How Russians circumvent Western oil sanctions with shell companies, ghost ships and masked traders

Journalists : Julien Bouissou, Anne Michel et Poline Tchoubar
(Translated Le Monde article from October 30th 2024 : https://www.lemonde.fr/les-decodeurs/article/2024/10/30/comment-les-russes-contournent-les-sanctions-occidentales-sur-le-petrole-grace-aux-societes-ecrans-aux-bateaux-fantomes-et-aux-tradeurs-masques_6366239_4355770.html?lmd_medium=al&lmd_campaign=envoye-par-appli&lmd_creation=android&lmd_source=default )

His one and only "boss" is the dollar, as he keeps repeating to his colleagues, between two puffs of Marlboro Light. And the sanctions on Russian oil voted by the United States and the other G7 countries are not stopping him. From his trading room in the Platinum Tower in Dubai, the trader from Azerbaijan Etibar Eyyub runs the cash machine with boundless creativity: offshore companies, ghost cargo ships sailing with their transponders turned off, transhipments carried out under the radar off the coast…

While the man is unknown to the general public, he is not to the American authorities, who have placed him under investigation. The Wall Street Journal reported in February that the Department of Justice (DOJ), the United States Department of Justice, suspects him of having created a network of shell companies working in concert with a commodities trading company with a presence in Geneva and Dubai: Coral Energy. From 2014 until at least 2018, he was a trader and right-hand man to Coral founder Tahir Garayev, also Azerbaijani and in the DOJ’s sights. Contacted, the DOJ declined to comment.

Coral Energy, which was a privileged partner of Russia and its oil giant Rosneft before the war against Ukraine, claims on its website to have terminated its Russian contracts in early 2022. The company states to Le Monde, through its lawyer, that it “gives the highest priority to compliance with the sanctions laws of the United States, the European Union, the United Kingdom and other applicable sanctions,” adding that it is working with external legal counsel “to review its activities and ensure compliance with the law.”

However, internal documents from the group obtained by Le Monde show that between them Etibar Eyyub and Tahir Garayev allowed Russia to sell a significant portion of its oil to the rest of the world, without always complying with international sanctions. These confidential documents point directly to Europe. They reveal that Coral Energy’s trading activity was fueled by financing from European banks, including Société Générale to the tune of several tens of millions of euros, but also by purchases from several oil majors, including the French giant TotalEnergies.

These documents expose a system of "Money laundering” of Russian hydrocarbons, sold above the ceiling price of 45 dollars (41.60 euros) per barrel set for naphtha by Western sanctions in early 2023, concealing their origin. They lift the veil on an unknown aspect of the circumvention of sanctions, linked not to crude oil but to refined oil, in particular naphtha – “a common product that can be retransformed into gasoline or used in the petrochemical industry”, explains Jérôme Sabathier, Head of Department at the IFP Energies Nouvelles Institute. The key: millions of dollars that finance the war machine launched by Moscow against Ukraine, helping to weaken the policy of sanctions of Westerners aimed at drying up the resources of the Kremlin.

To understand the system put in place, it is necessary to represent an organization with two sides: one is known and brings together, around Coral Energy, entities that work with the West, its insurers, its banks; The other is masked and composed of entities turned towards Russia and its actors in the shadows. Money and oil pass from one to the other thanks to these screen companies, but also through transshipments in the open sea or hydrocarbon mixing operations to hide the Russian origin. Officially, there is no link between these two sides, but the world survey shows the opposite.

Their entities work together, to the point of being known and designated internally by Coral Energy employees under code names: "Blue Teams" for the former, "Red Teams" for the latter. At Les Bleues the visible side of the trade, in the Reds the hidden face, the supply of Russian oil and hydrocarbons, then resold from the radars in Les Bleues in a sleight of hand. In short, the activities that Coral Energy says it has abandoned continue, but in the shadows. Our survey found that between February 2023 and February 2024 Coral Energy, using this scheme, bought at least 82 shipments of Russian petroleum products. It is in the Hong Kong and Dubai trade registers that the links between "red" and "blue" companies are revealed, in particular for three mysterious entities that have become among the biggest traders of Russian petroleum products.

