Media: UK oil refinery owner evaded sanctions linked to Russian bank loans

An investigation has raised concerns that offshore financial arrangements involving a major industrial group may have been used to continue financial dealings with a Russian state-owned bank under Western sanctions, despite restrictions introduced after Russia’s full-scale invasion of Ukraine in 2022.

According to analysis of company accounts by The Guardian and investigative journalism organisation SourceMaterial, Essar Group moved billions of dollars in loans provided by VTB Bank from Cyprus to a subsidiary in Mauritius following the imposition of sanctions on Russian financial institutions.

The restructuring involved entities linked to Essar’s UK arm, Essar Energy, and shifted the debt to a jurisdiction where sanctions were not in force. The accounts suggest the arrangement may have enabled continued financial exposure to Russian-linked lending after Western sanctions came into effect.

The report also notes that Essar had earlier relied heavily on Russian financing. In 2014, the group borrowed $1 billion from VTB Bank, and in 2017, Russian energy giant Rosneft invested $13 billion in its refining business. By 2020, Essar’s debt to VTB had risen to €2.35 billion.

Following the 2022 invasion of Ukraine, Essar disclosed in its accounts that “payments to VTB loans can only be made after having obtained a special licence from the UK government,” though the company later said this reflected general sanctions guidance rather than a requirement to seek approval from the UK’s Office for Financial Sanctions Implementation (OFSI).

Instead of applying for a UK licence, the company reportedly obtained approval from Cypriot authorities to transfer the loans to Mauritius, a jurisdiction not subject to Russian sanctions.

The accounts further suggest that, after the restructuring, Essar may have increased its borrowing from VTB by $1.2 billion through its UK subsidiary.

Essar has said that UK sanctions law did not apply to the transaction and that it complied with all relevant sanctions regulations, adding that it acted on legal advice from a leading law firm. However, sanctions experts cited in the report said the restructuring “raises red flags in relation to possible [sanctions] circumvention.”

Typically, companies with exposure to sanctioned entities seek licences from national enforcement bodies such as the UK’s OFSI to manage or unwind obligations legally. Essar, however, did not pursue such approval, instead relying on approvals in Cyprus and Mauritius.

Lawmakers have called for closer scrutiny of the arrangements.

“The UK government should now apply the same critical eye applied by the authorities in Cyprus and Mauritius,” said Lloyd Hatton, a Member of Parliament and member of a cross-party group examining corruption issues.

By Sabina Mammadli