person constitutes the violation of property rights.
Such cases can be found, for example, in the 2011 annual report of the Public Defender of Georgia,
although despite the appeal of the Public Defender to investigate those cases, they have been left
unattended so far.
The case of Tatiana Janick – seizure of property. On 22 October 2008, Tatiana Janick was accused of
committing the crime envisaged under the article 188 of the Criminal Code of Georgia. The property of
her children, as of related persons, was seized.
That case is interesting for two aspects: the first is that regardless of the fact that the criminal prosecution was terminated towards Tatiana Janick by the resolution of the prosecutor on 1 September 2009,
the prosecutor’s office did not take a relevant decision until 17 March 2011 (that is, for a year and a
half ).
Another aspect is related to legislative issues:
Under the law, a person who is not a party to the dispute (is a witness) and at the same time, his/her
property is seized (his right to property is restricted) cannot request that the lien be lifted (appeal to the
court to defend his property rights) even if a legal ground exists for that. The Public Defender of Georgia
believes that such a formulation of norms constitutes a violation of property rights and infringement of
the right of a person to appeal to court.
14 The analysis of this case relies on the court decision, public speeches of Davit Zilpamiani, materials provided by the lawyer, statement
made by the City Court.
19
Consequently, under the conditions when a victim (that is a party whose property is under the
lien) does not have the right to submit a request to the court for lifting the lien, the government,
in the face of a prosecutor’s office, retains a significant lever of pressure on a citizen, including
a businessman, involved in the case as a witness. Putting a lien on a business during a year and
a half, or even more, may inflict irreparable damage on any business. Moreover, in some cases investigative bodies seize documentation from public entities (for example, Public Register)
within the scope of investigation, which also creates property-related problems. The example
illustrating such instance is the following case:
The case of Tengiz Ubilava - seizure of documentation by the investigative body.
On 14 June 2008, Tengiz Ubilava bought a plot of land in the Gldani village. The sale and purchase
agreement was signed and duly notarized. On 7 December 2009, he approached the National Agency
of the Public Registry to have his own land registered. However, the National Agency of the Public Registry refused to register the ownership of the immovable property because the documentation related
to that property was seized by the investigative bodies. According to the applicant, he was unaware of
the result of investigation from 2008 to September 2011, thereby being unable to build a house on his
own plot of land.
Yet another important violation in relation to tax disputes is the situation wherein tax bodies
disregard the requirements of the 2004 Law on Tax Amnesty and Legalization of Undeclared Tax
Liabilities and Property and revisit tax liabilities prior to 2004. After corresponding fines have
been imposed, the amount to be paid by an entrepreneur by 2012 reaches such a size that may
lead to the stoppage of a business.
An example of such a situation is the case of Savaneli V. G. The detailed information on that case is provided in the report of the Public Defender of Georgia.
The taxpayer was informed about the tax and imposed penalties as well as the place and rule of payment only on 13 January 2009, that is after six years the liability arouse. Moreover, the Law on Tax
Amnesty and Legalization of Undeclared Tax Liabilities and Property had been enacted for quite a long
time ago.
The Public Defender believes that that was the breach of the Law on Tax Amnesty and Legalization of
Undeclared Tax Liabilities and Property which entered into force on 24 December 2004.
In addition to the fact that this and other similar cases allegedly constitute breach of law (which
is to be established by a court), they also set a precedent of revisiting tax amnesty which creates
a danger of selective and unequal treatment.
CONCLUSIONS AND RECOMMENDATIONS
20
The study has revealed that in the period between 2008 and 2012, the government, to exert pressure
on business, applied quite actively such mechanisms as:
1. Tax inspection (including the taxes belonging to amnestied period); where the prospect of the
Revenue Service to win a case, if appealed, is 81 out of 100;
2. Imposition of lien on property and protraction of lifting the lien, regardless of the lack of legal
ground for that;
3. Unprecedented fast-tracking of court or other procedures, delay in providing court decisions
and other, at first blush, narrower procedural issues, in order to disable a party of the possibility
to react in a due legal manner;
4. Imposition of a partner in a business by a prosecutor’s office and with the engagement of a
concrete defense lawyer;
5. Pre-trial detention during which plea agreement is made; the main result of plea bargain was
forfeiture of business and property;
6. Where a plea agreement is not achieved, new charges may emerge, including such charges
as “espionage;” moreover, since espionage cases are classified, it is impossible to examine the
legality of those charges on the part of the civil society;
7. Unequal treatment of business representatives on the part of the revenue services, which is
manifested in seizing accounts and discriminatory application of tax procedures towards various business subjects.
These and other similar deviations from the law make it clear that there are such characteristic features
of elite corruption in Georgia, as:
• Tendency to abuse official powers; favoritism on the part of the state and internal deals between separate representatives of the business.
• The court system is under a political influence. The influence of the government on court decisions is strong. Decisions taken by courts under the government pressure are in a number of
cases illegal, which means that the court system is not independent in the country.
• Lack of transparency of the court system impedes the inflow of foreign investments into the
country and raises mistrust among international investors.
Elite corruption directly affects the economic development of the country. There are a number of studies, including publications of the World Bank, which evidence the interdependence between the size of
unobserved economy and corruption in the country. Moreover, it is noteworthy that this interdepen21
dence is stronger under elite corruption. In the countries where corruption is rife in higher echelons,
the size of informal economy against GDP is larger. Elite corruption creates artificial barriers to the entry
of business to market, business risks increase because government often takes unpredicted political
decisions.
At the same time, politically motivated pressure form tax regulatory bodies encourages informal economy; also, unobserved economy is large in those countries wherein rule of law is not respected and
property rights not protected.
According to the regional report, published by the International Monetary Fund in 2012, the size of
informal economy in Georgia comprises almost 30 percent of the GDP, which is higher than a corresponding indicator in Uzbekistan, Belarus, Turkey, Lithuania, Kyrgyzstan, Romania, Bulgaria, Croatia
and other developed or developing countries. Informal activity in the country is conducted bypassing
taxes, which, in turn, delivers a blow on public finances. The report notes that the main factors that determine a high indicator of informal economy are corruption, unfair tax regulations, unequal conditions
for the conduct of business mainly manifested through monopolies and lack of free competition. In the
case of Georgia, especially emphasized were regulatory pressure and quality of institutions. In terms of
regulatory pressure the report highlighted unequal conditions for businesses, monopolies expressed
through their dominant positions on the market, while in term of institutions, unsmooth operation and
lack of transparency of the court system.
The roots of the above mentioned deficiencies must be sought in elite corruption. Main recommendations for downsizing the informal economy can be formulated as follows:
√ To improve institutions regulating business by fair enforcement of regulations, de-politicization of business, in order to ensure equal opportunities and fair environment for business;
√ To improve transparency of the state institutions;
√ To implement reform and establish a truly independent court system;
√ To protect the inviolability of the property rights.
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