Corruption Crackdown Sparks Georgian Cabinet Reshuffle

The arrests of high-ranking officials in the Tbilisi Tax Department have focused attention on the Georgian government's anti-corruption campaign. The arrests led to the resignation of Finance Minister Valeri Chechelashvili on June 29. Both governing party and opposition members have used the occasion to lament corruption within the tax and customs systems, a stance that some observers believe could lead to further cabinet changes.

Chechelashvili's resignation came one day after the June 28 arrests of Tbilisi tax department head Temur Dvali, his deputy and several other unnamed tax officials on charges of abuse of power and acceptance of 150,000 Gorgian lari (GEL) in bribes. These bribes, totaling roughly $83,000, were allegedly paid to overlook 3 million GEL ($1.65 million) in taxes owed to the government by a Tbilisi entrepreneur. The entrepreneur has not yet been named.

Speaking at a joint news briefing with Interior Minister Vano Merabishvili, Prosecutor-General Zurab Adeishvili described the incident as "an unprecedented case" which gives "a clear indication that the tax department system is absolutely corrupt and needs urgent reforms."

Georgian media reported that up to 15 Tax Department officials had been arrested in the sting, but, in a June 30 interview with EurasiaNet, David Akhalaia, head of the Interior Ministry's Constitutional Security Protection Department, the unit that made the arrests, put the number of incarcerated officials at "only seven."

In remarks to the cabinet on June 29, broadcast by the Georgian television station Imedi, President Mikheil Saakashvili described the arrests as a "brilliant operation" designed to show Tbilisi Tax Department staff that they could not "resume the old practice of lining their pockets."

"We have been receiving reports that they have started approaching businesses and making illegal deals with them, demanding money for fixed paperwork," Saakashvili claimed. "Restaurants practically stopped paying taxes. There was a huge problem with only a few companies paying taxes, while others often managed to pay nothing by using various schemes."

Saakashvili asked for the resignation of Chechelashvili, less than five months on the job, in connection with the bribe-taking, noting that while he had "no doubts that Chechelashvili is an honest person and a good professional," it was "not enough." The finance minister, he added, should ensure that he is not "surrounded by bandits engaged in anti-state criminal activities." Chechelashvili acknowledged that he had been taken aback by the degree of corruption in the tax department, but told reporters that he considered the president's decision "fair." Saakashvili mentioned that the minister, who previously served as Georgia's ambassador to Russia, would be able to resume his diplomatic career.

Nominated to replace Chechelashvili as finance minister is Aleksi Aleksishvili, minister of economic development. Irakli Chogovadze, chief of the economy ministry's State Property Management Agency, was nominated to take over Aleksishvili's responsibilities.

Saakashvili has stressed that the resignation will not entail another major cabinet reshuffle, but one Tbilisi analyst disagreed. Commenting that "there is nothing stable in Georgia," independent political analyst Ramaz Sakvarelidze stated that it is likely the government would undergo a major reorganization by the end of the summer.

David Berdzenishvili, a member of parliament for the opposition Republican Party, however, believed that a reshuffle is unlikely but only because the government does not have enough "appropriately skilled and professional candidates to fill ministerial positions." Chechelashvili himself, Sakvarelidze noted, "did not really like the ministerial position, and thus it was impossible for him to succeed there."

Neither Sakvarelidze nor Berdzenishvili believed that much would change in the fight against corruption among tax officials under the stewardship of Alexsishvili. "These mass arrests were performed back in the Soviet era, but they did not change anything essentially," Sakvarelidze stressed. At the same time, Berdzenishvili added, the authorities "simply did not have any other choice" when appointing the new ministers.

To combat such corruption, Berdzenishvili added, the government should undertake "pure economic measures," such as the introduction of a more effective taxation system. Georgia's new tax code, adopted in January 2005, has sparked widespread criticism for placing businesses at a disadvantage. While many taxes have been reduced, others have been increased. The minimum amount in back taxes that can be owed without risk of imprisonment has also been reduced, and arbitration councils set up to resolve tax disputes between the government and private businesses have been abolished.

The finance ministry released a statement on June 30 saying that Georgia's 20 percent VAT tax would be reduced to 18 percent -- a pledge made by the government in January, when the new tax code came into force and a concession heavily supported by businesses. The ministry stated that the government will reduce the VAT rate in July.

Other issues, however, promise to linger on. On June 17, differences between private businesses and the government most recently came to a head on June 16 when armed members of the financial police stormed two restaurants in downtown Tbilisi to seize tax documents. Members of the opposition and Parliamentary Speaker Nino Burjanadze both criticized the raids for the use of excessive force and as an abuse of civil rights. An apology was issued by Financial Police Chief Davit Kezerashvili on June 17.

Commenting on the arrests, Mark Mullen, chairperson of the board of directors of Transparency International Georgia, an anti-corruption watchdog, said that the actions were "necessary, but not sufficient." The methods chosen for dealing with the Tax Department's bribery were not correct, Mullen said. Simplifying the tax system and raising officials' monthly salaries (recently increased to 150 GEL, or $83, per month) could better help address one of the motivating factors for bribery, he added. "[T]he major problem is that Georgia needs changes made to the entire system."