Illustration by Philip Smith for Forbes
Forbes found several yachts owned by sanctioned Russian and Russian-born billionaires that reclassified themselves houseboats and “reflagged,” or changed their registration, from British tax havens to more Russian-friendly spots.
It’s been seven months since Russia’s invasion of Ukraine spurred Western authorities to hit Russian oligarchs with sanctions, taking aim at their luxury superyachts. The actions have ranged from outright seizure to deregistering the vessels, making it difficult—if not impossible—for the floating palaces to obtain insurance and sail legally.
But several sanctioned Russian and Russian-born billionaires are now registering their yachts in countries that haven’t imposed sanctions on Russia—possibly because they could no longer obtain insurance accepted in the territories where they were registered, or as an attempt to allow them to sail legally if sanctions are ever removed. Forbes found six yachts owned by sanctioned Russian billionaires that recently changed their country of registration, or “reflagged.” One of these, steel mogul Alexey Mordashov’s $521 million, 465-foot Nord, reflagged from the Cayman Islands to Russia. Three more reflagged from the Caymans to Malaysia and Sierra Leone, one from Bermuda to Palau and another from the Isle of Man to Sierra Leone.
NEW FLAG ON THE BLOCK
The six yachts are collectively worth $1.8 billion, according to yacht valuation experts VesselsValue and estimates by the Italian government. Representatives for five of the six billionaires who own these yachts 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 discretionary trust managed by an independent trustee, and Mr. Melnichenko has no [relationship] to that trust.”
The most prominent ship to reflag is Scheherazade, which is technically owned by sanctioned oil & gas billionaire Eduard Khudainatov but believed to be held on behalf of Russian President Vladimir Putin. Scheherazade is one of the largest yachts in the world and boasts a helicopter pad. It was frozen by Italian authorities in May.
Besides changing registry, four of the six reflagged yachts—Galactica Super Nova, Le Grand Bleu, Scheherazade and SY A—were also newly registered as “houseboats” rather than yachts or pleasure crafts.
Scheherazade, formally owned by Eduard Khudainatov and believed to be held on behalf of Vladimir Putin.
AFP via Getty Images
“It’s unclear why some of these yachts have been registered as houseboats,” says Benjamin Maltby, a partner at London-based law firm Keystone Law who focuses on superyachts. “Unless they have been fully decommissioned and are physically incapable of moving—in which case there’d be little point in registering them anywhere.”
The flag changes don’t mean the ships will be traveling to those far-flung countries. For one, two of the six yachts—Scheherazade and SY A—have been stuck in Italian ports for months after they were frozen due to European Union sanctions on their owners. Leonid Mikhelson’s Pacific is in Turkey, a popular destination for Russian-owned superyachts thanks to Turkey’s lack of sanctions on Russia, while Eugene Shvidler’s Le Grand Bleu was last seen in Puerto Rico on September 20. Vagit Alekperov’s Galactica Super Nova turned off its transponder off the coast of Montenegro in early March, and its current location is unknown. Alexey Mordashov’s Nord, which reflagged to Russia, fled to the Russian port of Vladivostok in March and is currently on its way to Hong Kong.
Ships are frequently “flagged” or registered offshore for tax benefits and other advantages such as confidentiality of ownership. The six reflagged yachts were previously registered in Bermuda, the Cayman Islands and the Isle of Man—all among the most popular jurisdictions for yacht registration thanks to their political stability, lack of taxes and membership in the Red Ensign Group, which entitles ships to protection from the British Royal Navy.
As British overseas territories and crown dependencies, these locations have taken part in sanctions imposed by the U.K.: The Isle of Man deregistered Andrey Melnichenko’s MY A and SY A in March, with the latter also frozen in Italy that same month. While SY A reflagged to Sierra Leone, it’s unclear where the $230 million, 390-foot MY A is currently registered. It turned off its transponder in March to avoid being tracked, and was last spotted in Ras Al Khaimah in the United Arab Emirates in June.
Andrey Melnichenko’s SY A.
Anadolu Agency via Getty Images
Reflagging a yacht that’s frozen—such as Melnichenko’s SY A—raises the question of why the owner would go through the trouble if they can’t access the yacht or move it. One possibility is that the yachts could be able to once again travel legally under a new flag, if the sanctions are removed and the ships are released. Melnichenko filed a lawsuit to vacate the sanctions imposed on him in the EU’s General Court in September.
“Owners do appear to have re-registered only [after] having been de-registered, or where de-registration has appeared imminent,” says Maltby.
