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. Last Updated: 07/27/2016

Central Bank Set to Increase Control Regulations to Limit Outflow of Capital

The Russian government, in an effort to clamp down on capital flight, will begin a new computerized export control system to monitor the flow of goods out of the country and the flow of hard currency back in, Russian banking and customs officials announced Friday.


Dmitry Tulin, deputy chairman of the Russian Central Bank, told a press conference, that the new system is designed to stop capital flight, caused principally by exporters sending goods abroad and depositing trade proceeds in foreign banks.


He said that this totaled $5 billion in the first half of the year, roughly on a par with last year's estimate of $10 to $12 billion. "The regulation is aimed at the reduction of the illegal outflow of capital from Russia".


The new system, which will for the first time unite banking and export controls, will require exporters to obtain a special "passport" from a commercial bank, which will enter the trade in a computer database.


Customs agents will register the actual export of the goods in the database and the commercial bank will complete the cycle by entering receipt of the payment.


Strategic exports, which include energy products and several types of metals, will be subject to the new regime as of Jan. 1. The system will take effect for all other types of goods on March 1.


Exporters caught breaking the regulations could be subject to three- to five-year prison terms. Banks that fail to report transactions can have their hard-currency licenses revoked and be liable for fines equal to the amount of the unreported trade.


It is unclear, however, if the new system will stem the flight of capital abroad. Exports are already subject to a labyrinth of bureaucratic controls, which are easily bypassed by bribing customs agents. Economists say exporters are motivated not to report their trades by high Russian taxes and lack of confidence in the country's banking and political systems.


Customs officials acknowledged that there was still room for corruption under the new controls. It is still possible for exporters to under-report the value of an export contract, returning a nominal sum to Russia and depositing the rest in an overseas account. But they said the accumulation of data will allow them over time to spot the practice.


The system will combat the most common method for hiding exports, bribing customs officials, because the export data will be shared with several different bureaucracies.


The system will shift the burden control to Russia's 600 commercial banks licensed to conduct hard-currency operations. But it will also give them an opportunity to boost earnings and hard-currency deposits.


Alexander Khandruyev, also a deputy chairman of the Central Bank, said commercial banks will be forced to hire personnel and buy new equipment.


"Maybe all 600 banks won't want to do that", he said, adding that those banks would no longer be allowed to conduct hard-currency operations.


Under the decree, banks will be entitled to keep 0. 15 percent of the export amount as compensation. Banks could gain an additional benefit by seeing their hard-currency reserves increase.


"When money leaves Russia it is not on the ledger of Russian banks", said Tulin. "The system of currency control will lead to billions of dollars being serviced by Russian banks".


In another part of the government's effort to reduce illegal exports, a Foreign Trade Ministry commission decided to renew the licenses of only nine of 67 exporters of strategic raw materials who were registered in September and October 1992, Interfax reported.


The total number of strategic commodities exporters may be cut to 630 from 704, Interfax said. The ministry was forced to backtrack in August when its decision to severely restrict the number of exporters came under heavy fire.