Filenews 11 October 2022
By Giacomo Tognini
Seven months have passed since the Russian invasion of Ukraine forced western authorities to impose sanctions on Russian oligarchs, targeting their ultra-luxurious yachts: from being immediately confiscated to being removed from registers – preventing these floating palaces from sailing legally in the seas.
Now several Russian or Russian-born tycoons who have been sanctioned are registering their yachts in countries that have left Moscow untouched. Forbes has identified six yachts of Russian billionaires who have recently changed their country of registration or "flag". One of them, Nord – 140 metres long – owned by steel tycoon Alexey Mordashov, worth 521 million dollars, it now flies the flag of Russia and not the Cayman Islands.
Three more yachts left the Cayman Islands, now flying the Flag of Malaysia or Sierra Leone, while another yacht changed the flag from Bermuda to Palau and another subdued the flag of the Isle of Man to raise Sierra Leone.
The six yachts are worth a total of 1.8 billion dollars, according to VesselsValue experts and estimates of the Italian government. Representatives of five of the six billionaires who own the yachts in question did not respond to a request for comment. Andrey Melnichenko's head of public relations, Alexander Byrikhin, told Forbes that SY A is "the property of a trust with an independent trustee, and Mr. Melnichenko has nothing to do with this trust."
The most important ship that has changed its flag is the 'Scheherazade', which – technically – belongs to billionaire Eduard Khudainatov, against whom sanctions have been imposed, but is considered Vladimir Putin's shop window man. The "Scheherazade" is one of the largest yachts in the world and has a helipad. In May it was pledged by the Italian authorities.
In addition to the change of registry, four of the six vessels with a new flag – the Galactica Super Nova, Le Grand Bleu, Scheherazade and SY A – were re-registered as 'floating dwellings' rather than recreational craft.
"It is not clear why some of these vessels have been registered as floating dwellings," comments Benjamin Maltby, from the law firm Keystone Law in London. "Unless they've been decommissioned and can't travel – so it doesn't make much sense to re-register them."
The re flagging does not mean that these vessels will also travel to distant countries. For example, two of the six yachts – the Scheherazade and the SY A – have been immobilised for months in Italian ports, due to European sanctions against their owners. Leonid Mikhelson's Pacific is located in Turkey – a popular destination for Russian-owned super-yachts, since Ankara has not followed the "dance of sanctions". Eugene Shvidler's Le Grand Bleu was last seen on September 20 in Puerto Rico. Vagit Alekperov's Galactica Super Nova deactivated its transponder off the coast of Montenegro in early March, and its signal is still missing to this day. Alexey Mordashov's Nord, which now flies the Russian flag, found refuge in March in Vladivostok and is currently sailing to Hong Kong.
Ships fly offshore flags or register on their registers to have tax benefits and other advantages, such as property privacy. The six vessels under the new flag were registered in Bermuda, the Cayman Islands and the Isle of Man – popular places to register ships thanks to their political stability, the favourable tax regime and the Red Ensign Group where they belong (a partnership of the UK's maritime registers) under which the ships enjoy the protection of the British Royal Navy.
As British overseas territories, however, and under the Crown, these regions are part of the package of sanctions imposed by the United Kingdom on Russia. Thus, the Isle of Man deleted Andrey Melnichenko's MY A and SY A from its registry in March – in fact, SY A was reserved in the same month in Italy. And it may have become known that the yacht SY A got a Sierra Leone flag, but the new registration register of MY A, worth 230 million dollars remains "blurred". The yacht turned off its transponder in March and was last seen in June, at Ras Al Khaimah in the United Arab Emirates.
The re flagging of a boat that has been reserved – such as Melnichenko's SY A – raises the question: why should the owner get into this hustle and bustle if he does not have access to his yacht or cannot move it. One explanation is that yachts could travel legally again under a new flag if sanctions are lifted and the vessels are released. In September, Melnichenko filed a lawsuit with the General Court of the European Union seeking the lifting of the sanctions against him.
