Half of Irish Russian-linked SPVs have connections to sanctioned parties

Almost half of the 33 existing Irish special purpose vehicles (SPVs) that have been used by Russian banks and companies for fundraising purposes have connections to individuals or entities that are currently subject to European Union sanctions, the Central Bank governor said on Wednesday.

"The latest information I have – and this is a live situation – is that around, probably, 15 to 16 of those entities have some connection to the named individuals," Gabriel Makhlouf told the Oireachtas finance committee on Wednesday.

A Central Bank paper published in early March highlighted that the assets and number of Russian-sponsored SPVs had declined in recent years, mainly due to a drop in vehicles linked to the country’s banks, as some were unable to issue new debt after the introduction of sanctions in 2014, when Vladimir Putin’s government annexed Crimea.

European sanctions

Waves of additional European sanctions since Russia invaded Ukraine in late February have affected the activities of more Irish SPVs that were set up by Russian banks and companies.

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Irish SPVs linked to Russian oil and gas giant Rosneft and Moscow-based Vnesheconombank both continued to have debt in the form of bonds outstanding from when they were hit by Crimea-related sanctions. Dublin-based Rosneft International Finance managed to repay $2 billion of bonds that were due earlier this month, albeit days after it was due.

Elsewhere, Russian petrochemical producer Sibur Holding, which also has an Irish funding SPV, saw the chair of its management board, Dmitry Konov, hit by EU sanctions in early March in the wake of the Ukrainian invasion. Mr Konov stepped down weeks later to try to limit the impact on the business.

While SPVs, typically set up under section 110 of tax laws introduced in 1997 to make the State a global financing and fundraising hub, are not regulated by the Central Bank, Mr Makhlouf warned that it is a criminal offence for anybody in the State to be involved in any activity that breaches sanctions.

“The sanctions imposed have automatic application on everybody in the country,” he said.

“The professional firms that set up these entities are obligated to, firstly, be aware if they are managing these assets, [that] they need to freeze them and report that to the Central Bank.” Mr Makhkouf’s comments on SPVs were in response to questions from Labour Party finance spokesman Ged Nash.

SPV fees

Lawyers, accountants and bankers generated about €400 million of fees from Irish SPVs in 2020, following a sharp increase in the number of the latter entities in recent years, according to industry sources. The €35.5 billion of assets held in the 33 Russian-linked Irish SPVs in the Republic at the end of last year account for less than 4 per cent of the total contained in Irish SPVs.

Mr Makhlouf said that the Central Bank has been engaging recently with the firms it regulates and also firms that it doesn’t oversee “to make sure they understand the rules and they are taking the necessary actions”.

The Central Bank maintains a register of assets that have been frozen, he said. A spokeswoman for the bank said the register is not publicly available.

Meanwhile, there were some €11.4 billion of Russian assets in Irish-domiciled funds at the end of 2021, according to the Central Bank. Ireland is Europe’s second-biggest base for international funds, with more than €4 trillion of assets.

Some €5.07 billion of the Russian assets are bonds issued by Mr Putin’s government, with a further €5.88 billion made up of equities, mainly in companies outside of the financial sector, it said.