Report reveals billions funnelled to Russian firms from shell companies based in Ireland

The International Financial Services Centre in Dublin. Picture: Billy Higgins

More than €118bn was funnelled from Ireland to Russia between 2005 and 2017, a new research paper from Trinity College has revealed.

Companies based in the International Financial Services Centre (IFSC) in Dublin raised funds for some of Russia’s most important state-backed and oligarch-controlled companies, who have previously been subject to economic sanctions and accused of criminal activity.

The paper argues that funds from IFSC-based entities to Russian-connected firms are consistent with “round-tripping” — transactions that bolster the revenue of the companies, but that do not provide real economic benefit.

"The Irish conduits examined are part of the licit economy in Ireland," the research by Cillian Doyle and Jim Stewart states. "However, the paper shows links between conduits in the study and allegations of illegal/improper activity by Russian-controlled firms. Hence, it is possible that conduits in Ireland, though totally compliant, are misused by cross-border criminal organisations.

In Ireland, flows take place via conduits with no employees or fixed assets and which benefit from favourable tax concessions.

The tax advantage for these Russian entities is contained in "Section 110" of the Taxes Consolidated Act and these firms or "shell companies" are often referred to as "Section 110 firms".

Hybrid debt instruments

The research found 121 Russian-connected "Section 110s", some 66 were owned by a "charitable trust". Four of those linked to a charitable trust had bank accounts linked with another company. These Section 110 companies raise funds using hybrid debt instruments, which can often be used as part of a tax-avoidance strategy, which is then lent to a Russian-based firm, thus meaning the Irish-based shell company serves as "a conduit".

The research found that several Irish conduits were connected to Russian-based firms subject to sanction and individuals accused of "fraud, money laundering, and criminal activity". Given that there are no employees, corporate functions and administration are often carried out by Irish firms, generally affiliated with legal and financial services.

Seven Russian firms in the study connected with 13 IFSC conduits were identified by the Central Bank of the Russian Federation (CBR) as being subject to insider trading and market manipulation.

The research also found that "in spite of these failures, there is no public evidence of regulatory action in Ireland involving IFSC conduits".

This research comes in the same week the so-called "FinCEN files" were published, around 2,500 leaked documents involving about $2 trillion of transactions, have revealed how some of the world's biggest banks have allowed criminals to move money around the world.