Lay low in Russia

The government will still issue secret bonds for those who are afraid of sanctions

In 2018, the government will expand the range of financial instruments for long-term investments in the domestic economy, Vladimir Putin said at a New Year's Eve meeting with business representatives in the Kremlin. The main novelty should be the issue of special external loan bonds denominated in foreign currency and intended to return the personal capital of the Russian rich to their native jurisdiction. Another measure from the deoffshorization line, a repetition of the capital amnesty program of the 2015-2016 model, was later announced by Finance Minister Anton Siluanov. These initiatives have been lobbied by major Russian entrepreneurs who are trying to insure their overseas assets amid an expected expansion of US sanctions in February.

The Ministry of Finance, which initially opposed the creation of additional infrastructure for the repatriation of capital, eventually agreed to issue Eurobonds worth up to $3 billion to businessmen. The yield on bonds will be higher than the rates of foreign currency deposits in Russian banks (up to 2% per annum), and approximately rates on similar securities. Due to higher risks, this rate will be subsidized by the Russian budget and other market participants. However, the main feature of bonds for Russian oligarchs will not be profitability, but confidentiality - according to Vedomosti, transactions with securities will not be reflected in the international clearing centers Euroclear and Clearstream, so the US Treasury will not be able to track them and freeze funds. While this plan raises many questions, the international financial regulator FATF may not agree with the anonymity of buyers.

The nervousness of Russian business is understandable. The report, which the US Treasury Department will present to Congress at the end of January, will allow any companies and individuals suspected of having links with the Russian political leadership to be included in the sanctions list. Assignment to "Putin's inner circle" will take place on the basis of a special investigation, so it will not be possible to solve all problems by classifying the list of counterparties of state-owned companies and law enforcement agencies. Businessmen find themselves in a difficult situation when they have to choose: government orders, grants and preferences in Russia, or the ability to keep assets abroad and do business with Western companies. Part of the Russian establishment in this situation, according to Reuters sources, decided to lay low and appear as rarely as possible in the company of Vladimir Putin. Friendship with the Kremlin becomes a black mark for entrepreneurs.

This is not the first time the Russian authorities have been called upon to compensate the oligarchs who suffered from anti-Russian sanctions, and each time this is done at the expense of ordinary taxpayers. In the spring, the State Duma adopted a law on tax exemption in Russia for individuals subject to sanctions, and in 2014 the first amnesty for foreign capital was announced. The secret bond story may differ from previous “compensations” in that it is not just a friendly gesture towards the patriotic business elite, but also an attempt by the Kremlin itself to hedge against new sovereign sanctions. The probability of a ban on the purchase of Russian OFZs by foreigners is not high yet, but it exists, and the plans of the Ministry of Finance for new loans next year are just $3 billion. However, non-residents hold about $40 billion of Russian government debt, so there is hardly a direct connection here.

The previous attempt by the authorities to repatriate capital turned out to be a failure - only 2,500 people declared foreign assets, and some large businessmen decided to renounce the status of Russian tax residents. This time, the situation is more serious: business, represented by the RSPP, is itself forced to turn to the president for help, and this is not just about Western sanctions. After the high-profile offshore scandals of recent years, the global financial system began to rapidly rebuild. Tracking suspicious financial flows is now much easier, even if you're not just transporting millions of euros in cash in your suitcases. So today the oligarchs, who have withdrawn up to $1 trillion from Russia over the past 15 years, are under double fire. Only their native state can help them survive in the new world.