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Over $45 billion in ‘suspicious transactions’ left Russia in 2013

Published time: July 09, 2013 14:31
Edited time: July 09, 2013 20:34
RIA Novosti / Igor Samoilov

RIA Novosti / Igor Samoilov

Cyprus, Hong Kong, the Cook Islands, Switzerland, Latvia, and other 'offshores' is where over $45.5 billion of Russian wealth ended up in the first half of 2013, according to new figures from the Russian Central Bank.

The figure is up more than a third year-on-year, which last year reached 1 trillion roubles, Izvestia reports.

From 1994 to 2012, there was over $343.2 billion in similar suspicious transactions out of Russia, which are seen as a violation of tax laws.

“Regardless of the route and the technology of money withdrawal, especially in terms of a liberalized capital account, it reflects the deficit investment opportunities inside the country, that is, a complicated investment climate,” Alfa Bank analyst Dmitry Dolgin said, Izvestia reported.

The Central Bank of Russia has previously revealed billions in ‘dubious dollars’, or money used in ‘shadow firms’ to avoid taxes and secure more optimal transfer pricing.

Some of these shadow firms are set up and shut down within 24 hours, and in the interim, billions of dollars are expedited through a clandestine channel, or back hole of wealth.

Countries, or tax havens, can provide opportunities for investors by lowering their corporate tax rates as well as income tax rates, to make their own business climate more attractive in an ever competitive investment environment.

Latvia the new Cyprus?

Cyprus was one of the most popular destinations for Russian money, estimated at $30 billion by Russian Deputy Prime Minister Arkady Dvorkovich.

“Cyprus was convenient as a warm and friendly island not far away from Russia, easy to reach, jurisdiction is good, and taxes are low. Banks are quite good and convenient to operate with money, to proceed with transactions across the world, to transfer money, to pay for services. And the rules of the game were known to everyone. Not just for Russians, but many British and Americans were using Cyprus as well. But again for Russians it was a close and convenient jurisdiction,” Dvorkovich told RT in an on-air interview.

View of Riga (AFP Photo / Ilmars Znotins)

Now, Russian capital is flowing elsewhere.

“Capital has shifted to other areas. In particular, Latvia has replaced Cyprus regarding withdrawal of capital from Russia,” BKF analytical department head Maxim Osadchiy told Izvestia.

“Also, due to the pressure exerted by the U.S. tax authorities on classic offshore areas of Europe, such as Switzerland, Luxembourg and Liechtenstein, Russian dirty money has started  to flow into the opaque Asian offshore areas, such as in Singapore and Hong Kong,” said Osadchiy.

Even banks in Dagestan are cashing in on the market of ‘dirty Russian dollars', according to Osadchiy.

There have also been several cases filed in the Ural and Caucasus regions, regional prosecutor Alexander Buksman said at the International Banking Congress in June.

Crackdown plan

The Central Bank is going to closely scrutinize its neighbors Belarus and Kazakhstan, which between them, according to the bank, helped smuggle $25 billion in fictitious import schemes.

The Central Bank has proposed creating a customs union between the three countries which would deal with case-specific compliance money laundering issues.

There is also an idea, supported by the Federal Tax Service and the Interior Ministry to create a universal ‘black list’ which will include companies and individuals which have been involved in illegal financial transactions, and will be an open database which all commercial banks can access.

According to Central Bank data, the turnover of funds from Russian banks to legal non-resident entities in the first 5 months of 2013 has reached about $241.3 billion, of which nearly $60.9 billion was on loans for non-residents.

The Central Bank has identified a network of companies they believe to be involved in the illicit money web which is costing the country 760 billion roubles in lost tax revenue.

Most recently, the Central Bank revoked the license of Makhachkala City Municipal Bank for a violation of money laundering.

Russia has a 13 percent income tax rate.

Russia has a corporate tax rate of 20%, compared to the US, which has 40%, and Germany, at 30%