State Audit Office's activities during the 2012 election process in Georgia

MONITORING OF THE STATE AUDIT
Report

MONITORING OF THE STATE AUDIT
Report

AUTHORED BY

Irakli Melashvili
Election Expert, member of the Coalition “For Freedom of Choice”

Revaz Sakevarishvili
Economic Expert, Director at the Analitical Center “Econometer”

Leval Alafishvili
Lawyer

Tamar Kordzaia
Lawyer, Executive Director under the Georgian Charter of Journalistic Ethics

Magda Popiashvili
Chairperson at the Georgian Media Club, member of the Coalition “For Freedom of Choice”

TABLE OF CONTENTS
1. INTRODUCTION.................................................................................................................................................................................................................... 4

2. THE STATE AUDIT OFFICE AND MONITORING OF THE FUNDING OF POLITICAL PARTIES (OVERVIEW
OF EUROPEAN PRACTICE) ................................................................................................................................................................................................... 5
2.1 Bulgaria.................................................................................................................................................................................................................................. 5
2.2 Poland..................................................................................................................................................................................................................................... 6
2.3 Finland.................................................................................................................................................................................................................................... 6
2.4 Spain....................................................................................................................................................................................................................................... 7

3. LEGAL ENTITIES ................................................................................................................................................................................................................... 8
3.1.“The Georgian Football Supporters” charity foundation...................................................................................................................................... 8
3.2. The case concerning “Elita Burji”................................................................................................................................................................................10
3.3. “Cartu Group”....................................................................................................................................................................................................................11

4. THE IMPACT OF DECISIONS BY THE GEORGIAN CHAMBER OF CONTROL UPON FREEDOM OF THE MEDIA ..............................13
4.1. The case concerning Bidzina Ivanishvili and “Global Contact Consulting” Ltd.........................................................................................13
4.2. The case concerning “Global Contract Consulting”.............................................................................................................................................13
4.3. The case concerning “Maestro”...................................................................................................................................................................................13
4.4. Legal analysis of cases concerning “Global Contact Consulting” Ltd and “Maestro” Ltd .....................................................................14

5. ANALYSIS OF THE STATE AUDIT OFFICE (CHAMBER OF CONTROL) DECISIONS TO FINE PHYSICAL PERSONS ..........................16
5.1. Wholesale interrogations.............................................................................................................................................................................................16
5.2. The case concerning Bidzina Giorgobiani..............................................................................................................................................................16
5.3. The case concerning the fining of Cartu Bank employees...............................................................................................................................17
5.4. The case concerning Kakha Kaladze........................................................................................................................................................................18
5.5. Contributors of the United National Movement ................................................................................................................................................18
5.6. Socially unprotected people who made contributions to a political party...............................................................................................19

6. THE FINING OF POLITICAL PARTIES ...........................................................................................................................................................................22
6.1. The Rustavi events..........................................................................................................................................................................................................22
6.2. The Tetritskaro events....................................................................................................................................................................................................22
6.3. The Poti events ................................................................................................................................................................................................................22
6.4. Meetings of the United National Movement with the population...............................................................................................................23
6.5. Contributions received by the Coalition Georgian Dream member organizations and fines
imposed upon these contributions ..............................................................................................................................................................................24

7. ANALYSIS OF THE ORDER OF THE AUDITOR GENERAL OF THE STATE AUDIT OFFICE NO. 137/37 ON A NUMBER OF
ARRANGEMENTS RELATED TO THE TRANSPARENCY OF FUNDING PRE-ELECTION CAMPAIGNS; PROBLEMS REVEALED .........27
7.1. Analysis ..............................................................................................................................................................................................................................27
7.2. Problems encountered by media outlets ..............................................................................................................................................................28

8. CONCLUSION.......................................................................................................................................................................................................................30

1. INTRODUCTION

On 27 December 2011, the Georgian Parliament adopted amendments to the Law of Georgia on Citizens’ Political Associations
and created a Financial Monitoring Service within the Georgian Chamber of Control. The new amendments imposed the fol-
lowing restrictions on party funding:

Legal entities are prohibited from funding a political party if they are “directly or indirectly associated with a party or
otherwise under control of a party, or with political goals and declared objectives and which, through their representa-
tives or any other person, call voters for supporting or for abstaining from supporting any political group;” (Article 261,
paragraphs (a) and (b));

Restrictions were imposed upon “any person with political and election goals and declared objectives, his/her associ-
ates, anyone having a business relationship with that person and having political and election goals, or who is involved
in activities that influences the expression of political will by citizens of Georgia in elections, plebiscites or referenda
and these actions are carried out in avoidance of regulations imposed by this Law.” Restrictions also apply to “a person
who is involved in activities that influence the expression of political will by citizens of Georgia in elections, plebiscites
or referenda and these actions are carried out in avoidance of regulations imposed by this Law.” (Article 261, paragraph
(c));

Parties are prohibited from accepting a contribution in the following circumstances: “If the contributing physical
persons are fully or partially receiving their income from a single source (from physical persons or legal entities
or their associates), then the total amount contributed by such physical persons to a single election subject
during a year must not exceed 500,000 Lari. In addition, a total amount contributed by each physical person
must not exceed 60,000 Lari” (Article 27);

Parties and physical persons will face fines for violation of the Law (making / accepting unlawful contributions) in the
amount of ten times the contribution made / accepted. The Law entitles the Chamber of Control to unilaterally attach
the accounts of such legal entities and physical persons (Article 342).

On 13 March 2012, Georgian non-governmental organizations launched a campaign entitled “This is About You.” They addressed
Georgian parliament with a petition to amend the newly adopted law. Up to 200 non-governmental organizations signed the
petition in just 2 days. The NGOs and the Parliamentary Legal Affairs Committee held discussions for two months. Parliament
took some recommendations into account and on May 8th, Parliament adopted new amendments to the Law on Citizens’ Po-
litical Associations. The goal of the following research is to analyze the actions of the Chamber of Control (later the State Audit
Office) within the reality of the newly enforced legislation.

4 MONITORING OF THE STATE AUDIT

2. THE STATE AUDIT OFFICE AND FINANCIAL MONITORING OF POLITICAL PARTIES
(REVIEW OF EUROPEAN PRACTICE)

Leval Alafishvili
Lawyer

The lack of an independent enforcement agency is a most serious weakness that undermines
the working of a successful system. Strong enforcement machinery can be used by a regime to
deprive the opposition of its right to participate effectively in the electoral process. Selective, par-
tisan enforcement of campaign finance regulations serves to reduce electoral competition and
can lead to long periods of one-party or individual rule.

Funding of political parties and election campaigns. Handbook series. International Insti-
tute for Democracy and Electoral Assistance (IDEA). Stockholm, Sweden, 2003; page 90

The Georgian State Audit Office is a member of the European Organization of Supreme Audit Institutions (EUROSAI) and the
Asian Organization of Supreme Audit Institutions (ASOSAI). It has partnership relations with State audit offices of Sweden, Lith-
uania and Latvia.

None of the highest audit offices of the 49 member countries of the EUROSAI (including the partners of the Georgian State Audit
Office) has competences identical to those of the Georgian State Audit Office in the area of political and election issues.

It should be noted at the outset that basic international documents containing fundamental principles on public audit institu-
tions such as the Lima Declaration of Guidelines on Auditing Precepts (1977) and the Mexico Declaration on SAI Independence
(2007) do not envisage the monitoring of political parties as part of a mandate of State audit institutions. The Declarations make
it clear that the mandate and independence guarantees of an audit institution, as well as its impartiality, must be provided for
by law.

Of the state audit institutions in EUROSAI member countries, only the Bulgarian, Polish, Spanish and Finnish audit institutions
have different functions to monitor political party activities. In any event, the competence of an audit institution is limited by
the involvement of other administrative or judicial bodies in their decision-making process.

And finally, the recommendations contained in the 2011 Evaluation Report of the Council of Europe Group of States against Cor-
ruption (GRECO) express the importance of creating an effective mechanism for monitoring the funding of political parties; not
augmenting the mandate of existing institutions. Keeping in mind the gist of recommendations (7 and 8), it may be assumed
that it is very likely that in discussing the mechanism for monitoring the funding of political parties, any form of involvement by
the State Audit Office would not be contemplated. The recommendations express creating appropriate auditing standards of
party and election campaign financing, as well as establishing a mechanism to ensure the independence of auditors entrusted
with the verification of party accounts and campaign funds, in consultation with competent bodies. The only competent body
on these issues in Georgia is the State Audit Office (the Chamber of Control – before Fall 2011). The Chief of the Audit Office
confirmed that the legislative amendments were enacted without any consultations with the State Audit Office by stating that
the new functions entrusted to the Audit Office by the amendments to the Organic Law on Citizens’ Political Association were
“a new puzzle” for them.

2.1. BULGARIA

Funding and property management issues of political parties are supervised by the Bulgarian National Audit Office.

According to the Accountancy Law and the Accounting Standards, political parties are obliged to furnish the Bulgarian National
Audit Office with an annual financial report of the previous year before March 31st. If the value of resources accepted or spent
during the reporting period exceeds 50,000 Bulgarian Levs (about USD 33,000), a financial report must be verified by an inde-
pendent auditor before it is submitted to the National Audit Office.


