The onset of a global regime for international information exchange -Common Reporting Standard - is helping to prompt wealthy Russians to come clean about foreign accounts. Many, however, are taking a different approach in handling accounts.
A recent survey of private bankers and advisors by an international property brokerage firm, Tranio, shows that the number of Russian high net worth individuals disclosing their foreign accounts to Russian authorities has risen by more than fourfold since after the country signed up in 2016 to the Common Reporting Standard regime of information exchange.
Data still shows a significant share of such persons aren’t declaring accounts, however, in many cases choosing to change tax residency.
The research was undertaken at a conference at which 60 private bankers, lawyers and tax advisors working with Russian HNW individuals attended.
Under the CRS, Russia will automatically receive information on its residents´ foreign bank accounts from 2018. Some 40 per cent of such nationals with foreign accounts declared them to the authorities, versus only 10 per cent doing so before.
Individuals who declare their foreign bank accounts usually open new accounts with a clear transaction history for such purposes. Previously owned accounts are closed, and the funds from them are transferred through back channels to avoid any connection between their old and new accounts, Tranio managing partner George Kachmazov, said.
What do Russian nationals who do not want to declare their foreign accounts do? According to a 2016 survey, 48 per cent of the respondents said that such individuals would most likely change their tax residency, while in 2017, this figure increased to 78 per cent. One-third of respondents said that Russian HNWIs are becoming de-facto tax residents of other countries, 27 per cent said they are changing their residences using foreign residence or citizenship-by-investment programmes, and 18 per cent of the respondents mentioned both.
About one-third of respondents said that Russian HNWIs most often closed their foreign accounts and transferred their capital to Russia (37 per cent in 2016 and 33 per cent in 2017). The proportion of respondents who said that owners of foreign bank accounts are transferring their capital to jurisdictions not participating in the CRS is significantly lower: 20 per cent in 2016 and 17 per cent in 2017.
The most popular of such jurisdictions are the UAE and Singapore, which had not yet joined the CRS MCAA at the time of the survey. Even after joining the agreement in June 2017, Singapore plans on exchanging tax information only with jurisdictions that are able to guarantee the confidentiality of the information and prevent its misuse. Singapore authorities do not consider Russia to be one of these countries.
Many HNWIs also transfer their capital to the US (28 per cent in 2017 and 15 per cent in 2016).