Criminal Group Illegally Took $24 Billion Out of Russia

A single Russian network of at least 1,173 sham companies is responsible for illegally channeling a minimum of 760 billion rubles ($24 billion) out of the country, outgoing central bank Chairman Sergey Ignatiev said.

Bank Rossii received a request from the Interior Ministry last month for information on a number of companies implicated in a criminal investigation into illicit financial operations, Ignatiev said in a speech to lawmakers in Moscow today. The regulator found “clear violations of tax and currency laws” and sent a 230-page report to the ministry this week.

Ignatiev, 65, who steps down after more than a decade as chairman June 24, said the issue of illicit outflows has recently required more of his time than the economy or monetary policy. Dubious transactions accounted for $38 billion of Russia’s “abnormally high” $54 billion in net private capital outflow last year, he said.

“I get the impression that this entire network of shell companies is controlled by a single group,” Ignatiev said. An investigation to uncover the people behind the group may require “hundreds or even thousands” of requests to commercial banks, as well as questioning those involved in the operations. He reiterated calls for greater cooperation between law enforcement and other agencies involved.

Capital Flight

The bulk of the operations was conducted between 2010 and 2012, though they date back to 2008, according to Ignatiev. The investigation for the Interior Ministry didn’t look any further than three transactions, meaning the number of firms involved in the operations may be greater, he said.

Russia had net private capital outflows of $54.1 billion in 2012 and an estimated $25.8 billion in the first quarter of this year, according to central bank data. Outflows continued in May and were higher than expected, Ignatiev told reporters after the speech, declining to elaborate.

May’s outflow was an estimated $8 billion, compared with $3.5 billion to $4 billion in April, Deputy Economy Minister Andrei Klepach said yesterday, Interfax reported.

The questionable transactions may involve the “avoidance of tax and customs payments, theft of budget funds, bribes and kickbacks to officials, money laundering, financing terrorism and drug-related operations,” Ignatiev said. At least $13 billion more in operations through the current account bring last year’s total of questionable outflows to $52 billion, he said. That was above the bank’s first estimate of $49 billion in February.

Most Opaque

Illicit capital outflows related to Russia’s shadow economy may have been as much as $211.5 billion between 1994 and 2011, according to Global Financial Integrity. Russia is “the most opaque economy we have analyzed,” and the real figure may be higher, the Washington-based group said in a report in February.

With oil prices remaining at current levels, an “inevitable” slowdown in the outflows means the ruble is more likely to appreciate than to weaken, Ignatiev said.

Finance Ministry plans to start buying foreign currency in August for the Reserve Fund should have a “minimal effect” on the ruble, and may even result in strengthening if the ministry is drawing down funds and buying rubles to cover a deficit, he told lawmakers.

The ruble weakened 0.6 percent to 32.19 against the dollar as of 6:05 p.m. in Moscow. The Finance Ministry shelved an auction of 15-year ruble bonds after failing to receive bids within the targeted yield range before selling all 10 billion rubles offered in new three-year notes.

Ignatiev, who agreed to stay on at Bank Rossii as an adviser to his successor, Kremlin economic aide Elvira Nabiullina, declined to comment on whether he would continue to focus on illegal outflows in his new role.

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