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Edik Baghdasaryan

World Bank Director in Armenia – Country’s Shadow Economy 35-40%

Aristomene Varudakisi, Director of the World Bank office in Armenia, is completing his mission here. Before leaving, he revealed a startling figure – 35-40% of Armenia’s Gross Domestic Product is comprised of “shadow business”; i.e. these activities fall outside the purview of any government monitoring. They constitute a huge loss to the tax base. Mr. Varudakisi noted that Armenia’s mining sector was heavily afflicted with such activity. He stated that a certain portion of the World Bank’s $25 million loan to Armenia was targeted for legal and structural changes in this very sector. “I cannot give a figure as to the tax evasion taking place in this sector. It requires serious research and study. All I can say is that the tax laws in Armenia regarding the mining sector are quite below par. The new draft changes to the law will allow advances on several fronts. The effects of the mining sector on the environment will be evaluated in a much more effective manner, with the aim of guaranteeing Armenia’s development while at the same time preserving Armenia’s natural resources, firstly the forests,” Mr. Varudakisi said. I do not know what studies lead him to such conclusions. On the contrary, according to research we’ve conducted over the past five years, we can safely state that the level of “shadow business” in the mining sector is more like 70%. Mining is the most profitable of sectors in Armenia and here, the laws of the jungle operate freely. The chain of corrupt business transactions starts from the very beginning of the process – from obtaining an exploratory and operator’s license, all the way to the sale of the finished product. To understand why the mining sector is so riddled with “shadow business dealings” and unsupervised, it is enough just to mention the names of some of the players involved – former President Robert Kocharyan, National Assembly President Hovik Abrahamyan, Armenia’s Ambassador to the Ukraine Andranik Manukyan, National Assembly MP’s Vardan Ayvazyan, Gagik Tsarukyan, Minister of Nature Protection Aram Harutyunyan, various sheikhs from Saudi Arabia and Dubai, and assorted Russian and Armenian oligarchs. The list goes on to include other ministers, regional governors, generals and officials. Large exporters have registered sister companies off-shore and their primary transactions are conducted through them. In some cases, even the first-line companies are registered off-shore. The objective here is to hide the names of the officials and the extent of their business stakes. Of course, they also wish to evade paying any taxes. Government officials are granted licenses and later turn around and sell them for millions of dollars. For example, a few years ago Transportation and Communications Minister Andranik Manukyan and Nature Protection Minister Vardan Ayvazyan sold the license to the Hankavan gold mine to the Russians for about $30 million. Both officials own stakes in a number of mines and now, from time to time, negotiations are conducted regarding their sale. Furthermore, companies that have been granted exploratory licenses are known to have performed no such work even though they claim to have done so. What these companies do, in reality, is to obtain or purchase research findings conducted by in the Soviet era, fiddle with some of the figures, and then present the doctored results to the prospective buyer. A good attorney would have no trouble tracking down who these companies buy their research from and at what price. Mine operators also conceal the true amounts of the ore they extract. There is practically no oversight of this aspect of the industry. Operators are free to plug in any amounts they like. Of course, mine operators have to “grease” somebody’s palm. To make it all look above board, penalties are sometimes levied as well, just to show the regulators are actually regulating and the monitors, monitoring. The next “shadow stage” in the mining process is the preparation of documents supposedly attesting to the mineral content of the extracted ore. The figures, as a rule, have no correlation with the facts. For arguments sake, it is possible that along with the extracted copper ore another, much more valuable, mineral exists. If, for example, gold is discovered within the extracted copper ore itself, then the ore can fetch much higher prices. In Armenia, however, these processes escape any real oversight. Sure, there is a government agency tasked with such industry oversight but it is directly told what concentration numbers to register. Of course, here too, palms are well greased. Throughout this whole sordid process Armenia’s environment suffers the greatest losses. Today, the lands surrounding mines and mining operations have been turned into open toxic dumps – the tailings dams in Kajaran, Kapan, Akhtala, Alaverdi and the toxic dam belonging to the Ararat Gold Recovery Company in the fertile valley of the same name. They are all considered “dead zones” that can never be restored. Whatever reforms or modifications to the law the government adopts, the focal point must be the environment and how to effectively minimize threats to Armenia’s flora and fauna. The super-profits these companies have pocketed up till now, at the expense of the environment, must be directed at undoing the damage they have done and making sure that the technologies they use in the future are capable of averting the mistakes of the past.