How Russia drives her Citizens Away

Paul Goble reports:

Most Russian businessmen prefer to keep their money in offshore banks and their children at foreign schools lest the businessmen be charged with corruption and lose everything, a Moscow specialist on Russian elites says, just one of the ways in which Russian government policies are promoting short-term thinking and undermining development.

Olga Kryshtanovskaya, the head of the Center for the Study of Elites at the Academy of Sciences Institute of Sociology, drew those and other conclusions during an interview with Svobodnaya Press on the basis of a survey of 25 leading Russian businessmen conducted by UBS and Camden Research.

Those two firms, which conducted the study for Vedomosti which published the results in its edition today, queried 25 Russians who own privately held businesses with annual turnover of 100 to 500 million US dollars in a broad range of fields. Among the more interesting results were the following: “72 percent are not considering the possibility of expansion abroad in the near future. But all except two are ready to sell their business for a good price and a little more than half are ready to do this in the next two to four years.”

Moreover, “84 percent of them keep their money abroad,” with “the most popular countries being Cyprus, Switzerland, and the Virgin Islands.” And most seek to live modestly – “only two have yachts” – “in order not to attract heightened attention to themselves and their money” by the powers that be. In addition to keeping their money abroad, “Vedomosti” reports, most also prefer to “educate their children” there “but they try to ensure that their offspring will not lose their national identity,” although most of them do not expect their children to continue the businesses their parents have founded.

“I don’t want to hand over to my children the difficulties and uncertainties which accompany the management of a big business in Russia,” one of those polled said. “In this country, it isn’t necessary to be an entrepreneur in order to become rich; it is simply necessary to get into the ruling circles: the bureaucrats make money.”

Marko Naumann, the co-director of the UBS-Camden survey, said that “Russians often operate as serial businessmen, building one company after another, very much like the situation in the United States” but very different than the one in Europe where “family businesses” often passed down “from generation to generation” predominate. Moreover, he continued, “wealthy Russians often do not want to hand over their businesses to children because they are not certain that the latter will be able to run them successfully in unstable times” or be able to cope with corruption and bureaucracy. Consequently, these owners themselves seldom plan “more than two years ahead.”

Commenting on these findings, Kryshtanovskaya, who has written widely on Russia’s new elites, said that they show the fear most Russian businessmen have that “something will happen with their money and that someone will grab onto and take away that which they have up until now managed to keep.” Asked about the political ambitions of a group that has such short-term views, the Moscow sociologist says that their collective views are “very, very weakly expressed,” a reflection of their relative youth as a social group and their lack of a sense that “we are a force in the country and we can unite and put pressure” on the government. “This doesn’t exist.”

“There is,” she says, “a desire to strive toward that but there is also an absolute lack of faith in their own forces and a fear, a fear of the powers that be. [These business owners] understand that this is a danger zone. Therefore, in considering the relative weight of this ambition and the fear of losing everything, fear still wins out.”

Until and unless the Kremlin can change that, not only encouraging Russian business owners to take a longer view about their own operations and to begin to feel their strength as a political group, all the talk about modernization is likely to remain just that, and both the money of Russian business owners and their children will continue to go abroad.

6 responses to “How Russia drives her Citizens Away

  1. Francis Smyth-Beresford

    If you’re supporting the view that Russian businessmen keep their personal fortunes abroad in order to safeguard them from undue attention by the government, I’m afraid I’m confused. Are you implying the government of a country supposedly so corrupt as Putin’s Russia has no idea of the net worth of its wealthiest citizens, and would be unable to get its hands on company assets located outside the country? If so, it’s an opinion totally at odds with several of your previous editorials. To hear you tell it, they’re all in bed with one another, yukking it up in their Giorgio Armani suits and Ferragamos while they keep their countrymen in grinding poverty. Suddenly, *presto*!! they’re pillars of the national community.

