Accused of safeguarding oligarchs’ wealth
In March 2023, amid a wartime clampdown on secretive Russian financial networks around the world, the accounting giant Deloitte publicly denied having any recent affiliation with an obscure financial firm in the Mediterranean republic of Cyprus.
The firm, MeritServus, was on the verge of being sanctioned by British authorities for helping hide assets tied to a key billionaire close to Russian President Vladimir Putin.
“Since 2005, MeritServus has not been part of, or affiliated with, Deloitte Cyprus or any other Deloitte firm,” the accounting firm told The Guardian.
Deloitte had good reason to make the statement: MeritServus had started as a division of Deloitte in Cyprus and was now coming under intense scrutiny from media and regulators.
But Deloitte’s statement masked more than a decade of the two firms’ official business relationship, according to corporate filings in Cyprus and leaked email exchanges.
MeritServus’ managing director, Demetris Ioannides, a former Deloitte partner, sat on the board of a Deloitte subsidiary in Cyprus that oversaw consulting operations in Russia, Ukraine, Belarus and other countries, and signed off on numerous management decisions, records show. What’s more, MeritServus itself served as corporate secretary of the Deloitte firm, responsible for things like meeting minutes, corporate recordkeeping and filing annual financial statements. The directorship lasted well into 2023, according to corporate records, nearly 20 years after Deloitte said it severed official ties with MeritServus.
The records also show its relationship with MeritServus brought Deloitte extensive work on shell companies and trusts controlled by now-sanctioned Russian billionaire Roman Abramovich.
Russian President Vladimir Putin speaks as billionaire businessman Roman Abramovich looks on during a meeting in Sochi, Russia in 2016.
Deloitte did not respond to questions about Ioannides’ position as director of — and MeritServus administering — several of its Cyprus units or why it publicly denied any affiliation with MeritServus since 2005. In a statement provided to ICIJ, Deloitte said it believed it had complied with the law after it shed its Russia-linked businesses in response to the 2022 invasion of Ukraine. “Deloitte acted rapidly to separate our practices in Russia and Belarus from the Deloitte global network,” the firm said. “We believe that all separation-related actions were informed by and in compliance with local laws and regulations.” The firm added that its Deloitte Cyprus operation was required to “exit a number of client relationships” under the 2022 rules, and that “those exits were completed.”
The records detailing Deloitte’s extensive work with MeritServus were among a cache of 3.6 million leaked documents at the heart of Cyprus Confidential, a global investigation by the International Consortium of Investigative Journalists and 68 media partners, first published in November 2023. Hundreds of thousands of the leaked documents came from MeritServus.
About the Cyprus Confidential files
The 3.6 million leaked files at the heart of the Cyprus Confidential investigation come from six financial services providers and a website company.
The Cyprus Confidential probe examined the activities of a number of global firms. This included reporting on the close affiliation the accounting giant PwC maintained with a different Cyprus-based firm serving Russian billionaires, providing public-facing audits and tax work while PwC affiliates set up shell companies and trusts. ICIJ’s reporting also showed that PwC helped Russian billionaires rapidly move assets in 2022 as wartime sanctions loomed, including $1.4 billion for Russian billionaire Alexey Mordashov on the day he was sanctioned by the European Union.
Together, the documents reveal a troubling willingness of global accounting firms to provide audits and other services to entities registered in secretive offshore jurisdictions and ultimately controlled by members of Putin’s inner circle and others who have contributed directly to his Ukraine war effort.
“These oligarch-affiliated trusts and shell companies should have at a minimum raised red flags for financial crime,” Justyna Gudzowska, an attorney specializing in financial crime and sanctions who has worked for the U.S. Treasury Department’s sanctions office, told ICIJ after reviewing records detailing Deloitte and MeritServus’ work together. The records, she said, offer an example of lax oversight of the accounting profession. “Accounting firms have for too long flown under the radar,” Gudzowska said.
‘Air of legitimacy’
Ioannides, now 81, got his start in Cyprus’ growing financial industry by establishing the Cyprus branch of Deloitte in 1988. Over the next two decades, Ioannides made a name for himself in an industry of Cypriot lawyers and accountants that helped to move vast fortunes — many of questionable origin — out of Russia. MeritServus was founded as a Cyprus-based division within Deloitte. In 2005, after U.S. regulators strengthened rules requiring auditors to maintain independence from the firms they audit, MeritServus split from Deloitte to become a separate firm, according to internal records.
Its new independence allowed MeritServus to appoint Deloitte as the independent auditor of the shell companies it administered on behalf of owners whose identities were often kept secret in public filings. Records show MeritServus, which Ioannides ran with his son, Panos, routinely sent Deloitte this auditing business.
Along the way, MeritServus took on elite clients of its own, including Roman Abramovich, a Russian oligarch close to Vladimir Putin, who worked with MeritServus since at least 2001, according to The Guardian. Recent reporting revealed MeritServus’ work setting up and administering a vast constellation of offshore trusts and shell companies that Abramovich used to hold billions of dollars. Abramovich has been linked to a covert financial network suspected of secretly holding assets on behalf of the Russian president and, in one case, he used a Cyprus-registered shell company to buy an apartment for Putin’s childhood teacher. Abramovich has denied having a financial relationship with Putin.
Experts say the imprimatur of a global accounting powerhouse like Deloitte on accounting statements can lend a shell entity the appearance of respectability in the eyes of police, tax authorities and the public.
“These people are only able to hide their money because big firms like Deloitte are adding some air of legitimacy to these financial mechanisms,” Debra LaPrevotte, a financial crime expert and former FBI agent, said referring to Russian oligarchs.