Their names? Blackford Corporation, North Axis and Bellatrix Energy. Our research shows that their respective shareholders – Aldrich Holdings, Nord Axis Holding and Whiterock Holdings, opaque structures masking the identity of their true owners – are domiciled at the same address as the owner holding Coral Energy (Vetus Investments), or were: "Office 1902, Jumeirah Business Center 5, Jumeirah Lake Towers". These are offices located in the heart of the Dubai Free Zone business district, with a view of the famous palm Jumeirah palm-shaped artificial archipelago.
But the smokescreen created by these shell companies blending into the great anonymity of Dubai is not enough when it comes to transporting oil from Russia and evading customs. The opaque business continues at sea, and involves ship-to-ship cargo transfers called transhipments, which avoid port controls. By cross-referencing confidential purchase and sale data with satellite imagery as well as maritime and commercial data, Le Monde was able to establish that Coral Energy not only continued to buy Russian hydrocarbons after 2022, but that a number of transactions could constitute a violation of sanctions. “To my knowledge, Coral Energy has worked in strict compliance with all applicable sanctions regimes,” Tahir Garayev explains to Le Monde. As of December 31, 2022, Coral Energy, now known as 2Rivers, had stopped signing new contracts involving Russian suppliers and was in the process of exiting remaining forward contracts. »

In addition to the embargo imposed by the European Union (EU) on Russian oil in May 2022, the G7 countries and their partners have banned their companies, which are essential in the maritime industry, from providing or providing any service to anyone transporting these Russian hydrocarbons if they have been purchased above a ceiling price.

However, according to internal documents from Coral Energy, which include the sales prices of nine cargoes of Russian naphtha sold by the group in 2023, five of them exceed the ceiling price of $45 per barrel, while they are sold to the Swiss trading giant Trafigura or insured by European companies, such as the British West of England or the Norwegian Gard. “We have put in place robust and systematic procedures to ensure compliance with the applicable sanctions,” replies Gard. "Insurers are allowed to rely on certificates certifying compliance with ceiling prices," says West of England, specifying that "insurance coverage for the voyage in question automatically and entirely ceases" if "these prove to be inaccurate." In one of the suspicious sales by Coral studied by Le Monde, emblematic of the system, it is Blackford Corporation, a member of the "red" part of the network, which sources naphtha from Russian companies and then resells it to Coral Energy, according to internal Coral Energy documents cross-referenced with customs data from the ImportGenius website. But how can the transport of Russian naphtha to its final destination be hidden without being detected by customs? To do this, a ship called Osaka begins by loading naphtha in the Russian port of Novorossiysk, on the Black Sea, on December 22, 2023. It will not deliver its cargo to land in a port in full view of customs, but will tranship it.

The chosen location is the Gulf of Laconia, in Greece, off the Peloponnese, a place that seems to have become a hotspot for operations as suspicious as they are risky in terms of maneuvers. The meeting between the Osaka and the Marlin-Lome, on December 29, is immortalized on satellite images. Although transshipments are commonly used in maritime transport, they have multiplied in recent months, by “allowing Russia to circumvent sanctions and price caps,” notes the Center for Environmental and Clean Air Research, based in Finland.

And this is how the “laundered” Russian naphtha was resold to one of the largest oil brokerage groups in the world, the Swiss Trafigura, before being delivered to South Korea. According to our investigation, between February 2023 and February 2024, at least 41 cargoes of Russian naphtha were sold by Coral to Trafigura, whose turnover was not affected by the sanctions.

Was the Swiss trader aware of the subterfuge? When contacted, Trafigura claims to “comply with the applicable sanctions”, explains that transhipment is part of “standard industry practices” to optimize deliveries, and formally denies having violated the ceiling price. But one detail is intriguing.

The group claims to have purchased this cargo of naphtha under customs code “271012.90”, whose ceiling price, set at $100 per barrel by the EU, would be respected. However, the United States has imposed a $45 limit on this customs code since February 2023 – which indicates that the Osaka’s cargo is likely to have violated American, if not European, sanctions.

On the other hand, the use of this number, assigned by Russian customs, is one of the known techniques for circumventing sanctions. Researchers at the Kyiv School of Economics pointed out in a May 2023 report that the quantities of Russian naphtha exported with this code had soared after the sanctions were put in place.

For Salomé Lemasson, a lawyer specializing in international litigation, practices like those of Coral Energy should have alerted the world of trading: "Such an economic and financial structure attracts attention, with an increase in intermediaries or transits to countries involved in cases of circumvention or violation of sanctions, so we can ask ourselves the question of compliance with European sanctions." According to internal documents, Coral Energy posted profits of $277 million for its operations with Trafigura alone as of May 28, 2024. In addition to Russian hydrocarbons, Coral Energy also buys oil products in the Middle East, Asia and Africa, and has dozens of other customers, including majors BP, Shell and TotalEnergies, who are nevertheless subject to a duty of care over their supply chains.

