The establishment has been attacking the Left for its opposition to NATO and EU militarisation, attempting to smear the likes of People Before Profit as Putin apologists. Yet in the IFSC, they have created the mechanisms by which the Oligarchs – Russian, American or from anywhere else – can wash their money and reap massive tax free profits. Co-author of recent book Tax Haven Ireland Brian O’Boyle explains how this is done.
Vladimir Putin’s invasion of Ukraine is the act of a tyrant. Since his tanks crossed the border on 24 February, countless lives have been destroyed, while millions have had their futures derailed. The idea that this is part of a great war to de-nazify Ukraine is fanciful. Over the last two decades, Putin has created a deeply authoritarian regime standing in a long tradition of Russian imperialists. In that time, he has invaded Chechnya and Georgia, annexed Crimea and involved Russian forces in the war in Syria. At the same time, he has fostered links with hard right leaders globally, including Donald Trump in America and Narendra Modi in India. There is also growing evidence that his intelligence agencies have funded far right parties in Europe and America in a bid to destabilise his western enemies. Domestically, his regime has been equally reactionary.
Inside Russia, Putin has fostered long standing links with the Russian Orthodox Church, attacked all forms of internal dissent, created a climate of political repression, attacked the LGBTQ community and has promoted a rightwing version of Russian masculinity. Far from upholding the values of the Bolsheviks, Putin has repeatedly sought to undermine the legacy of the Russian Revolution. In his justification for the Ukrainian invasion, Putin attacked Lenin’s commitment to internationalism for allowing countries to secede from what he considers to be ‘Historic Russia’. This is supposedly the seedbed of the current conflict, as Ukraine was torn from its spiritual fatherland by communist politicians from the Soviet era.
This is not a man, nor a regime, that has ever been supported by the internationalist left. His actions have been consistently abhorrent and no one with progressive politics has ever supported his barbaric regime. Despite this, however, there has been a concerted effort, over the past few weeks, to paint the Irish left as Putin apologists. Here is the Tánaiste, Leo Varadkar, in a recent debate with People Before Profit TDs in the Dail:
“I think anyone who has expressed pro Putin sentiments or has been an apologist for Putin, now has questions to answer, and there are a lot of them in Ireland. Some of this House and many outside it, should now be held to account for statements they made in the past that were soft on the Russian regime and apologised for Putin in any way. Quite a number of them would consider themselves to be part of the socialist left.”
Similar accusations have been made by the Taoiseach, Micheál Martin, who recently challenged Richard Boyd Barrett to stop equating Putin’s atrocities with those of NATO, on the basis that this was ‘morally wrong’ and ‘fundamentally incorrect’. One reason for such establishment assaults is to convince the population to ditch our neutrality. The Irish establishment considers itself part of a western alliance and is using Putin’s attack on Ukraine to shift Ireland further into the American sphere of influence. This is clear in their concerted calls for increased military spending, in their calls for sanctions on Russia – without calling for equivalent sanctions on western human rights abusers – and in their calls for increased militarisation of the European Union. Tarring the left as ‘Putin apologists’ allows the Irish elites to present the world in binary terms. To argue that the west is good; that Putin is bad and that the radical left is giving cover to a murderous regime.
This couldn’t be further from the truth, of course, but it helps the elites to justify their own support for murderous regimes the world over – for allowing the US military to use Shannon Airport for the war in Iraq, for example. It also pushes back against progressive calls to expel the Saudi Arabian and Israeli Ambassadors, both of whom represent regimes involved in ongoing war crimes in Yemen and in Palestine. Yet there is further reason why it is useful for the Irish elites to go on the offensive against the left, over Russia. It shifts the focus away from their own links to the Putin regime through shadow banks in the Irish Financial Services Centre (IFSC).
Ireland’s Shadow Banking System
One consequence of the Great Recession was a raft of new financial legislation. Regulators understood the need to restrict the most reckless forms of lending in the wake of the financial collapse, but stricter rules on the official sector have encouraged an explosion of activity in the shadows. Shadow banking refers to activity outside the normal regulatory system erected by the world’s central banks. In the latter, rules-based system, banks accept a level of oversight in return for taxpayers’ money when they get into trouble. The Blanket Bank Guarantee Scheme is one example of this taxpayer funded support, although it is questionable whether the banks that benefitted were ever properly regulated in the first place. Be that as it may, increasing numbers of financial institutions are choosing to operate outside this formal regulatory system and the rules it imposes. Shadow banks can lend with much lower reserve requirements, meaning they need to hold less capital and take more risks. They can also trade without the normal regulatory supervision and move assets in ways that are incredibly hard to track and evaluate.
Shadow banking has grown 75% since the Great Recession, with much of it centred on the funds industry courted by the IFSC. There is now an estimated €52 trillion of these assets globally, with Ireland acting as a hotspot internationally. According to the Financial Stability Board (FSB) for example, Ireland currently hosts the fifth largest shadow banking system on the planet with €3.45 trillion in the IFSC. Only the USA, China, the Cayman Islands and Japan host more of these assets which emphasise low levels of regulation and high levels of investor secrecy.
