Cyprus lit up with flurry of oligarch transactions after Russia invaded Ukraine, leaked files show

With Russian tanks and troops descending on Ukraine in early 2022, Cyprus became a hotbed of financial activity.

The island country has long been known as an offshore transit point for the fortunes of Russian billionaires, and as sanctions loomed over many of them last year, Cyprus financial services firms fielded a series of urgent demands to transfer funds and shareholdings, newly revealed records show.

In one case, documents show that two Russian billionaires, Alexander Abramov and Alexander Frolov, needed $100 million US transferred between two shell companies they owned. The funds were dividends from their holdings in Evraz PLC, a steel and mining conglomerate with subsidiaries in a number of countries,including Canada. Evraz entities produce almost all the rails used by the Russian trains transporting troops and armaments to the front in the country's Ukraine invasion.

At the moment of the transfer request, on March 1, 2022, Evraz and its shareholders hadn't been sanctioned, but they would be later that year. The request was to shift the money from a company in Cyprus, a jurisdiction subject to European Union sanctions, to the British Virgin Islands.

The Cyprus branch of the Big Four accounting firm PwC sent documents to another local financial services firm in an email labelled "URGENT," and it appears from leaked records that the other firm signed the necessary documentation and sent it back within the hour.

It's unclear from the files what steps were taken next or whether cash was actually transferred, but it wasn't the only pressing request handled by PwC Cyprus that day.

In another exchange of emails marked "URGENT" and "PLEASE APPROVE," PwC staff discussed how to respond to an asset-transfer request from Alexei Mordashov, a steelmaking titan once listed as Russia's richest person. Mordashov had just been hit with EU sanctions over his support for "providing financial and material support, and benefiting from, Russian decision-makers responsible for the annexation of Crimea and the destabilization of Ukraine."

The billionaire's ownership of about a third of the shares in German travel company TUI was at risk of being frozen, and to get around it most of that shareholding was then transferred to his spouse.

Ultimately, the transfer was declared invalid by the German government and TUI itself, and Mordashov's spouse was placed under EU and U.S. sanctions in June 2022.

(Through TUI, Mordashov also has an indirect interest in about two per cent of the shares of Canadian airline WestJet, but Ottawa noted earlier this year that the indirect stake does not in itself violate Canada's sanctions from February 2023 on him or his family.)

Cyprus opens criminal probe

The revelations in the leaked records come from the latest international collaboration by the Washington-based International Consortium of Investigative Journalists (ICIJ), of which CBC and Radio-Canada are partners.

The 3.6 million documents, all relating to business conducted through Cyprus, were originally obtained via separate leaks to the U.S. whistleblowing organization Distributed Denial of Secrets, German investigative news startup Paper Trail Media and the non-profit Organized Crime and Corruption Reporting Project.

The files which mostly date from the mid-1990s to April 2022, and include financial statements, emails, bank account applications and organizational charts were then compiled by the ICIJ and analyzed by media outlets around the world.

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In the Mordashov case, the Cypriot government has already opened a criminal inquiry into the attempted share transfer, a Finance Ministry official told ICIJ partners this month. PwC Cyprus said it was unaware of the criminal probe. "Whenever there is a reportable event, PwC Cyprus takes appropriate action," it said in a statement.

A Mordashov spokesperson said in a written statement that "all information and regulatory notifications with respect to the share transfer were duly disclosed to the relevant authorities and made public to the extent legally required."

PwC Cyprus declined to comment directly on its business with Frolov, Abramov and other clients, citing its confidentiality obligations. Frolov and Abramov did not respond to questions from the ICIJ and its media partners.

Pornhub parent had a dozen Cyprus subsidiaries

Canadian companies, too, have made use of Cyprus as an access point to do business in Europe and elsewhere. The leaked records include years of financial statements from several of the 170-plus subsidiaries of the Montreal-based company formerly known as MindGeek and recently rebranded as Aylo, which operates the adult-video website Pornhub and a number of other porn platforms.

As a private company, MindGeek's financials are not routinely disclosed. The leaked records show that one of its Cyprus subsidiaries, MG Technologies Ltd., booked revenues of between $89 million and $170 million US each year from 2012 to 2018, but those would routinely be almost entirely offset by costs listed as "advertising recharged" or "website operating" services provided by another unnamed MindGeek subsidiary.