In addition to a financial report, the National Audit Office must be provided with a list of contributions (a declaration) indicating
the identities of contributing physical persons and legal entities, types, amounts and values of the contributions as well as the
purpose of the contributions. Furthermore, a separate declaration should be submitted to the Audit Office in the form of a list of
contributing not-for-profit entities whose founders and/or members (and their spouses or children) are simultaneously mem-
bers of governing or controlling bodies of the relevant political party. Not-for-profit organizations that have made contributions
to a political party are also obliged to submit their own declarations to the National Audit Office.

Before the 15th of April every year, the National Audit Office publishes the reports and declarations of political parties, as well as
a list of parties who did not submit declarations.

Within 6 months from the submission of a report, the National Audit Office will carry out a financial and property (consistency)
audit of the submitting political party. After the statutory term elapses, the Audit Office forwards reports of political parties that
have received a State subsidy and a list of political parties and not-for-profit organizations that did not provide financial reports
within the statutory term to the Executive Director of the National Revenue Agency. The Revenue Agency will conduct an audit
on its part and use administrative measures envisaged by the Tax and Social Insurance Procedure Code against those who failed
to comply with statutory requirements. The Executive Director of the National Revenue Agency forwards its resulting audit
reports to the National Audit Office.

A political party that fails to furnish financial reports or furnishes them in violation of the statutory term loses entitlement to a
State subsidy for the next election of national representatives.

If the audits reveal law violations, such as the rules of attracting or spending financial resources or property management regu-
lations, or if there is reason to believe the violations may indicate criminal conduct, the National Audit Office will send the audit
report, within 7 days after it is approved, to the Prosecution Office of the City of Sofia.

2.2. POLAND

According to the Supreme Audit Office Act, the Audit Office may audit the activity of persons that are receiving any grants or
other benefits from the State. The Act does not envisage any additional or different regulations specifically designed for so-
called regular, non-political subjects.

A special feature of the Polish Supreme Audit Office is that its competence is wider than mere financial monitoring of the activity
of political parties. In particular, Article 11(4) of the Act states that the President of the Supreme Audit Office may request the
Constitutional Tribunal to verify the compliance of objectives or activities of political parties with the Constitution.

2.3. FINLAND

The Finnish National Audit Office monitors both party and election funding. Three different laws govern this matter: the Act on
the National Audit Office, the Act on Political Parties and the Act on a Candidate’s Election Funding.

A matter of interest is that the Finnish legislation recognizes the notion of an associated person when it comes to monitoring
party and election finances; unlike Georgian legislation in which an interested person denotes only a legal entity under an asso-
ciated person, such as a company, trust, not-for-profit organization or a foundation.

Worth noting are the temporal restrictions and the competence of the Audit Office, as determined by law: statutory regulations
are applicable during election campaigning that involved a maximum of 7 months in the election year (starting 6 months before
Election Day and ending 2 weeks after Election Day).

Political subjects must furnish the Audit Office with information on the identity of contributors whose contributions exceed EUR
1,500 per year.

Political subjects are obliged to provide the State Audit Office and the Ministry of Justice with a financial report and an inde-
pendent auditor’s conclusion, together with supporting documentation and print-offs on the turnover of the bank accounts.

To ensure transparency, the Finnish Audit Office keeps a register of election funds and provides public access to data contained
in the register.

The Ministry of Justice of Finland monitors political parties only within the framework of the State subsidies they receive.


The Finnish State Audit Office is authorized to fine a political subject for violation of statutory requirements or accounting rules.
Decisions on fining a political party and determining the amount of a fine are made by a Board of 3 members elected/appointed
by the President of the State Audit Office. Members of the Board must have a master’s degree in law. A decision of the Board on
fining a political subject may be challenged in the High Administrative Court.

2.4. SPAIN

Like Finland, the Spanish Court of Audit monitors the funding of political subjects through submitted financial reports and audit
conclusions of political parties and ensures public access to the reports.

Spanish legislation entrusts the Spanish Court of Audit with a different, unique competence to set upper margins of expendi-
tures in election campaigning during various types of elections (local government, self-governance and national elections),
outdoor advertisements, printed media and radio. For example, the Court of Audit sets the highest cost margin for outdoor
advertisement during the 2011 local elections at 20% of total costs.

According to the law, the Spanish Court of Audit determines forms and rules of financial accounting by political parties. The
Court is also authorized to provide advice to political parties.

The Spanish Court of Audit is not the final instance in imposing sanctions upon political parties for violation of the relevant rules.
Decisions of the Court of Audit may be challenged in the highest instance court.

References

Funding of political parties and election campaigns. Handbook series. International Institute for Democracy and Electoral Assistance
(IDEA). Stockholm, Sweden.2003 – HYPERLINK “http://www.idea.int/publications/funding_parties/funding_of_pp.pdf”http://www.
idea.int/publications/funding_parties/funding_of_pp.pdf - last accessed 11 September 2012.

Lima and Mexico declarations – HYPERLINK “http://www.intosai.org/uploads/englisch.pdf”http://www.intosai.org/uploads/en-
glisch.pdf - last accessed 11 September 2012.

2011 Evaluation Report on Transparency of Party Funding adopted by the Council of Europe Group of States against Corruption (GRE-
CO) – HYPERLINK “http://www.coe.int/t/dghl/monitoring/greco/evaluations/round3/GrecoEval3(2010)12_Georgia_Two_EN.pd-
f”http://www.coe.int/t/dghl/monitoring/greco/evaluations/round3/GrecoEval3(2010)12_Georgia_Two_EN.pdf - last accessed 11
September 2012.

Bezhashvili assures the Chamber of Control will act objectively in the parties’ financial monitoring and “will not treat anyone differ-
ently”, 29 December 2011, Pirveli Information Agency -HYPERLINK “http://pirwelinews.ge/old/index.php?option=com_content&tas
k=view&id=85836&Itemid=52”http://pirwelinews.ge/old/index.php?option=com_content&task=view&id=85836&Itemid=52 - last
accessed 11 September 2012.

Functions of the Bulgarian National Audit Office in relation to political parties - HYPERLINK “http://www.bulnao.government.bg/
index.php?p=2344&lang=en”http://www.bulnao.government.bg/index.php?p=2344&lang=en- last accessed 11 September 2012.

The Polish Supreme Audit Office Act - HYPERLINK “http://www.nik.gov.pl/plik/id,2759.pdf”http://www.nik.gov.pl/plik/id,2759.pdf -
last accessed 11 September 2012.

A short overview of the functions of the National Audit Office of Finland - HYPERLINK “http://www.vtv.fi/en/functions/oversight_
of_election_campaign_and_political_party_financing”http://www.vtv.fi/en/functions/oversight_of_election_campaign_and_po-
litical_party_financing - last accessed 11 September 2012.

Finnish laws on the State Audit Office and the funding of elections - HYPERLINK “http://www.vtv.fi/en/functions/legislation_regard-
ing_activities”http://www.vtv.fi/en/functions/legislation_regarding_activities - last accessed 11 September 2012.

The Spanish Court of Audit. Acts and Rules. 2011 - HYPERLINK “http://www.tcu.es/uploads/BOE01032011-Resolucion%20Contabi-
lidades%20Electorales.pdf” http://www.tcu.es/uploads/BOE01032011-Resolucion%20Contabilidades%20Electorales.pdf - - last ac-
cessed 11 September 2012.


3. LEGAL ENTITIES

Revaz Sakevarishvili
Economic Expert, Director at the Analitical Center “Econometer”

On 28 December 2011, after Article 26 of the Law on Citizens’ Political Associations, which provides a list of prohibited sources of
financial and in-kind contributions, a new Article 261 was added specifying that the restrictions for political parties on accepting
contributions now also apply to:

a legal entity directly or indirectly associated with a party or otherwise under a control of a party or with political goals and
objectives declared;

a legal entity, which, through its representative or any other person, calls voters for supporting or for abstaining from support-
ing any political group;

a person with political and election goals and objectives declared, his/her associates, anyone having a business relationship
with that person and having political and election goals, or who is involved in activities that influences the expression of politi-
cal will by citizens of Georgia in elections, plebiscites or referenda and these actions are carried out in avoidance of regulations
imposed by this Law.

2. A legal entity is directly or indirectly associated with a party if its costs are directly or indirectly linked with the party’s activities
and goals.

Eight months after this amendment was adopted, the said provisions were used in relation to a number of legal entities. The
Chamber of Control (later the State Audit Office) provided the following reasoning:

In the 8 month period after the amendment was adopted, the Chamber of Control of Georgia (later the State Audit Office), the Main
Prosecution Office, the courts, and the National Enforcement Bureau applied the said provision to a number of legal entities, resulting
in imposition of a whole range of administrative, financial and other sanctions upon them.

Below we provide some of the examples of how the process was implemented in relation to various legal entities after their activity
became a matter of analysis for the Financial Monitoring Service of the Chamber of Control.

