The issue of internal capital migration poses as many problems as capital flight from Russia, Andrey Nechayev, former Russian economy minister, the chairman of the board of the Rosinbank holding company and the president of the Russian Financial Corporation, has said.
He explained that internal capital migration meant that people exchanged their savings into hard currency and kept the money "under a mattress". Nechayev said that according to experts' estimates, people keep "from 30 to 50-60bn dollars" at home. "This money bypasses the banking system and does not contribute to boosting the Russian economy", Nechayev said.
Approximate estimates suggest that "the share of criminal money hardly exceeds 15-20 per cent of the total amount of exported capital, provided untaxed money is not considered to be criminal", Nechayev told Russian Ekho Moskvy radio. He said that "dirty money in the classic sense" is money received from illegal arms trade, drug trafficking as well as prostitution and racketeering. According to Nechayev's estimates, the actual amount of capital exported during the years of reforms totals about 200bn dollars.
Nechayev said that in the 1990's capital flight was a means of avoiding taxation. The reason for tax evasion lay in the imperfection of the Russian tax system which was "explicitly suffocating", Nechayev said. The real tax rate in Russia was higher than in the West. Another reason driving people to take their money out of the country was uncertainty about their future and the state policy. People "did not have guarantees that their money would not be seized on various pretexts or disappear in a Russian bank", Nechayev said.
He went on to add that the possible amnesty for the capital exported from Russia during the years of reforms, was a "wise" move. He said that the form of amnesty suggested by the government meant the legalization of exported capital if a 13-per-cent income tax was paid on the whole sum. Besides, it is proposed that after an individual legalizes one's exported capital in Russia, they can leave up to 75 per cent of the money abroad but are obliged to transfer 25 per cent to Russian banks.
"Given the existing level of protection of ownership rights, the judicial system and the implementation of court decisions, in other words, when there is no real protection, investment risks and the risks of returning money are high in Russia," Nechayev said. On the other hand, the yield on investment is also higher. For instance, the annual interest rate the leading Russian retail bank Sberbank offers is "7-8 per cent (in hard currency), while foreign banks offer only 2-3 per cent".