How PwC scrambled to keep powerful Russian clients ahead of war sanctions

On March 1st, 2022, as Russia was intensifying an invasion that would kill thousands of Ukrainians within weeks, a manager at the accounting firm PwC in Nicosia, Cyprus, sent an urgent message to a colleague: A pair of clients was asking to immediately transfer $100 million between two shell companies they controlled.

The source of the money was Evraz plc, a steelmaker that produces 97 per cent of the rails that Russia’s trains use to move ammunition, military equipment and troops to the front line of its war in Ukraine.

Two months later, the UK, as part of a campaign to weaken the Russian war effort, declared Moscow-based Evraz “of strategic significance to the government of Russia” and sanctioned it by banning UK citizens and businesses from doing business with the company.

Before year’s end, the UK had also imposed an asset freeze and travel ban on the two PwC clients themselves, describing the men as part of the “cabal of selected elite” that Russian president Vladimir Putin relies on to maintain the industrial complex he has used to invade Ukraine.

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The PwC clients were Evraz’s long-time leaders: Alexander Abramov and Alexander Frolov. A pair of scientists and self-made billionaires, they navigated the chaos of the Soviet Union’s collapse to emerge atop one of Russia’s largest industrial conglomerates.

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Their urgent $100 million transaction request that PwC, headquartered in London and formerly known as PricewaterhouseCoopers, fielded in the first days of the war, was part of a broader effort to administer a sprawling network of investments that Abramov and Frolov controlled on at least three continents. The oligarchs’ holdings were routed through legal entities set up in jurisdictions known for attracting the ultra-rich by hiding their fortunes and helping them avoid taxes.

A review of leaked records and publicly available corporate reports by the International Consortium of Investigative Journalists (ICIJ) shows that PwC Cyprus provided services to at least 62 shell companies and trusts controlled or owned by Abramov and Frolov – some of which the oligarchs used to structure their Evraz holdings.

Those findings are part of Cyprus Confidential, an ICIJ investigation into a cache of 3.6 million leaked documents from six Cypriot financial service providers and a Latvian company that sells Cyprus corporate registry data. The records contain a large number of internal company documents involving PwC Cyprus dating back to the mid-1990s, but mostly generated between 2014 and 2022.

Abramov and Frolov did not respond to requests for comment. A senior Cypriot lawyer who has worked for them declined to comment, citing client confidentiality.

The records show that in the weeks after Russia’s full-scale invasion of Ukraine, wealth managers at PwC Cyprus scrambled to help rich Russian clients under imminent threat of sanctions – like the ones imposed on Abramov and Frolov – shift hundreds of millions of dollars between secretive shell companies. Sometimes these transfers involved handing over big assets to family members, a well-known way to evade sanctions.

PwC Cyprus appeared careful to avoid doing business with anyone under European Union sanctions, which could have violated the law. However, on at least one occasion the firm appears to have worked with a Russian billionaire to complete a large asset transfer to his wife just after the European Union imposed sanctions on him. Authorities have declared the asset transfer invalid and launched a criminal investigation.

For PwC Cyprus, providing services to Russians who are the subject of western sanctions is nothing new. Before Russia’s February 2022 invasion of Ukraine, the accounting firm’s client roster included a dozen Russians who were already under sanctions around the world due to their involvement in their government’s illegal 2014 annexation of Crimea and military aggression in Donbas.

After the 2022 invasion, an additional 39 of PwC Cyprus’ Russian clients were hit with sanctions by the EU, UK, United States or Ukraine because of their close ties to Putin or their prominent roles in economic sectors critical to his regime’s war in Ukraine. Most of the more recent documents in the Cyprus Confidential investigation are dated no later than April 2022, so it’s unclear whether PwC Cyprus has continued to provide services to its many Russian clients who are the subject of western sanctions.

Citing the need to maintain confidentiality, PwC declined to comment on its business with clients. It added that it complied with EU and United Nations sanctions before Russia’s February 2022 invasion and has since severed ties with 60 clients as a result of the company’s new Russia-related sanctions policy.

“PwC’s internal standards are reviewed and updated to reflect both lessons learned and changing circumstances,” Mike Davies, a PwC spokesperson, said in a statement, “and we do not hesitate to take action when our standards are not met. Any allegation of non compliance with applicable laws and regulations is taken very seriously, investigated and appropriate action is taken if necessary.”

