November 17, 2022

Russian Entrepreneurs at Times of War: What’s Going On

Russian Entrepreneurs at Times of War: What’s Going On

Very dark times in our part of the world. Our clients, colleagues, friends, and family are both Ukrainian and Russian, and we are all hurting. It is a tragedy for us all with profound and long-lasting consequences.

So far, 2022 has been a very arduous year for our clients. Russian entrepreneurs face huge pressure in Russia from an increasingly hostile and dangerous regime, as well as pressure from abroad by way of economic sanctions and general restrictions on Russian connections.

The war made it a very difficult year for us, too. We, as lawyers and trustees with Russian clients, are in an extremely uncomfortable position. Providing legal advice to a sanctioned client may constitute a violation of sanctions rules, and lead to criminal prosecution. However, refusal to help a Russian client can be discriminatory, and violate the fundamental principles of the rule of law.

This e-shot is a short synopsis of the core issues we and our clients are dealing with this year.

1. Internationally

Russian sanctions. After February 24, many governments have imposed financial sanctions on Russia and Belarus, and on targeted individuals and organisations. The rules are complicated, and the violation of sanctions is severely punished.

This situation has led to a few consequences. One of them being that many service firms have stopped advising Russian clients. Lawyers, trustees, accountants, and other professionals have decided not to work with Russian clients, regardless of the applicability of legal restrictions, the client’s current location, or their links to Russia. We at Boltenko Law and Boltenko Trust continue representing our Russian and Ukrainian clients, provided they are fully compliant genuine entrepreneurs.

Another direct result of the sanctions is that many transactions take longer. Unless additional Anti Money Laundering (AML) checks are carried out and the compliance departments are satisfied, banks often refuse to process transactions, even in straightforward situations.

Use of trusts – effect of sanctions. The 5th round of Russian sanctions has imposed restrictions in the EU and Switzerland in relation to trusts with a ‘Russian connection’. In the UK there is an ongoing discussion to do the same. It means that some of these trusts had to be either terminated, relocated or frozen. Nevertheless, trusts are still popular, and widely used for legitimate goals of wealth preservation. We provide advice on the use of trusts in the current complex legal environment.

Relocations abroad. Approximately 1.5 million Russians have left Russia since the beginning of the war. The Russian elite has mostly relocated to the EU, UK, UAE, Israel, and Turkey. We assist our clients in finding the right place to relocate to, from both tax and regulatory perspective.

2. In Russia

Foreign holdings. Russian law is increasingly hostile towards the use of foreign holdings in “unfriendly” countries. It made clients to redomicile some of their holding to different jurisdictions or to distribute assets directly to their Russian owners. We provide advice on restructuring solutions.

Restrictive currency control. New restrictions on international money transfers and investments were imposed by the Russian government. Switzerland and some other countries refused to send information to Russia under Automatic Exchange of Information, which means most investments from individual accounts in Switzerland are prohibited, with fines from 20% to 40% of the amount of the transaction in question.

Non-Russian passports. Threats of prosecution of any Russian with foreign residencies or citizenships are being voiced by various Russian politicians, but no concrete measures were introduced so far.

Taxes on individuals. The rule for Russian tax residency (183 days) for now remains the same, and so does the rate of personal income tax (13% in most cases). However, there is a proposal on introduction of an exit tax on Russians surrendering their Russian passports.

3. Boltenko Law and Boltenko Trust

We – as a law firm and a trust company focusing on Russian clients – are directly affected by Russia-related sanctions. In July this year, Boltenko Trust successfully underwent a special audit from our trust supervising authority (SRO SAV). The auditor has reviewed all files affected by the Russia-related sanctions, and all files were found to be fully compliant with Swiss and international AML regulations. Also, we were congratulated by the auditor on the way we handle files affected by the sanctions.

Also, on a positive note, the difficulties of the last year made my colleagues – and myself – better lawyers, and more resilient trustees. As a result, we are having a very strong financial year 2022, and expect 2023 to continue this way.

Going forward, we at Boltenko Law and Boltenko Trust will continue to represent our Russian and Ukrainian clients. We are and will continue to be very selective in whom we represent, and we are convinced that our clients are fully compliant genuine entrepreneurs.

About us

We take the first introductory call or meeting on no commitment basis; further work will be done on the agreed contractual terms.

Please contact Olga Boltenko (olga.boltenko@boltenkolaw.com and +41 79 900 2526) or Evgenia Martin (evgenia.martin@boltenkolaw.com and +41 79 126 3195) for further advice.

You can find more information about us on our Boltenko Law and Boltenko Trust websites.