Nearly $50bn Left Russia Illegally in 2012, Reveals Central Bank

Russia’s illegal capital outflows reached $49 billion last year with more than half the amount controlled by one organised group, Russia’s central bank revealed on Wednesday. 

The illicit transfers, which account for 86 percent of net capital flight in 2012 and about 2.5 percent of Russia’s $2.1 trillion economy, include the proceeds from bribe-taking and embezzlement by officials, payments for drug trafficking and tax evasion, said Sergei Ignatyev, chairman of the Bank of Russia. 

Russia’s illegal capital outflows reached $49 billion last year with more than half the amount controlled by one organised group, Russia’s central bank revealed on Wednesday. 

The illicit transfers, which account for 86 percent of net capital flight in 2012 and about 2.5 percent of Russia’s $2.1 trillion economy, include the proceeds from bribe-taking and embezzlement by officials, payments for drug trafficking and tax evasion, said Sergei Ignatyev, chairman of the Bank of Russia. 

Of the total, the central bank estimates that $14 billion is related to trade operations, with the remainder made up of $35.1 billion in “dubious” capital transfers.

Speaking to Russian daily Vedomosti, Ignatyev also drew attention to the prevalence of what is known in Russia as “one-day firms”, which operate as conduits for money transfers and then vanish before they pay taxes. He estimated that half of the 3.9 million registered commercial organisations in Russia were inactive and “waiting for their hour to come”.

Ignatyev, who is due to retire in June after 11 years at his post, called for urgent legislation that would allow banks to close down accounts being used for dubious purposes and also urged lawmakers to tighten rules for setting up companies. 

He added: 

[quote] Apart from this, our analysis shows that more than half of the total of shady operations is conducted by firms directly or indirectly linked to each other by payments. The impression is created that they are all controlled by one well-organised group of individuals. [/quote]

Ignatyev declined to identify the group but Vedomosti speculated that Ignatyev was talking about bankers rather than Kremlin insiders, adding that it was taken aback by the idea that the hugely-respected Ignatyev suspected a single powerful clan was behind most of the illegal flight.

The Kremlin “took note” of the findings but made clear that it did not share the central bank’s views.

Capital flight has battered the Russian economy throughout the post-Soviet era and is seen as the primary indicator of a lack of investor confidence in the country’s reforms. Polls among investors often show concern not only about graft and corruption, but also a lack of court independence and fears that Kremlin politics could impact fundamental economic decisions. 

Big state enterprises in particular are shifting large sums of money abroad, sources say, while Russia’s super-rich oligarchs use offshore centers to safeguard their businesses. Statistics show that Cyprus is the largest source of foreign investment into Russia and most of that money coming from the island is itself Russian in origin.

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Since his return to power last March, President Vladimir Putin has made the fight against corruption in the system of “Kremlin capitalism” a key priority.

But no official studies have been conducted on criminal cash flows out of Russia and Ignatyev’s revelations suggest the problem is worse than originally thought.

According to a recent study by Global Financial Integrity, a Washington-based financial watchdog, the amount of illicit money flows in Russia has more than doubled over the past eight years, and an estimated $62 billion of black money left or entered Russia each year since the start of 2004. 

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