Between 2005 and 2017, more than €118 billion was funnelled from the Irish Financial Services Centre (IFSC) in Dublin to entities in Russia linked to the regime of Vladimir Putin and to companies controlled by Russian oligarchs.
Research by Jim Stewart and Cillian Doyle of the Trinity College Business School, published in 2020, shows that these Irish-based companies are effectively shells. They have very few, if any, employees. Their spending in the Irish economy is mostly on audit fees and tax advice.
One of Ireland’s leading corporate law companies, Arthur Cox, notes on its website that it has advised “over 180 Russian LPN, ECP and securitisation structures since 2005”. These structures – all perfectly legal – are typically trusts or “charities” that receive money from their owners and then lend it back to them, turning assets into apparent liabilities and thus avoiding taxes.
This unique feature makes the Irish regime immensely useful to, among others, Russian oligarchs who want to move their money around
There is no suggestion that any Irish advisers bear any responsibility for how these trusts operate. They merely help them to operate, as they do, within Irish law.
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That law is, principally, section 110 of the Taxes Consolidation Act of 1997. It specifically allows these trusts to treat payments to their beneficial owners as if they were business costs that can be set against tax.
This unique feature makes the Irish regime immensely useful to, among others, Russian oligarchs who want to move their money around. It is worth stressing that this is not a bug in the Irish tax system. It is a feature, purposely designed by our authorities.
Thus, Stewart and Doyle found that the Russian section 110 companies whose accounts they studied typically reported profits of €1,000 or less. In 2015, they paid a total of €14,400 in tax between them – roughly what a single individual earning €55,000 a year in Ireland would pay.
Shell companies
One of the Russian entities involved in this system was used to raise $9.28 billion (approximately €8.2 billion) between 2010 and 2013 for the Russian State Development Bank, Vnesheconombank (VEB).
According to a report in the New York Times in April 2017, VEB was then “a target of American sanctions imposed in response to Moscow’s annexation of Crimea and aggression in Ukraine. It is controlled by members of President Vladimir V Putin’s government, including Prime Minister Dmitri A Medvedev, and has been used to bail out oligarchs favoured by Mr Putin.”
Another of the section 110 entities, PSB-ECB, is connected to Promsvyazbank, a bank owned by the Putin regime and specifically deployed (according to the Russian Central Bank) as a “special-purpose bank for serving military-industrial complex business”.
When the subject of the facilitation of Putin and his cronies by western banks and financial systems is discussed here, the finger points only at London
Given the way Russia works, with Putin at the centre of the web of oligarchic interests that covers the whole economy, it is highly likely that most of the Irish-based shell companies are connected, either formally or informally, to the regime in Moscow. And yet, when the subject of the facilitation of Putin and his cronies by western banks and financial systems is discussed here, the finger points only at London.
In March 2018, for example, after Putin's agents released nerve gas in Salisbury, Eamon Ryan called in the Dáil for "the seizure of some property assets held in London – there are considerable oligarchical profits being funnelled into London – as a signal that that whole system in place at present in the Russian administration must be confronted".
Funnelling of profits
There has not, so far as I can discover, been any call in the Dáil for the seizure of “considerable oligarchical profits being funnelled into Dublin”. That might conjure the appalling vista that we would actually have to do something.
London is, of course, a much more important centre for the sheltering of Russian money than Dublin is. Last week, Boris Johnson threatened Putin that he would introduce legislation to break open the secrecy of Russian shell companies and "see who really owns the companies that we're talking about".
Why has this not been done before? Because the oligarchs are deeply connected to the Tory party. The Sunday Times revealed at the weekend the existence of a secret “advisory committee” of super rich donors with full access to ministers. One of its members, Lubov Chernukhin, was described as “a former banker who is the wife of President Putin’s former deputy finance minister”.
But if the Ukraine crisis does finally force the Tories to break their financial ties to Putin’s circle and make the ownership of shell companies transparent, where might the oligarchs and their billions go?
The great vulnerability of a kleptocratic regime is its money
Dublin, surely, would be a pretty good bet. We have a system to allow any Russian who wants to hide money behind trusts and shells to do so with virtually no regulation. As Stewart and Doyle noted, “The location of control and purpose of control is one issue that arises from the lack of transparency in the ownership and operation of section 110 firms.”
The great vulnerability of a kleptocratic regime is its money. Paradoxically, mafia states can never trust their own banking systems because of the very corruption they themselves engender. They need foreign, law-bound regimes to protect their assets.
Dublin is part of that system. If Ireland is to have any moral standing in this crisis, we need to get out of this murky business right now.