“It’s toxic to be Russian”: how Trump helped Putin return the capital of Russian billionaires to Russia

Because of US sanctions, Russian billionaires are beginning to do what President Vladimir Putin has been urging them to do for so long - return their assets to Russia, Bloomberg writes . Fearing the introduction of new sanctions, businessmen are actively transferring their funds and companies from abroad, and are also expanding the use of the ruble.

Details

• Russian billionaires began hiding their assets from the US Treasury after the April sanctions, due to which the companies of Oleg Deripaska and Viktor Vekselberg lost billions of dollars in just a few hours, major businessmen and company executives told Bloomberg. The money was transferred primarily to Russian state banks. “This situation [with Oleg Deripaska] showed that any international business can be brought to its knees in a second,” says BCS Global Markets analyst Slava Smolyaninov. “This was a real revelation for many tycoons.” “It’s toxic to be Russian,” says former senior Central Bank official and Moscow Exchange chairman Oleg Vyugin. “The richer you are, the more toxic you are.”
• Now billionaires are withdrawing their money from abroad at an even faster pace, awaiting “draconian” sanctions for interfering in the US elections and poisoning the Skripals. Most of Russia's largest non-state exporters transfer their funds from the United States and Europe to Russian state banks or to Russian branches of European banks, the publication's sources report.
• It is unknown exactly how much billionaires have already transferred to Russia, since the Central Bank does not publish the relevant data. But, for example, at Sberbank, the volume of funds held in corporate accounts in different currencies increased from January to August by 17%, which is equivalent to $98 billion. And financial reports of companies show that the private sector transferred more funds to Russia in the second quarter of 2018 than abroad.
• Businessmen return from abroad not only their funds, but also shares in companies . This, for example, was done by Alisher Usmanov, who completed the transfer of Metalloinvest and Megafon to Russian jurisdiction (we wrote in detail about how the latter insures its assets in case of sanctions here ).
• Western sanctions have also forced billionaires to expand their use of the ruble and other alternative currencies. Businessmen still hold significant amounts of funds in dollars and euros (for commercial purposes), but at the same time accumulate ruble savings. For example, Norilsk Nickel shareholders Oleg Deripaska, Vladimir Potanin and Roman Abramovich, who a few years ago kept all their deposits in foreign currency, now keep more than half of their funds - an amount equivalent to $1.5 billion - in rubles, planning to increase it to a record $1. 8 billion
• A gradual decline in the role of the dollar is also observed in international settlements between exporters and buyers and creditors. Companies are increasingly asking banks to give them the option of repaying a dollar loan in another currency in case they fall under sanctions. Exporters also switch to other currencies when concluding transactions. For example, Alrosa already uses rubles and even rupees in settlements with Asian clients. At least one metals company is increasing its euro payments and experimenting with using the Chinese yuan.
• Companies are forced to think through their own plan in case of sanctions; government support in such conditions does not really help. During the placement of Eurobonds in March, specially designed for capital repatriation, Russian investors accounted for only 5%. Businessmen were not particularly interested in the offshore zones created in Russia in Primorye and the Kaliningrad region.

Context

• Vladimir Putin has repeatedly called on businessmen to return capital to Russia. Only in June did he say that it was worth returning the capital to where it was earned.
• The offshore bill was adopted at the end of July and came into force on August 6. In fact, the SARs were created specifically for Russian companies like En+ that were sanctioned by foreign structures. Only foreign legal entities that existed before 2018 can register offshore and are required to invest at least 50 million rubles in these regions within six months after registration - thus, SARs are open only to large holdings. The first participants in Russian offshore companies intend to become the En+ group and the aluminum giant UC Rusal, whose boards of directors approved the transfer of their companies to Russia in mid-August.

Liana Faizova