3.1. CHARITY FOUNDATION “GEORGIAN FOOTBALL SUPPORTERS”

The Chamber of Control decided the activities of the charity foundation, “Georgian Football Supporters,” were directly linked
with those of the international charity foundation, “Supporters,” and administered punitive sanctions against them on that basis.

Chronologically, the process developed as follows:

The international foundation “Supporters” was established on April 30, 2012. The Monitoring Service of the State Audit Office
seized the foundation’s accounts on 18 May on the rationale that “after the very moment of the foundation’s establishment,
leaders of the political coalition, “Georgian Dream,” were associating themselves with the foundation’s goals and objectives and
speaking about the foundation’s future plans and forms of activity in their public speeches; thereby causing the public to per-
ceive the foundation’s activities are related to the political coalition.

The Monitoring Service established links between the foundation’s goals and objectives and its direct association with the goals
and activities of a political organization – a fact also evidenced by the foundation leader’s public actions, aimed at conveying the
“coalition’s” political goals to the public, getting voters financially interested and implementing the party’s election objectives.

On 17 May 2012, Bidzina Giorgobiani, a foreign relations secretary of the Georgian Conservative Party, transferred EUR 90,000
to the Supporters’ account from a foreign country. According to the Chamber of Control, “the transaction, much like the foun-
dation’s activities, subjects, forms, contents and other signs, is of a political nature and contradicts the applicable laws” (on the
issue to what extent the accusations against Bidzina Giorgobiani were substantiated, please see page 10).


On this basis, the Financial Monitoring Service seized the foundation Supporters’ accounts. The decision was upheld by the
Tbilisi Appeals Court.

On 30 May 2012, a not-for-profit and non-governmental legal entity, “Georgian Football Supporters,” was established. On 2
June, the Chamber of Control seized the new foundation’s accounts on the basis that “immediately after its establishment,
representatives of this organization made public statements that a charity foundation, “Supporters 2,” had just been established
and associated themselves with the international charity foundation, “Supporters,” which is a legal entity associated with the
political party “Georgian Dream – Democratic Georgia,” with the aim to implement the election objectives of the political party
by getting voters financially interested.”

According to the Financial Monitoring Service of the Chamber of Control, the not-for-profit legal entity “Georgian Football
Supporters” received various sums from various sources – both physical persons and legal entities – contrary to the regulations
contained in Organic Law of Georgia on Citizens’ Political Associations. On this basis, the Financial Monitoring Service seized the
bank accounts belonging to the “Georgian Football Supporters.”

However, Gela Ketashvili, the founder of the “Georgian Football Supporters,” insists his foundation had nothing to do with the
foundation “Supporters.”

“I simply declared solidarity to the foundation “Supporters.” I’ve had no relations with that foundation. I established my foun-
dations along with my friends. I am astonished to what basis my foundation’s accounts were seized. I have no idea about this.
I haven’t even done anything yet with my foundations yet,” Gela Ketashvili said after the foundation’s accounts were seized.

He also maintained that neither “Supporters 2” nor the “Georgian Football Supporters” received any sums in their accounts.

Nevertheless, in a resolution dated June 4, 2012, the Administrative Cases Panel of the Tbilisi City Court ruled the “Georgian
Football Supporters” perpetrated Article 252(1)-(2), Article 261(1) and Article 342(4) of the Organic Law of Georgia on Citizens’
Political Association and fined the organization GEL 5,000.

The same court decision upheld the Decision of the Chief of Financial Monitoring Service of the Georgian Chamber of Control
on 2 June 2012, and seized the Georgian Football Supporters’ accounts in Georgia-licensed banks, in proportion to the statuto-
ry sanction – within GEL 5,000.

The Tbilisi City Court announced, “In reviewing this particular case, the evidence presented, explanations provided by Gela
Ketashvili representing the non-for-profit entity “Georgian Football Supporters” and a print-out of a website on public an-
nouncements – all prove that the not-for-profit legal entity, “Georgian Football Supporters,” is a person with the aim to avoid
restrictions imposed by this Law from the very moment of its establishment. The organization’s representative made public
statements about the charity foundation “Supporters 2,” and established and associated themselves with the international char-
ity foundation “Supporters,” which is a legal entity associated with the political party “Georgian Dream – Democratic Georgia.

“The not-for-profit legal entity “Georgian Football Supporters” violated its obligations under paragraphs 1 and 2 of Article 252
of the Organic Law of Georgia on Citizens’ Political Associations; in particular, as a person associated with the political party
“Georgian Dream – Democratic Georgia,” it aims to help any citizen of Georgia with money – an action carried out in support of
the mentioned political party, such as a promise to assist by giving money to citizens of Georgia.

“Accordingly, the legal entity “Georgian Football Supporters” aims to get voters financially interested and to implement election
objectives of the mentioned political party – actions that are contrary to the requirements by law. Failure to comply with the
obligations envisaged in paragraphs 1 and 2 of Article 252 of the Organic Law of Georgia on Citizens’ Political Associations, will
result in imposing liability on not only a person who has declared election objectives, but also any person who, to avoid restric-
tions imposed by the Law, carries out an action prohibited by the Organic Law on Citizens’ Political Association in favor of or
against any political party. The Court dealt with the case according to the rules prescribed in Article 2082 of the Administrative
Offenses Code and applied the rules of proceedings established by the Administrative Offenses Code; consequently, having
reviewed the case materials, the Court ascertained the subject committed the administrative offense, the fact of the adminis-
trative offense committed and held the not-for-profit legal entity “Georgian Football Supporters” liable for its failure to comply
with obligations under the Organic Law on Citizens’ Political Associations within the sanction envisaged by Article 342(4) of the
same Law.”

A detailed analysis of the case materials reveals that the “Georgian Football Supporters” was fined and its bank accounts were
seized in violation of the applicable laws since the following conditions must first be satisfied for a person to be subjected to
the above-mentioned measures:

1. A person must have its election objectives declared and must be using financial/in-kind resources to achieve these objectives;


2. The Monitoring Service must have issued an act on applying restrictions to a person using a simple administrative deci-
sion-making procedure;

3. A person must have accepted or concealed a contribution prohibited by law.

At the time the accounts were seized and when the “Georgian Football Supporters” was subsequently fined, neither the organi-
zation nor its activities had fallen within notions of any of the above-mentioned restrictions.

First of all, the “Georgian Football Supporters” did not declare any election objectives and was not using financial/in-kind re-
sources to achieve such objectives. In addition, the Financial Monitoring Service of the Chamber of Control had not issued an
administrative act imposing any restrictions upon the “Georgian Football Supporters.” And finally, the organization had not used
any financial resources to achieve any election objectives.

Nevertheless, the accounts of the “Georgian Football Supporters”have been seized and its work is presently paralyzed.

3.2. THE “ELITA BURJI” CASE

On 14 July 2012, the Financial Monitoring Service of the State Audit Office published information about its examination of the
financial documentation of the “Elita Burji” Limited Liability Company (LLC). The State Audit Office concluded that “as a result of
examining the documentation, we ascertained that in 2012 the company purchased two sets of offset printers with a total value
of GEL 679,487.94, to further the objectives of the political coalition, “Georgian Dream.”

In the same announcement, the State Audit Office emphasized that “Elita Burji LLC had never carried out any printing or related
activities in the past. The company purchased the mentioned devices and equipment specifically for the purpose of supporting
the activity of the mentioned political subject.”

It should be noted that Elita Burji LLC had been fined by the Chamber of Control once before this incident for providing a free-
of-charge service (transportation) to the political movement “Georgian Dream”.

It was the second time that the State Audit Office claimed Elita Burji LLC transgressed election financing laws by unlawfully
contributing to members of the political coalition and once again, seized the company’s bank accounts and all its movable and
immovable property.

A decision to apply interim measures and case materials were forwarded to the Tbilisi City Court. On 14 July 2012, based on the
motion of the State Audit Office, the Court fined Elita Burji LLC with 3.4 million GEL. The first instance court decision was later
upheld by the Administrative Cases Chamber of the Tbilisi Appeals Court on 17 July 2012.

Both the State Audit Office and the Court maintained that Elita Burji carried out printing activity only in support of the member
subjects of the political coalition “Georgian Dream” and thus the printing activity could not be deemed a for-profit economic
activity.

Furthermore, that the company “has never carried out any printing or related activities in the past” was regarded as sufficient
reasoning by the Court and the Audit Office to fine Elita Burji LLC and seize its property. They used the same reasoning to
conclude that “the company purchased the mentioned devices and equipment specifically for the purpose of supporting the
activity of the mentioned political subject” in spite of the fact that Elita Burji, like any other economic agent, was authorized to
carry out any economic activity permitted by law.

The method of establishing the amount of fine also deserves emphasis. Both the State Audit Office and the Court regarded Elita
Burji LLC an unlawful contributor to the political coalition, “Georgian Dream” and named the provision of printing and other
services (printing of brochures, caps, leaflets and other products with the coalition logo on them) as a contribution; however,
the amount of the fine was not calculated from the value of services provided.