The firm said its Cyprus office had “pivoted to a new economic model fit for the future, transforming its business” and pointed to the office’s annual report for 2022. PwC Cyprus’ fiscal 2023 annual report, released in September, cited a “significant contraction” in business related to implementing the global sanctions policy.

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Not long after the invasion of Ukraine, PwC joined an exodus of western companies, declaring that it was separating itself from its Russian affiliate.

“PwC member firms outside of Russia are exiting any work for Russian entities or individuals subject to sanctions,” the company said at the time.

Professional service providers are in some instances permitted to work with such clients, even when their work appears to conflict with western efforts to slow Russia’s war machine. The US allows lawyers to represent sanctioned entities in court and other Government matters. American lobbyists can also obtain licenses to work for them. PwC and other firms face the same restrictions as everyone else when governments impose sanctions on citizens and companies.

Often, these sanctions freeze the Russian entity’s assets and prohibit the sanctioning state’s citizens from doing business with them. This means PwC Cyprus is obliged to comply with sanctions imposed by its Government and by the EU but not legally required to abide by other western restrictions. “They’re perfectly within their rights to keep doing this work,” says Casey Michel, director of the Combatting Kleptocracy Program at the Human Rights Foundation, “but it points to the rot at the heart of the accountancy industry.”

At the centre of Russian oligarchs’ secretive financial networks are PwC and other western service providers that incorporate and maintain trusts and shell companies, recruit individuals to serve as directors, and handle duties such as filing audits and tax returns. Together they form what Northwestern University political science professor Jeffrey Winters describes as the “wealth defence industry.”

“Putin can use it for whatever he needs,” Winters says, “and it’s safe to assume he’s using it to sustain his war efforts.”

PwC’s is the world’s second-largest accounting firm, with more than 295,000 employees in 156 countries. It operates not so much as a unified company but like a loose affiliation of independent franchisees offering audit, legal, consulting and tax services.

“The PwC network is not a global partnership, a single firm, or a multinational corporation,” its website explains. “For these reasons, the PwC network consists of firms which are separate legal entities.”

Often operating from Cyprus and other “secrecy jurisdictions,” which are known for keeping financial information under wraps, firms like PwC help maintain secret trusts and anonymously owned shell companies that obscure questionable sources of income and hide the ownership of yachts, mansions and politically connected payments. (In Cyprus, financial service providers are required to disclose to regulators the identity of the beneficial owners of the companies they administer, but this information is not always publicly accessible.)

Today, PwC Cyprus has over 1,100 employees in accounting and other areas and generated revenues of more than $89 million in its latest fiscal year. With its Russian clients, PwC Cyprus has further amplified its importance through companies started by former PwC employees. Abacus Ltd was set up by former PwC Cyprus executives in 2001 and went on to work for Russians who were later sanctioned. Another PwC Cyprus partner left the firm six years later to form Cypcodirect.

A few months after Russia invaded Ukraine and PwC withdrew from Russia, three more PwC Cyprus partners departed to set up Kiteserve Ltd. Operating partly out of PwC Cyprus’s office building in Limassol, Kiteserve’s strategy is to “take on work from Russia-linked clients that the Big Four accountants will no longer touch”, the Financial Times reported at the time.

“Kiteserve’s operations are in full compliance with the laws and regulations of Cyprus, EU and of our regulator, the Institute of Certified Public Accountants of Cyprus,” managing partner Theo Parperis said in a written statement. “Kiteserve adheres fully to the sanctions imposed by the UN and EU, that are legally binding for Cyprus, as well as to the US and UK sanctions.”

Cypcodirect “has always been working in line with Applicable Laws and Regulations and following our Regulators guidance”, it said in a written statement. It declined further comment, citing client confidentiality and EU privacy regulations.

Abacus told ICIJ that it “took all necessary steps to fully comply not only with EU but also with UK and US sanctions immediately freezing all affected assets under its control, terminating the provision of its services and making all necessary reports.” Abacus said it “is fully aligned with the effort to stop Russian aggression in Ukraine.”

Ties between PwC Cyprus and its network of partner firms extend clear across the Cyprus Confidential investigation’s trove of leaked documents: PwC Cyprus refers a Russian oligarch to Cypcodirect, and the firms divide the labour of administering his network. PwC Cyprus provides public-facing audits and signs mundane paperwork. Cypcodirect practices the murkier financial arts of putting forth its employees as “nominee directors” and setting up shell companies that conduct no actual business but shroud ownership.

