Exclusive: Leaked papers suggest billionaire’s overseas firms should have paid UK tax on profits from hedge funds
Rob Davies and Simon LockWed 29 Jan 2025 07.00 CETShare
Roman Abramovich, the billionaire Russian oligarch, may owe British tax authorities as much as £1bn, according to analysis of documents that suggests his companies failed to pay tax on profits made through an elaborate offshore investment scheme.
Leaked papers and court filings shed new light on how the income from a $6bn (£4.8bn) cash pile amassed by one of the world’s richest men was managed.
The former owner of Chelsea FC entrusted nearly half of his fortune to more than 200 hedge funds, including some of the world’s most prestigious money managers, using a circuitous structure routed through Cyprus and the British Virgin Islands (BVI), the files show.
The structure endured until at least 2022, when Abramovich was among a group of powerful Kremlin allies hit with sanctions by western governments in response to the full-scale invasion of Ukraine.
Today, an international investigation by the Guardian, the Bureau of Investigative Journalism and the BBC indicates that while the investments were made by BVI-based companies, they appear to have been controlled for nearly two decades by a senior executive working for Abramovich, who was based in England from 2004.
If the key investment decisions were made in Britain, the oligarch’s companies could owe more than £500m in tax, analysis of the documents suggests. Factoring in interest and penalties for late payments, HMRC could be owed as much as £1bn.
Although the files are very detailed, it is possible that some elements are missing. But the leaked material is sufficient to raise questions about whether UK tax should have been paid, according to experts.
Chelsea FC may also have benefited from the hedge fund investments because one of the companies at the heart of the scheme bankrolled other Abramovich vehicles, some of which financed the London club.
The investigation is part of the Cyprus Confidential series, based on the largest ever leak of financial information from the Mediterranean tax haven, which the Guardian and its reporting partners have been examining since 2022.
At a time when the UK chancellor, Rachel Reeves, is struggling to fund crucial public services, the latest findings are expected to fuel calls to review the Abramovich tax file.
The chair of parliament’s cross-party group on responsible tax said HMRC should “thoroughly investigate” the case.
Lawyers for Abramovich declined to answer detailed questions, responding only in the broadest terms. They said he had always acted in accordance with professional tax advice. They denied that he was personally responsible for any alleged failure to pay taxes that were due.
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It was the $13bn deal to sell his Siberian oil and gas business to Russia’s state-owned Gazprom that propelled Abramovich into the ranks of the super-rich in 2005.
Much of the money did not stay in Russia. Over two decades, Abramovich acquired luxury homes in London and the south of France, a valuable art collection and a London football club. But he also made investments, using a structure at the centre of which sat one company, BVI-registered Keygrove Holdings Limited.
Keygrove was owned first by the Sara Trust, then from 2010 by the HF Trust. Both trusts were based in Cyprus and counted Abramovich as their sole beneficiary until 2022, when he was replaced by his five children.
Keygrove, in turn, owned more than a dozen BVI companies, each of which poured hundreds of millions of dollars into investments including hedge funds around the world.
These offshore investment companies, the files suggest, did not pay UK corporation tax. But the Cyprus Confidential files raise serious questions about whether they should have.
Abramovich’s right-hand man
The list of hedge funds invested in by Abramovich is a roll-call of the top firms on Wall Street and in the City of London, but their names will mean little to the average saver: clients must typically invest a minimum of $100,000 to join these exclusive clubs.
They included the world’s largest asset manager, BlackRock; the UK group Brevan Howard, whose founder Alan Howard donated £1m to the Conservatives before the last general election; and Marshall Wace, whose founder Paul Marshall bankrolls Britain’s rightwing GB News and has just acquired the conservative news magazine the Spectator. The funds are not responsible for the tax affairs of their investors and there is no suggestion that the leaks raise questions about their conduct.
As the investments grew in value, profits accumulated in the offshore companies.
UK law on how corporate profits made by overseas companies should be taxed is complex but guided by a relatively simple concept: who makes the key decisions, and where.
If someone in the UK exercises “central management and control”, the company can be considered resident in the UK for tax purposes.
If companies want to be taxed offshore, HMRC guidelines recommend that strategic decision-making should take place overseas, too.
These guidelines, designed to promote the UK as a financial centre for those with money offshore, can lead to set-ups that appear rather artificial. Executives fly out to tax havens such as Jersey or Isle of Man to approve decisions, ensuring that the rules are, technically at least, respected. But those managing the Abramovich structure do not appear to have followed the basic requirements to make such a scheme work legitimately.
Directors of the investment companies were employed by offshoots of Abramovich’s family office, Millhouse, based in countries including Austria, Germany and the UK. But the files do not contain evidence that they met offshore to make decisions.
The leaked documents and court filings suggest they were controlled by the executive sometimes described as Abramovich’s “right-hand man”: Eugene Shvidler.
After the fall of the Soviet Union, Shvidler chaired Sibneft and then Millhouse.
Where Abramovich went, his associate followed. When the billionaire bought Chelsea FC in 2003, adopting London as his new home, Shvidler joined him.
