Don't mention the war. In the week after the Ukraine invasion, PwC showed a whole new side to the term "full service clients" as they frantically moved to help Russian oligarchs sidestep pending sanctions. ICIJ CyprusConfidential
“Dawisha nevertheless argues that the KGB’s return to power begins not in 2000, when Putin became president, but in the late 1980s. At that time, the then leaders of the KGB, who distrusted Gorbachev, began transferring money that belonged to the Soviet Communist Party out of the Soviet Union and into offshore accounts tended by Swiss or British bankers. At least initially, these transfers took place with the Party’s knowledge. … (My cousin Adele based in Lugano believes that in 1984 Putin was already visiting Swiss banks and charming the bankers ... around the same time Rene Rivkin was eyeing Swiss 🇨🇭 banks too … Crooks know where to park their I’ll gotten gains … Ireland 🇮🇪 was eyed by few other Australian tax speculators … back in 1980s all kinds of complex dodgy loans on steroids were being recorded all over the world)
Vladimir Putin, the KGB and the British and Swiss tax havens
Emails show PwC helped Russians dodge sanctions Neil Chenoweth
A massive leak of documents has exposed how accounting giant PwC’s Cyprus arm scrambled to help Russian oligarchs facing the threat of sanctions in March last year, moving assets out of their names in the first days of the Ukraine invasion.
The leaks show frantic email exchanges marked “URGENT” and “PLEASE APPROVE” as PwC Cyprus partners authorised transfers of shares and funds, in one case even before the price of the transaction had been decided.
The Ukraine invasion in February 2022 triggered frantic emails for Russian clients of PwC Cyprus. ICIJ
The Cyprus Ministry of Finance told the International Consortium of Investigative Journalists, which is heading an international collaboration of media partners investigating the new leak, that a criminal investigation was under way into share transfers by Alexey Mordashov, one of Russia’s richest industrialists. The transfers, which were assisted by PwC Cyprus, moved a $1.4 billion investment out of his name a day after he was slapped by European Union sanctions.
The revelations are a new embarrassment for PwC, which cut links with its Russian arm last year after the Ukraine invasion. The firm has repeatedly stressed its zero tolerance policy for clients facing sanctions anywhere in the world.
PwC International media chief Mike Davies said in a statement: “All PwC firms, including PwC Cyprus, take the application of sanctions against clients and sanctions prohibiting various professional services extremely seriously.”
PwC Cyprus is not aware of such a criminal investigation being carried out,” the local firm said of the Mordashov share transfers. “Whenever there is a reportable event, PwC Cyprus takes appropriate action.”
New PwC chairman
This latest controversy underlines the challenge facing PwC’s incoming international chief, Mohamed Kande, who was appointed last month to succeed Bob Moritz as global chairman, days after rival candidate US chairman Tim Ryan unexpectedly took his name out of contention.
How PwC helped its clients
Week 1 of the Ukraine war
The Cyprus leaks come as PwC is still battling to firewall its international operations from the scandal which has engulfed its Australian arm, after The Australian Financial Review reported in January that confidential Treasury briefings involving former PwC partner Peter Collins had been shared with clients and partners in Australia and around the world.
In yet another scandal, days before the Financial Reviewrevelations Portuguese police raided PwC’s Lisbon offices as part of an international investigation of work that the firm did for Isabel dos Santos, the telecommunications and banking magnate accused of corrupt deals which cost Angola more than $US1 billion.
PwC figures widely in the latest leak, of 3.6 million documents from seven Cyprus financial service providers, dated from the 1990s up to April 2022. The documents show how all the big four accounting firms rode a $200 billion wave of Russian investment through Cyprus into secrecy jurisdictions around the world.
The documents, labelled Cyprus Confidential, were originally obtained as seven separate leaks through Distributed Denial of Secrets (a non-profit devoted to publishing and archiving of leaks), German group Paper Trail Media and the journalism network Organised Crime and Corruption Reporting Project.
Two thirds of Russian oligarchs are in documents
Since the 1990s, Cyprus has been the chief route for Russian oligarchs to avoid scrutiny in moving their wealth out of Russia.
Of 104 Russian billionaires that Forbes magazine named in 2023, 67 of them – or two thirds – appear in Cyprus Confidential documents.
Kyriakos Iordanou, head of the Institute of Certified Public Accountants of Cyprus: PwC “is the biggest player here.” ICIJ
“[PwC] is the biggest player here,” said Kyriakos Iordanou, the head of the Institute of Certified Public Accountants of Cyprus, a national association of accounting firms. ”They did have a lot of exposure with Russian clients over the years. Other Big Four [firms] had less exposure here.”
The documents identify 25 Russian clients who came under sanction after Russia’s 2014 annexation of Crimea and the war in Donbas. Twelve of them were clients of PwC Cyprus.
Since the February 2022 invasion, another 71 Russian clients have been sanctioned by the EU, the US, the UK and Ukraine, including 39 clients of PwC Cyprus.
In total, the documents show a total 96 clients were sanctioned, of which 51 were PwC clients.
