Small accountants take over large Russian clients despite sanctions

• Gidi Pols

  editor Economics

The major accounting firms withdrew from Russian clients after the invasion of Ukraine. Small Dutch offices, sometimes even single-office ones, filled the gap they left behind. They now audit the Dutch annual accounts of Gazprom Neft and Lukoil, among others, according to research by Autovantra.

According to the Ministry of Foreign Affairs, these types of services to sanctioned companies – such as Gazprom Neft – are in principle prohibited. The professional association for accountants also says this. The accountants themselves refute this. They call the audit part of their legal task and emphasize its social importance.

Gazprom Neft pumps oil in Iraqi Kurdistan. The profits flow through a maze of Dutch companies on Amsterdam’s Muiderstraat.

One of them is Gazprom Neft Middle East BV, another Gazprom Neft Business Service BV. Their annual reports provide insight into the merits of Iraqi oil. The BVs earn approximately 155 million and 45 million dollars annually respectively.

Until 2022, their annual reports were audited by PwC. But after the invasion of Ukraine and the subsequent sanctions, the accounting giant wanted to get rid of its Russian clients.

Gazprom Neft also had to look for a new accountant. A difficult task, especially after the EU ordered the company in March 2022 sanctions list had put.

Yet it works. The Russian oil giant ends up in Zeewolde. The sole proprietorship Acoban Accountants is located in a terraced house. That office will sign the last annual report of Gazprom Neft’s services company at the end of December.

Gazprom Neft also finds a new accountant for the other company. A director from IUS Statutory Audits from Amstelveen will sign the annual reports in both 2023 and 2024.

Everyone has the right to an accountant – provided their work is legally permitted, is the position of Ramon Groen from IUS. “We audit the annual accounts out of social interest.” The accountant emphasizes that he reports matters that are unacceptable to the Financial Intelligence Unit.

Fons Bouwman of Acoban Accountants also says that his office complies with the law and emphasizes the social importance of his work.

But the ministry says that in “most cases” it is prohibited to provide accountancy services to sanctioned parties. This also includes the legally required audit that BVs must have in order to approve their annual report.

“That check is allowed for Dutch BVs of unsanctioned Russian companies – while other services are also not allowed,” explains Anton Dieleman. He is chairman of a committee on behalf of the Dutch Professional Organization of Accountants directive on sanctions. “But if the Russian mother is sanctioned, no form of service is allowed. Not even legal control.”

There is a way out: an approval from the ministry. An accountant can apply to the ministry for an exemption to provide services for a specific company, despite the sanctions against that company.

“Our obligation of confidentiality means that we cannot comment on customer-specific circumstances,” says Bouwman of Acoban. But: “If Acoban is (legally) obliged to apply for a permit or exemption for its services, Acoban will of course do so.”

No exemption has been requested from IUS. “The necessity (…) has not (yet) been discussed,” says Groen. He says that he has submitted the Gazprom Neft case to the sanctions bureau of the Ministry of Foreign Affairs. “They have indicated that the statutory audit is allowed even if the parent company is sanctioned.”

The ministry does not want to comment on individual cases. “Accountants are primarily responsible for determining whether their services are subject to sanctions and whether an exception may apply,” a spokesperson said. They can apply for an exemption. The ministry says it will deal with this critically and “applies the granting of exemptions restrictively”. When it comes to services to sanctioned parties, even more care is taken. “In case of signals of sanction violations, an investigation is always conducted and enforcement action taken where necessary.”

Although it is not entirely clear whether the accountants are violating the sanctions or not, Russian oil profits from Iraqi Kurdistan continue to flow through Amsterdam companies. Including a neatly signed annual account.