Moreover, decisions by the Chamber of Control or the Court mention nothing about the volumes and value of the services pro-
vided. Both organs calculated the sum of unlawful contribution by the value of the printers, not by the value of services.

In the end, Elita Burji LLC was fined 3.4 million GEL, which equalled the value of the two offset printers (GEL 679,487.94) times
five.


3.3. THE “CARTU GROUP”

On 11 June 2012, the Tbilisi City Court fined Bidzina Ivanishvili, leader of the political coalition “Georgian Dream” a total of
148,650,131 GEL in total (the amount of fine was later reduced to 74,325,065 GEL) for violations of two protocols produced by
the Chamber of Control.

On 20 June 2012, the National Enforcement Bureau seized 100% of Bidzina Ivanishvili’s shares in Joint-Stock Company “Cartu
Bank” and 21.7% of his shares in the Joint-Stock Company “Progress Bank” in order to secure the execution of enforcement pa-
pers issued by the Tbilisi Appeals Court.

As the National Enforcement Bureau stated, during the enforcement process, they conducted checks to ascertain property be-
longing to Bidzina Ivanishvili. The National Enforcement Bureau addressed the National Bank in writing, which in turn replied
that Ivanishvili was a beneficiary proprietor of the above-mentioned banks and companies.

According to information provided by the National Bank, the Law of Georgia on the Activity of Commercial Banks posits that
before a person purchases shares in a commercial bank, he/she shall duly notify the National Bank thereon. Failure to meet this
obligation will render an agreement for the sale of shares void.

Since the National Bank had not been furnished with any declaration concerning the change of the beneficiary proprietor of the
Cartu Bank, Bidzina Ivanishvili was indicated as the sole beneficiary proprietor of the bank.

Based on this information, on 2 July 2012, the National Enforcement Bureau announced an auction to sell the assets of the “Car-
tu Group,” including 100% of Cartu Bank’s shares.

The logic and speed of how the property was evaluated for sale at the auction deserve to be mentioned specifically. The Levan
Samkharauli National Forensics Bureau priced 100% of Ivanishvili’s shares in the “Cartu Group” at 151,880,661 GEL and 21.7% of
shares in “Progress Bank” at 3,566,498 GEL.

The Law of Georgia on Enforcement Proceedings states, the initial price of a property put up for the first compelled auction shall
equal 50% of the market price, set by an expert.

Accordingly, the starting prices of 100% of Bidzina Ivanishvili’s shares in “Cartu Group” was set at 75,940,330 GEL and the 21.7%
of shares in Progress Bank at 1,783,249 GEL.

In other words the total property belonging to the “Cartu Group,” including Cartu Bank and other business assets, were priced
much less than their market prices (at the relevant time, the market value of Cartu Bank was approximately $260 million).

In addition, the Forensics Bureau priced the assets of the Cartu Group in a very short time period – a fact that raises concerns about
the pricing accuracy (usually, the world’s leading audit companies require a month or more to perform a valuation of bank assets).

At the end of the day, the Forensics Bureau did calculations in a way to make sure the total price of Ivanishvili’s shares in the
Cartu Group and Progress Bank, based on auction rules (reduction in price to 50% of the market value) would equal the amount
of the fine imposed.

Moreover, the way the public auction was held also raises concern from a legal perspective: the 100% of Cartu Group shares,
including the whole package of shares in the Cartu Bank, was put up as a single lot.

The applicable Georgian law requires that anyone willing to purchase shares in a commercial bank must first obtain the consent
of the National Bank of Georgia to purchase assets of a relevant bank.

The above requirement is particularly violated since nobody knows in advance who may become a new proprietor of the prop-
erty put up for auction. On the other hand, a complete package of shares in Cartu Group, and Cartu Bank being part of it, must
have been sold through an auction. In fact, the purchase of bank shares through an auction could end up with the agreement
for the purchase of the shares in violation of the abovementioned legal requirement, making it void.

However, after the auction was announced, it became known that, as early as 30 April 2012, eleven foreign companies had
already purchased 91.74% of shares in the Cartu Group, with none of the companiesowning more than 10%, which released
them, as beneficiary proprietors of the Cartu Bank, from the statutory obligation to obtain consent of the National Bank, prior
to purchasing the bank assets.

Nevertheless, the auction was held. However, no single physical person or legal entity wishing to purchase the assets of the
Cartu Group, including the Cartu Bank, appeared at the auction.


The National Enforcement Bureau did not go forward to use a standard practice of holding a repeated auction; instead, they
resorted to an unprecedented mechanism of appointing a compulsory manager.

On 12 July 2012, the Tbilisi City Court upheld the motion of the National Enforcement Bureau to appoint a manager for the 100%
of shares in the Cartu Group and 21.7% of shares in the Progress Bank.

It should also be noted that a court hearing on appointing a manager for the shares was held in violation of law. The judge was
obliged to invite Cartu Group as a party to the proceedings but did not do so.

In addition to the interim manager (Vladimer Ugulava), the new Supervisory Council of the Cartu Bank was staffed by the Chief
of Audit Service of the National Bank (Irakli Zarkua) and a liquidator of the Georgian Black Sea Bank and HSBC Bank Georgia
(Roin Tsatsiashvili).

An analysis of the situation after Bidzina Ivanishvili paid the fine and the interim manager departed from Cartu Bank revealed
that in the 2-week period (12 – 25 July 2012) the Government-mandated interim administration controlled the bank, a range of
unusual actions were implemented that were directly contradictory to its function to ensure financial health and unimpeded
functioning of the bank.

In particular, without any need therefor, the interim administration:

1. Leased additional office spaces;

2. nitiated substantial repair works at prices much higher than their real value, with onerous contractual obligations for the
I
Bank including an instant advance payment;

3. ccelerated negotiations with the European Bank of Reconstruction and Development (EBRD) on premature repayment of
A
credit while the Bank had no enough financial resources for repayment;

4. Issued monetary bonuses to employees hired only for 2 to 9 days to work at the Bank during the interim administration (more
than 5,000 Lari paid to each such employee on average);

5. oncluded general and credit agreements with four developer companies with a total value of $50 million, in gross violation
C
of procedures both established by the National Bank of Georgia and applicable within Cartu Bank and with enslaving con-
tractual obligations for Cartu Bank.

It was for the failure to fulfill the requirements of one of these very agreements that on 17 August 2012, Cartu Bank incurred
another penalty of having to pay equivalent of $11,609,500 in Georgian GEL.

It should be noted that not all of the measures enforced against Cartu Bank are directly linked with the decisions of the State
Audit Office; however, the sanctions first applied by the State Audit Office instigated various actions against Cartu Bank by var-
ious State authorities.


4. THE IMPACT OF DECISIONS BY THE GEORGIAN CHAMBER OF CONTROL UPON FREEDOM OF
THE MEDIA

Tamar Kordzaia
Lawyer, Executive Director under the Georgian Charter of Journalistic Ethics

4.1. THE CASE OF BIDZINA IVANISHVILI AND GLOBAL CONTACT CONSULTING LLC

On 7 June 2012, the Georgian Chamber of Control issued a protocol no. 000036 finding that Bidzina Ivanishvili has perpetrated
Article 252 of the Organic Law on Citizens’ Political Associations. The protocol states that Bidzina Ivanishvili, acting with the in-
tent of avoiding the requirements of the Organic Law on Citizens’ Political Associations, unlawfully contributed 12,410,252.89
GEL to the political party “Georgian Dream – Democratic Georgia”. In particular, Bidzina Ivanishvili provided the population with
technical equipment free-of-charge and installation services needed for receiving a broadcasting signal from Global Contact
Consulting Company.

A resolution of the Tbilisi City Court dated 11 Jun 2012 found Bidzina Ivanishvili to have committed the administrative offense
described above, on the same grounds, envisaged by Article 252 of the Organic Law on Citizens’ Political Associations: the direct
or indirect transfer of financial or in-kind assets by a political party … through another person to a citizen of Georgia. On this
basis, Bidzina Ivanishvili was fined with 126,220,190 GEL. The Appeals Court reduced the amount of fine by half on the grounds
that “the prohibited contribution had not been committed repeatedly, since Bidzina Ivanishvili committed the administrative
offense at a time when the legislation was not imposing liability for repeated commission of the same offense.”

4.2. THE CASE OF GLOBAL CONTACT CONSULTING LLC

Based on the Court resolution fining Bidzina Ivanishvili, the Georgian Chamber of Control sent a letter to the Global Contact
Consulting on 12 June 2012. Below is a passage from the letter:

“The Georgian legislation guarantees the freedom and intactness of activities of media facilities. The Chamber of Control of
Georgia will strictly adhere to the privilege of this right in the course of its monitoring. However, having in mind the factual cir-
cumstances, we ask you to take measures in order to prevent leaders and activists of political subjects from using your company
for their pre-election objectives and to carry out your activities using market prices, serving your business interests, to ensure
they do not come in contradiction with the requirements of the Organic Law on Citizens’ Political Associations”.

Global Contact Consulting LLC responded to the letter by amending its contractual conditions and continued installation of
satellite antennas with the modified conditions. Notwithstanding this fact, the Georgian Prosecution Office agreed with the
position of the Chamber of Control and opened a criminal case of voter bribery with no accused person identified to-date.