According to internal documents, Coral Energy posted profits of $277 million from its operations with Trafigura alone as of May 28, 2024. In addition to Russian hydrocarbons, Coral Energy also buys oil products in the Middle East, Asia and Africa, and has dozens of other customers, including majors BP, Shell and TotalEnergies, which are subject to a duty of care on their supply chains. When contacted, the French giant TotalEnergies acknowledged “ship-based purchasing operations” with Coral Energy, while specifying that “to date, neither the company nor its shareholders or identified directors are targeted by European or American sanctions.” It added that it had verified the certificates of origin of the cargoes – a tool that is imperfect due to frequent falsifications, according to the International Group of P&I Clubs, a reference organization that insures 90% of the world’s fleet. Shell, the world's second-largest oil group, simply points out that it "complies with all applicable sanctions and regulations" without further comment, and the British major BP did not respond to Le Monde's questions.

As a sign of its rapid rise to power, the organization set up by Tahir Garayev and Etibar Eyyub, which has become indispensable to Moscow and Rosneft, also acquired, in June 2024, a majority stake in the giant Karimun terminal in southern Indonesia, at the gateway to the Strait of Malacca. To do this, it used the Dubai company Novus Middle East DMCC. Thus, Coral Energy's traders are entering the big leagues. They no longer just buy and sell hydrocarbons around the world, they can produce them, or even possibly mix Russian oil with other hydrocarbons as they wish. "Manipulating the customs code is a common method of hiding the origin of oil," explains a trader. All you have to do is mix the Russian refined product with another, even if the latter only represents 1% or 2% of the total."

This gigantic network would not have seen the light of day without the participation of banks and maritime insurers who have maintained their confidence in Coral Energy. The so-called "blue" companies oriented towards the West have a major advantage: they have access to generous financing at rates below 7%, much lower than in Russia, where they reach 15%. They therefore pass this on to the "reds".

The internal documents speak for themselves: several European banks have lent money to Coral Energy traders, such as the Austrian Raiffeisen Bank with an outstanding amount of 2.2 million euros at the end of May 2024. The establishment is rightly known as the bank with the most exposure in Russia. While the Swiss UBS is also among these creditors, for small amounts, the largest outstanding amount is carried by Société Générale. It reached 51.9 million euros. Enough to buy millions of barrels of Russian hydrocarbons.

"Some banks are willing to take legal risks for very profitable activities, especially in a country where they are rarely sanctioned," says a connoisseur of the Swiss banking system. When contacted, the three banks invoked banking secrecy to refuse to confirm that Coral Energy is their client, but all affirm that they apply international sanctions with the greatest rigor. All these operations took place in Geneva, the Swiss city known for housing a large number of commodity traders, particularly oil, where most European sanctions are nevertheless applicable.

When asked, the Swiss State Secretariat for Economic Affairs stressed the attention paid to the subject by its services, the division responsible for the application of international sanctions having seen its staff increase. Before conceding that "it is very difficult to obtain information on trade, especially when it concerns goods that do not cross [their] borders". Only one legal procedure has been initiated to date against a Swiss trader, the company Paramount, headed by businessman Niels Troost and suspected of having violated sanctions on Russian oil.
One of the front companies in the galaxy set up by Tahir Garayev and Etibar Eyyub, Bellatrix Energy, was already blacklisted by the United States at the end of 2023. Since then, the two men, under threat of American sanctions, have organized themselves to distance themselves from Coral Energy by selling their shares in June to the company's executives, which claims that the two businessmen are now "neither employees nor partners" of the company. And, as if to clear itself of any suspicion, Coral Energy was renamed 2Rivers at the end of July. The new entity will be committed to "high ethical standards" and "transparency", promised Ahmed Kerimov, the former financial director of Coral Energy and new boss of the structure.

Meanwhile, while sea transhipments continue and bombs rain down on Ukraine, Etibar Eyyub, who did not respond to Le Monde’s requests, is living happily between Dubai, Moscow and Switzerland. Having amassed a small fortune in Geneva, the man who only travels by private jet has just bought land in Cologny, one of the richest communes in the canton of Geneva, to build a luxurious villa overlooking Lake Geneva, set with glass walls, with a swimming pool, billiards room and gym. A house there sells for up to 25 million euros.