Only EU sanctions enforceable in Cyprus
Only sanctions imposed by the EU are enforceable in Cyprus. Even when sanctions are in place, there is scope in some instances for professional service providers to work with such clients.
“They’re perfectly within their rights to keep doing this work,” says Casey Michel, director of the Combating Kleptocracy Program at the Human Rights Foundation. “But it points to the rot at the heart of the accountancy industry.”
“They’re perfectly within their rights to keep doing this work,” says Casey Michel, director of the Combating Kleptocracy Program at the Human Rights Foundation. “But it points to the rot at the heart of the accountancy industry.” ICIJ
PwC Cyprus has over 1100 employees and reported $75.5 million euros revenue in 2021.
In 2001, a breakaway group of PwC Cyprus partners set up Abacus Ltd, while in 2007 another PwC partner set up Cypcodirect Corporate Services.
Cypcodirect was so close to PwC that in its early years, its employees received medical benefits from PwC, according to one Cypcodirect document.
List of high risk clients
For more than 250 shell companies, PwC referred a Russian oligarch to Cypcodirect, and the firms shared work administering the client’s network. PwC Cyprus provided public facing audits and signed mundane paperwork while Cypcodirect provided nominee directors and set up shell companies that shrouded ownership.
In some cases PwC was simultaneously a secretarial service provider, management consultant and auditor for the same client, while ex-PwC managers provided the directors for this client.
In July 2021, PwC Cyprus compiled a spreadsheet titled “High Risk clients” listing 100 companies, almost all of which were Politically Exposed Persons (PEPs) or family members. All of them were also clients of Cypcodirect.
Cypcodirect “has always been working in line with applicable laws and regulations and following our regulators’ guidance,” it said in a written statement.
In April 2018, a PwC Cyprus executive reassured a Cypcodirect manager who had raised concerns about a client company called Telcrest Investments Ltd. Telcrest had a 26 per cent shareholder, Bank Rossiya, which was under US and EU sanctions, and a separate 9.5 per cent shareholder that was under US sanction alone.
“There is no legal impediment for us from the sanctions perspective to continue providing our services,” he wrote. “I understand that we are not in any way involved, through our services (directly or indirectly) with the provision of funds or economic resources to the EU designated persons or even the US designated persons/entities nor do we have any direct dealings with them.
“In this respect I kindly ask you to consider the same and release IMMEDIATELY all pending requests from our common client.”
Similarly, PwC and Cypcodirect continued to work for Alexey Mordashov, chairman of Severstal, one of Russia’s largest steelmakers and worth $US21 billion ($33 billion), setting up a web of companies to hold the Nord, his 142 metre $US300 million super yacht, his private jet and investment portfolio.
Russia’s richest man, Alexey Mordashov, transferred a $US1.4 billion shareholding to his wife within days of the start of the Ukraine invasion in February 2022. Getty
Russia’s invasion of Ukraine, however, was about to change the game. While PwC Cyprus could legally do this work for Mordashov while he was under only US sanctions, when the EU responded to the Ukraine invasion with a wave of new sanctions, things very quickly became much more complicated.
Meeting on invasion day
On the afternoon of February 24 last year, the day that his troops invaded Ukraine, Russian president Vladimir Putin held a meeting of leading industry figures, including Mordashov.
A day later, Mordashov’s mind was on one of his high-profile investments, a 34 per cent stake in German tourism stock TUI AG worth $US1.4 billion. It was held by a Cyprus company, Unifirm Ltd, administered by PwC.
That Friday, February 25, a BVI company and a Cyprus company administered by Cypcodirect signed a share sale agreement that transferred shares in Unifirm to a Cyprus company owned by Mordashov’s wife, Marina Mordashova. The price was left blank.
But critically, the share transfer was not yet registered or approved by Unifirm directors, as Cyprus shut down for the weekend.
The Nord, a $500 million megayacht connected to sanctioned Russian tycoon Alexey Mordashov, mysteriously ended up in Hong Kong after a more than week-long voyage from the port of Vladivostok where it was anchored since March. Bloomberg
On Saturday, the European Commission, France, Germany, Italy, the UK and the US announced in a joint statement that they would be imposing sanctions on Russian elites close to Putin.
Late on Sunday, February 27, the EU said the new round of sanctions would be announced the following day. In Cyprus, the leaked documents reveal a whirlwind of activity.
At 4pm on Monday, the two nominee directors of Unifirm approved the transfer of shares to Mordashova’s company. At 6.38pm, an assistant manager at PwC was emailing a PwC partner: “Please approve the execution of the attached docs”, which was confirmed at 7.43pm by the partner, who noted, “Price will be finalised in a while.”
At 9pm Cyprus time, the EU released a list of 26 Russians who had been sanctioned, including Alexey Mordashov.
Critically, the EU backdated the start of the sanctions to midnight the previous night.
A problem with the paperwork
Whatever their knowledge was on Monday, PwC should have been aware of the sanctions by the next day, Tuesday March 1, when a problem emerged. The sale documents referred to the wrong class of shares.