An offshore fortune
Thousands of pages of leaked emails show that, while Ioannides served as director and MeritServus administered portions of Deloitte’s business in Cyprus, the two firms collaborated intimately to support Abramovich’s vast offshore network.
In early February 2022, Abramovich began shifting the ownership of at least seven of his trusts to his children in an apparent bid to avoid anticipated sanctions, The Guardian later reported. Leaked records now show that in September and November 2021, after Russian troops started amassing near the Ukraine border, Deloitte signed agreements with Ioannides and MeritServus to provide auditing and other corporate services to nine Abramovich-controlled trusts registered in Cyprus. The records include Ioannides and other MeritServus employees approving Deloitte engagement letters for audits covering a nine-year period of activity of the Abramovich trusts, which reportedly hold billions of dollars. These include the Europa Trust, KPG Trust, HF Trust, Grano Trust, Proteus Trust, Zeus Trust, Perseus Trust, Ermis Trust, and Zephros Trust. Deloitte’s role in these trusts has not previously been reported.
Last year, the BBC reported that in 2010, two Abramovich-controlled shell companies transferred roughly $40 million in assets to a company nominally owned by Sergei Roldugin. U.S. authorities call Roldugin “a custodian of President Putin’s offshore wealth”, and another close Putin associate. The transfers to the Putin associates were done on extremely favorable terms, the BBC reported.
Corporate records show that MeritServus appointed Deloitte to perform audit services for the pair of Cyprus shell companies reported to have shifted the assets into the firms controlled by Roldugin and the other Putin associate. Records show that Deloitte signed off on the 2010 financial statements of the two Cyprus-registered shell companies, Finoto Holdings Ltd. and Grosora Holdings Ltd. The two sets of financial statements were signed by MeritServus employees acting as directors of the shell companies.
Finoto Holdings’ 2010 annual report and financial statements
Read document
The records show that Deloitte also submitted tax filings to Cyprus authorities for both Grosora Holdings and Finoto Holdings.
In auditing these transfers, Deloitte’s financial statements for the two shell companies noted no irregularities.
Deloitte did not respond to specific questions about its work on trusts and companies controlled by Abramovich.
Deloitte also worked with MeritServus employees to audit a British Virgin Islands-registered shell company called Wenham Overseas Ltd. that would be named in a June 2022 affidavit by an FBI agent in the U.S. government’s confiscation of two private jets owned by Abramovich — a Boeing 787 Dreamliner and a Gulfstream G650 — for alleged violations of U.S. export laws. In 2017, the BVI firm acquired the Boeing aircraft, which the agent said was scheduled to be customized to make it “one of the world’s most expensive private airplanes, worth approximately $350 million.” Records describing Deloitte’s audit services to Wenham appear in MeritServus’ customer files until at least 2019.
Official ties
In some cases, the relationship between MeritServus and Deloitte went even deeper than working with common clients. MeritServus and its chairman, Demetris Ioannides, went so far as to help manage pieces of Deloitte’s business, according to corporate records. Before and after the firms split, MeritServus and Ioannides administered several Deloitte subsidiaries based in Cyprus, with Ioannides serving as a director of Deloitte firms while MeritServus acted as their corporate secretary.
Until mid-2023, Ioannides held a board seat on a Deloitte subsidiary that controlled Deloitte consulting offices in Ukraine, Russia, Azerbaijan, Belarus and other former Soviet states, according to a recent corporate filing in Cyprus. Indeed, records show Ioannides appeared to exercise extensive management control over this firm, called Deloitte & Touche Regional Consulting Services Ltd. The full scope of the firm’s work is not clear, but, in 2011, The Kyiv Post reported that the firm had won a major contract to audit and evaluate the business operations of Russian state-owned oil giant Gazprom. As of 2020, this firm had 140 employees, according to its financial statements.
These people are only able to hide their money because big firms like Deloitte are adding some air of legitimacy to these financial mechanisms.
– Debra LaPrevotte, financial crime expert and former FBI agent
Leaked meeting minutes show that, as a director of the Deloitte firm, Ioannides signed off on an array of business activities. He approved large loans between Deloitte companies, an employee health insurance plan, dividend distributions, disbursements to tax authorities, agreements with third parties, address changes of the firm’s subsidiaries, and alterations to loan agreements between the company and individual executives at Deloitte, according to the records.
MeritServus’ involvement with Deloitte’s operations went so deep that, in 2010, one Deloitte attorney in Moscow appeared to mistake MeritServus for an arm of the accounting giant. “Thank you for regarding us as a part of Deloitte,” a MeritServus employee replied, “but strictly speaking, we need to be independent.” This nominal independence, the employee added, allowed MeritServus employees to sit on boards of directors of Deloitte subsidiaries.
According to its 2021 annual financial statement, Deloitte & Touche Regional Consulting Services Ltd. was owned by a holding company controlled by a Guernsey entity called the Deloitte CIS Foundation. ICIJ found little additional information about this foundation and Deloitte did not respond to questions about it.
MeritServus and its founder, Ioannides, suffered serious consequences after the United Kingdom imposed sanctions in April 2023. Earlier this year, the Institute of Certified Public Accountants of Cyprus, a national regulatory body, revoked the firm’s license to do business. Two related firms and Ioannides himself also lost licenses to do business in Cyprus, according to ICPAC.
Deloitte, meanwhile, has faced no known consequences for its work with the same customer — Roman Abramovich — who the U.K. cited in sanctioning MeritServus and Ioannides.
Ioannides couldn’t be reached and his son didn’t respond to ICIJ’s repeated requests for comment.
By Spencer Woodman
Image: Front picture Kostas Pikoulas/NurPhoto via Getty Images
November 14, 2024