By resolution of the Tbilisi City Court dated 21 June 2012, technical equipment owned by Global Contact Consulting LLC was
confiscated.

4.3. THE CASE OF MAESTRO LLC

The Georgian Chamber of Control applied the same approach it used on Global Contact Consulting LLC to Maestro LLC and its
the technical equipment (satellite antennas). In particular, according to its resolutions dated July 11 and 14 2012, the Criminal
Cases Panel of the Tbilisi City Court confiscated satellite antennas and their accessory parts owned by Maestro LLC. The Court
explained that Maestro LLC imported thousands of satellite antennas based on sham transactions and distributed them to the
population with the intent to bribe voters in favor of the political coalition “Georgian Dream.”

Protocols produced by law enforcement officers on July 11 and 14 2012 allowing the seizure of the property of Maestro LLC state
that some wrapping packages containing the satellite antenna sets have an inscription: “Global Contact Consulting.”


The Tbilisi Appeals Court provided the following reasoning: “When it comes to any procedural action carried out at the in-
vestigation stage, including when making a decision to seize a property, the Court applies the standard of reasonable
assumption, not the standard of beyond any reasonable doubt. Article 151 of the Criminal Procedure Code allows a
court to seize a property where sufficient information is available if the information indicates that the property is de-
signed for the intent of commission of a crime.”

4.4. LEGAL ANALYSIS OF THE CASES OF GLOBAL CONTACT CONSULTING LLC AND MAESTRO LLC

It should be stated at the outset, that the Georgian Chamber of Control well understood the direct link between the confiscation
of “satellite antennas” and the freedom of expression. Having this understanding, decisions made by the Georgian Chamber of
Control gave rise to an unprecedented limitation of the right to expression in the country. Both the prosecutor’s office and the
court completely agreed with the Chamber’s reasoning without any additional arguments or evidence.

The Resolution of the Tbilisi City Court, dated 11 June 2012, which maintained that Bidzina Ivanishvili made an unlawful contri-
bution to Global Contact Consulting LLC and fined him 126,220,190 GEL has no sound justification. The Court’s assertion that
Bidzina Ivanishvili committed the offense was formulated as follows: “Bidzina Ivanishvili as person associated with the political
party Georgian Dream – Democratic Georgia, and other parties being members of the alliance had intent to provide any citizen
of Georgia with monetary assistance, to provide a service to a political party – to transfer financial assets to citizens of Georgia
and to provide services to a political party – that constitutes prohibited conduct in favor of this party.”

An analysis of the case files reveals that the case was adjudicated in violation of the right to defense, since Bidzina Ivanishvili’s
defense counsels were not allowed a reasonable time to become familiar with the case materials. The significantly large size
case file and the short time period between the first and second instance courts prevented Ivanishvili’s defense counsels from
duly preparing the defense.

In addition, in finding Bidzina Ivanishvili an offender, the court did not use any single unassailable evidence proving Ivanishvili’s
direct linkage with the purchase and distribution of satellite antennas by Global Contact Consulting LLC. In particular, Article
237 of the Administrative Offences Code posits: “Guided by law and legal awareness, an administrative body (an official) shall
evaluate the evidence with its internal belief based on a thorough, comprehensive and objective examination of all the cir-
cumstances in their entirety.” The case materials clearly show that in rendering the above resolution, the court failed to take ac-
count of the most important circumstance: an administrative body (in this case – the Chamber of Control) must have examined
evidence to produce a protocol on committing an administrative offense with its internal belief, but the Chamber of Control did
not provide the court with any irrefutable evidence corroborating the commission of the offense by Bidzina Ivanishvili.

It should be noted that the Global Contact Consulting LLC started installing satellite antennas before the political coalition
“Georgian Dream – Democratic Georgia” was founded. Therefore, it is simply impossible to contribute this to someone who
does not exist. Additionally, the court files do not reveal any direct linkage between Bidzina Ivanishvili and Global Contact Con-
sulting LLC. The applicable legislation does not prohibit conclusion of loan contracts with a person’s siblings, therefore, the fact
that Bidzina Ivanishvili concluded a loan contract with his brother cannot be reasonably used to corroborate the making of an
unlawful contribution by Bidzina Ivanishvili through the Global Contact Consulting LLC.

The court’s reasoning about the profitability of the Global Contact Consulting Company’s business plan is completely ground-
less and stands no criticism since the discussion of this matter would make sense only if the Chamber of Control were able to
prove Bidzina Ivanishvili’s link with the Company by making an unlawful contribution with irrefutable evidence.

Regarding the confiscation of properties owned by Global Contact Consulting LLC and Maestro LLC, these facts should be eval-
uated as a “logical” continuation of the unlawful decision adopted by the Chamber of Control. In both cases, the Chamber of
Control and the Court violated the freedom of expression enshrined in Article 24 of the Georgian Constitution and Article 10 of
the European Convention on Human Rights.

Global Contact Consulting LLC is a cellular digital television company, an independent legal entity; TV Company Maestro is also
an independent media organization. It is the constitutional obligation of both organizations to spread information and every
citizen has the constitutional right to receive information. The installation of “satellite antennas” and offering wider opportuni-
ties to the public to receive information are among the forms of exercising the right to send and receive information and ideas
without any obstacles, as guaranteed by Article 24 of the Georgian Constitution and Article 10 of the European Convention.
Satellite antennas are a means to have this right exercised. Accordingly, the court’s reasoning to limit the mentioned constitu-
tional right is groundless.

Moreover, Article 24(4) of the Constitution provides a list of legitimate grounds for limiting the constitutional freedom of ex-
pression. The legitimate ground for limiting the freedom of expression which may presumably apply to the limitation imposed


by the Chamber of Control and the court is the prevention of commission of a crime. However, according to the jurisprudence
of the European Court, the presence of only a legitimate purpose is not enough for the court to impose a limitation. The most
important component, which the Georgian courts have not discussed and which is an imperative requirement of established in-
ternational standards, is the necessary-in-a-democratic-society test; in other words, the court must have discussed the propor-
tionality between the expected harm and the actual outcome of imposing the limitation. The court’s decision mentions nothing
about the reasons it awarded privileges to the prosecution’s motion for preventing the committing of a crime over the exercise
of the freedom of expression. This is why the decisions made against the companies are not substantiated and are contradictory
to the logic used by the court when it stated existence of reasonable assumption was enough to arrest the properties.

Attachment of the satellite antennas also contradicts Article 261(7) of the Organic Law on Citizens’ Political Associations, which
states: “Limitations prescribed by this Law may not be applied against the freedom of expression, civic activities and pre-elec-
tion propaganda.” It is worth noting that the mentioned provision was added to the Organic Law on Citizens’ Political Associa-
tions after civil society representatives identified room for arbitrary imposition of limitations upon the media and civic activities
in the general provisions of the Law. The clarifying provision was added with the aim to protect the freedom of expression from
such arbitrary decisions. But the Georgian Chamber of Control, the Main Prosecution Office and the Court do not view the at-
tachment of antennas as a form of limitation imposed on the freedom of expression.

The application of Article 151 of the Criminal Procedure Code by the court confirms that there was a violation of Article 24 of the
Georgian Constitution and Article 10 of the European Convention. In particular, Article 151(1) of the Criminal Procedure Code
allows seizure and confiscation of a property as an interim measure by a court only if there is an accused person in a criminal
case. The referenced provision states: “To secure a possible confiscation of a property as an interim procedural measure, a court
may, based on a party’s motion, attach a property of an accused person or a person financially responsible for his/her actions
or a person associated with him/her.” The court orders and protocols in question say nothing about an accused person; in other
words, no accused person has been identified. Accordingly, the court imposed the interim measure in question in violation of
the procedural law.

Since Global Contact Consulting LLC and Maestro LLC have not been found accused persons in either case, they were in effect
deprived of the opportunity as victims to properly defend their own interests.

These arguments lead to the conclusion that the property confiscation decisions which the Chamber of Control started and the
Court completed, constitute a limitation of media distribution and therefore, a limitation of the freedom of expression.


5. ANALYSIS OF DECISIONS OF THE STATE AUDIT OFFICE (CHAMBER OF CONTROL) ON IMPOSI-
TION OF FINES ON PHYSICAL PERSONS

Irakli Melashvili

5.1. MASS QUESTIONINGS

The Financial Monitoring Service (the “FMS”) of the Chamber of Control of Georgia has carried out mass questionings of activists
of various political parties and citizens in various municipalities of Georgia (Lanchkhuti, Chokhatauri, Ozurgeti, Batumi, Khel-
vachauri, Kobuleti, Poti, Zugdidi, Kutaisi, Zestaponi, Gori, Kareli, Kaspi, Gurjaani, Sagarejo, Sighnaghi) on 12, 13 and 14 March
2012. Total number of questioned citizens has exceeded 150.