At 3.44pm on Tuesday, PwC sent an email titled “Follow Up” which in effect re-executed the transaction with revised versions of the sale documents. These came with a handwritten note: “Urgent, please re-sign originals, which was [sic] signed on 28.02.2022. Thank you.”
Ultimately, their efforts were in vain. Weeks later, after a public uproar following the TUI transaction being announced to the market, the EU cancelled the transfer of the TUI stake and Mordashova joined her husband on the sanctions list. PwC’s role in the deal remained unreported.
But that was all in the future. In early March, the Mordashov’s weren’t the only Russians scrambling to move their assets in Cyprus.
At 11.34am on March 1, a PwC manager sent an email labelled “URGENT” to Cypcodirect, noting that Russian billionaires Alexander Abramov and Aleksandr Frolov, who ran the steel giant Evraz, wanted to transfer $US100 million from a Cyprus company, Moravian Ltd, to another company they controlled.
PwC Cyprus head office in Nicosia
Half an hour later, Cypcodirect had signed the documents and emailed them back. Even after that transfer, Moravian still held $US200 million in interest-free loans from related companies. On March 2, Abramov and Frolov transferred their shares in Moravian to their two sons.
Abramov and Frolov were sanctioned by the UK on November 2 last year.
PwC staff continued to face challenging issues. On March 11, a Cypcodirect manager queried a request from PwC to execute a $US7.5 million sales agreement between a Cyprus company, Avimpex Ltd, and a Russian associate DS Impex Ltd, which included computer monitors, video cameras and radios.
“According to our Compliance Officer there is telecommunication equipment which is under US sanctions,” the Cypcodirect employee noted.
‘For kids and school equipment’
A PwC manager replied that entrepreneur Boris Mikhailovich Eshkind, who controlled both companies, wasn’t under sanction and “per our understanding and files, Avimpex Ltd is purchasing equipment for kids and school equipment and not general telecommunication that are included in any sanctions list”.
“Having said that, we do not see any reason that could prevent your kind self (as matters stands today) from proceeding with further steps with signing of the agreement.”
What made this complicated was that the new EU sanctions didn’t just target individuals. For the first time, they also blocked sales of any dual-use equipment to Russia, as well as giving financial advice on the goods: “Lower tech items used by the military such as toy/hobby drones, complex generator devices, laptop computers, cameras and lenses, radio navigational aid apparatus and apparatus for the transmission or reception of voice, images or data are also prohibited.”
In January, Avimpex had sold its Russian associate 2400 CyberPi Go Kits. CyperPi is popular in Russian schools and is described by Western retailers as “a single-board computer fully packed with advanced electronic sensors, actuators and communication modules. It is one of the best tools for teaching Artificial Intelligence, Data Science, Networks and the Internet of Things”.
These are components which potentially could be used in Russian munitions, underlining the difficulty service providers like PwC face in determining whether sanctions apply.
An Avimpex consignment dated May 17, 2022 listed “spare parts for construction kits, devices for receiving, converting and transmissing [sic] data”.
On March 24, PwC International’s media chief, Mike Davies, announced that PwC member firms outside of Russia would exit any work for Russian entities or individuals subject to any sanctions, even if not legally required, and were reviewing engagements with unsanctioned Russian clients.
On July 4, Davies announced the separation from PwC Russia was complete and “PwC member firms outside of Russia are exiting any work for Russian entities or individuals subject to sanctions”.
Director of Cyprus’ Financial Services Directorate, Avgi Chrysostomou Lapathiotis: “We are aware of TUI share transfers and a criminal investigation is being carried out.”
The director of Cyprus’ Financial Services Directorate, Avgi Chrysostomou Lapathiotis, said in response to questions about the Mordashov transaction, “We are aware of TUI share transfers and a criminal investigation is being carried out.”
Lapathiotis said many EU members had observed sales of companies several days before their owners faced sanctions, but suspected violations were not easy to establish.
In a statement to the ICIJ, Davies said none of the sanctioned Russians remained clients of PwC: “Cyprus followed PwC’s sanctions policy at the time and legal requirements for EU companies, and applied all sanctions that were imposed by the European Union and the United Nations.
“…[F]ollowing the Russian invasion of Ukraine, PwC Cyprus has terminated relationships with approximately 150 client groups. Sixty as a result of the introduction of the broader PwC Russia-related sanctions policy implemented in 2022 and an additional 90 following a further geopolitical de-risking review by PwC Cyprus of its international client portfolio.
“PwC Cyprus has pivoted to a new economic model fit for the future, transforming its business.”
Some of the business hasn’t gone far. The Financial Times reported last November that three partners and 20 staff left PwC Cyprus to form a new service provider, Kiteserve, leasing office space from PwC. About half of its clients are former Russian clients of PwC.
“These clients … are serviced also by Western banks, by Western lawyers,” one manager told the Financial Times. “So why should we be singled out?”
+ With additional research by ICIJ, Paper Trail Media and other media partners.
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What is Cyprus Confidential?
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Neil Chenoweth is an investigative reporter for The Australian Financial Review. He is based in Sydney and has won multiple Walkley Awards. Connect with Neil on Twitter.Email Neil at nchenoweth@afr.com.au