MG Technologies had a stated purpose of "sale of advertising space on websites operated by related parties," though there is no suggestion that the arrangements were illegal.

Another Cyprus-based MindGeek entity, MG Freesites Ltd., declared revenues of between $82 million and $248.3 million US each year between 2012 and 2019.

Aylo told CBC News that Cyprus "has a thriving tech community with vast infrastructure and some of the best talent available" and that its Cyprus subsidiaries were not merely shell entities but actually employed hundreds of staff, including its content moderation team. It would not comment on the reasons for its complicated global corporate structure, which has had entities incorporated in the British Virgin Islands, Curaao, Luxembourg, Ireland, the United States, the United Kingdomand more.

In another Canadian case analyzed by Radio-Canada and La Presse, the records show Quebec-based drugmaker Pharmascience routed its European sales through a Cyprus subsidiary, which then paid intellectual property royalties to a Barbados subsidiary in a move that legally avoided at least $4.6 million in Canadian taxes for 2014, 2015 and2018-2020.

Those are theyears for which financial statements showing the transactions are among the leaked records, but the total amount of taxes saved in Canada and Europe could have been much higher, since the Cyprus-Barbados arrangement was in place from 2005 until 2019.

Pharmascience wouldn't comment on the arrangement but said it generates 90 per cent of its sales in Canada and therefore pays Canadian income tax on "nearly all our revenues."

German journalist agreed to money from oligarch

The leaked Cyprus files also show that a celebrated German journalist known for his access to Russian President Vladimir Putin secretly agreed to be paid the equivalent of about $900,000 Cdn in 2018 and 2019 to underwrite a book he was working on about Russian politics.

The funds were routed through offshore companies, but the ultimate source was two firms owned by the oligarch Mordashov.

German reporter Hubert Seipel, whose latest book describes him as "the only Western journalist to have direct, personal access" to Putin, acknowledged to the ICIJ that he received money to support his book research from Mordashov, whom he characterized as "an entrepreneur who sponsors projects with private money." But he saidthe contract for the funding included terms guaranteeing his editorial freedom.

Seipel rejected any idea that he is "a Putin agent," maintained that Mordashov "by no means comes from the Russian security or state apparatus" and said the money was exclusively for his book writing and was not tied to any of his other work for German TV.

Seipel published Putins Macht: Warum Europa Russland Braucht (Putin's Power: Why Europe Needs Russia) in 2021.

In all, Cyprus-based firms that provide financial services such as company incorporation and administration, particularly for foreigners counted 96 sanctioned Russians among their clients, according to the ICIJ's analysis of the leaked records. Twenty-five of those individuals came under Western or Ukrainian sanctions back in 2014, after Russia annexed Crimea and supported separatist rebels who took control of eastern Ukraine's Donbas region.

By one count, the equivalent of $300 billion Cdn in Russian money is parked in Cyprus, equal to the rest of Europe combined, despite Cyprus being the EU's third-smallest country by both area and population.

A Cyprus government statement to the ICIJ said that the country "has engaged in persistent efforts and has managed to stabilize its banking sector and become a top jurisdiction for both anti-money laundering and sanctions enforcement" over the last decade. Deposits by Russians in Cypriot banks stood at only four per cent of total bank deposits at the end of 2021, the statement said.

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With files from Radio-Canada's Frdric Zalac;the ICIJ'sSpencer Woodman, Matei Rosca, David Kenner, Dean Starkman, Tanya Kozyreva, David Rowell, Whitney Joiner, Fergus Shiel, Delphine Reuter, Karrie Kehoe, Jelena Cosic, Jess Escudero, Agustin Armendariz, Miguel Fiandor, Denise Ajiri, Emilia Diaz-Struck, Scilla Alecci, Brenda Medina, Eve Sampson, Richard H.P. Sia, Kathleen Cahill, Angie Wu, Tom Stites, Hamish Boland-Rudder, Joanna Robin, and Carmen Molina Acosta;ZDF's Hans Koberstein, Bastian Obermayer, Frederik Obermaier, Sophia Baumann and Timo Schoberof Paper Trail Media and Der Spiegel;Kira Zalanof OCCRP; andLuc Caregariof Reporter.lu