SECTION 110: LAW THAT CAN GENERATE BILLIONS FOR OLIGARCHS

IF you are a Russian oligarch and you own or control a bank you will likely be a fan of Section 110 of Ireland’s Taxes Consolidation Act.

Section 110 is the law that allows Ireland’s shadow banking sector to operate via companies called Special Purpose Vehicles (SPVs) which don’t have to pay any tax here.

Thanks to Section 110 and its SPV rules, Ireland has the thirdlargest shadow banking sector in the world. Although Ireland earns no direct tax from these SPVs, financial service providers and blue-chip firms share in a bonanza estimated to amount to €100m annually. Here’s how it works: Firstly, the Russian bank hires a Dublin-based corporate service provider to register a new public limited company (PLC) in Ireland which can be traded on the stock exchange. The service provider provides a brass-plate address for the new PLC. The IFSC has single offices where hundreds

and hundreds of SPVs are officially headquartered. In reality, the offices belong to the corporate service provider, who also provides a handful of Irish-based individuals to act as directors of the SPVs. It is not unusual for employees of IFSC service providers to act as a director of 150 or more shell companies. But in reality, they have no beneficial or controlling interest in the SPV they are a director of – other than the fact that they are paid to be named as a board member. Then, the Russian bank uses its new Irish PLC to offer bonds for sale to investors, which raise billions for the new brass plate PLC. Each bond is nothing more than a promise – backed by the Russian bank – that a guaranteed interest rate will be paid annually. In this way, many new Section 110 SPVs in Dublin can immediately generate billions from nothing more than an IOU. It is not unusual at all for an IFSC-based SPV with no staff to have several billion euro in the bank.

This in turn generates fees for Irish banks, auditors and lawyers who keep everything on track.

These funds are then lent to the Russian bank behind the scheme and hey presto an oligarch suddenly has access to billions generated through a shell entity in Ireland.

There is also a more sinister twist – known as ‘round tripping’ – that Ireland’s Section 110 laws make possible. Here, the person buying the bonds is actually the oligarch behind the scheme who wants to legitimise funds obtained illicitly. This is possible because the identity of bondholders remains secret.