Ireland has developed a hugely successful financial services sector that is deeply embedded in global money flows, which comes with reputational risks and international obligations.
That Russian banks, oil companies and oligarchs associated with Vladimir Putin’s regime have been lured into using Irish banking and financial services through tax and other incentives is cause for legitimate concern, if not outrage.
Taoiseach Micheál Martin has made it clear that Ireland is applying the latest sanctions announced against Russia and that these will apply to all Russia-related assets residing here that fall under the new restrictions. Other Russian assets that are not affected by the sanctions will not be affected. Ireland should enforce the law and sanctions firmly and openly. Separately, any changes to our financial services laws must be introduced in a thoughtful manner, to avoid unintended consequences.
Beneficial ownership should be at the heart of any changes to our laws. There is an obvious moral reason for not wanting to have a truck with money associated with the horror currently unfolding in Ukraine. But Ireland would also be wise to be aware of the dangers to its international reputation that these connections could still contain. The global financial system contains huge amounts of dirty money, and the Irish financial services sector is unlikely to be an exception in this regard. We must be able to show that we are doing everything we can to combat illicit money flows.
A second financial link to Putin’s Russia that Ireland has reason to worry about involves little-known entities called limited partnerships. Irish limited partnerships are marketed in Russia and the former Soviet Union as an attractive type of offshore vehicle for those wishing to hold assets anonymously. The partnerships are used by business formation services in traditional offshore locations, which in turn sell them to clients in Russia and other former Soviet republics where the rule of law is weak and corruption endemic.
Limited partnerships have also been used in extremely complicated and extremely lucrative international money laundering structures, in which money in Russia, Ukraine and Central Asia passes through the Western banking system before being used to buy Western assets. Ironically, efforts here and in the UK to address the threat these partnerships pose are hampered by the fact that they are so popular with the fund industry.
Ireland has been very successful in attracting foreign investment, has developed a large financial services sector and is home to the European headquarters of major technology companies. In all of these areas, we must publicly fund the best tax and regulatory regimes. The world is entitled to expect as much.