Ritchie manages to note that lots of Russian money went to Cyprus then went back into Russia as FDI.
Gosh, well done that man. Everyone else knew about this from some time in 1991.
Every single one of those locations is a tax haven, which shows how distorted the world’s investment markets are by tax. But there at the top of the list is Cyprus. And almost certainly most of that was really Russian money in the first place.
When data is this obscured by tax haven abuse, and when tax havens so distort the allocation of resources in the world then the case for reform is overwhelming.
The question is – will David Cameron deliver at the G8? Don’t hold your breath.
But as ever he manages to entirely miss why this was being done.
Recall that Russia has a flat tax of 13% on all incomes. So it\’s not actually tax dodging that this is about. It\’s about legal certainty. Russian property that is owned by a Russian in Russia isn\’t in fact secure property. Mr. Khordokhovsky being a case in point, Sergei Magnitinsky being another. Piss off the wrong politician and you\’ll lose it all to the Courageous State that is Putinism.
However, if you take the money out of Russia, wash it through Cyprus, then it\’s foreign money innit? And that has much greater (although most certainly not perfect) legal protections.
Cyprus and Russia just isn\’t about tax. It\’s about legal certainty over property ownership. All that rule of law shit.
It\’s all for much the same reasons that no one sane invests money in Russia subject to local arbitration: everyone uses London (or Stockholm) instead. Because you cannot trust the local legal system. Nor would anyone sane invest real money in Russian law bonds……just as those who invested in London law Greek bonds got their money back, those who invested in Greek law Greek bonds took a 90% haircut.
It\’s all about the rule of law, being free of the Courageous State, sod all to do with tax matey.
He has also this morning produced a table of percentage employment by sector, which he claims shows how tax avoidance in Cyprus has swamped all other sectors. Even if you accept that raw numbers employed is an absolute measure of activity, it shows clearly the largest relative increases have been in health/social work, education and then public administration. All no doubt paid for from tax revenues accruing from its activities as a “secrecy jurisdiction”. As they would say in another of his secrecy jurisdictions: what a feckin eejit!
Tim, that’s a very interesting point – certainly hadn’t occurred to me.
I wonder if all these dodgy Russians we keep hearing about are all in fact dodgy, or if some are merely trying to escape a dodgy system
..I wonder if all these dodgy Russians we keep hearing about are all in fact dodgy, or if some are merely trying to escape a dodgy system…
They are not mutually exclusive
Well sure, but ‘the narrative’ seems to be that it’s solely about money laundering and other dodgy behaviour.
Another point that’s never mentioned with regard to why Cyprus is so popular for Russians is that before Cyprus joined the EU, it was the only place in Europe where Russians did not need a visa. Even today, visas are issued just about automatically along with an airline ticket.
Most of the Russian money in Cyprus is from pretty ordinary people trying to protect the little they have from a rapacious and corrupt state.
A minor point about “London law” bonds rather than “Greek law bonds”. I’m not sure it is really about English law being more or less certain than Greek law. More that Greece could not change the law (and so the terms of the bonds) in respect of bonds governed by another law and jurisdiction. Just as Greece could not have changed the terms of those bonds had they been subject to Russian law.
It is a bit like having your own currency – if people trust you enough to lend in that, you can, in extremis, inflate your way out of debt. And if people trust you enough to buy bonds subject to your own law and jurisdiction, you can, in extremis, change that law (and the terms of the bonds).
I think, in the LTHD schema, Cyprus would be categorised as a “tax secrecy jurisdiction”. Which it certainly has been with regard to funds emanating from Russia. Much to the annoyance of the Germans.
Oh, wrong thread – sorry …
Alex (#5)
I’m barred from raising queries on his site (as are many of us here) – might be worth asking him to what Extent contemporary Russia exemplifies ‘The Courageous State’ – He gets very irate when you accuse his theory of resembling Russia prior to 1991…