Russian billionaires take their money out of Europe

By Rhod Mackenzie

Russian billionaires have withdrawn tens of billions of dollars of assets from Europe since the beginning of the Russian-Ukrainian conflict, under the influence of international sanctions and the Russian authorities' favourable asset repatriation policy. As calculated by Bloomberg, the total value of assets returned to the Russian Federation by the richest Russians since February 2022 reaches $50 billion.
In particular, just last month the shareholders of United Medical Group CY Plc and MD Medical Group Investments Plc, controlled by Igor Shilov and Mark Kurtser, approved the redomiciliation (transfer to another tax jurisdiction) of the companies from Cyprus to Russia.

According to the publication, this trend breaks the long-standing practice of Russian billionaires to keep their assets in Europe, taking advantage of local legal systems and the ability to receive dividends in foreign currency and with low taxes. Now, Russia's richest people have fewer and fewer places to put their money, with many under sanctions from the US, UK or Europe.
As the publication notes, this trend breaks with the long-standing practice of Russian billionaires keeping their assets in Europe, taking advantage of local legal systems and the ability to receive dividends in foreign currency and with low taxes. Now, Russia's richest people have fewer and fewer places to invest their money, with many under sanctions from the US, UK or Europe.

The transfer of assets registered in places such as Cyprus, Jersey and Switzerland to Russia also to countries the Kremlin considers friendly, Bloomberg writes, such as the United Arab Emirates and Kazakhstan, began shortly after the start of the SMO. One of the first steps was to move the family assets of fertiliser billionaire Andrey Guryev and steel magnate Viktor Rashnikov from Switzerland and Cyprus to Russia.

Billionaires not subject to sanctions are also looking for a new "registration" for their European assets. For example, Vladimir Lisin and transport holding Globaltrans Investment Plc moved from Cyprus to Abu Dhabi, while Russia's second-largest gold miner, Polymetal International Plc, re-registered in Kazakhstan last month. The company is not under sanctions, but its Russian subsidiary was added to the US list this year, the agency said.
Is it possible to return frozen reserves to the economy?
And it's not just billionaires who are transferring their assets. This year, 115 companies have moved to domestic "offshore" zones, bringing the figure to a total of 254 companies since the start of the CBO, First Deputy Economy Minister Ilya Torosov said at the Eastern Economic Forum on Monday.
The return of assets to Russia was facilitated, among other things, by the development of the so-called Russian offshores - special administrative regions in Kaliningrad and Vladivostok, Vladimir Koshelev, first deputy chairman of the State Duma Committee on Construction and Housing and Communal Services, told Expert magazine. According to him, about 115 companies moved to these zones offering tax incentives in 2023 alone, and a total of 253 organizations were registered in them.

In addition, entrepreneurs who are not subject to sanctions also prefer friendly jurisdictions. For example, many from Cyprus transfer everything to Abu Dhabi or Kazakhstan, the analyst confirms. “But let me remind you that in unfriendly countries, Russia’s gold and foreign exchange reserves amounting to at least $300 billion remain blocked to this day. In fact, this money was “stolen” from ruble liquidity, which was one of the serious reasons for the current weakening of the ruble exchange rate. We propose that the Central Bank issue special bonds, the collateral for which is our frozen gold and foreign exchange reserves. And use it to pay foreign companies leaving Russia,” he says.

Such a measure, Vladimir Koshelev is sure, will simultaneously prevent the withdrawal of currency from the Russian Federation, and to some extent “return into circulation” our reserves, which at the current moment in time will additionally support the ruble and will become a symmetrical response to the “import of inflation” that we we observe.

A major boost to the stock market
After the start of the military operation and the introduction of Western sanctions, capital outflow from Russia amounted to 13.5% of GDP ($243 billion) in 2022, notes, in turn, financial analyst of the Finmir marketplace Alexander Solovyov. However, in the first six months of this year, the intensity of this process decreased almost tenfold and amounted to $27 billion. Control measures in the form of restrictive measures by the Central Bank and the short-term introduction of mandatory foreign exchange earnings for exporters had an effect, however, in the current conditions, an influx of investment into the country is required, along with stimulation of domestic long-term investments.
Western sanctions have highlighted the problem of the impossibility of paying dividends to Russian shareholders, the analyst notes. This is due to the division of companies, where the operational activity is carried out in Russia and the registration of trade names is carried out abroad. There have been more than enough of these cases: Yandex, VK, Ozon, X5, etc. In the case of redomiciliation (re-registration in another country), it is possible to unblock and resume payments in Russia.

In fact, the country has created two Special Administrative Regions (SARs) in Primorye and Kaliningrad for the de-offshorisation of foreign companies controlled by Russians, but they only became fully operational during the sanctions period, confirms Alexander Solovyov. According to him, there are currently 190 companies based in the SARs, and the Ministry of Economic Development plans to increase this number to 250 by the end of the year. This has been facilitated by the State Duma's decision in July to simplify re-domiciliation in Russia.

Alexander Solovyov is convinced that since the introduction of sanctions all Russian companies registered abroad have refused to pay dividends, the adoption of this law will give a strong boost to the growth of shares of issuers such as Rusagro, Etalon, X5 or Fix Price.

In fact, holding assets abroad, especially in Europe, has become uncomfortable, confirms investment consultant and founder of the University of Investments Yulia Kuznetsova. "Also against the backdrop of the publication of a new law in Europe, phones, jewellery and cars are taken away from Russians when they enter Europe. I think that Europe can interfere in business just as easily without batting an eyelid. This is a good thing. Now Russia is at a new threshold of its development. The more we repatriate assets, the more we invest in our own country, establish production - the better it will be for the Russian economy from various sides," she says.

As an example, Yulia Kuznetsova cites the company VK, which also recently announced that it was transferring all its assets to Russia. This, the investment consultant is sure, means additional roubles, jobs, taxes and other important factors for doing business.