In a recent UK court case, Shvidler has confirmed that he was a dual US-UK citizen who had lived in the UK since 2004 and became a UK citizen in 2010 under the so-called “golden visa” scheme that granted wealthy people fast-track citizenship.
If Shvidler was controlling the investments, he appears to have been doing so from the UK.
Central management and control
Questions about whether tax was properly paid also hinge on whether Shvidler wielded what HMRC refers to as the “highest level of control”.
Leaked documents and court filings suggest he did.
Between 2004 and 2009, Shvidler was handed the authority to make decisions on behalf of the BVI companies, via more than 50 “general power of attorney” documents, renewed annually, the Cyprus files show.
Documents filed during a US court case suggest that Shvidler had control of the companies both during this period and after.
In 2023, the Securities and Exchange Commission, which regulates US markets, brought legal action against a New York financial advisory firm called Concord Management. The SEC complaint says Concord gave investment advice without the required permission, and that it acted for just one client – Abramovich.
Concord was run by Michael Matlin, who had studied with Shvidler in Moscow. Founded in 1999, it was active until 2022, helping to select investments that would yield returns for Abramovich.
However, SEC filings indicate that Shvidler, who is not named in the case but referred to only as “Person B”, wielded control over the BVI hedge fund investment companies.
He was, the filings state, the “point of contact for receiving investment advice from Matlin and Concord and for either deciding or communicating the decision whether to go forward with recommended transactions”.
Each month, according to the court papers, Shvidler would receive a shortlist of funds from Matlin. He would then make investment decisions, which would be “signed by the directors of the relevant investing entities as necessary”.
In effect, the court filings suggest, the directors simply rubber-stamped his orders.
Shvidler seems to have remained the key decision-maker as late as February 2022, approving 10 private fund investments worth more than $100m combined, just days before Vladimir Putin’s tanks rolled into Ukraine.
His role, say tax experts, is crucial in assessing any UK tax liability.
Rita de la Feria, professor of tax law at the University of Leeds, said: “Put together, it puts a very strong case that, yes, effective management was done in the UK.”
Four other leading tax experts, who asked not to be named, told the Guardian that there were grounds to suspect that the companies should have been taxed in the UK.
Paul Monaghan, the chief executive of the Fair Tax Foundation, said Abramovich’s companies should have faced a UK tax liability if their critical decisions were being made in the UK and directors were “effectively rubber-stamping decisions [made] up the chain”.
“In which case, further investigation by HMRC would seem to be warranted,” he said.
Profits and penalties
While an exact figure is impossible to calculate from the data, the total sums potentially owed are enormous.
Analysis of the data suggests that between 2004 and 2018, profits made by the Keygrove structure could be as high as $3.8bn. If this is the case, the amount of any unpaid UK tax could be £536m, according to analysis examined by tax experts.
Were HMRC to conclude that Abamovich’s companies had failed to pay this sum, they would also be charged interest on the total avoided, amounting to at least £145m.
Companies that fail to pay tax – and do not disclose this voluntarily – are also subject to late payment penalties of up to 70% of the unpaid sum, if the failure is deemed deliberate.
Depending on the severity of the case, HMRC could demand between £651m and £1bn, analysis suggests. If a liability is due, some could be time-barred due to the length of time that has passed. However, the Guardian has made conservative estimates regarding corporation tax rates.
Joe Powell MP, who chairs a cross-party parliamentary group on anti-corruption and responsible tax, said: “I’d like to see HMRC thoroughly investigate whether corporation tax or any other taxes are owed by Abramovich on these operations.
“More widely, I think it’s a good test case for whether HMRC and other regulators have the enforcement capacity that they need to make cases of this nature.”
The files indicate that Chelsea FC may have benefited from the profits generated by the hedge fund investments. This is because Keygrove lent money to other companies in Abramovich’s business empire, which in turn lent money to Chelsea’s parent company.
Powell also raised questions over the future of the £2bn proceeds from Abramovich’s forced sale of Chelsea FC, which have been sitting in escrow since 2022, supposedly destined to help rebuild Ukraine.
“I would like to see more transparency and a clear timeline [in relation to the funds],” said Powell.
“That money is five times the UK total humanitarian aid to Ukraine since February 2022 and there’s massive need.”
Lawyers for Abramovich said he had always obtained independent expert professional tax and legal advice in respect of his tax affairs and acted in accordance with that advice. They added that Abramovich expected that similar advice was sought at the relevant times by those with responsibility for the day-to-day running of his businesses.
They said he denied any allegation that he had or ought to have had any knowledge of, was personally responsible for and/or was personally liable for any alleged failure to pay taxes which were lawfully due or for any other purpose.
Lawyers for Shvidler have denied him being knowingly or negligently involved in an unlawful scheme to avoid paying tax. They have said that the investments to which we refer were the subject of very careful and detailed tax planning, undertaken and advised on by leading tax advisers.
Chelsea FC declined to comment.
Source: The Guardian
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