Source Pravda.Ru

Dismay: No Foreign Harbor to Dirty Money?

Cyprus betrays Russian investors for the sake of its own peace
It is quite obvious that everyone in Russia who has money is anxious to place it somewhere abroad. We certainly mean well-off population of the country and companies, these are not only exporters of raw stuff. The Russian bank system is usually used for short-term operations, but proceeds obtained in the operations are invariably kept in offshore banks. It seems that the steady system has broken down. A conference “International revenue planning for banks, insurance and financial companies of the Russian Federation” was held in Geneva; at the conference Chairman of Russia’s Federal Commission for the Securities Market, Igor Kostikov shocked Russian specialists on capital exportation out of the country. The shock was so tremendous that some specialists haven’t yet recovered from it.

Why people who like to profit on offshore operations are so much dismayed? Cyprus, Russia’s most favorite place for money laundering has sprung a leak. An agreement on information exchange between the Federal Commission for the Securities Market and Cyprus’s Central Bank was concluded last year already; however, even now Russian officials categorically refuse to specify what kind of information is mentioned in the agreement. As it’s clear now, in accordance with the agreement, information about actual holders of Cyprus offshore bank accounts is available to the Russian Federation authorities.

We would like to say here that Russian moneymakers have common sense and practical nous. Already last year, when it was clear that under the pressure exerted by the USA and organizations fighting against money laundering the Central Bank of Cyprus would agree to start cooperation of this kind, Russian capitals started escaping the “hospitable” island. Experts say that within a year up to 30% of Russian companies abandoned Cyprus just to be on the safe side. It’s highly likely that after the sensational statement made by Igor Kostikov the rest will immediately leave as well. And the reason for it is quite understandable. It is not a problem that foreign special services know about your dirty money, and it’s quite another matter that this information is available to special services of your native country. As is known, it’s really very difficult to get rid of their persecutions.

As of now, over 30% of offshore companies registered in Cyprus are of the Russian origin. And Cyprus itself (which is by the way a surprise) is the world’s third country after the USA and Germany regarding the volume of investments in the Russian economy.

Russian businessmen always knew that Russia’s authorities desired to take control over Russian money kept in offshore banks. In September 2002, Russian Minister for Anti-monopoly Policy Ilya Yuzhanov attempted to obtain additional special authorities for this purpose. But the attempt wasn’t a success. And the sensation pronounced by Igor Kostikov proves that the rules of play have changed in the offshore jurisdiction, the most popular one among Russian businessmen. And now the Cyprus offshore banks pose serious problems to Russian businessmen including penalties and even criminal cases.

What is more, as soon as the Federal Commission for the Securities Market gets information about actual participants of transactions in offshore banks, many large and respectable companies will be too vulnerable to officials who hold too much information about these business transactions. It is especially problematic that accountancy handed by Russian companies over to governmental authorities will certainly disagree with information provided by Cyprus.

The chairman of Russia’s Federal Commission for the Securities Market didn’t mention at the Geneva conference how the government would deal with information obtained in Cyprus.

Under the present-day system of business management businessmen can easily pay governmental institutions or some high-ranking officials to have the problem settled. But it’s now difficult to imagine what infringers can be asked to pay in the time when one year is left before next presidential elections.

In fact, even the possibility that some transactions done in Cyprus can be dishonored or arrested is very serious. And the threat that more criminal cases can be instituted in connection with profit concealment, on tax evasion and on violation of legislation on purchase of shares of foreign companies will make some tough oligarchs more compliant and flexible. In this case it’s interesting to mention that offshore companies in Cyprus are actual owners of Russia’s large-scale business institutions (the Rusal aluminum company, for example). Until now it was practically impossible to prove any connection between the offshore company and the actual owner.

This can be of interest, but in accordance with the Cyprus law, information about beneficiary owners can be available only after a special court decision. However, as lawyers of Russian companies say that the agreement concluded between Cyprus and Russia is an international documents that is prior to the local laws of Cyprus.

Kira Poznakhirko PRAVDA.Ru

Translated by Maria Gousseva

Read the original in Russian: http://economics.pravda.ru/economics/2003/7/21/64/8506_outflow.html

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