Questions arise about Russian business operations in foreign jurisdictions despite sanctions

Negotiations between the European Union (EU) and the United States regarding coordinated efforts to circumvent Russia-related sanctions have encountered challenges, with both parties no longer pursuing a unified approach. This information comes from German newspapers Süddeutsche Zeitung, NDR, and WDR, citing a report from Germany's Federal Ministry of Foreign Affairs.

As Süddeutsche Zeitung and WDR specified, the report was prepared following the EU Foreign Affairs Council meeting held in Brussels on May 20.

These findings raise important questions about the effectiveness of sanctions implemented against Russia following the escalation of the military conflict in Ukraine. The case of Transmashholding presents an illustrative example worth examining in this context.

Transmashholding is one of Russia's most significant industrial holdings. It specialises in producing equipment and railway transport, including for defence purposes. The company's evolution during the sanctions period offers insights into the complexities of international restrictions.

In April 2022, Transmashholding's president and Russian businessman, Andrey Bokarev, stepped down from his position and left the company's board of directors after being subjected to UK sanctions. Following this development, Kirill Lipa, the general director and another Russian business figure reportedly associated with entrepreneur Iskander Makhmudov and his business network, assumed a more prominent role in the holding. It should be noted that Lipa's position extends beyond that of a hired manager. While Transmashholding does not publicly disclose its shareholder structure, the holding has previously reported that its owners include several Russian businessmen, including Kirill Lipa. Additionally, the French company Alstom held a 20% stake in the holding. Both Transmashholding and its affiliated companies were registered in Cyprus at that time.

In September 2023, Transmashholding itself came under US sanctions. Subsequently, in November, the company's general director Kirill Lipa announced that Alstom, which owned 20% of the holding's shares, would sell its Transmashholding stake to Russian shareholders (https://techzd.ru/news/tzhd-news/dolya_bez_nalogov/). In 2024, Transmashholding reported that the French company had sold the share package, and the holding had changed its registration address.

According to available information, Alstom ultimately received 75 million euros for its share package, compared to the 390 million euros the French company had initially been paid to acquire this stake. This transaction resulted in a significant financial difference of approximately 315 million euros. Questions arise about how such transactions align with the intended effects of international sanctions and whether all parties benefited equally from this arrangement.

An additional point of interest: Despite claims that Transmashholding has completely relocated to Russia, Transmashholding Ltd remains registered in Cyprus. This is also true for other companies associated with Transmashholding's activities, including Tasmonero Investments Limited and Fredlake Holdings.

These companies merit attention for several reasons. Open data on Cyprus-registered companies indicates that Tasmonero Investments Limited has connections (or at least had connections until recently) with Kirill Lipa and Transmashholding structures. This company appears prominently in open registries of Cyprus-registered legal entities when searching for "Kirill Lipa" (https://cbonds.com/company/261463/).

Fredlake Holdings also has a notable background. In 2022, independent publication The Insider, which has been designated as a "foreign agent" in Russia, published an investigation examining how specific Russian business figures acquired Russia's largest passenger railway transportation company through what the publication characterised as questionable means (https://theins.ru/en/corruption/252691).

According to The Insider's reporting: "Russian Railways owned 50% of the Central Suburban Passenger Company (CSPC) shares until 2013, when they sold 25% of shares to the Moscow Passenger Company (MPC), owned by a Cyprus company Fredlake Holdings Ltd, reportedly linked to Iskander Makhmudov and Andrey Bokarev. The privatisation continued: in 2017, the sale of another 25% of shares was announced. The state company planned to receive at least 4.2 billion rubles for its share, but sold it for almost 2 billion rubles. The auction winner was Rutting Systems LLC, registered just a month before the auction. The Insider's investigation suggested that Bokarev and Makhmudov were behind the deal, having registered the company through intermediaries."

In late May 2022, according to reports, "MPC, through which Bokarev and Makhmudov own CSPC shares, changed its ownership structure. Five Russian legal entities replaced the Cyprus company Fredlake Holdings as the founder. 'Violan' is reportedly owned by Makhmudov, 'Elarium' by Bokarev, 'New Solutions' and 'Postulate' by Transmashholding top managers, including Kirill Lipa [...]." Here again, Kirill Lipa's name is connected to these corporate structures. According to the official Cyprus company registry, this company continues to exist and operate, raising questions about its current connections to Russian business figures subject to sanctions.

Kirill Lipa himself came under personal US sanctions in 2024. However, questions remain about how effectively these sanctions restrict international business operations, particularly given reports of continued financial activities through Cyprus structures and the potential use of alternative citizenship documents. Additionally, questions arise about whether family members who are not subject to sanctions might maintain accounts and property in Cyprus, and what implications this might have for sanctions enforcement.

Cyprus, as an EU member state, is obligated to implement all conditions of sanctions imposed on Russian businesses. However, the continued operation of specific companies and the reported activities of sanctioned individuals raise essential questions about enforcement mechanisms and potential gaps in the sanctions regime. It is worth noting that these observations warrant further investigation by relevant authorities to ensure sanctions are achieving their intended objectives.

Russian media outlets have expressed curiosity about how Kirill Lipa, who leads a holding responsible for defence contracts, appears to maintain business dealings with what Russia terms "unfriendly countries" without experiencing significant constraints from sanctions. These observations highlight the ongoing debate about sanctions' effectiveness and implementation across different jurisdictions.

The situation presents complex questions for policymakers and enforcement agencies about ensuring sanctions achieve their objectives while addressing potential loopholes in international financial systems. As negotiations between the EU and the US on coordinated approaches face challenges, these cases underscore the importance of examining and potentially strengthening enforcement mechanisms.

This analysis is based on publicly available information and reports from various media sources. The complex nature of international business structures and sanctions enforcement requires careful consideration of multiple perspectives and ongoing monitoring by appropriate authorities to ensure compliance with global regulations.

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