Finance committee hears of Irish SPV links to Russian military funding

Trinity College Dublin adjunct professor in finance James Stewart told the Oireachtas finance committee on Wednesday that there needs to be an EU-driven effort to regulate special purpose vehicles (SPVs) in financial hubs such as Dublin’s IFSC, given the often-arcane activities carried out by these companies.

Prof Stewart has carried out considerable amounts of research with his colleague Cillian Doyle in recent years on Irish SPVs, focusing on the use of such entities by Russian banks and companies to raise funds.

The professor highlighted to the committee that Moscow-controlled Russian Railways, whose network is used by the country’s military, raised more than €10 billion between 2010 and 2021 using an Irish SPV. He added that there was at least one case where a Russian bank whose business included funding the country’s military had raised funds through an Irish vehicle in the past.

However, he said: “It is very difficult to say how much [of the funds raised] actually went to the military.”

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The Central Bank said in March that half of the 33 existing Irish SPVs that have been used by Russian banks and companies for fundraising purposes have connections to individuals or entities that were subject to European Union sanctions. The €35.5 billion of assets held in the 33 Russian-linked Irish SPVs at the end of last year accounted for less than 4 per cent of the total contained in Irish SPVs.

Irish SPVs have been used by entities globally to raise about €135 billion of funding since 2005, according to Prof Stewart.

A Central Bank paper published in early March noted that the assets and number of Russian-sponsored SPVs had declined in recent years, mainly due to a drop in vehicles linked to the country’s banks, as some were unable to issue new debt after the introduction of sanctions in 2014, when Vladimir Putin’s government annexed Crimea.

Waves of additional European sanctions since Russia invaded Ukraine in late February have affected the activities of more Irish SPVs that were set up by Russian banks and companies.

While SPVs, typically set up under section 110 of tax laws introduced in 1997 to make the State a global financing and fundraising hub, are not regulated by the Central Bank, it is a criminal offence for anybody in the State to be involved in any activity that breaches sanctions.

Prof Stewart said that the unregulated nature of SPVs, part of the so-called shadow banking world, poses untold risks for the wider international financial sector.

He said that the ultra-tax efficient status of SPVs should be removed in the first instance, adding that there needs to be a move at EU level to bring in legislation to regulate the wider sector.