Journalists and observer organizations (Georgian Young Lawyers’ Association, ISFED, “Transparency International – Georgia”,
coalition “For Freedom of Choice”) identified several violations:

1. Citizens did not specifically know which offense they were summoned to give explanations about, nor what rights they have;

2. The status of persons summoned to give explanations was often unclear;

3. In addition to the staff of the Chamber of Control, other persons also attended the questioning;

4. n several occasions citizens were deprived of the right of defense. There were facts of physical and verbal insult against
O
advocates, owing to which they were prevented from attending the questioning process;

5. Sessions were closed and journalists were not admitted, which prevented them from performing their professional duties;

6. Duress and coercion had taken place during the explanation process;

7. itizens were not only questioned about financial types of issues, but also about details of their poltical activities and their
C
reasons for cooperating with the political opposition.

Georgian non-governmental organizations released a special statement on these issues.

5.2. THE BIDZINA GIORGOBIANI CASE

On 29 May 2012 the Chamber of Control of Georgia fined Bidzina Giorgobiani, who had donated 90,000 Euros to the Fund
“Komagi” (advocate). “Driven by the political and electoral objectives, and with the purpose of triggering material inter-
est of the citizens, physical person Bidzina Giorgobiani made an illegal contribution in the amount of 90,000 Euros on
10 May 2012 from a non-licensed bank in Georgia and by violating the requirements stipulated in the law, to the bank
account of Fund “Komagi” – entity of monitoring defined under Article 261 of the Organic Law of Georgia on the Polit-
ical Unions of Citizens, which, according to his own public statements, is related to the plans of the “Georgian Dream”,
– states the statement of the Chamber of Control.

Several issues must be stressed during the examination of this decision:

The FMS of political parties of the Chamber of Control of Georgia did not present a shred of evidence to prove the link between
Bidzina Giorgobiani and the “Georgian Dream.” Paragraph ‘c’ of Article 261 of the Organic Law of Georgia on the Political Unions
of Citizens defines that the limitations established for parties in addition apply to:

“… persons, who have declared the political and electoral objectives and tasks, persons associated with him/her, as
well as persons having business relations with him/her, who have the political and electoral objectives or carry out the


activities that exert influence on the political will of citizens of Georgia in the elections, plebiscite and referendum and
such activities are carried out in order to bypass the regulations of this Law.”

Based on the political views expressed publicly by Mr. Giorgobiani, as well as by any other citizen, we can judge only on the
political sympathy-antipathy of the author of the statements. These statements do not in any way represent legal evidence that
prove the direct or indirect link of this person with any political organization.

The Chamber of Control made the decision to declare the Fund “Komagi” a person associated with the coalition “Georgian
Dream” on 18 May 2012, one week after a contribution with Bidzina Giorgobiani’s signature was made, owing to which at the
moment of transferring the amount, Bidzina Giorgobiani could not have known about the application of limitations imposed
on the parties to the Fund “Komagi,” and thus about the illegality of this transfer.

Bidzina Giorgobiani has stated that “the donation was made by the German Fund “Osteuropa – Medien Gesselschaft”
and he is the Executive Director of this Fund.” In this case, the Chamber of Control was obligated to prove to the public that
the transfer of money to Fund “Komagi” was done by the German Fund and not by Mr. Giorgobianim, and in case of discovering
the violation, to impose the fine on this legal entity and not on Bidzina Giorgobiani.

5.3. IMPOSITION OF FINES ON THE EMPLOYEES OF “CARTU BANK”

On 8 August 2012, the State Audit Office of Georgia (SAO) imposed fines on Nato Khaindrava, Irakli Beraia, Nodar Javakhishvili, Ia
Gamtsemlidze and Davit Galuashvili, based on the protocols of administrative offenses N000112, N000113, N000117, N000118
and N000121. Persons subjected to administrative liability were charged with committing the administrative offense under
Paragraph 2 of Article 342 of the Organic Law of Georgia on the Political Unions of Citizens, as they failed to justify the origins of
contributions made in favor of the political union “Georgian Dream Democratic Georgia” and the public movement “Georgian
Dream”. The FMS of the SAO imposed fines on these persons five times the amount of alleged contributions:

1. Irakli Beraia – 166,720 GEL;

2. Nato Khaindrava – 293,000 GEL;

3. Nodar Javakhishvili – 235,000 GEL;

4. Ia Gamtsemlidze – 7,500 GEL;

5. Davit Galuashvili – 187,000 GEL.

The FMS of the SAO has attached their property based on the 9 August 2012 decisions N40, N41, N42, N50 and N52.

The below table illustrates the incomes and contributions of these five persons.

Income received
over seven months,
Amount of from 01.01.2012 until
Contributor Annual Salary Bonus/Compensation
Contribution (in GEL) 31.07.2012 **

Irakli Beraia – Deputy Director of the Credit
33 344 44 400 44 400 93 116,19
Department of the “Cartu Bank”
Nato Khaindrava – First Deputy of Director
58 600 102 000 13 600* 183 674.39
General of the “Cartu Bank”
Nodar Javakhishvili – Director General of
47 000 150 000 20 000* 239 294.77
the “Cartu Bank”, “Cartu Group”
Ia Gamtsemlidze – Lawyer of JSC “Cartu
1 500 24 000 - 12 000
Group”
12 400*
Davit Galuashvili – Deputy Director General
37 429 93 000
of the “Cartu Bank”

* - Compensations are issued due to the dismissal of these employees from work in July by the provisional Administrator of the bank.

** - Data of the Service Department of the Revenue Service. Document N21-11/60554. Issued on 31.08.2012.


This table clearly demonstrates that the annual salary of contributors of the Georgian Dream” received during 7 months in 2012
exceeds the amounts donated to the party by several times. Yet, the SAO found the evidence about the origins of contributions
presented by these persons insufficient.

The decision of SAO was upheld by the courts in all instances. The same phrase is found in the court resolution rendered in
respect of each contributor: – the contributor “failed to present firm evidence proving the receipt of income exceeding
monthly expenses (which makes savings possible).” If the income of 240,000 GEL in 7 months is not sufficient for a citizen to
make savings possible, what kind of income should a person have in Georgia in order to make monetary savings, in the SAO’s
opinion?

5.4. THE KAKHI KALADZE CASE

On August 1 the SAO addressed Kakha Kaladze with a request (a person with declared electoral objectives) to submit informa-
tion on how cash withdrawn from his bank accounts was spent since November 2011. Mr. Kaladze refused. In his opinion the
FMS request was illegal. On August 8, the Head of the FMS, “based on the objectives for ensuring the transparency of funding,”
proposed Kaladze return 3,388,992 GEL in cash to the accounts, without indicating the norms that authorized the FMS to make
such a proposal. Kaladze’s lawyer explained to the Audit Office that the amounts were withdrawn through power of attorney,
not by Kakha Kaladze but by his father, Karlo Kaladze, who was not a person with electoral objectives, therefore the control of
his expenses was beyond the competence of the Audit Office. Furthermore, returning this amount to bank accounts was
impossible as Kaladze’s accounts had been frozen since July 25. Nevertheless, the SAO imposed a fine of 16,944,960 GEL
for committing the administrative offense under Paragraph 2 of Article 342 and Paragraph 1 of Article 27 of the Organic Law of
Georgia on the Political Unions of Citizens. The court upheld this decision and seized Kaladze’s accounts and property. In this
case, the Audit Office has committed several violations:

An attempt to shift the burden of proof on physical persons was identified. Pursuant to Paragraph 2 of Article 40 of the Constitu-
tion of Georgia, “No one shall be obliged to prove his innocence. A burden of proof shall rest with the prosecutor.” Instead
of presenting evidence to prove Kaladze’s illegal activities, the SAO demanded that Kaladze prove the legality of his own actions.
This decision of the Audit Office breached Kaladze’s constitutional right.

The Audit Office exceeded the powers granted to it by law when it requested Kaladze to return money to the accounts. This
proposal was devoid of an obligatory nature, as it lacked legal grounds. Hence, the non-fulfillment by Kaladze of this request by
the Audit Office could not have resulted in any type of responsibility and/or sanctions.

5.5. “THE CONTRIBUTORS OF UNITED NATIONAL MOVEMENT”

It is obvious that after rendering the above-described decisions, the SAO must apply an equally strict approach when establish-
ing the origin of the savings of other political parties’ contributors.

The reaction of this agency during the examination of the financial state of contributors of the “United National Movement” is
remarkable. A journalistic investigation by Channel 9 TV raises doubts about the proprietary conditions of some the physical
persons who contributed to the “United National Movement.” To what extent were they capable of providing financial assistance
to the ruling party? Below is data of only those persons whose proprietary conditions we have relevant documentation of. In
declarations submitted by the “United National Movement” to the SAO, these persons are identified as the party’s contributors
and are registered at the Social Service Agency as socially unprotected, thus receiving 30 GEL monthly assistance from the state.
Some of them have their property attached, owe to a bank, or have mortgaged their property.


5.6. LIST OF SOCIALLY UNPROTECTED CONTRIBUTORS

Additional Information
Name, Surname Amount Personal Number

1 Koba Naskidashvili 48 000 08001028370

Pursuant to the extract of Non-Commercial Registry
2 Amirkhan Amirakhov 49 000 25001008521 dated 15/03/2012 (application #455853), his entire
property is tax pledged.

