By Brian LeBlanc, May 23, 2014
It can be tough to impose economic sanctions against Russian citizens if you can’t find their money. Russia’s very complex relationship with tax havens could make this more difficult.
It is also tough to try to pinpoint exactly how much Russian money is being held in tax havens due to the fact that a lot of it isn’t reported to Russian officials/international organizations like the IMF (that’s the whole point of hiding your money in a tax haven).
The amount that is actually reported is pretty jaw-dropping. Approximately 61% of Russia’s $403 billion in outward Foreign Direct Investment (FDI) is held in tax havens:
Just to be clear, FDI is any amount of investment in a entity which gives the investor some control over that entity’s operations. So, if a Russian billionaire incorporates an entity in Cyprus (often these entities in tax havens are just bogus “shell” entities), and invests $1,000,000 into the entity, that will show up in the FDI statistics.
As a research and advocacy group that has for years called attention to the murky world of tax havens, we welcome your report (Leaks reveal secrets of the rich who hide cash offshore, 4 April). But you should also have dispelled the myth advocated by some proponents that tax havens promote greater tax efficiency through competition; the evidence in economic literature is scanty at best. What is clear is that this benefit has not been enough to prevent tax havens from going bankrupt.
Cyprus a “Laundry Machine for Dirty Russian Money”
Illegal Inflows of Capital Estimated at US$552.9 Billion; Driving Underground Economy, Crime, Tax Evasion
US$764.3 Billion in Total Illicit Flows (Inflows + Outflows) Measured
Russia’s Underground Economy Averages 46% of GDP, 35% in 2011; Weak Governance and Endemic Tax Evasion Lead to Increasing Outflows
WASHINGTON, DC – The Russian economy hemorrhaged US$211.5 billion in illicit financial outflows from 1994—the earliest year for which data is available following the dissolution of the Soviet Union—through 2011, according to a new report released Wednesday by Global Financial Integrity (GFI), a Washington, DC-based research and advocacy organization. The study, titled “Russia: Illicit Financial Flows and the Role of the Underground Economy,” [HTML | PDF] also measures massive illicit inflows to the Russian economy of $552.9 billion over the 18-year time-span, raising serious questions about the economic and political stability of the nation currently chairing the G20.