An inconspicuous Dublin firm played a key role in bringing Russia into the global financial world

If Cafico’s services were discreet, its clients were anything but: companies linked to President Vladimir Putin’s regime, including VTB Bank and Russian Railways JSC, industrial powerhouses with ties to oligarchs like Oleg Deripaska and Roman Abramovich and lenders systemic to the country’s economy, such as Sovcombank PJSC and Credit Bank of Moscow.

Along with other business services firms like Amsterdam-based TMF Group and Hong Kong-based Vistra Group, Cafico is part of a network of invisible middlemen who have helped Russian companies raise at least $145 billion (€137 billion) over the past decade about $65 billion outstanding, a third of which is linked to Cafico, according to a Bloomberg review of financial and regulatory records.

The numbers suggest that while Russia’s tycoons were known for splurging on luxury real estate in London and partying in Monaco, some of the most important workings of their empire took place in a nondescript office block in Dublin.

But the full-scale invasion of Ukraine has now turned the industry upside down. Cafico’s customers face international sanctions, the borrowings they and others arranged have fallen to pennies against the dollar, and banks are delaying or even blocking payments while trying to stay on the right side of restrictions.

With Russian business relations now stigmatized, Ireland’s role in promoting the business is also being spotlighted. The issue has been raised in parliamentary debates, with some lawmakers referring to “dirty money” in Ireland, which has long battled allegations that it is a corporate tax haven.

For their part, corporate service providers are trying to break free and dump the Russian clients they once courted, which is easier said than done. Firms have expressed horror at the war — Cafico says it goes against its values ​​– but industry critics have little sympathy.

“Where were those assets after the Crimea invasion,” asked Sinn Féin TD Mairéad Farrell, who said Cafico served a “disproportionate number” of Russian customers. “It’s too little, too late.”

According to data from Bloomberg, Russian companies have been using empty shells to raise money for a little over two decades, and the business has hardly skipped a beat since the 2014 Crimea invasion.

By establishing themselves in Ireland, for example, they benefit from regulatory regimes that international investors are more familiar with, while also benefiting from special tax benefits.

The standalone entities — known as special purpose vehicles, or SPVs — can be used to issue securities, called loan participation notes, which can be listed on local exchanges and sold to international investors, with proceeds going back to their sponsors.

And for the companies that offer such services, the business is a profit maker. They often have dozens if not hundreds of SPVs on their books. Each company pays up to €20,000 in fees each year, estimates James Stewart, a professor of finance at Trinity College Dublin who has studied the sector.

Russian companies have been big users of SPVs and the LPN structure, data analyzed by Bloomberg shows. They’ve borrowed more than twice as much foreign currency through this process as other types of borrowing have in the past decade.

According to Angela Gallo, finance professor at the City University of London, the figures suggest that they have become “the predominant mode of accessing foreign currency for Russian firms”.

“SPVs are the infrastructure that allows capital to flow in and out of Russia,” she said. “Russian companies need access to global capital markets to raise capital, and global investors need risk to enhance their returns. Think of business service providers as bridges that enable parallel flows of capital.”

Rodney O’Rourke, an Irish solicitor who controls Cafico, did not respond to calls and emails seeking comment. Yolanda Kelly, director of finance, declined to comment beyond a company statement in March.

Meanwhile, firms hired to validate shell company accounts have begun to abandon ship, with at least seven Irish-based SPVs having received termination letters since the invasion. KPMG, EisnerAmper, Mazars and Grant Thornton have left, with Grant Thornton citing concerns about violating sanctions.

For years, European regulators have been in the dark about the size of the SPV industry and who is behind the transactions. When officials at the Central Bank of Ireland surveyed the sector in 2015, they uncovered hundreds of opaque companies that collectively hold assets larger than the country’s gross domestic product.

Ireland-based SPVs still hold around €37 billion in Russian-issued assets.

Even before the war, critics questioned whether they were concealing risks and wrongdoing.

The Credit Bank of Moscow used a Cafico vehicle to borrow billions of dollars despite being a close business partner of sanctioned state oil giant Rosneft. Vneshprombank Ltd took out a $225 million loan through a Cafico SPV to collapse in 2016 amid allegations that executives stole its assets and falsified accounts.

Tatfondbank PJSC, one of the country’s largest regional banks, used an SPV arranged by TMF to sell $60 million in bonds just weeks before it imploded amid a cloud of accusations.

Founded in 2012 by Mr O’Rourke, Cafico is little known in Dublin business circles while his Twitter account has fewer than 100 followers. Nevertheless, it has been actively courting Russian companies for years and once even operated a Russian-language site.

The industry has attracted some well-funded investors. The British private equity firm CVC Capital Partners bought TMF in 2017 for 1.8 billion euros. Warburg Pincus was considering a potential bid for Vistra late last year that it would have valued at up to $5 billion.

Cafico is smaller but still lucrative. At the end of 2020, the company had more than 4.5 million euros in shareholder funds.

But that steady stream of income has now turned into a nightmare.

“Cafico has stopped and continues to stop providing services to all Russia-connected customers,” it said in early March.

TMF chief executive Mark Weil says the company has done business with Russia for the past decade because it’s “completely legal.”

Now looking to fire most of those clients, he’s gearing up for a million-dollar hit, largely because he’s “walking off the revenue.”

Last month, a Dublin-based SPV called PhosAgro Bond Funding DAC said it had made no interest payments to bondholders.

The company has borrowed $1.5 billion through bond sales in recent years, transferring the funds to PhosAgro PJSC, the Russian fertilizer giant controlled by sanctioned oligarch Andrey Guryev, whom the UK describes as a “close collaborator” of Putin.

In Luxembourg, the story is the same. This is home to Steel Capital SA, an SPV affiliated with Severstal PJSC, the steel conglomerate controlled by sanctioned oligarch Alexey Mordashov. The company, which is in technical default, is operated by Vistra.

Sylvia Evans, a spokeswoman for Vistra, said the company “had very limited business relationships with customers in Russia, even before the Ukraine crisis”.

Similar clues have been landing thick and fast since March.

Russian Railways owes billions through a Dublin-based SPV but says it can’t pay back. An SPV linked to potash mining company Uralkali PJSC and controlled by tycoon Dmitry Mazepin is saying the same thing. Sovcombank, which borrowed $300 million as recently as November but is now under sanctions, has also struggled to make payments.

And at the end of every message: a Cafico-specific e-mail address.