100% owner of Service LLC. Pursuant to the extract of
Non-Commercial Registry dated 13/01/2011 (applica-
tion #B11006671), LLC’s entire property is tax pledged.

Owner of 2522 sq/m of non-agricultural land plot,
which is mortgaged in favor of JSC “Bank of Georgia”
3 Giorgi Kurtsikidze 46 000 25001002297 since 04/07/2011.

Owner of 2600 sq/m of non-agricultural land plot,
which is mortgaged in favor of Fund “Constanta” since
28/12/2007.

Neither property nor business is registered on his
4 Zurab Eliozashvili 5 000 59001023891
name.

5 Zurab Beridze 1 500 03001003858
name.

6 Giorgi Chakvetadze 5 000 62007006238

7 Besik Bregadze 10 000 60002000768

name.

The apartment at which he is registered belongs to his
8 Devi Kikvadze 2 000 60002015942 father Merab Kikvidze, which is mortgaged in favor of
“TBC Bank” since 30/03/2011.

His father also owns a land plot, which is mortgaged in
favor of “TBC Bank” since 30/07/2012.

The apartment at which he is registered belongs to his
9 Lavrenti Tutberidze 7 000 60001003576 father Amiran Tutberidze, which is mortgaged in favor
of “Bank Republic” since 24/02/2011.

10 Besik Liklikadze 1 000 21001005961

70002 sq/m land plot was mortgaged in favor of “Pro-
11 Zaza Nanava 5 000 19001018082 Credit Bank” twice, from 27/072011 and afterwards
since 03/08/2012.

12 Roman Abramishvili 7 000 10001009410

13 Bezhani Odishvili 5 000 06001005429

14 Demiko Chocheli 8 000 06001001662

15 Iago Gvritishvili 60 000 06001001025

We believe that the SAO had enough grounds for inquiring into the ability of persons on the list of socially unprotected to make
contributions to the ruling party. In this case the SAO must have applied the right granted under Sub-Paragraph “g” of Article
341 of the Organic Law of Georgia on the Political Union of Citizens “to request upon need the information from persons
1
about the origin of property transferred to or received from the parties and persons defined under Article 26 of this
Law”. Should the Audit Office establish that these persons were devoid of the possibility to make contributions, it must have


been obligated to initiate an investigation as to who had made contributions via these persons, as pursuant to Paragraph 6 of
Article 27 of the Organic Law of Georgia on the Political Unions of Citizens:

“Making a contribution through another person or bypassing the limitations established by law shall otherwise result
in the transfer of the contribution to the state budget, while an offender person shall bear responsibility foreseen under
the legislation of Georgia”.

By this logic, we are to believe that the savings required for the contributions made by these persons is more justified than the
savings of the Director of Cartu Bank, Nodar Javakhishvili and his deputies Nato Khaindrava and Davit Galuashvili. It can be con-
cluded that in the opinion of the SAO, those whose entire property is attached and/or who receive social assistance from the
state are more capable of making contributions to a party than a bank’s director.

A journalistic investigation by BTV Studio revealed that of the contributors to the ruling party that the SAO published:

27 persons were registered as socially unprotected and receive 30 GEL assistance from authorities. They have contributed
651,440 GEL to the ruling party.

The property of 25 persons was mortgaged, but instead of paying off the debts, they transferred 760,935 GEL to the National
Movement.

The property of 7 persons was seized. They transferred 283,956 GEL to the party. HYPERLINK “http://www.youtube.com/
watch?v=VD3E2SSs1iMfeature=player_embedded”http://www.youtube.com/watch?v=VD3E2SSs1iMfeature=player_em-
bedded

On August 27 the SAO stated that five persons made illegal contributions to the “National Movement” totaling 315,000 GEL.
The Office maintained that the incomes of those five people that contributed to a political entity are inconsistent with the
possibility of their having any savings. HYPERLINK “http://www.sao.ge/?action=news_fnpid=258lang=geo”http://www.sao.
ge/?action=news_fnpid=258lang=geo

However, a physical person can contribute only 60,000 GEL to a party in a year by law (Article 27 of the Law on Political Unions).
Therefore, if 5 people contributed 315,000 GEL to the “United National Movement”, it means that somebody must have contrib-
uted over 60,000 GEL, which violates the Law on the Political Unions.

“Article 27

1. Total volume of financial and material contributions received by a party from each citizen annually shall not exceed
60,000 GEL. Annual number of the membership contributions of each member of a party shall not exceed 1,200 GEL.

In case of violation of this article the Law on the Political Unions stipulates:

1
“Article 27

2. If the requirements established by this Law are violated by the receipt of a contribution, a party shall be obligated to
return the amount to the contributor within 3 days from its transfer to its bank account. Non-fulfillment of this obliga-
tion shall result in the transfer of the amount to the state budget.

Article 28:

“2. If the total volume of financial and material contributions received by a party during a year through violating the
law:

a) Is from 2,000 up to 15,000 GEL, a party shall be deprived of the state funding during 1 year”.

The SAO did not make such decisions. It simply requested the “National Movement” to return the amount to the contributors.

There is one significant issue the SAO avoided. The administrative agency notes in its statement – “the evidence obtained offi-
cially by the SAO proves that the incomes of five persons having contributed solid amounts to a political entity are inconsistent
with the possibility of making any savings” HYPERLINK “http://www.sao.ge/?action=news_fnpid=258lang=geo”http://www.
sao.ge/?action=news_fnpid=258lang=geo If the SAO has established that these persons were incapable of making contribu-
tions to the ruling party from their own savings, there is reasonable suspicion that these persons made contributions instead of


other persons or through bypassing the law. Pursuant to Paragraph 6 of Article 27 of the Organic Law of Georgia on the Political
Unions of Citizens:

“Making a contribution through another person or bypassing the limitations established by law otherwise shall result
in the transfer of the contribution to the state budget, while an offender person shall bear responsibility foreseen under
the legislation of Georgia”.

In view of the functions and powers granted to it by the law, the SAO was obligated to continue the investigation to identify
whose money it was that these persons contributed to the party’s account. A fraudulent transaction may have occurred in
which these persons made contributions on behalf of other persons. This would be a violation of Article 331 of the Law on the
Political Unions:

“A transaction, which aims to bypass the rules and limitations established under this Chapter, shall be void. A property
issued and received based on such transaction shall be transferred in the state ownership.”

Violation of this article shall result in the imposition of a fine to a party that is five times the amount of the contribution (Article
342, Paragraph 7). In this case, the SAO failed to follow through with the process and an investigation into this issue has not
been launched. Yet, this is the direct obligation of the Audit Office.

The format of the Audit Office’s statement and the United National Movement’s official response to this case is unprecedented.
Who are these people, whose property was seized, and why didn’t their surnames appear in any of the statements? This is an
exceptional case, when neither the Audit Office nor the party discloses the identity of illegal contributors, which in fact makes
the monitoring of the SAO’s decision impossible.


6. IMPOSITION OF FINES ON THE PARTIES

Irakli Melashvili

6.1. THE RUSTAVI CASE

The Chamber of Control of Georgia was informed by the media that Malkhaz Gvelukashvili, a member of the Rustavi Sakrebulo
(local council) from the United National Movement, gave sheep and wine as a gift to the population over the Easter holiday.

HYPERLINK “http://www.sao.ge/?action=news_fnpid=232lang=geo”http://www.sao.ge/?action=news_fnpid=232lang=-
geo The monitoring service established that before the Easter holiday, various people in Rustavi received 20 liters of wine
and one sheep as a gift from the Deputy Chairperson of the Rustavi City Council, Kakha Baratashvili, from the United National
Movement party, not from Malkhaz Gvelukashvili. Baratashvili gave gifts to the Rustavi population with his own money and
personally organized the process. By bypassing the limitations established under the Organic Law, Baratashvili made illegal
contributions in the party’s favor to the amount of 7,920 GEL, which is a punishable act under the law. An administrative case
against him was transferred to the Tbilisi City Court for consideration.
1
Pursuant to Paragraph 1 of Article 5 of the Law of Georgia on the Political Unions, “a party is prohibited from transferring
monetary means, gifts and other material or immaterial values (except accessories of a party’s campaign of a small
value – T-shirts, caps, hats, flags and other similar items) to a citizen of Georgia, directly or indirectly, by a candidate,
representative or other person.” The SAO, however, did not examine whether gifts of sheep and wine to the Rustavi popu-
lation by Kakha Baratashvili, a representative of the United National Movement, amounted to bribing voters and a violation of
the mentioned Law.

6.2. THE TETRITSKARO CASE

According to a June 4th 2012 story produced by INFO 9, Davit Bezhuashvili, a Member of Parliament for teh United National
Movement party, organized a holiday feast for the population of Asureti. One witness claimed that “inviters” were at the village
the previous day informing people that Davit Bezhuashvili was inviting them to a feast. Locals also charged that Davit Bezhuash-
vili “intensely organizes similar feasts in other villages as well.”

