The small island of Cyprus is a geographical and political crossroads and a meeting place of people, religions and money. For decades, the island at the eastern end of the Mediterranean, closest to Turkey, Syria or Lebanon, has received a massive avalanche of foreign money. Especially Russian money, which has enriched some while the island gained a reputation as a shady financial center.
Trading companies registered in this European country have played a key role, larger than previously known, in allowing Russian oligarchs with ties to the Kremlin to do business despite the war in Ukraine, according to new research by the International Consortium of Investigative Journalists (ICIJ), Paper Trail Media and a total of 67 media outlets, including EL PAÍS and La Sexta in Spain.
Entitled “Cyprus Confidential,” this work reveals how Russian influence over Cyprus politics and finances operates despite the controls of the European Central Bank. It shows how, when Russia invaded Ukraine in 2022, the Cypriot division of accounting giant PwC helped Russian oligarchs reorganize their assets and undermine Western sanctions aimed at cutting off funding for Putin’s war.
The confidential Cyprus data released to the media as part of this investigation includes 3.6 million documents from six Cyprus-based financial services providers (ConnectedSky, Cypcodirect, DJC Accountants, Kallias & Associates, MeritKapital and MeritServus) and a Latvian company (Dataset SI). that sells information about Cypriot companies. These are primarily firms that focus on setting up companies in countries and territories that offer a lax tax system, ensure owner anonymity, restrict access to company documents, and may be more lenient on financial crimes.
The investigation shows that these suppliers have worked with at least 71 Russian customers who have been subject to sanctions since the invasion of Ukraine in 2022. 25 of them were subject to sanctions following Russia’s annexation of Crimea in 2014 and the war in Donbas. In total, they created and managed companies for 96 sanctioned Russians.
Among the sanctioned clients, the ICIJ has identified 44 politically exposed persons (PEP): civil servants, their family members or other individuals linked to state-owned companies or organizations. In addition, Cyprus’ confidential files point to 67 of the 104 Russian billionaires that Forbes magazine included in its 2022 list.
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A media analysis by the ICIJ consortium found that one of the companies, MeritServus, helped manage hundreds of companies owned or controlled by Roman Abramovich. The files reveal hundreds of millions of euros in payments to companies linked to the players’ agents of Chelsea, a club he owned until mid-2022, through opaque companies of which there is no trace in the club’s accounts gives.
There are also details about the business network of Alexei Mordashov, one of Russia’s richest industrialists, who transferred a $1.4 billion investment into his name a day after Western sanctions were imposed on him over Russia’s invasion of Ukraine. The data also shows how the Abacus LTD corporate network operated, linked to businessman and former owner of Alfa Bank, Petr Aven, a company under investigation in the United Kingdom for being a possible vehicle for evading European sanctions was.
The leaked files include not only companies incorporated in Cyprus, but also nearly 800 companies and trusts registered in secret jurisdictions linked to the Russians sanctioned since 2014. The professional firms from Cyprus worked for companies controlled from Russia and registered in the British Virgin Islands, Jersey, the Isle of Man, Liechtenstein and Hong Kong, among others. Many of these companies are shell companies with no employees or operations, but there are also subsidiaries of industrial giants like the steel company Evraz, which supplies most of the railroad tracks that Russia uses to transport weapons and ammunition to its troops in Ukraine.
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Together, the documents offer an unprecedented look into the financial system that helped empower some of Russia’s richest men. The Cypriot model is based on an outsized financial sector with some of the weakest financial disclosure laws in the European Union, a lenient central bank and a tsunami of more than $200 billion in Russian investment that has given its oligarchs enormous influence.
In response to a letter from the ICIJ on the new findings, the current government of Cyprus (in office since March 2023) states that it is committed to the fight against corruption and illegal financing and recalls that it has more than one billion euros in investments Due to the EU sanctions, the banks in the country have frozen around 104 million euros.
Critics claim that the island’s dependence on money from Russia and other countries has had consequences that are only now being recognized: “When the Russians came to Cyprus, they brought not only Russian corruption, but also organized crime and agents of the Russian secret services.” says Boris Demash, one of the few Russian voices in Cyprus criticizing the Kremlin’s influence.
Alexander Apostolides, a Cyprus-based economic historian, points out that the island’s professional companies, “which are regulated and should have a presence here, seem to find a way to avoid it and do things that are illegal or at least unethical. “
The moderators
Global accounting giant PwC, formerly known as PricewaterhouseCoopers, is playing a key role in this investigation with its Cyprus office and 1,100 employees. PwC Cyprus worked with at least 12 of the 25 Russians already facing sanctions from Western or Ukrainian governments following Russia’s 2014 annexation of Crimea and the war in Donbass. It took several months after Russia’s invasion of Ukraine in 2022 to announce that the company would be leaving Russia and instructing its subsidiaries to stop working for sanctioned clients.
It was PwC that helped Alexei Mordashov transfer a $1.4 billion investment the day after Western sanctions were imposed. Mordashov was president of Severstal, one of Russia’s largest steelmakers, and had a net worth of $21 billion, according to a Forbes estimate. As previously disclosed by ICIJ, Mordashov turned to PwC to route assets across dozens of offshore companies he controlled, including his yacht, a private jet and an investment portfolio around the world.
The new data shows that PwC and Cypcodirect continued to work with Mordashov even after some of their companies were under US sanctions following the invasion of Crimea. This is the case of Power Machines, which was accused in 2018 of trying to establish a Russian-controlled power supply in the occupied Crimea region. Despite the sanctions, PwC and Cypcodirect continued to help shut down and manage shell companies owned by Power Machines.
