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23.03.2018

Russian offshore - weapons of financial retribution

The indicative beating that the US Treasury made to the Latvian banking system, effectively destroying one of the last Latvian banks, apparently trying to make money on servicing the "gray" financial flows, is another episode in the US fight against competitors in the offshore financial services market. Prior to this, Panama and Switzerland were the victims of American special operations.

This active and successful American campaign to eliminate the competitors of Nevada and Delaware providers of offshore services again raises the question of whether Russia can make money on this process and become a quiet haven for capitals that do not want to go under the cover of the US Treasury.

To someone, the proposal itself to attract capital into the sphere of Russian control and into the Russian economy, which are eager to hide from excessive attention of American or European state structures, will seem fundamentally immoral and unacceptable. But this puritanical position, firstly, is an unacceptable luxury in the current confrontation with the West, and secondly, any attempt to "drain" capital from the US or the EU should be perceived as compensation for those unfriendly steps that were taken by the collective West towards Russia for the last 20 years. Sometimes you should beat your opponent with his own weapon without any remorse.

By the way, our Chinese friends do not hesitate to use their own off-shores in order to attract investments to the country, and so that pro-Chinese politicians, businessmen and officials from Europe, Asia, Africa and South America can safely store their capital there without fear of excessive attention at home or freezing of assets by order of the European Commission or the State Department. Needless to say, such a financial scheme allows to provide increased loyalty to Beijing for those who keep their money or invest it through Hong Kong or Macau. In a sense, China was lucky, because Beijing in 1997 got an already offshore offshore in the form of Hong Kong (which was previously used by the UK). But still it should be noted that our Chinese colleagues have learned to use this tool with profit, and we have not.

Furthermore. Every serious geopolitical player on the planet has "manual" off-shores used to exhaust capital from competitors and to create a scheme for attracting and retaining "their" politicians and businessmen in other countries. Far behind examples you do not need to go. The United Kingdom uses its numerous former colonies, included in the British Commonwealth of Nations (Bahamas, Belize, Vanuatu, Dominica and others) as offshore islands, as well as the Isle of Man, Guernsey, Gibraltar. Even in Scotland, there are schemes for creating anonymous companies that, although they pay symbolic taxes, are quite suitable for "hiding and washing", for example, one billion dollars, which disappeared from Moldovan banks in 2014.

China, we repeat, has Hong Kong and Macau. Among American offshore offers, there are both "classic" options in the form of companies from Delaware or Nevada, as well as exotic things like the Marshall Islands. Germany has Liechtenstein, France has Monaco, Portugal has Madeira, Italy has San Marino, and Holland has Curacao. By the way, if Singapore, so beloved by our liberal public (often cited as an example of Russia), did not engage in "offshore services" throughout Southeast Asia and especially Japan, then its successes in the field of economic development would be much more modest. Russia, which does not have a "manual" offshore for attracting foreign capitals and "storing" money from pro-Russian politicians and businessmen from other countries, is an exception to the rules, and extremely unfortunate.

To create the "right Russian offshore" will require a special territory. Offshores almost always (with the exception of the United States) are "taken out" for the territory of the influential state sponsoring them. This is done so that the state itself does not fall under international sanctions and restrictions related to violations of international "conventions against off-shore". And also in order to adequately isolate offshore money and companies without risks to the economy of the host country. Russia in this sense has a special situation, creating, on the one hand, difficulties, and on the other - unexpected opportunities that other countries do not have. Russia has loyal allies - Abkhazia and South Ossetia. These countries are recognized by Russia, but are not recognized by our geopolitical opponents. This is fine, because even the claims for non-compliance with international "anti-offshore" legislation from the point of view of official Washington, Berlin or London in general have nowhere to send.

Good offshore jurisdiction is determined by two factors: secrecy and reduced taxation, and in the modern world, secrecy plays a much greater role than low or absent taxes. With the help of South Ossetia and Abkhazia, Russia can provide both parameters with due dexterity. You do not need to reinvent the wheel. For example, you can take the well-established Panama or Hong Kong legislation that applies to offshore companies, and transfer it to the legislative system of "Russian offshore companies". The code of laws also requires full transparency of the beneficiaries of offshore companies, but only if requested by the fiscal authorities of the country that has relevant agreements with Abkhazia and South Ossetia. This will automatically make the companies completely transparent to Russian tax authorities and will not allow them to use for tax optimization or concealment of assets by Russian citizens, but at the same time ensure complete confidentiality for foreigners who want to "park" their money under Russian patronage.

To maximize the benefits of these investments, it is worthwhile to introduce certain restrictions on what such companies can invest in, as this is done in some offshore jurisdictions.

As permitted forms of investment, it is possible to offer government bonds of Russia and, for example, bonds (or even shares) of priority state or national projects, especially those that suffered from Western sanctions. As a point of entry or withdrawal of capital (dividends) - use one or more specialized banks in the Russian banking system and schemes from Russian firms that will belong to "offshore" Abkhazian or South Ossetian companies. With proper supervision and adequate legal and tax administration, it will be possible to create a real "black hole", where money will flow from the countries of the near abroad, Eastern Europe, Central Asia, the Middle East, and probably even Africa and South America. If you have enough courage, you can even try to create the world's first crypto-suffix, where the main crypto-currencies (bitcoin, ether) will be recognized as an official means of payment, which will radically raise the level of anonymity, and radically complicate our opponents any attempts to deprive our offshores of access to the world financial system. In the end, if the DPRK actively uses crypto-currencies, despite very stringent sanctions, then there is no reason (except laziness and lack of appropriate competencies) to prevent Abkhazia and South Ossetia from using these tools creatively.

Obviously, such projects will have many opponents partly motivated by the reluctance to work and leave their zone of official comfort, in part - sincerely believing that this carries a serious economic danger. Offshores, like any element of the financial infrastructure, are worth comparing with the tool: for example, with a fork. With an ineffective handling of the fork, you can pierce yourself at once in four places, but this is not an excuse for basically eating only with your hands.

The creation of "Russian offshore companies" will require a very serious work of local authorities, as well as perseverance and even the ability to play complex games according to other people's rules. Offshore schemes are not invented by us, but we can make sure that our schemes are at the world level or even better. In the end, the rules of the game of ice hockey were also invented not in Russia, but in Canada, but this did not stop the Soviet and, later, Russian hockey players from winning world championships and the Olympic Games.

If the "Russian offshore" project is successfully implemented, then everyone will benefit from this, except for our geopolitical opponents. Russia will have an additional source of investment and international influence. Our friends from other countries will have a reliable and confidential "safe" to store their money. In turn, South Ossetia and Abkhazia will receive an important source of income, high-paying jobs, as well as an excellent occasion to attract very wealthy foreign business tourists. And the most important source of deep moral satisfaction can be the attack of impotent rage that our overseas partners will experience, realizing that they are being beaten by their own financial weapons.

A source: RIA News

Author: Ivan Danilov

Tags: Russia, Economics, Analytics, West

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