On June 5, Transparency International Georgia addressed the Audit Office with the request to examine possible violations by Mr.
Bezhuashvili of Paragraph 1 of Article 252 of the Organic Law of Georgia on the Political Unions of Citizens and Artice 1641 of the
Criminal Code of Georgia. As the SAO has stated HYPERLINK “http://www.sao.ge/?action=newsnpid=254lang=geo”http://
www.sao.ge/? action=newsnpid=254lang=geo, “it was established in the process of administrative proceedings that
“Asuretoba”, i.e. the Holy Trinity holiday has been celebrated in the village of Asureti since 2003. The holiday includes large-
scale celebrations, where after mass, the eparchy, congregation and the village population organize a holiday feast attend-
ed by invited guests as well. The SAO did not discern that organization and material support of the feast was done by any
political entity. Obtained information does not find reasonable belief that the requirements of the Organic Law of Georgia
on the Political Unions of Citizens have been violated.”

Purusant to Paragraph 1 of Article 252 of the Organic Law of Georgia on the Political Unions of Citizens: “a party is prohibited
from providing or distributing goods or services (apart from exceptions stipulated in this Law) free of charge, ... , direct-
ly or indirectly, by a candidate, representative or other person.” However, the statements Bezhuashvili’s co-villagers gave to
the press and the video materials that confirm the MP’s participation in the preparations of this event were not considered as
sufficient evidence by the SAO .

6.3. THE POTI CASE

The Monitoring Service released a statement on 2012-07-11, (http: //www.sao.ge/?action =news_fnpid=239lang=geo)
which states in June 2012, member of the Poti city council and MP nominee for Poti, Tengiz Sarishvili, promised to give 74


year-old Luda Udalova a satellite antennae during a public meeting. He personally arranged its installment free of charge. This
incident contradicts the requirements of the Organic Law of Georgia on the Political Unions of Citizens, therefore, a case of an
administrative offense was transferred to the Tbilisi City Court on Saishvili.

However, the SAO statement does not refer to a specific article of the Law on the Political Unions of Citizens that he was accused
1
of breaking. In this case, Paragraph 1 of Article 5 of the Law of Georgia on the Political Unions might have been violated, pursu-
ant to which, “a party is prohibited from transferring monetary means, gifts and other material or immaterial values to a
citizen of Georgia, directly or indirectly, by a candidate, representative or other person”, which is punishable under Article
1641 of the Criminal Code of Georgia.

6.4. MEETINGS OF THE “UNITED NATIONAL MOVEMENT” WITH THE POPULATION”

On 5 April 2012, representatives of the United National Movement met approximately 400 teachers at “Cosmos”restaurant.
Mayor of Tbilisi, Gigi Ugulava, Deputy Ministers of Education, Koka Seperteladze and Irine Kurdadze, Head of the Social Service
and Culture City Office of the City Hall, Mamuka Katsarava, sing-seat Gldani deputy of the Tbilisi Sakrebulo (local council), Niko
Khachirishvili and other official persons attended the meeting. The meeting ended with a luncheon. Journalists reported that
the Mayor and other officials were carrying out propaganda in favor of the ruling party. Mayor Ugulava stated this was a party
conference funded by the National Movement.

On April 20, the leaders of the National Movement, Speaker Davit Bakradze, Tbilisi Mayor Gigi Ugulava, MP Giorgi Meladze and
other officials held a pre-election meeting with teachers in Elite restaurant. Meladze told a journalist the United National Move-
ment organized the event. The party hired a firm that executed contracts with all organizations where such meetings are held.
Teachers were brought to the event by minibuses, free of charge, and after the meeting they were treated to a luncheon. Mayor
Ugulava also confirmed this event had a pre-election purpose and was organized by the party.

On March 30 the leaders of the United National Movement, MP Petre Tsiskarishvili, Tbilisi Mayor Gigi Ugulava, Deputy Minister of
Education, Koka Seperteladze and the Minister of Refugees and Accommodation, Koba Subeliani met with the party coordina-
tors at Senate restaurant. Journalists on hand noted that after delivering a speech, Mayor Ugulava invited attendees to submit
personal written requests along with the respective telephone numbers for review.

On May 3rd, the coalition “For Freedom of Choice” demanded the Chamber of Control examine the consistency of the National
Movement’s actions with the law:

As teachers were transported to meetings held in the restaurants Cosmos and Elite free of charge, and both meetings ended
with luncheons, there is substantial suspicion that the United National Movement violated Paragraph 1 of Article 252 of the
Organic Law of Georgia on the Political Unions of Citizens: “a party is prohibited from providing or distributing goods or
services (apart from exceptions stipulated in this Law) free of charge, ... , directly or indirectly, by a candidate, represen-
tative or other person”.

As for the meeting held in the restaurant Senate, should the described facts have been proven, then the actions of the Tbilisi
Mayor in our opinion would have:

a) Violated Paragraph 1 of Article 252 of the Organic Law of Georgia on the Political Unions of Citizens;

b) Violated Article 1641 of the Criminal Code of Georgia, pursuant to which: “Directly or indirectly offering, promising, giving
or providing, or requesting or accepting intentionally money, securities (including a financial instrument), other prop-
erty, the property right, service, or any other advantage for political purposes, and/or entering into sham or other trans-
actions to avoid restrictions imposed by law, - shall be punishable with imprisonment for up to three years or a fine”.

On 07.05.2012 the Coalition received a letter from the Chamber of Control N080/57 dated 07.05.2012, in which the agency stat-
ed it had been interested in this issue for a long time and was collecting relevant information.

Furthermore, in order to examine the possible violations reported at the National Movement meetings with the voters at restau-
rants “Monopol” and “Triumph”, the Georgian Young Lawyers’ Association also addressed the Chamber of Control on June 7.
They demanded the Chamber of Control probe into the compliance of activities of the ruling party at these meetings with Ar-
ticle 252 of the Organic Law of Georgia on the Political Unions of Citizens. “In addition, in this case the signs of bribing of voters
may as well have taken place, which imposes criminal liability for directly or indirectly offering, promising, giving or providing,
the money, other property, the property right, service, or any other advantage for political purposes,” notes GYLA’s statement.

The SAO did not provide concrete responses to these demands from the Georgian non-governmental organizations. On August


7, SAO released the following statement: HYPERLINK “http://www.sao.ge/?action=news_fnpid=238lang=geo”http://www.
sao.ge/?action=news_fnpid=238lang=geo. “The examination of received detailed information has established that the
meetings between the members of the “United National Movement” and the teachers were funded from the party’s
budget itself. Amounts paid by them for the halls rented for holding the meetings and conferences are reflected in the
declaration submitted in the SAO, which includes information on the incomes received and expenses borne by the par-
ty.

“The contracts are executed for the services in the total amount of 5,500 GEL. Incurred expense is already reflected in
the declaration for the March-April-May reporting period submitted by the “United National Movement” in the SAO.”

However, the SAO did not indicate which of the United National Movement meetings it had probed. If this SAO statement refers
to the above-described meetings, then several circumstances must be emphasized:

a) The SAO did not look into whether the United National Movement violated Paragraph 1 of Article 252 of the Organic Law of
Georgia on the Political Unions of Georgia, during these meetings; pursuant to which “a party is prohibited from providing or
distributing goods or services (apart from exceptions stipulated in this Law) free of charge, ... , directly or indirectly, by
a candidate, representative or other person”.

b) Whether Article 1641 of the Criminal Code of Georgia (bribing of voters) was violated during the meeting held in the restau-
rant “Senate”;

c) The SAO established the amount spent on the organization of these meetings, as reported in the United National Movement’s
declaration to the Chamber of Control – 5,500 GEL – was convincing. Overall, much more than 1,000 persons attended these
meetings. Somehow, the SAO is not quite aware of how difficult it would be to hold several meetings with so many people,
provide free transportation, pay the restaurant lease fees and the luncheon bills for this amount.

6.5. CONTRIBUTIONS RECEIVED BY ORGANIZATIONS WITHIN THE COALITION “GEORGIAN DREAM” AND THE FINES IMPOSED ON THEM

(1.01.2012 - 9.08.2012)

Organization Period Amount in GEL Source of Information
HYPERLINK “http://sao.ge/res/files/pdf/92/
P/U “Georgian Dream –
1.01 -19.06 43, 929. 9 document.pdf”http://sao.ge/res/files/pdf/92/
Democratic Georgia”
document.pdf
19.06 -9.08 498, 701.1 document.pdf”http://sao.ge/res/files/
pdf/109/document.pdf
542 631
”Our Georgia Free Democrats” 1.01 -19.06 208, 179. 0 document.pdf”http://sao.ge/res/files/pdf/89/
document.pdf

http://sao.ge/res/files/pdf/106/document.
19.06 -9.08 344, 919.9 pdf

553 098. 9
P/U “National Forum” 1.01 -19.06 171, 249.1 document.pdf”http://sao.ge/res/files/pdf/86/
document.pdf
495 042. 7
Public Movement “Georgian
1.01 -19.06 495, 467.0 document.pdf”http://sao.ge/res/files/pdf/81/
Dream”
document.pdf
503 528. 2


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