On March 1, 2022, the day after the EU sanctioned Mordashov, PwC Cyprus and Cypcodirect exchanged emails with subject lines such as “URGENT” and “PLEASE APPROVE.” They were part of an attempt to help Mordashov sidestep last-minute sanctions that threatened to freeze a $1.4 billion investment in German travel group TUI Group by transferring ownership to his wife, Marina Mordashova . Three months later, in early June 2022, it was sanctioned by the United States and the EU.
Mordashov’s spokeswoman Anastasia Mishanina defends the tycoon in the face of the investigation carried out by the consortium’s media: “All information and regulatory notifications regarding the transfer of shares were duly passed on to the relevant authorities and published to the extent required by law.” Not once in his long career “Mr Mordashov or any of the companies he runs have broken any law, either in Europe, Russia or any other jurisdiction.”
Illustration: Ben King
Around the same time, PwC Cyprus supported two elite oligarchs who were working with Putin in the war effort against Ukraine. On March 1, 2022, as Russia escalated its invasion, a PwC Cyprus executive sent an urgent message to a colleague: two clients requested the immediate transfer of $100 million between two shell companies they controlled. The source of the money was Evraz PLC, a steel company that produces 97% of the rails that Russian trains use to transport ammunition, military equipment and troops to the front. PwC’s clients included former Evraz executives: Alexander Abramov and Alexander Frolov. Scientists and self-made billionaires who survived the chaos that followed the collapse of the Soviet Union and rose to the top of one of Russia’s largest industrial conglomerates.
Two months later, the United Kingdom declared Evraz “of strategic importance to the government of Russia” and sanctioned it, banning English citizens and companies from doing business with the company. He also imposed an asset freeze and travel ban on Abramov and Frolov, classifying them as part of the “select elite” serving Putin in supporting the invasion of Ukraine.
The $100 million transaction was just one of those carried out by the oligarchs through shadowy companies based in jurisdictions on three continents that are known for helping the ultra-rich hide their wealth or avoid taxes. According to the ICIJ, PwC Cyprus provided services to at least 62 shell companies and trusts controlled or owned by Abramov and Frolov, some of which were used by the oligarchs to structure their shares in Evraz. “It looks like a classic money laundering scheme, or perhaps worse,” said Zoe Reiter, co-founder of the nonprofit research group Anti-Corruption Data Collective, which reviewed Abramov and Frolov’s investment documents. “Everyone at PwC should know this,” he adds.
To protect itself from the need to maintain confidentiality, PwC has preferred not to comment on its dealings with Abramov, Frolov and other clients: it ensures that the company complies with EU and UN sanctions before the invasion of Russia in February 2022, and has since severed relations with 60 customers: “All allegations of non-compliance with applicable laws and regulations will be taken very seriously, investigated and appropriate action taken if necessary.” The company ensures that its Cyprus office “focused on a new, sustainable economic model and transformed its business.”
PwC is considered one of the four major accounting firms and is a key player in the global financial system. PwC serves some of the world’s wealthiest and most politically connected citizens as clients. This has sometimes led to serious legal and ethical violations. A 2014 ICIJ investigation revealed how PwC Luxembourg helped giant companies shift profits around the world to reduce their tax liabilities by billions. This year, PwC Australia was embroiled in scandal after several of its senior partners leaked confidential information about pending legislation to corporate clients to help them avoid taxes.
A model anchored in the EU
Buildings under construction on the coast of Cyprus. Photography: ICIJ
The “Cypriot model” turns out to be a gigantic conveyor belt for channeling Russian wealth. But a film that takes place in an EU member state and whose banking system is monitored by the ECB. According to the Center for Democracy Studies in Sofia, Bulgaria, Russians had “invested” more than $200 billion in Cyprus in 2020, half of Russian investments in Europe and more than in Germany, the United Kingdom, Spain, the Switzerland and other countries Austria together. And on paper, the island of 1.3 million people was one of the largest Russian investors in the world: at the time, around 300 Russian companies accounted for 80% of Cyprus’ wealth.
The flow of Russian money has been a boon for Cyprus’ powerful industry of bankers, offshore service providers, accounting firms such as PwC and other large accounting firms with an army of 4,000 lawyers.
Analysts describe the Cypriot model as the beating heart of the Putin regime’s financial circuit system, pumping out Russian money to store it in the West in the form of financial assets, yachts or luxury real estate and reinvest it in ever-greater control over the Russian economy or do they accumulate in Western countries.
“Cyprus has essentially closed its eyes to billions [de dólares] of deposits of unclear origin,” Martin Vladimirov, analyst at the Center for the Study of Democracy, tells ICIJ. “The European banking sector had all the rules in the world except the big ones [clientes] An agreement is made with the bank manager. And they know it.”
Even as the International Consortium of Investigative Journalists releases new revelations about how the Cyprus model helped finance the Putin regime, one inescapable fact remains: the model has metastasized within the EU itself, with major Cypriot banks receiving direct support from the powerful ECB be supervised. What isn’t so clear is why it was allowed to happen near sunlight.
Credits
The following people contributed to the confidential Cyprus investigation: Matei Rosca, David Kenner, Tanya Kozyreva, Dean Starkman, David Rowell, Whitney Joiner, Fergus Shiel, Delphine Reuter, Karrie Kehoe, Jelena Cosic, Jesus Escudero, Agustin Armendariz, Miguel Fiandor, Denise Ajiri, Emilia Diaz-Struck, Scilla Alecci, Brenda Medina, Eve Sampson, Richard HP Sia, Kathleen Cahill, Angie Wu, Tom Stites, Hamish Boland-Rudder, Joanna Robin, Carmen Molina Acosta, Hans Kobersteinz (ZDF), Bastian Obermayer , Frederik Obermaier and Timo Schober (Paper Trail Media/Der Spiegel), Kira Zalan and Stelios Orphanides (OCCRP)
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