A second explanation is that Western sanctions have made it difficult to insure vessels. A source with knowledge of the matter said that the sanctioned Russian oligarchs face difficulties in repaying loans — for which they often guaranteed their yachts — to the Western financial system. Thus, they seek to transfer their debt to Russian banks and find new insurance for their yachts, as Western insurance companies do not want to get involved with them. This means that the yachts have to find a new flag as well, as Bermuda and the Cayman Islands will not accept the new insurance or the debts.
Something like this happened in the case of steel tycoon Dmitry Pumpyansky. His 72-metre-long vessel, named Axioma, registered in Malta, was seized in Gibraltar in March after JPMorgan claimed that Pumpyansky breached the terms of a 20m dollar loan. JPMorgan claimed that Pumpyansky had defaulted on the repayment of the loan granted to one of his companies, putting the luxury yacht as collateral. The Axioma came out on the hammer and was sold for €37.5 million euros in August – VesselsValue estimated its value at 42 million dollars. A spokesperson for Pumpyansky did not respond to a request for comment.
The strange thing is to see such ultra-luxurious yachts inscribed in the register of Palau and Sierra Leone. In contrast, Malaysia has an international yacht register in Langkawi – the island without taxes – a popular choice among Asian yacht owners. "Langkawi is internationally recognized and has become popular in recent years," says Cheryl Pereira, head of yacht registry at Hong Kong-based company Simpson Marine.
According to vessel tracking service VesselFinder, there are 13 luxury yachts – more than 24 metres long – registered in Malaysia. Forbes identified the owners of three of them: Malaysian rubber baron Vinod Sekhar owns Petra Tara while two Russians, who have not been sanctioned, are the owners of the other two yachts. Billionaire oligarch Anatoly Lomakin owns Sea &us, worth 59 million dollars and a length of 62 metres, and former Deputy Prime Minister of Russia Vitaly Mutko the Vector, worth 32 million dollars and a length of 26 metres. Lomakin's Sea & Us took a Malaysian flag—while flying the Marshall Islands—sometime after June, presumably to forestall any future sanctions. A spokesperson for Lomakin did not respond to a request for comment.
The registers of Palau and Sierra Leone are less reliable than those of Malaysia. Both countries are on the "grey list" of the Paris Memorandum of Understanding, an initiative between 25 European countries and Canada to coordinate port security inspections and prioritise the freezing of unsafe ships. Sierra Leone is also on the "blacklist" of the Tokyo Memorandum of Understanding, a similar organization for 21 countries bordering the Pacific Ocean, including Russia – Palau is on the "grey list" of the Tokyo Memorandum of Understanding.
A spokesperson for Sierra Leone's maritime administration, which manages the state register, told Forbes that "requests to Sierra Leone from Russian shipowners for new registrations have increased, but most will not be met for various reasons." The spokesperson did not respond to questions from Forbes about why these requests are not proceeding.
"The boats must fly some flag, otherwise they will almost certainly be bound at the first port they will catch," Maltby explains. "Without a registry no one will issue the security certificates required internationally."
Choosing a registry in Palau or Sierra Leone has drawbacks. In addition to the increased risk of inspections and arrests, the registration of a vessel on a register that is on a "grey or black list" affects its resale value. It also makes it difficult to insure it – which is necessary for the vessel to sail – as insurers will not risk working with a vessel registered in a controversial register.
"Historically, large yachts were rarely inspected, as their owners had the luxury of registering them in the most reliable registers," Maltby observes. "Although the issue is more theoretical for people who have been sanctioned and their ability to carry out international banking transactions has been limited, however, a strange choice of registry gives the impression that the shipowner approaches the safety of the vessel with great superficiality."
Since March, the European Union, the UK and the US have frozen, seized or blocked at least 15 yachts owned by 13 sanctioned Russian tycoons, with a total value of 3.3 billion dollars. In addition to the Axioma, ownership has changed to two more yachts. These are the Amadea of Suleiman Kerimov and the Tango of Viktor Vekselberg, which were seized by the USA.
"In the UK and across continental Europe, nothing prevents the owner from re-flagging at any time, provided he pays the registration fees and that the necessary investigations are made," Maltby notes. "The authorities have taken ownership. Unlike the regime in the US."
Source: Forbes