Domestically, the most important impact of Ireland’s shadow banks has been in the property sector. As we show in our recent book, Tax Haven Ireland, a series of US Vulture Funds use Special Purpose Vehicles (SPV’s) created in the IFSC to make tax free profits on their property portfolios. These particular SPV’s allow their parent companies to lend money to the SPV through a circuitous route, which is then used for tax deductions on interest paid back to the parent. This has allowed US property funds to avoid billions in taxes, but there are other SPV’s that specialise in securitisation (turning long-term flows of income, such as mortgages, into assets that can be sold immediately) and still others that specialise in intra-firm lending.
The latter vehicles provide discreet flows of income across the various arms of a corporation, and they have proven attractive to a number of prominent Russian corporations. Using Special Purpose Vehicles (SPV’s) known as Section 110 Companies (named after the legislation that enacted them), Russian investors raised €110 billion through the IFSC in the decade from 2007-2017. This was the second largest source of debt flowing into Russia from international markets and there were a number of characteristics that made these flows suspicious. Research by Cillian Doyle and Jim Stewart showed that there were 121 Russian connected conduits operating out of the IFSC during the period in question, although many of them took steps to disguise their beneficial owners.1 More than half (66) were operating under charitable status for example, while a number of prospectus documents assured investors that the owners of the debt would not be disclosed on Clearstream (an important data-sharing website).
The use of charitable trusts is a well-known technique by the Irish financial planning industry. Charities provide a sense of philanthropy which helps to keep prying eyes at bay. Charities cannot be declared bankrupt, so investments acquire a layer of safety and, most importantly, they acquire what is known as trust status. Trusts allow the true owners of assets to hide behind a veil of secrecy making them particularly attractive to financiers moving in the shadows. Doyle and Stewart showed that none of these companies had any tangible assets (outside the money they were borrowing), or even any employees. A more curious feature was that the bonds that they issued often went unpaid and yet the holders of the bonds rarely seemed to go to court to recoup their money. It is obviously strange that creditors never took their debtors to court to reclaims their assets, and for this reason, Doyle and Stewart hypothesise that much of this money is involved in a process known as ‘Round Tripping’. This refers to money moved out of Russia through clandestine routes only to be moved back in again as foreign direct investment. In the wake of the collapse of the Soviet Union vast sums were moved out of the country by men who went on to become known as the Oligarchs.
Some of this money was used to buy influence and political favours from their Western hosts, some was moved to avail of stronger property rights in the west, but it was often moved for more nefarious reasons. Seven firms connected with 13 conduits were identified by the Russian Central Bank as being subject to insider trading and market manipulation, while a number of the prospectus documents recognised that funds raised by IFSC conduits could be used for money laundering further down the chain.
In other words, it is possible that conduits that were fully compliant under Irish law were being used by cross-border criminal gangs who took advantage of the lax regulation that the IFSC provided. There is also evidence that firms using Irish SPV’s were able to evade NATO based sanctions using SPV’s in the IFSC. One of Russia’s most important energy companies, Rosneft, was placed on a sanctions list following the annexation of Crimea in 2014 for example, but within a month the company had begun to funnel billions into its Russian operation using CBOM Finance Plc – a company operating out of the IFSC. Rosneft is particularly close to the Putin regime. The Russian government owns a significant stake in the company, and its chief executive, Igor Sechin has worked closely with Putin since the 1990’s and was personally sanctioned in the wake of the annexation of Crimea. Rosneft was also mentioned in a conversation that was secretly recorded in Moscow in 2018, when a number of men are said to have met to discuss using Russian oil money to fund a far right, nationalist party in Italy. According to the transcript, Matteo Salvini of Lega Nord, is said to have stressed that his party wanted to shift Europe radically to the Right along with his allies in the Front National, the Alternative für Deutschland, and Fidesz in Hungary.
Both sides vehemently deny the conversation ever took place, but the plan was allegedly to sell Russian oil at 4% below market value before funnelling the difference to the far right Across Europe.2 The Irish establishment would presumably be appalled to learn that the IFSC could support this kind of political activity and yet they were willing to tolerate clandestine flows to and from Russia, presumably as collateral damage in support of their wider tax haven objectives. Doyle and Stewart list six Russian companies that were sanctioned by the Western powers and yet continued to raise money through the IFSC. They also list six Russian banks with IFSC conduits that provided finance for companies directly financing Russian military expenditure. There is no suggestion that Dublin based SPV’s lent directly to the Russian military, but they did funnel money to banks that lent to the Russian forces.
In the wake of Putin’s invasion of Ukraine, the west has imposed biting sanctions on the Russian economy. The most serious have involved freezing the foreign assets of the Russian Central Bank in a bid to collapse the rouble. This is an extremely blunt instrument that will destroy the lives of ordinary Russians as inflation surges and the banking system comes under pressure. It won’t undermine the assets held by oligarchs outside Russian, however, and, in this context, it is worth underlining that the western powers have not yet frozen all of the Russian assets in the western shadow banks and that, when asked about Russian money in the IFSC, the Minister for Foreign Affairs, Simon Coveney, admitted that his government had not acted to shut off these flows and had no plans to do so unilaterally. The Irish establishment has made much of its support for the Ukrainian people, but it has allowed some of those closest to Putin to hold assets outside the grip of official sanctions. Instead of beating the drums of war they should now put themselves on the side of peace and dismantle the shadow banks that have helped to enrich US capitalists and Russian oligarchs alike. I’m not holding my breath that they will do either, however.