Making bank How Gazprombank’s Luxembourg subsidiary has made record profits since Russia’s full-scale invasion of Ukraine
GPB International, a subsidiary of Russia’s Gazprombank, has been operating in Luxembourg for over a decade. It survived the sanctions imposed on Russia for annexing Crimea, and the full-scale invasion of Ukraine brought the bank record profits. Meduza special correspondent Margarita Liutova explains how GPB International has managed to keep making bank while Russia is under ever-tightening Western sanctions.
“[The] year 2022 will be remembered primarily as the time of the Russian attack on Ukraine,” begins GPB International’s annual report. Though it’s based in Luxembourg, GPB International is no ordinary European bank: it’s a wholly-owned subsidiary of Russia’s Gazprombank, whose co-owners include people from Vladimir Putin’s inner circle.
Gazprombank has been formally under U.S. sanctions since the early days of Russia’s full-scale invasion of Ukraine, but it isn’t subject to blocking restrictions. This means American companies can still do business with the bank, provided they comply with U.S. sanctions. The E.U. hasn’t imposed blocking sanctions on the bank either, allowing it to continue using the SWIFT system and conduct international payments. (Select Russian banks were cut off from SWIFT in March 2022.)
Gazprombank’s special status is a consequence of Europe’s dependence on Russian energy resources, primarily gas. Since payments for Russian energy supplies are made through Gazprombank, from the very start, the West decided not to impose restrictive measures, said economist Sergey Aleksashenko from the Stanford International Working Group on Russian Sanctions. Another source familiar with sanctions discussions gave the same rationale.
Luxembourg-based GPB International, meanwhile, is a crucial link in Gazprombank’s transactions with European gas buyers because it’s where Gazprombank holds its correspondent account for euro transactions.
‘Roldugin dealings’
GPB International received its license at the end of 2013 and began serving clients by early 2014. The plan was for the Gazprombank subsidiary to become a financial hub through which Gazprom entities and the bank’s Russian corporate clients could conduct euro transactions, such as settling accounts with counterparts or issuing bonds in European currency.
Luxembourg is a convenient jurisdiction for many financial operations: the country’s legislation makes it easy to open companies, and its tax system is beneficial for investors (e.g., favorable dividend taxation). Many Russian banks and financial organizations, both state-owned and private, have taken advantage of this, a former Russian bank employee told Meduza. For example, Alfa-Bank’s parent company, ABH Holdings SA, is registered in Luxembourg. Businessmen Mikhail Fridman and Petr Aven control the bank through this entity.
An expert on the Russian banking market told Meduza that Gazprombank likely had additional objectives when opening its Luxembourg branch. The bank has long been connected with Vladimir Putin’s inner circle, and Luxembourg is often seen as an “offshore banking haven” in the heart of Europe. “Various ‘Roldugin dealings’ could have been conducted through it,” the source suggests.
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Gazprombank’s Luxembourg subsidiary has never been publicly linked to the president’s inner circle. It hasn’t appeared in any high-profile document leaks or investigations by European law enforcement agencies. However, “Roldugin dealings” were conducted in at least one of Gazprombank’s foreign branches.
In March 2023, a Zurich court found the CEO of Gazprombank Switzerland, Roman Abdulin, and three other employees guilty of “lack of due diligence” and sentenced them to seven months’ probation and hefty fines. Back in 2014, they had opened accounts in the name of a Russian cellist, Sergey Roldugin, assuming he wasn’t a “politically significant person” even though this would have been easy to verify at the time. In a 2000 interview with journalist Nataliya Gevorkyan for a book about Vladimir Putin, for example, the cellist recalled: “[Putin] and his brother visited us, and we got to know each other. This was in 1977, I think. We met and never parted. He’s just like a brother to me.”
The case against the employees of Gazprombank’s Swiss subsidiary was initiated long before the war: in 2016, the Panama Papers leaks revealed Roldugin’s offshore companies. Following the journalists’ investigation, Roldugin was dubbed “Putin’s wallet” because companies linked to the cellist had acquired assets that were seemingly beyond his means. The Swiss financial regulator began a review and first reported concerns about Gazprombank’s subsidiary in 2018. This led to a full investigation.
According to the Swiss prosecutor’s office, about 30 million Swiss francs (more than $31 million) passed through two of Roldugin's accounts in Gazprombank Switzerland from 2014 to 2016. The prosecution concluded that the cellist most likely acted as a frontman. In October 2022, the Swiss branch independently announced that it would cease operations, citing a “thorough strategic analysis” as the reason for its decision to leave Switzerland.
The bank and the war
Unlike its Swiss counterpart, GPB International hasn’t faced local investigations or suffered from the sanctions and economic isolation that hit Russia following its 2022 invasion of Ukraine. On the contrary, GPB International has achieved record profits.
