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. Last Updated: 07/27/2016

Russia Seeks to Put $5,000 Limit on Travelers

In its drive against capital flight, the government is drafting a law forbidding travelers from taking more than $5,000 in hard currency out of the country, a measure critics denounced Tuesday as badly flawed.

Nevertheless, lawmakers said it would probably be passed by parliament.

Individuals can now take out any amount of cash, provided they have papers showing where the money came from.

The proposed crackdown was announced after a Cabinet meeting Monday where leaders tackled the issue of hard currency outflows, which is estimated at $25 billion for 1998. Government officials also said they would draft legislation making it harder for Russian banks to set up accounts with foreign banks abroad.

Authorities did not say how they might implement the measures.

Government officials and analysts immediately attacked the proposals Tuesday, saying the government was taking the wrong approach to the problem.

"It's easier [for the government] to get to individuals with their cash than to private companies with their accounts," said Vladimir Tarachyov, deputy head of the State Duma budget committee. "The government should be more tough on the latter."

Companies are estimated to whisk out $9 for every dollar that individuals take, he said.

Sergei Trukhachyov, vice president of the consumer rights advocacy group KONFOP, said special hard currency regimes are normal in developing economies but this plan was doomed because it provided no domestic alternative for the hard currency.

Since banks and state securities are considered untrustworthy, "the main question is, what is the government trying to stimulate?" Trukhachyov said.

"It makes no difference for the state where I keep the money - under my pillow or in a foreign bank, I still pay no taxes on it," he added.

Despite the bills' faults, Duma Deputy Tarachyov said he expected them to clear parliament because the Communist-led majority "always has its swords drawn over anything that has to do with the dollar" and will be enraged by the government's talk of Russia losing $25 billion a year.

Analysts said it was difficult to predict how the state may try to enforce the $5,000 ban, especially on people taking hard currency abroad on plastic cards.

The state could impose restrictions on noncash transactions and call upon the services of the tax authorities, which already in effect perform hard currency control functions, said Tarachyov.

The only group likely to be sharply affected by a capital flight law are the so-called shuttle traders, individuals who bring in small batches of goods from places like Turkey and China and sell them at outdoor markets, experts said.

A shuttle trader needs to take at least $10,000 on one trip to make a profit, traders said.

"I'm appalled," said Natalya, a shuttle trader who usually brings in shoes from Turkey and the United Arab Emirates. "I now go abroad once every two months, but if this law comes in, I would have to go twice as often and raise my prices."

Other traders said that they will simply hide the cash, as they have done with little difficulty in the past.

The volume of shuttle trade was estimated at $10 billion to $30 billion a year before the August crisis. However, this has dropped at least 50 percent since then, said Alexei Vasilyev, head of company information at Skate financial information agency.