Malta home to subsidiary companies of sanctioned Russian Railways

Malta is home to a subsidiary of the state-owned Russian Railways, a company sanctioned by the European Union and United States.

Russian Railways is Russia’s state railway company, operating freight and passenger services while managing Russia’s railway infrastructure. The company has been included in international and European sanctioned companies lists.

The EU ban prohibits to “directly or indirectly purchase, sell, provide investment services for or assistance in the issuance of, or otherwise deal with transferable securities and money-market instruments, issued after 12 April 2022.

However, in 2009 the Russian corporation set up Black Sea Ferries in Malta, and today has assets of over €42 million. Its last accounts from 2015 show a loss of €7.4 million. One of its directors is Andrey Puchkov, who could be the VTB director whose name features on the US sanctions.

Black Sea’s former auditor was Nexia BT, the firm thrust into the limelight of the Panama Papers, and the company is housed at the corporate offices of Credence, the firm which had featured in the MaltaFiles leak of tax avoiding European companies and millionaires.

Black Sea Ferries has two other subsidiaries in Malta, including Black Sea Ferries Operator and Black Sea Ferries Shipping.

Russian Railways is a critical link between Russia and Europe. While its trains and tracks are not restricted, the sanctions could impact freight operations. Trains can still pass through Russia to reach China, but it cannot stop in the country.

Due to the financial nature of the sanctions, European companies might struggle to do business and carry out money transactions in Russia.

The US, UK and EU have targeted 13 state-owned enterprises and entities, including Alfabank, Gazprom, and Russian Railways. The estimated assets of all the companies stand at nearly $1.4 trillion.

Vladimir Skornyakov

Part of the EU sanctions prohibit companies from “selling, supplying, transferring or exporting, directly or indirectly” technology to Russian weapons makers, pharmaceutical companies, military communications units and shipyards.

Among the companies affected by this is Kamensk-Uralsky Metallurgical Works, or KUMZ.

KUMZ is a Russian downstream company that supplies aluminium plates and extruded products, with specialisation in forged materials.

Its chairman, Vladimir Skornyakov, bought a Maltese passport in 2016 through Henley & Partners.

Skornyakov rented a property at Tigné Point for €1,500 a month as part of his obligations before securing a passport. Despite this, he would often stay at local hotels during his visits to Malta. He spent a total 23 days in Malta, or five holidays, before being handed a passport.

Billionaire yachts

With Russian billionaires in spotlight since Vladimir Putin invaded Ukraine on 24 February, the world’s attention has also been turned on the riches of his allies and key oligarchs hit by a massive raft of international sanctions.

United States president Joe Biden said his administration will work with the to target Russian oligarchs by seizing “their yachts, their luxury apartments, their private jets.” One of these sanctioned billionaires’ yachts happens to be registered in Malta: the 236-foot Axioma owned by billionaire Dmitry Pumpyansky, who however has not been included in the initial list of sanctions against Russia. Pumpyansky is on a list of 96 “oligarchs” in Countering America’s Adversaries Through Sanctions Act, an American law which imposed sanctions on Iran, North Korea, and Russia in 2017.

Pumpyansky got his start as a trader, then oversaw several metals plants in the Ural in the 1990s before taking over the Sinarsky Pipe Factory. His TMK, a supplier to Gazprom since 1998, is the top supplier of pipes in Russia, with clients comprising Rosneft, Gazprom, Transneft, Lukoil, Shell, Total, Saudi Aramco and others.

It’s still unclear whether the EU, the US of the UK declare additional sanctions on other individuals.

Yachts tend to be used as ‘special purpose vehicles’ that also enable tax-free benefits on the investment, through leasing. Maltese laws classify the leasing of a yacht as a supply of a service, rather than a good. This allows owners to transfer the yacht to a company they own, and then lease out the yacht only when they use it. This results in VAT only being levied at the standard rate on a minor amount of the real cost price of the craft, the rest taxed as the supply of a service and at a greatly reduced rate. The European Commission withdrew its infringement proceedings against Malta in late 2020 on the VAT treatment of leasing of larger pleasure boats in Malta.

What is Malta doing?

Malta’s Financial Intelligence Analysis Unit (FIAU) advised businesses to regularly check sanctions list and screen their client databases and prospective ones for any sanctioned persons.

If financial companies identify anything, they must immediately notify the Sanctions Monitoring Board. Any attempts to carry out a transaction with an identified targeted property should also be reported to the board. And they must refrain from informing customers or third parties of any freezing measures taken against the target.

Sanctions can make it harder for financial businesses to carry out due diligence on their customers. The FIAU called for closer attention to risk assessment and beneficial ownership, as sanctions could lead owners to distance themselves from their entities or legal arrangements.

Companies must pay particular attention to customers with significant dealings in sanctioned countries or anyone connected to sanctioned individuals.

Any breach of sanctions is a predicate offence, and any earnings that stem from the activity are considered as proceeds of criminal activity.

The National Interest Act, which governs sanctions procedure, provides for hefty fines in the event of a sanctions breach. Violations carry a minimum 12-month prison sentence, to a maximum of 12 years in jail.

Additionally, convicted persons could be liable to a fine of no less than €25,000 but not exceeding €5 million. For legal entities, the fine stands at a minimum €80,000 up to a maximum €10 million.

Apart from financial sanctions, the EU suspended its agreement between the European Community and the Russian Federation on visa issuances, impacting the privileged access enjoyed by Russian diplomats and businesspeople into the EU market.

Certain trade restrictions arising from the sanctions mean EU companies can’t import goods from Donetsk and Luhansk oblasts, two breakaway regions in the Ukraine that were officially recognised to be independent by Russia. EU companies are also prohibited from dealing in real estate and providing tourism services in the two areas.

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