According to its 2022 annual report, the bank’s net profit after taxes amounted to 61.4 million euros (more than $65.7 million). By comparison, in its most profitable year before then, 2019, GPB International earned three times less. Even its combined profits for 2018–2021 were lower than that of 2022 alone.
GPB International achieved record financial results in the first year of the full-scale invasion due to a “unique confluence of external circumstances,” according to the management’s preface to the bank’s financial report. What exactly these “circumstances” were wasn’t specified.
In 2022, the bank significantly increased its income from foreign currency transactions, nearly tenfold compared to 2021. The high revenue from trading rubles and dollars accounted for 40 percent of the bank’s total operating income — over 55 million out of 137.6 million euros ($58.9 million out of $147.3 million). GPB International had never seen comparable income from currency transactions before.
The sudden increase is not inherently surprising, explains a financier who worked in Russia. Many banks and investors dealing with the ruble were able to profit greatly from the exchange rate fluctuations, which became extremely volatile due to sanctions and the restrictive measures taken by Russia’s Central Bank. Everyone working with currency sharply increased their rates — in some cases, tenfold — and widened their spreads (the difference between buying and selling rates), the source told Meduza. As a result, many achieved “huge margins.”
Compared to other players, Gazprombank and its Luxembourg subsidiary had a significant advantage. By Vladimir Putin’s decree, payments for gas exports supplied to the E.U. via pipelines were made exclusively through Gazprombank, where European companies were required to open special accounts. The bank remained one of the few channels for transactions in euros and likely benefited not only Gazprom but also other Russian companies operating in the European market, according to a banking expert who spoke to Meduza.
Moreover, until early 2023, Gazprombank still retained the ability to make payments in dollars. The American correspondent banks JPMorgan Chase and Bank of New York Mellon only cut ties with Gazprombank at the end of January last year. They didn’t explain why they made this decision or why it came a year after the full-scale Russian invasion began.
GPB International, however, was unable to replicate the record financial success of the previous year in 2023. Net profit dropped tenfold to six million euros ($6.4 million). The corporate loan portfolio shrank to one-third of its original size, and, due to sanctions, the bank had to sever ties with several dozen clients, according to the 2023 report.
Despite this, GPB International does not seem to be planning to shut down. Shareholders once again injected additional funds into the bank’s capital, and the management plans to continue operations in 2024, stating: “We will maintain our efforts to navigate through the political and economic developments as these circumstances are far beyond our influence or control.” Most other European banks with Russian roots haven’t managed such maneuvers.
Banking on immunity
On June 12, 2024, the U.S. Treasury Department announced a new package of sanctions against Russia meant to target the country’s “foundational financial infrastructure and access to third country support.” The most notable measure was the sanctions against the Moscow Exchange, which resulted in the suspension of dollar and euro trading in Russia. In addition to the exchange, more than a hundred Russian individuals and entities (along with their foreign branches) were added to the U.S. blacklist. However, Russia’s Gazprombank and its Luxembourg branch were again not included.
The European Union also hasn’t imposed any restrictions on Gazprombank. Although pipeline gas supplies to Europe have significantly decreased from pre-war levels, they remain very important for some European countries. If strict sanctions were imposed on Gazprombank, Russia might retaliate by stopping exports of raw materials altogether (for example, completely halting supplies to Europe), which would drive up prices. “I’m not sure the West wants that,” economist Sergey Aleksashenko said.
For now, Western sanctions are actually benefiting Gazprombank and GPB International. After dollar and euro trading halted on the Moscow Exchange, they found themselves in an even more advantageous position. Russian banks with correspondent accounts in the U.S. and Europe will now become key players in the Russian market for currencies from “unfriendly” countries, Aleksashenko believes, giving them additional opportunities to profit.
GPB International hasn’t had any issues with the Luxembourg authorities either. In April 2022, local media pointed out that Gazprombank’s subsidiary hadn’t published its financial statements for 2019–2021 in the official Luxembourg registry, as required by law. But after Luxembourg’s regulator warned that the bank could face fines and even criminal liability for the oversight, all the necessary documents were uploaded. The Russian bank hasn’t been bothered by regulators since.
In the spring of 2022, there were protests outside the GPB International office in Luxembourg’s business district. Around 20 people gathered, holding Ukrainian flags and signs. They urged authorities to “wake up immediately” and shut down the Russian bank and told the bankers to “pack up their bags and go home.”
Few members of the international team (the bank employs Russians, Luxembourgers, and other foreigners) heeded their calls. The few bank employees who, according to their LinkedIn profiles, resigned after the full-scale invasion began, declined to speak with Meduza. One foreign employee, who stated in his profile that he left GPB International due to “international circumstances,” even asked not to have his name mentioned.
There were no mass resignations at GPB International due to the war, according to an acquaintance of one of the employees. When several foreign members left the bank’s board of directors, however, their positions were quickly filled by Russians.
Story by Margarita Liutova