Undeclared expenses of defence minister’s residential property construction
In 2013-2018, Defence Minister Levan Izoria built two separate houses for himself but failed to indicate the corresponding construction expenses in the asset declarations submitted during this period. According to the Law on the Conflict of Interests and Corruption in Public Institutions, an official is under the obligation to indicate in the asset declaration, along with other information any income or expense that exceeds GEL 1,500. According to the Defence Ministry, Levan Izoria built two houses in such a manner that each individual expense did not exceed GEL 1,500. This explanation, however, raises questions since Levan Izoria spent the total of GEL 230,000 on the construction of the first house. Correspondingly, Transparency International Georgia considers the defence minister’s failure to indicate the construction expenses in his asset declaration as a violation of the Law on the Conflict of Interests and Corruption in Public Institutions.
The real estate owned by high-ranking officials has of late been in the spotlight of public attention. The media disseminated a story covering the construction of Defence Minister Levan Izoria’s two houses, too. In response, Levan Izoria, via the official website of the Defence Ministry of Georgia, noted that he purchased a land plot and started building a house there before beginning his career in public service.
Transparency International Georgia regularly monitors asset declarations submitted by high-ranking officials. Given the public interest, in this case, we examined the real estate owned and declared by Levan Izoria, and the income he received while in public service.
According to the Real Estate Registry extract, Levan Izoria purchased a land plot with the area of 600 sq. m in the Dighomi Training and Experimental Farming Enterprise on 26 October 2012, four days before being nominated to the post of deputy minister of internal affairs. According to Levan Izoria’s 2012 asset declaration, his wife, Lana Manjgaladze, paid USD 54,000 for this land plot.
According to the defence minister, he purchased this real estate and began construction with the savings he made as a result of his academic work in Georgia and Germany. As the defence minister explained,
“The savings left from the academic activities were fully spent on purchasing construction materials and other construction works before the end of 2012, which is why these savings were not reflected on the corresponding page of the declaration.”
However, the first application concerning this land plot and the conditions for using it for construction was submitted to LEPL Architecture Service of Tbilisi Municipality on 16 January 2013. The request was granted one day later, on 17 January.
The design was approved in March 2013, while the construction permit was issued in April. In June 2014, the approved design was amended and the permit was issued to continue construction, while in April 2015, the implemented construction was accepted.
According to the asset declaration which Levan Izoria submitted in 2017, the amount paid for this real estate is GEL 320,000. If the USD 54,000 (approx. GEL 89,100) paid for a land plot on 26 October 2012 is also reflected in this value, then all other expenses related to the construction of the house made between January 2013 and April 2015 amounted to approximately GEL 230,900.
With regard to the value of this property, the Defence Ministry explained to Transparency International Georgia that:
“Based on the preliminary consultation with the Civil Service Bureau, the indicated house value included the price paid for the land plot (USD 54,000) and the total amount of expenses related to the construction of the house – GEL 320,000. Indicating the cost of purchasing the land in a separate field of the asset declaration was conditioned by the fact that the declaration form requires the indication of the type of property, the date and the form of purchase and the price for each property, and this was adhered to in full while filling out the declaration.”
Contrary to this, according to the explanation received from the Civil Service Bureau,
“If the real estate indicated on the page dedicated to real estate in the asset declaration of a public official is built by that official, his or her family member, the cost of construction is indicated in the field ‘Amount Paid’; in case it is a house, the land plot and the house are indicated separately.”
According to the same source, it will not be considered a violation with regard to the declaration purposes if a land plot is indicated separately, with an amount paid while, when a house is entered separately, the total amount spent on purchasing a land plot and on the construction of the house is indicated.
According to Levan Izoria’s asset declarations, in 2013-2014, his family’s income was GEL 282,011. In 2015, his family’s income was GEL 159,368, correspondingly, during the first three months of 2015, it would have received a quarter of this amount, approximately GEL 39,842.
Income of Levan Izoria’s family (GEL) in 2011-2016
Thus, during the period of building the house, between January 2013 and April 2015 (27 months), Levan Izoria’s income was GEL 321,853, while the amount spent on building the house was GEL 230,900 (72 percent of the minister’s income received during the same period). The remaining 28 percent of his income during the same period amounted to GEL 90,953, which is approximately GEL 3,369 per month.
In the asset declarations submitted in 2012-2015, Levan Izoria’s family did not indicate any liabilities to banks (loans). Also, during the same period, the public official did not declare any savings (apart from the money in the salary account: GEL 7,000 in 2012, GEL 5,000 in 2013, GEL 2,000 in 2014, GEL 3,500 in 2015).
Correspondingly, we should assume that the construction of the house was funded by the current income of Levan Izoria’s family. In the period from January 2013 until April 2015, 72 percent of income of the defence minister’s family (approximately GEL 230,900) was spent for this purpose.
Despite this, no information about the costs of construction, contracts signed to this end or their value is indicated in the asset declarations submitted by Levan Izoria in 2012-2015.
The situation is similar with regard to another land plot and a house constructed on it. In May 2016, Levan Izoria’s wife, Lana Manjgaladze, took out bank loans in the amount of USD 84,000 and USD 16,300.
According to the asset declaration, Levan Izoria and Lana Manjgaladze each have USD 300,000-worth bank service agreements signed with a bank (the so-called credit line agreements), which define the maximum amount of loans to be paid out by the bank in the future. However, according to the Defence Ministry, the bank never provided a loan based on these agreements but rather three concrete loan agreements were signed (USD 45,000 to Levan Izoria, USD 84,000 and USD 16,300 to Lana Manjgaladze) which are indicated in the asset declaration.
The defence minister’s wife, Lana Manjgaladze, also in May 2016, purchased another land plot with the area of 700 sq. m in the Dighomi Training and Experimental Farming Enterprise. According to the asset declaration, its value constitutes USD 76,000.
In June 2016, Lana Manjgaladze submitted to LEPL Architecture Service of Tbilisi Municipality a request to clarify the conditions for using a land plot for construction purposes, envisaging the construction of a separate, single-flat house. The construction of the house was completed in September 2018 although no expenses related to it feature in the asset declarations submitted by Levan Izoria in 2016 and 2017.
To the question posed by Transparency International Georgia as to why the agreements signed with the aim of building a house and related expenses in 2013-2015 were not reflected in the defence minister’s asset declaration, the agency explained that:
“No agreement on building a house was signed. The construction took place as a result of [the owners] hiring individual workers themselves. The construction expenses were not indicated in the declaration since the amount ‘in each individual case’ did not exceed GEL 1,500.”
However, according to the Law on the Conflict of Interest and Corruption in Public Institutions, an official is under the obligation to indicate, along with other information, the following:
“Any income and/or expense of an official or of his or her family member which is received/made during a reporting period and whose amount (value) exceeds GEL 1,500 in each case with the exception of other income and/or expense listed in this article: the name of the official or of his or her family member, who had income and/or made an expense, the type of income and or expense, amount (value) of income and/or expense”.
Based on this legal requirement, the defence minister had to indicate in his asset declaration the construction expenses made during the year in case of both houses, and the argument that separate expenses “in each individual case” did not exceed GEL 1,500 does not correspond to the purposes of the Law on the Conflict of Interests and Corruption in Public Institutions. This line of argumentation is even less convincing when we are talking about the construction expenses amounting to GEL 230,000 in case of the first house.