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Andrey Gerus: Why a blind trust does not work in Ukraine

Author: Andrey Gerus

Information that the President has transferred assets to a blind trust is not credible yet. Otherwise, they would disclose the company taking management over the President’s assets.

Generally, a blind trust traditionally provides for transfer of financial assets (stocks, money) of politicians to an independent company. In western countries, a blind trust works as a typical portfolio of a rich man's assets may comprise 1.5% stake in Coca-Cola, 2% Gillette, 0.5% Apple.

When performing its managerial function, a trustee sells or buys something, and a final beneficiary (the owner) does not even know that his assets are, because they are hidden from prying eyes (so called a blind trust).

And if a politician does not know what his assets are, he cannot make decisions on behalf of the industries or companies of the relevant business interests. He does not know where his business interests are. That's the name, goodwill and authority of the management company gives an insight of a fair asset management within a blind trust.

For example, Mitt Romney, the ex-Governor and former candidate for the US presidency, has transferred his assets to a blind trust. But he has been criticized because his old comrades managed the Bain Capital Company and publicly disclosed its assets.

The First Deputy Prime Minister of the Russian Federation Igor Shuvalov has also handed over his assets to a blind trust. But, of course, very few people believe in the blindness of unknown trust Severin from the British Virgin Islands. The most profitable transactions of that trust ($ 80-100 million) were made on shares of Gazprom. At the same time, Shuvalov as an official approved various governmental initiatives in favor of Gazprom.

In Ukraine, activities of a blind trust are complicated due to the lack of legislative, cultural and business background. Usually, business people possess no small packages of public companies, but 100% of shares in their companies. Therefore, it is difficult to sell such shares, and virtually impossible to do it privately without the knowledge of the politician - shareholder.

In such a situation, the blind trust loses its significance. Even if a politician passes his shares to a blind trust, no "blind" ownership is secured. So he understands which industry shall get governmental orders and priority public support. Top managers as well know, who is their de facto boss of (the trust is de jure boss). Other officials have the same understanding when allocate land, execute permits, and hold tenders.

Therefore, the blind trust in Ukraine is a broken mechanism. It does not remote the conflict of interests of the state and the business owner. I think, it is the reason why no western funds / credible banks are willing to take the risk and liability of such trust.