Cypcodirect was so closely tied to its predecessor early on that during its first five years in business its employees received medical benefits from PwC Cyprus, according to a written summary of a Cypcodirect meeting. ICIJ’s review found that clients shared by PwC Cyprus and Cypcodirect controlled a total of more than 250 shell companies between them. Some clients were subject to sanctions around the world, others would soon be sanctioned, and others were linked to arms smuggling or belonged to Putin’s inner circle.

In April 2018, a PwC Cyprus executive sent an email assuring a Cypcodirect colleague that the firms could continue doing business with a Cypriot entity whose ultimate owners were under EU and US sanctions over the 2014 invasion of Crimea. “There is no legal impediment for us from the sanctions perspective,” the PwC executive wrote.

“I kindly ask you to consider the same and release IMMEDIATELY all pending requests from our common client.”

Alexey Mordashov is another shared PwC Cyprus-Cypcodirect client. The son of steelworkers who has recounted how as a child his parents relied on welfare coupons to make ends meet, he later attended business school in the UK and rose to become chairman of Severstal, one of Russia’s largest steelmakers. Mordashov, with a net worth that Forbes estimated at $21 billion, turned to PwC Cyprus to route assets through dozens of offshore entities he controlled.

They included his 64m high-speed yacht, a private jet and a globe-spanning investment portfolio. Over the last few years PwC Cyprus also audited the accounts of at least 25 companies owned or controlled by Mordashov, an ICIJ analysis shows. PwC Cyprus and Cypcodirect continued working with Mordashov even after elements of his business empire came under US sanctions following the Crimea invasion.

In 2018, US authorities sanctioned his wind turbine company, Power Machines, for working to “support Russia’s attempted annexation of Crimea” by seeking to create a Russian-controlled power supply in the occupied region. Despite the sanctions, PwC Cyprus and Cypcodirect continued helping to administer shell companies that Power Machines owned.

On March 1s, 2022, the day after the EU sanctioned Mordashov, PwC Cyprus and Cypcodirect exchanged communications marked “URGENT” and “PLEASE APPROVE.”

They were part of a bid to help Mordashov elude sanctions that threatened to freeze a $1.4 billion investment in TUI Group, a German travel company, by transferring ownership to, Marina Mordashova, a woman the EU has identified as Mordashov’s wife. Three months later, in early June 2022, she was sanctioned by the U.S. and the EU. The German Government and TUI have declared the share transfer invalid.

The Cypriot Government has also opened a criminal investigation into the matter, a finance ministry official told Paper Trail Media in November. “PwC Cyprus is not aware of such a criminal investigation being carried out,” the company said in a written statement. “Whenever there is a reportable event, PwC Cyprus takes appropriate action.”

“All information and regulatory notifications with respect to the share transfer were duly disclosed to the relevant authorities and made public to the extent legally required,” Mordashov spokeswoman Anastasia Mishanina said in a written statement. “Not once in his long career did Mr. Mordashov, or any of the companies he runs, breach any laws, whether in Europe, Russia, or any other jurisdictions.”

Oleg Deripaska – an industrialist and close Putin ally – turned to PwC Cyprus and Cypcodirect to help administer the firms that held his $70 million superyacht, the Clio, which has variously been described as a “floating mansion” and the “quintessence of yachting luxury.” PwC Cyprus helped open bank accounts and filed annual audits for one of the firms, Luxotic Yachting Ltd, which held the yacht. PwC Cyprus listed “Cypcodirect” as Luxotic’s shareholder.

Its trio of directors were Cypcodirect employees; one or more of their names appear as directors of hundreds of companies jointly administered by PwC Cyprus and Cypcodirect. But Deripaska’s name does not appear on any of Luxotic’s public filings reviewed by ICIJ.

A spokesperson for Deripaska did not respond to questions about Luxotic but appeared to deny currently owning the yacht. The spokesperson did not respond to follow-up questions. In late September 2023, Deripaska granted an interview to the Financial Times during which he dismissed western efforts to isolate oligarchs financially.

“It’s a kind of instrument of the 19th century,” he said of the sanctions. “We can’t see that it would be efficient in the 21st century.”

Contributors: Tanya Kozyreva, Scilla Alecci, Eve Sampson, Sophia Bauman (Paper Trail Media) Maria Christoph (Paper Trail Media), Kira Zalan (OCCRP)