Legislative changes can target misuse of Irish shelf companies by Russians

The Government has rightly adopted a generous attitude towards the Ukrainian people fleeing the violence of the Russian army. Now it should introduce legislative changes to target the people who benefit from the corrupt nature of the Moscow government.

There are two linked areas of Irish law that require change. One is the use of this jurisdiction by people in Russia and other former Soviet republics as a type of offshore island within the European Union.

The second is the failure by this State to introduce Magnitsky-type legislation to provide for the targeting of assets in this jurisdiction owned by Russians and others guilty of gross human rights abuses.

As reported by The Irish Times in October 2021, Irish-registered entities called limited partnerships are being marketed in Russia, Ukraine and central Asia as de facto offshore vehicles suitable for holding assets in ways that hide the identity of their true owners.

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The latest figures from the Companies Registration Office show that approximately one-third of the 2,530 limited partnerships on the register use mailbox-type addresses. In one instance, in Cork city, the operator of a mailbox rental service said the address is being used by parties unknown without his permission. There are 110 limited partnerships registered to this address. In Dublin an address being used by 44 limited partnerships has been vacant for at least two years.

Such secretive structures can be used by people in corruption-ridden jurisdictions to squirrel away assets under the cloak of Irish-registered entities

The number one address in the State for limited partnerships, an office building in Dublin 2, is the registered address for 848 limited partnerships. It is in fact just a mailbox address rented by a London company formations business that in turn deals with service providers in offshore locations – especially the Seychelles – that target Russian clients.

Limited partnerships are used for legitimate reasons by the fund management and property industries but it must be possible to amend the law so as to prevent them being used in ways that the State never intended, without unduly affecting those who use them for bona-fide reasons.

The Government was already working on reforming the law on limited partnerships when the reports on their misuse were published by The Irish Times last year. It said at the time it was extending its review of the legislation to address their apparent misuse. The review has yet to result in any proposed reform.

Leaked documents called the Pandora Papers, to which The Irish Times had access by way of the International Consortium of Investigative Journalists, showed that Irish limited partnerships associated with mailbox-type addresses are predominately used by people from Russia and other former Soviet republics, and are being set up using nominee partners based in offshore jurisdictions.

Such secretive structures can be used by people in corruption-ridden jurisdictions to squirrel away assets under the cloak of Irish-registered entities, the beneficial ownership of which is being obscured. Internationally, limited partnerships are also notorious for being used in money-laundering schemes.

It has been extensively reported that huge numbers of limited partnerships in the UK with mailbox-type registered addresses have been used in highly-elaborate banking networks through which billions of euros have flowed from Russia into the West over the past decade or more.

Hundreds of millions of dollars stolen by way of a tax fraud from the Russian asset management business, Hermitage Capital Management, owned by US investor Bill Browder, travelled through such an international money-laundering network. Some of this money travelled through Irish bank accounts, according to Hermitage.

In 2012, in response to Magnitsky's death and lobbying by Browder, the US introduced the so-called Magnitsky Act

A Ukrainian-born Russian tax adviser, Sergei Magnitsky, who was investigating the fraud on behalf of Hermitage, died in a Moscow prison in 2009, aged 37, having been held without trial for almost a year, denied access to medical care, and having apparently been tortured.

In 2012, in response to Magnitsky’s death and lobbying by Browder, the US introduced the so-called Magnitsky Act, which allows for travel bans and the targeting of the US assets of persons guilty of human rights abuses committed outside the US. Similar legislation has been introduced since in the UK, Estonia, Lithuania, Latvia and elsewhere.

Ireland was considering introducing such a law in 2013 until the then Russian ambassador to Ireland, Maxim Peshkov, sent a letter to an Oireachtas committee saying that any such move would have “negative consequences” for a proposed arrangement on the adoption of Russian children by Irish parents. An Irish Magnitsky law was never introduced.

However in 2020 the Labour Party’s Brendan Howlin introduced a private member’s bill, the Proceeds of Crime (Gross Human Rights Abuses) Bill, which is designed to be a type of Magnitsky law. It would amend the Proceeds of Crime legislation so that the Criminal Assets Bureau could seize assets in this jurisdiction that were linked to people, or their agents, guilty of gross human rights abuses outside the jurisdiction (not limited to Russia).

The Minister for Justice, Helen McEntee, is of the view that what works best are EU-wide approaches to targeting the assets of those guilty of gross human rights abuses outside the State, rather than country by country measures. The issue is to be debated by the Oireachtas Committee on Justice shortly. This time it is imperative that the State enacts some type of measure.