Cypriot company's assistance to the "Orthodox oligarch"

According to sources, an oligarch who is charged with funding pro-Russian separatists in eastern Ukraine continued to move millions of dollars through the international banking system with the aid of a Cypriot financial services company after being subject to sanctions by western nations.

The US government has referred to Konstantin Malofeyev, a banker whose commercial ventures include the Kremlin-supporting Tsargrad media conglomerate, as "one of the main sources of financing" for the advancement of Russian interests in Crimea and eastern Ukraine.

Malofeyev, who is referred to as the "Orthodox oligarch" due to his backing of the Russian church, has called the present assault on Ukraine a "holy war." He was one of the most well-known people to be subject to sanctions following Russia's takeover of Crimea; the EU restricted him in July 2014 and the US in December of the same year.

However, the Organised Crime and Corruption Reporting Project, indicates that he continued to use the services of the Cypriot accounting and offshore services company MeritServus over the course of the next three years. These officers appeared to assist businesses connected to Malofeyev in money transfers and the issuance of loans, including those in US dollars.

Following additional disclosures from the Guardian concerning MeritServus' role in moving money for the former owner of Chelsea football club Roman Abramovich, the UK government last week imposed sanctions on the company.

The details, which came from a leak of documents known as the "Oligarch files," will renew questions about financial oversight in Cyprus, an EU member that has long supported the flow of Russian wealth into Europe and other parts of the world.

Up to the spring of 2017, when it ceased representing Malofeyev, the firm appears to have continued assisting with transactions of an estimated $35 million (£28 million) and €2.5 million (£2.2 million). It appears that some of the work may have violated EU sanctions as well as Cypriot law, which considers non-compliance with sanctions to be a crime.

MeritServus said that before being subject to UK sanctions, company provided regular services with the necessary permits from authorities. It continued by stating that it had not engaged in "money laundering or breaches of sanctions laws, nor has it facilitated, condoned, or turned a blind eye to the same".

Additionally, MeritServus said that Malofeyev had "inadvertently not identified" as being on the sanctions list. The company claims that after learning of the problem in 2017, it immediately alerted the Cypriot accounting regulator, ICPAC, and the government agency in charge of fighting money laundering, Mokas, and "the position was resolved" with both organizations.

When initially contacted for response, ICPAC stated that following the matter's discovery, it called MeritServus to its offices and demanded full disclosure as well as that the company "take all necessary steps pursuant to the law." It continued by stating that based on the information provided, it was determined that MeritServus had not violated any EU or UN sanctions. The director of ICPAC later stated that the organization will "evaluate the situation and consider if it would be warranted to take any action thereon" after MeritServus was also subject to sanctions.

According to Mokas, it "has no legal mandate to implement or supervise the implementation of sanctions."

A representative for the Cypriot government stated that the nation's support for EU sanctions "was clear and unequivocal" and that cooperation between the Cypriot government and its counterparts in London and Washington was "exemplary and mutually beneficial." "The individuals and entities listed in these latest sanctions have already been submitted to the competent authorities of the Republic of Cyprus and are being studied with due care," he continued.

Malofeyev invested his riches in creating a media empire, whose Christian Orthodox Tsargrad television station has evolved into a propaganda tool for Vladimir Putin's government, after launching the private equity firm Marshall Capital Partners, whose investors included the French insurance company Axa.

He reportedly hired the former FSB colonel Igor Girkin to serve as his security, and Girkin eventually rose through the paramilitary ranks to become the region's self-declared minister of defense in eastern Ukraine's separatist Donetsk while another former Malofeyev colleague was appointed governor.

In relation to the missile attack on Malaysia Airlines Flight MH17 over eastern Ukraine, Girkin was later found guilty. 298 persons died in the plane crash.

The Oligarch files are a collection of paperwork leaked from MeritServus, a Limassol-based company started by former Deloitte partner Demetris Ioannides.

As a nominee shareholder, MeritServus frequently used subsidiaries to hold stock in firms for the real owners, effectively hiding their assets from view.

The records show that Malofeyev appears to have started out as a client in 2005, the same year he founded his private equity company. He executed a "trust deed" authorizing MeritServus to hold shares in Tinello Investments Ltd, a recently established Cypriot business, on his behalf. The shares were kept through a division called Finservus (Trustees) Ltd, which served a variety of clients for this use.

Malofeyev was reportedly the beneficial owner of Tinello Investments for the 12 years he used MeritServus' services, according to records reviewed by the Guardian. It appears that the businessman used it to grant loans to several divisions of his enterprise.

After 2014, it doesn't appear that the business stopped representing the oligarch; instead, it appears to have assisted him with the paperwork for numerous significant transactions. For instance, on March 30, 2015, Tinello moved the ownership of a $17 million loan to Aguilas Trading Ltd, a Seychelles business whose director Malofeyev had previously served, from Isma LLC, a Russian company in his Tsargrad media group. The same day, Tinello gave Aguilas Trading the rights to a $3.6 million loan that was originally given to Tureya LLC, another Russian business in Tsargrad.

MeritServus also created the paperwork for the exchange of US-dollar debt for Russian rubles. In a document dated July 31, 2016, it appears to approve the conversion of a $14 million loan Tinello had previously given to SNM LLC, a different Tsargrad group affiliate, into Russian currency.

MeritServus not only facilitated transactions in US dollars but also in euros. On March 19, 2015, a representative of MeritServus executed a contract instructing the Porthos Management Inc., a subsidiary of Malofeyev's business group based in Panama, to transfer rights to an existing €2.5 million loan to Tinello.

Irene Kenyon, a former senior intelligence officer at the US Treasury, was questioned about the transactions and responded, "If this company was issuing loans to Malofeyev as a sanctioned individual using US dollars then I would think they’d be in violation. Those who are allowing sanctioned individuals and entities to transfer money are opening a gate to access the global financial system."

The transactions could violate Cypriot law, according to Christos Clerides, head of the Cyprus Bar Association, which mandates that all citizens and entities of the country abide by all EU and UN sanctions.

Clerides stated: "By providing services to a sanctioned individual, a corporate services provider like MeritServus would have been in breach of Cyprus’s 2016 law that was introduced to implement EU and UN sanctions."

For individuals, breaches can result in up to two years in prison, a €100,000 punishment, or both; for legal entities like companies, breaches can result in a €300,000 fine.

At least one of the transactions appears to have taken place after the law's implementation in April 2016.

In 2017, MeritServus seems to have made the decision to quit acting for Malofeyev. It returned the shares it had been holding for him on a trust in May of that year. A document stating that Malofeyev had taken over Finservus' position as Tinello's shareholder may be seen in the Cyprus corporate registry.

By fLEXI tEAM