    If you’re talking about companies keeping their money – sometimes their head offices as well – abroad in order to take advantage of tax shelters, well; now you’re on familiar ground. All countries named in your article are known tax havens, and Switzerland has the added advantage of near-impenetrable discretion. Well, except when an employee jumps the fence, as happened here.

    http://www.financialpost.com/story.html?id=2703884

    Wow; $20 Billion in American offshore accounts – that’s serious moola. Here’s a list of 10 fairly large companies that unabashedly move their operations offshore in order to escape domestic taxes, including Halliburton and Ingersoll-Rand.

    http://www.focus.com/fyi/finance/10-big-businesses-that-have-moved-abroad/

    The practice, obviously, is not unusual. What is unusual is hearing somebody defend the wealthy oligarchs, and advocate for their “beginning to feel their strength as a political group”. Apparently you agree with Kryshtanovskaya. Oddly enough, back in 2003 she didn’t find the practice of appointing cronies to ministerial positions particularly unsettling. I believe her words were, “But that happens everywhere. Because the government gives people the opportunity to grow rich, and wealth leads them into government. Political power and wealth go hand in hand.”

    http://www.cdi.org/russia/johnson/7263-4.cfm

    Hmmm…so somehow, it’s preferable to have the country run by the rich rather than by former members of the security services? Yes, that’s right, according to Kryshtanovskaya. To the question, “What kind of dangers are inherent in people with a military background entering government?”, she responds, “First of all, a change of political priorities: we are constantly hearing about the army, the defense industry, and so on. However, no defense sector problems can be compared to the problem of poverty in Russia.” What an epiphany! Wealthy businessmen who can buy their way into political influence understand and sympathize with poverty in Russia better than Russians with a military background! It’s all so clear to me now; thanks for straightening that out.

    • I don’t think they move their money to evade taxes. Russia is known as a low tax country, as many third world countries are.

      I think they are driven by a more fundamental and very simple fear of losing what they have. Once these “businessmen” stole their money, they have become afraid that the winds will change and, if they keep money in Russia, their bank accounts may become frozen or their money may be outright confiscated for any reason at all. The lesson taught to them by the persecution of their fellow thief Khodorkovsky’ has been learned well. Or, they simply don’t trust Russian banks.

      I think these fears are quite rational in a super corrupt country with no functional judiciary, no reliable laws and the only protection stemming from the benevolence of the Kremlin. And you know that this kind of protection does not exactly inspire confidence.

      I am sure some of these people who keep significant sums abroad also managed to obtain residence permits or even citizenships in start they would be able to escape (or remain abroad for those who are already there).

      They may be corrupt thieves, but they are not stupid or naive.

      • Russia is not a third-world country, but you may continue thinking that way and it will bite you in the rear. It is in a way better condition than the States….

        • Isn’t “bite you in the rear” just what an uncivilized third-world country would do?

          Russians have been saying they’d do this and that for centuries. They never do. They just keep on failing and denying.

          Ever heard of a famous “Emperor” who got some “new clothes”?

  2. Voice of Reason

    I think they are driven by a more fundamental and very simple fear of losing what they have. Once these “businessmen” stole their money, they have become afraid that the winds will change…”

    Let me understand. You are trying to develop theories as to why thieves try to hide stolen money?

    Thieves hide stolen money because this money is evidence of their crimes and its discovery should lead to their arrest and imprisonment.

    I think these fears are quite rational in a super corrupt country

    On the contrary, thieves face fewer problems in super corrupt countries than in law-abiding ones. Try stealing $10 billion in Germany and see what they do to you.

    However, I gather from your post that you root for the thieves here.

    • I am not rooting for anyone, just explaining why they moved the money, i.e., out of fear of losing it. They are thieves in fact, but formally they got that money lawfully I assume. Yet they don’t feel any security because an order from the Kremlin can turn the situation around in a moment. I bet the Khodorkovsy story did not go unnoticed.

      What’s your explanation?

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