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National Lottery operator had borrowed millions from Kremlin-owned banks

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The company behind the national lottery was borrowing millions from Kremlin-owned banks when it won the UK’s largest public-sector contract, the Guardian can reveal.

Russia’s two largest lenders, VTB and Sberbank, were part of a syndicate that agreed to lend up to €640m (£545m) to Allwyn in 2020, two years before the pan-European gaming specialist was named the “preferred bidder” for the £6.5bn lottery contract.

While Allwyn repaid the portion of the loan attributable to the two Russian banks in response to the invasion of Ukraine, the funds appear to have helped support the group during the time it was in the costly process of bidding for the lottery.

Loans from the Kremlin-owned Sberbank and VTB, extended via European subsidiaries in the Czech Republic and Germany respectively, remained in place for nearly a month after both lenders were placed under sanctions by the UK government.

Allwyn repaid the debts in late March 2022, after the Gambling Commission had chosen the company to run the lottery, ahead of the incumbent operator, Camelot, and a bid from the media tycoon Richard Desmond.

There is no suggestion that Allwyn, ultimately owned by the Czech billionaire Karel Komárek, was in breach of sanctions or that there was any Russian influence over the bid. There is also no evidence to indicate the Russian loans were used to finance the bid for the lottery directly.

Allwyn said it informed the Gambling Commission about the loans and its intention to repay them on 28 February, four days after VTB was placed under sanctions by the UK, and that it followed Treasury sanctions guidance.

But the loans raise questions about whether MPs were given the information they needed during select committee sessions scrutinising Komárek’s business links to Russia.

The Labour MP Clive Efford, a member of the select committee for culture, media and sport, said he could not understand why the Gambling Commission did not mention the loans during an evidence session in June 2022.

“It is unacceptable that the commission chose not to inform us that it knew Allwyn had loans from two banks linked to the Russian state at the time that they selected it as their preferred bidder for the UK lottery,” said Efford.

“From this evidence it is clear that the Gambling Commission failed to give full and frank answers when questioned about what it knew of Allwyn’s links to Putin’s Russia.”

The committee is expected to question the Gambling Commission again in April.

The Conservative MP Iain Duncan Smith, the vice-chair of the all party parliamentary group on gambling-related harm, also questioned why the loans had not come to light previously.

He said: “There may well have been nothing concerning about this lending but if so, why were MPs and the public not told about it?

“A public sector contract of this value and importance should be subject to the utmost transparency requirements. The Gambling Commission must come forward with an urgent explanation.”

The previously unreported relationship between Allwyn and Kremlin-owned banks emerged thanks to analysis of freely available corporate records in the Czech Republic, where Komárek built his fortune in the post-Soviet era.

Despite Komárek’s public condemnation of Vladimir Putin’s “brutal” invasion of Ukraine, Allwyn has struggled to shake off concern among MPs about his Russsian links.

Questions have focused on a gas storage facility in the Czech Republic, that was jointly owned by Komárek’s holding company, KKCG, and Kremlin-owned Gazprom, until February.

In June 2022, the Gambling Commission told MPs on the culture committee that it was not concerned by the Gazprom link.

Loans from Sberbank and VTB, arranged in December 2020, financed the wider Allwyn group, which owns lotteries and gambling businesses across Europe.

The group controls UK-based Allwyn Entertainment Ltd, which began operating the lottery in February after a highly competitive bidding war.

The Gambling Commission officially launched the competition in August 2020, beginning a costly battle that saw Allwyn and rival bidders spend millions on consultants, lawyers, boardroom veterans and PR executives to support their bids for a contract projected to be worth £6.5bn in revenues over 10 years.

The loans were originally secured by Sazka Group Financing, a division of Sazka Group, which rebranded as Allwyn International in May 2022. Sazka Group Financing’s 2021 accounts state that the group “responded to the sanctions imposed by European Union member states on Russia regarding the Russian banking sector.”

“The entire part of the loan attributable to VTB and Sberbank” was repaid on 22 March and 25 March 2022.

The UK had placed VTB under sanctions nearly a month earlier on 24 February, while Sberbank was added to the UK’s sanctions list on 1 March.

Four days after VTB was put under sanctions, KKCG informed the Gambling Commission of the loans and that it planned to terminate the agreement.

On 15 March, when it was named the Gambling Commission’s preferred bidder, the loans had not yet been repaid.

Accounts for the wider Sazka Group refer to an early loan repayment in March 2022, recorded as close to €60m.

The figure represents about 14% of the €450m that Sazka Group Financing has borrowed from the syndicate at the end of 2020 and 3% of its external debt.

In October 2021, more than a year after the lottery licence competition began but before the decision to award the licence to Allwyn, the company agreed a separate £380m credit facility to fund its investment in the lottery, although it said the company was not reliant on external funds for the bid itself.

A spokesperson for Allwyn said it had “never borrowed from any banks in violation of sanctions restrictions” and that the 2021 facility “did not include funds from any Russian banks”.

Separately, said Allwyn, “as soon as Russia invaded Ukraine, and before being named by the Gambling Commission as the preferred applicant…Allwyn and its legal advisers initiated the process to repay borrowings provided by the European arms of VTB (based in Frankfurt, Germany) and Sberbank (based in Prague, Czechia) as part of [an earlier] broad syndicated bank financing in 2020.

“Allwyn promptly informed the Gambling Commission, and this process was done in full accordance with the wind down guidance published by HM Treasury.

“By 25 March 2022, only one month after the invasion of Ukraine, Allwyn had repaid all amounts owed to VTB and Sberbank.

“Allwyn has repeatedly expressed its horror at Russia’s invasion,” said the spokesperson, adding that any suggestion Russia had a role in Allwyn’s bid for the lottery or any influence over the company would be “an unjustified smear”.

The Gambling Commission said it had “required all applicants to declare any and all sources of funding that were to be used for both their application or for the running of the national lottery.

“We were – and still are – satisfied that no sanctioned entities are involved in funding Allwyn.”

This article was amended on 12 March 2024. An earlier version reported that Allwyn agreed “a separate £380m credit facility in October 2021 to fund its lottery bid”. Allwyn had told us prior to publication that the credit facility was “to fund its investments in the fourth licence”; it has since clarified that this was not to meet costs of the bid, for which it says it had “ample cash” and no need of external funds. Some further comment provided by Allwyn before publication was added, including that the 2021 credit facility did not involve Russian banks.

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