October 6, 2018
The Russian version of this text is available upon request.
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Two weeks ago, you received part one of this note – news from home (Russia). Today we focus on news from abroad.
Russian clients have never been more international. With the fall of ’18 at our doorstep, it is important to review the situation and see what needs to be done in the next several months and beyond. To this end we have prepared an overview of current trends, best practices and recommendations from the Boltenko Law team.
Changes in the international political arena have led Russian clients to fear that any wealth held abroad may be appropriated or frozen by the foreign states.
However, for that fear to be justified, the wealth must fall under specific rules. Broadly, those rules come under 3 headings – (a) AML measures, (b) sanctions or (c) anything specific to a client’s court proceedings. Here we will focus on AML measures. AML measures have recently demonstrated themselves in either (a) civil prosecution of wealth or in (b) freezing assets in banks.
In relation to the civil prosecution, the UK is in the lead with the unexplained wealth order (UWO) legislation introduced by the Criminal Finances Act 2017 on 31 January this year. UWOs require a suspected person to explain the source of his wealth, or risk forfeiting it. At the time of writing, however, very few UWOs have been ordered in the UK, and at least one is being challenged in court under the Human Rights Act 1998.
That said, the UK’s National Crime Agency (NCA) is expected to expand its use of UWOs in the next few months and is known to be looking at high-value Russian assets inside the UK. The agency further stated, that the fact that there are no big numbers now, is not indicative – it takes time for the cases to come to court.
Similar measures are being introduced in other jurisdictions, for example, the Forfeiture of Assets (Civil Proceedings) (Jersey) Law 2018, which came into force in Jersey in the summer of 2018.
In relation to freezing assets in banks, the most notable recent examples are Latvia and Estonia. Review by FATF of banking institutions in the Baltic states resulted in closure of some of the banks, temporary blockage of client’s funds and negative public campaigns. Cyprus also amended bank compliance by disallowing Cypriot banking institutions to service companies without real business in Cyprus.
However, it is not all bad news. Setting up new bank accounts for Russians abroad is becoming increasingly difficult but not impossible, assuming your compliance file is in order.
Boltenko Law advises clients to set up preventive measure to safeguard your wealth. Please contact our team to identify your potential risks and available solutions.
If you think things were already bad (too much compliance and paperwork!), they are getting worse. Spring 2018 saw the introduction of the EU’s Fifth Anti-Money Laundering Directive (5AMLD) and of Mandatory Disclosure Rules, both of which apply to EU-based clients and intermediaries.
The main practical conclusions are two-fold. First, there is the slow but sure trend towards open registrars of companies and trusts, which means that assets held by Russian clients abroad will be known not only through the Automatic Exchange of Information (AEOI), but also through the public domain.
Second, as the personal and institutional responsibility of people working with Russian assets abroad (i.e. of bankers, lawyers, corporate providers etc.) increases, the institutional/formalistic approach will prevail, and it will be harder to rely on individual good will and personal relationship. We witnessed several situations recently, where clients were not able to access funds in a foreign wealth planning vehicle, as the provider applied the terms of the written agreement, ignoring the earlier non-written understanding.
Boltenko Law advises clients to establish a compliance file to cover the origin of wealth and the proof of tax compliance for the present and past periods. Our experts will advise you on what needs to be done and how.
The rules on AEOI and on CRS are not only complex, but also subject to a constant process of modifications and clarifications by both OECD and locally implemented legislation. This results in many professionals not fully understanding the rules, as well as the consequences of not complying with them. It means that if you keep your wealth abroad and assume that no information about it will reach Russian authorities, there is a good chance that this is not true. You should double check!
Interestingly, the USA, although beefing up their KYC requirements this spring, remain the wild west as transparency is concerned: recent Bill HR 6068, originally introduced to create a national directory of beneficial owners of legal entities, has been amended by the deletion of all its transparency clauses. It is worth reminding here that the US have not joined the CRS and for now will not report abroad the wealth kept in the US. If you think this is ironic, so do we!
Please talk to the Boltenko Law team if you would like to understand better what and when is going to be reported, and what you can do best in your situation.
UK, Switzerland, Monaco, and Cyprus are still popular destinations among our clients. In the UK, we see that individuals who are nearing the RND 15-year benchmark are actively considering relocation options.
Switzerland has recently announced changes to the lamp-tax residency regime. It states that minimum taxable income increases and should be no less than CHF 400,000. The rules will apply from 1 January 2021.
The Italian new residency program remains interesting; however, we were told that only 100 or so people so far applied (small number!). Ronaldo has recently moved to Italy and is rumoured to be one of the applicants for the new programme, so if you decide to move, you will be in good company!
Boltenko Law can advise you on tax residency programs world-wide, on ways to relocate, as well as on Russian and UK tax consequences of moving.
Residence and citizenship through investment schemes, offered by countries like Cyprus and Malta, have come under criticism by the OECD since February this year. Several rounds of discussions have resulted in closer scrutiny of passport applications in both Cyprus and Malta, however, it looks like both programmes will continue for the foreseeable future. Nevertheless, given that it is a politically sensitive subject against the background of growing nationalistic movements in Europe, if you are planning to apply for one or another, we recommend you act fast. It has also been noted that applications for Israeli passports are also on the rise.
Boltenko Law advises on and is supported by top tier people in every jurisdiction on citizenship and residency planning. We will help you to get guaranteed results!
With the Russian wealth becoming more mature and Russian wealthy getting older, we see a renewed interest to wealth planning vehicles, such as trust and foundations. They are increasingly used as vehicles to preserve the wealth and ensure continuance of its enjoyment by future generation and by charitable courses.
If you are considering setting up one, make sure the documents reflect the needs of you and your family. Choice of trustees is of paramount importance! When setting up a structure always think about a plan B – what to do if the structure you set does not work for the family any longer.
The Boltenko Law team has over 15 years of experience advising on this subject. Our Russian speaking team can provide you with Russian, English and international advice on trusts and foundations. We can also act as a trustee for you.
Boltenko Law can help. We take the first introductory call or meeting on no commitment basis; further work will be done on the agreed contractual terms. We are based in Zurich, and regularly travel to Moscow, London, Geneva and Cyprus, and can meet you or your clients there.
We will continue discussing ongoing issues in our future e-shots, and at our flagship annual event: the Russian Wealth Advisors Forum, which will take place on 30-31 January 2019 in Zurich, Switzerland. You can find more information here on the website.