Lawyers and accountants share €284m SPV fees at IFSC

Lawyers, accountants and bankers generated almost €284 million of fees from hundreds of special purpose vehicles last year. The growing use of such entities by Russian groups has come into sharp focus as investors track risks relating to US sanctions.

The figure marks a 26 per cent increase on €225 million paid by ultra tax-efficient special purpose vehicles (SPVs) to service providers in Dublin's International Financial Services Centre in 2016, according to a Central Bank spokeswoman. The fees include charges for accounting and back office services, stock exchange listings and to directors of such entities.

The disclosure follows a Bloomberg report on Tuesday highlighting how Russian state-controlled oil giant Rosneft, subject to US and European sanctions since 2014, has relied increasingly on Credit Bank of Moscow at a time when the bank has used an Irish SPV to raise more than $2.3 billion (€1.9 billion) to finance its activities since late 2016.

While the report said that the money raised by the Dublin-based SPV, CBOM Finance, did not go directly to Rosneft, “the manoeuvring allowed the bank to expand its lending to the oil company, highlighting one way Russian firms are circumventing US and European restriction”.

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Swiss data

Section 110 of tax laws introduced in 1997 to encourage companies to set up SPVs and make Ireland a global financing and fundraising hub have turned the country into the world’s second biggest location for such activities, according to data published by the Switzerland-based Financial Stability Board in March. The US is the main location for so-called structured finance vehicles used by companies to raise finance from bond markets and privately, with the UK ranking marginally behind the Republic.

Central Bank statistics show that 2,066 SPVs, including entities known as financial vehicle corporations, in the Republic held €733 billion of assets at the end of December. While these entities are not directly regulated, authorities in in the Republic and elsewhere have moved in the wake of the financial crisis to collect data on them to monitor for potential risks they may pose to the global system.

Sanctions

While about half of Irish SPVs are linked to US or UK companies, such entities have emerged in the past decade as a favoured route for Russian companies to raise dollar-denominated euro bonds to fund their operations. Investors in bonds issued by some of these have paid the price in recent years as some lenders collapsed and international sanctions hit others. The Irish Times reported in April on how $1.6 billion of bonds issued by the Dublin-based vehicle used by Russian aluminium giant Rusal to raise finance in international markets plunged in value as the US imposed sanctions on the group. The bonds are currently trading at as low as 43c on the dollar.

Meanwhile, some $60 million of bonds issued by an Irish SPV for a Russian bank called Tatfondbank were deemed worthless in April last year after the borrower, which has been under investigation since at least March for fraud, was declared bankrupt.

Another lender, Vneshprombank, imploded in January 2016, resulting in the bank’s related Irish SPV defaulting on its $225 million of bonds.