Another theory is that Western sanctions have made it difficult for the yachts to maintain the insurance necessary to register in the best jurisdictions. According to a source familiar with the matter, Russian oligarchs facing sanctions pressure have been having trouble repaying debt—often with yachts held as collateral—to Western lenders. That means they have to shift debt to Russian banks and find new insurance for their yachts since Western insurance firms don’t want to do business with sanctioned Russians. That, in turn, means the yachts need to find a new flag because the highest-rated jurisdictions, such as Bermuda and the Caymans, won’t accept their new insurance and debt history.
That was the case for steel pipes magnate Dmitry Pumpyansky, whose 236-foot yacht Axioma—registered in Malta—was seized in Gibraltar in March after JPMorgan claimed Pumpyansky broke the terms of a $20 million loan. JPMorgan argued that Pumpyansky had defaulted on a loan to a company he owned, which had used the yacht as collateral. Axioma was sold at auction for $37.5 million in August; VesselsValue valued it at $42 million. A representative for Pumpyansky did not immediately respond to a request for comment.
But it’s odd to see these kinds of superyachts registered in Palau and Sierra Leone. Malaysia, unlike the other two countries, has an international yacht registry in its duty-free island of Langkawi, which is popular among yacht owners in Asia. “Langkawi is internationally recognized and has become popular in recent years,” says Cheryl Pereira, office and yacht registry manager at Hong Kong-based yacht sales and brokerage firm Simpson Marine.
Axioma, formerly owned by Dmitry Pumpyansky until its sale at auction in August.
SOPA Images/LightRocket via Gett
According to vessel tracking service VesselFinder, there are 13 superyachts—yachts that are 78 feet long or more—registered in Malaysia. Forbes identified the owners of three of them: Malaysian rubber baron Vinod Sekhar’s Petra Tara and two yachts held by Russians who have not been sanctioned—billionaire oligarch Anatoly Lomakin’s $59 million, 205-foot Sea & Us and former Russian Deputy Prime Minister Vitaly Mutko’s $32 million, 87-foot Vector. Lomakin’s Sea & Us reflagged from the Marshall Islands to Malaysia sometime after June, possibly as a way to pre-empt any future sanctions. A representative for Lomakin did not immediately respond to a request for comment.
Palau and Sierra Leone’s registries are far less reputable than Malaysia’s. Both countries are on the “gray list” of the Paris Memorandum of Understanding (MoU), an initiative between 25 European countries and Canada to coordinate port safety inspections and prioritize the detention of unsafe vessels. Sierra Leone is also on the “black list” of the Tokyo MoU, a similar organization for 21 countries bordering the Pacific Ocean, including Russia; Palau is on the Tokyo MoU’s gray list.
A spokesperson for the Sierra Leone Maritime Administration, which runs the country’s ship registry, told Forbes that the country has seen “an increase in incoming requests” from Russian owners, but that “most of the requests won’t proceed to materialize for various reasons.” The spokesperson did not respond to questions from Forbes on the reasons the requests aren’t proceeding.
“Yachts have to be flagged somewhere, otherwise it is a virtual certainty that they will be detained at their next port of call,” says Maltby. “Without a registry there’s no one to issue the safety certificates required internationally. This appears to be a case of any port in a storm.”
But choosing a registry like Palau or Sierra Leone brings its own set of drawbacks. Besides the increased risk of inspections and detentions, flagging a yacht in a gray- or black-listed registry could impact the ship’s resale value. It also makes it more difficult to obtain insurance—which is necessary for the yacht to set sail—because underwriters will be less likely to insure a yacht registered in a risky jurisdiction.
“Historically, large yachts have rarely been inspected as their owners can afford to flag their vessels with the most reputable registries,” says Maltby. “While it’s mostly academic to sanctioned individuals whose ability to undertake international banking transactions has been curtailed, an unusual choice of registry can give the impression of an owner whose approach to safety is more cavalier than one might expect.”
Since March, the European Union, the U.K. and the U.S. have frozen, seized or blocked at least 15 yachts owned by 13 sanctioned Russian billionaires, worth a collective $3.3 billion. Besides Axioma, only two other yachts owned by sanctioned Russian billionaires have seen their ownership change hands: Suleiman Kerimov’s Amadea and Viktor Vekselberg’s Tango, both seized by the U.S.
“In the U.K. and throughout mainland Europe, there’d be nothing to prevent the owner from re-flagging at any time, assuming that registration fees can be paid and any surveys needed can be carried out,” says Maltby. “The authorities have taken possession, not ownership. This is in stark contrast to the situation in the U.S.”