It was Christmas 2011, one year after Roman Abramovich took delivery of his luxury superyacht, Eclipse. Contrary to expectations, it was confirmed that the oligarch had chartered his yacht to a British Virgin Islands-based company. Yet, photographs from that day depict Abramovich enjoying the Caribbean sun, standing proudly on Eclipse’s swim platform, with its distinctive 'E' logo behind him.
The chartering records form part of a wide-ranging scheme, spanning over a decade, to mislead tax authorities, now unveiled in a detailed investigation by the BBC and the Bureau of Investigative Journalism. This elaborate tactic presented Abramovich's collection of luxury yachts as a legitimate commercial leasing operation, thereby dodging substantial sums in VAT regarding their acquisition and operational expenses.
"There has been tax evasion," declared Tommaso Di Tanno, an Italian tax lawyer and professor, while emphasizing the criminal nature of such actions. Lawyers representing Abramovich asserted he "always sought independent expert tax and legal advice" and adhered to it.
The billionaire, now residing between Istanbul, Tel Aviv, and the Russian resort of Sochi, acquired five opulent yachts throughout the 2000s, all of which were intricately linked to the tax scheme. Among these, the extravagant Pelorus, measuring an impressive 115m (377ft), was previously lent to Chelsea soccer star John Terry for his honeymoon, while the massive 162.5m (533ft) Eclipse, once the world's largest private yacht, is valued at approximately $700 million (£559 million).
The details of the tax avoidance strategy are drawn from over 400,000 leaked documents and 72,000 emails originating from a Cypriot corporate service provider, MeritServus. These files reveal how the firm managed Abramovich's business interests through an intricate web of companies operated by various trusts, with him as a key beneficiary.
These ongoing revelations come as part of the Cyprus Confidential investigation led by the International Consortium of Investigative Journalists, focusing on unearthing illicit financial connections linked to associates of President Vladimir Putin. Previous reports disclosed Abramovich's financial ties to one of Putin's closest allies, alleged to be safeguarding the president’s wealth.
The investigation has revealed that Abramovich's advisors facilitated means for him to escape large tax obligations on his superyachts' operation within European waters. This was accomplished through leasing arrangements wherein the yachts were essentially rented back to companies that he controlled, though these entities appeared to be independent.
A memorandum from 2005, which outlines the structured operation of Abramovich’s yacht management, explicitly states the intent to sidestep VAT on yacht purchases and related services. The memo's author, Jonathan Holloway, cautioned his associates about the risks of this maneuver, acknowledging that a persistent investigator could eventually unravel the "in-house structure."
Holloway further emphasized the necessity for the companies involved in this scheme to display an unconnected facade—avoiding any ownership overlaps to evade suspicion. The operational structure was manipulated as evidenced by the transfer of the yacht management company Blue Ocean to a separate trust, distancing it from the remaining entities.
Tax experts have since reviewed the documentation and claimed the arrangement represented an "artificial structure" designed to evade taxes—an assertion that raises serious legal questions concerning Abramovich's business practices.
Holloway, who has since retired from Blue Ocean, claims he oversaw many vessels during his tenure and cannot recall specifics. Meanwhile, Abramovich’s lawyers stress he was never informed about or held accountable for allegations of tax deception.
Even though legitimate commercial operations typically yield substantial profits, Blue Ocean's financial records from 2005 to 2012 indicate expenses consistently matched income, resulting in minimal corporation tax obligations. This raises further suspicions regarding the legitimacy of the venture.
Additionally, leaked documents hint at backdated charter agreements aimed at securing duty-free fuel for Abramovich's yachts, resulting in considerable tax savings. A tax consultancy's communications have emerged suggesting that if the yachts were deemed pleasure vessels, corresponding VAT would apply. However, the contracts used were more aligned with commercial shipping, illuminating the misrepresentation at play in Abramovich's operations.
The investigation has also identified previous legal scrutiny faced by Abramovich's yacht scheme, which included inquiries into unpaid excise duties by Italian authorities. Although the charges were dropped after Blue Ocean's lawyers intervened and produced purportedly legitimate documentation, critical questions surrounding the operations persist.
Separate investigations into the company's VAT obligations highlighted a staggering €17 million (£14.3 million) in unpaid VAT, leading to disputes about Blue Ocean's classification as a commercial entity. Despite contesting these claims, evidence suggests no substantiating documentation could be provided to validate the commercial claims for chartering the yachts, leading to a reduced pursuit of €14m (£11.8m).
As the investigation into Abramovich's intricate web of financial transactions continues, the implications of these revelations could further extend beyond financial liability, probing into the ethical boundaries of wealth management and the enforcement of international tax laws against the wealthy elite. The Cyprus Confidential investigation persists in shedding light on broader financial crimes linked to prominent figures affiliated with the current Russian regime.
