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. Last Updated: 07/27/2016

Customs Trolling for Shuttle Trade Dollars




What were they thinking?


It is a question that many of the unfortunate souls stuck in lines at Sheremetyevo Airport in recent days have probably asked themselves while waiting to clear customs.


Facing unexpected demands by customs officials to produce stamped entry declarations proving that the cash in their pockets was brought into Russia legally, most departing passengers could only argue that they had not been required to complete the declarations when they arrived.


The resulting chaos f which included missed flights and cash forfeitures, among other inconveniences f outraged airline passengers and generated a storm of protest in the foreign business community.


Well-heeled expatriates, though, were not the intended target of the new customs regulations, which were codified by two little-noticed amendments to Russia's currency export law that passed through the State Duma this summer.


Rather, Duma sources said, the primary target was the army of shuttle traders from former Soviet republics and developing countries such as China and Vietnam, who sell their goods for rubles in Russia, and then convert their earnings to dollars before boarding trains for home.


Tourists and expatriate professionals, along with the petty cash in their pockets, rated little more than an afterthought, if that. It was simply assumed that such people would rely on credit cards and traveler's checks, which are not covered by the new regulations, the sources said.


This reasoning was apparent at a Tuesday news conference given by the State Customs Committee to explain the new amendments.


Vladimir Sarkisov, deputy head of the State Customs Committee, told journalists that shuttle traders take an estimated $3 million to $5 million out of Russia daily by selling goods on Russian soil for rubles, and then leaving with their earnings after converting them into dollars.


He added that introduction of the new amendments, which officially came into effect July 7, has already "lowered the amount of hard currency Chinese and Vietnamese shuttle traders are taking out of the country every day."


In fact, such traders are minor culprits, observers said.


"Russia's jugular vein is open, but they decided to put a Band-Aid on their little finger," said Peter Ekman, a finance professor at the American Institute of Business and Economics in Moscow.


He said the traders' activities in Russia differed little from that of foreign corporations that repatriate their profits through wire transfers, except that the corporations usually paid the appropriate taxes on such transactions.


"This will have absolutely no effect on capital flight," he said, adding that the problem was mainly homegrown, the result of Russian businesses' practice of sending money abroad to protect against unexpected financial shocks at home.


The small victory in the war to civilize the shuttle trade industry and cut down on capital flight has done little to mollify critics of the new amendments in the foreign business community.


"This is a minor thing in its scope, but it is a major thing for business here," said Scott Blacklin, president of the American Chamber of Commerce in Moscow. "It is something that says, 'We don't want you here,' to foreigners bringing money into the country."


"If this government wants foreign investment, it can't torment foreigners, period," he added.


Viktor Gitin, a member of the Duma's budget committee, which heard the first two readings of the amendment bills, said that he doubted they would have any substantive impact on capital flight.


Citing Central Bank figures, he said that only $376 million of the $16 billion that left the country last year was carried out by individuals. The remainder, he said, left by means of various semilegal, noncash, transfers.


"This is just a politically motivated attempt by the government to appear to be doing something to stem capital flight," he said. "In reality, the capital affected by this law is just a drop in the sea of money that leaves Russia every year."


There is speculation in many quarters that the recent changes to the currency export law will become part of a wider government campaign to crack down on money laundering and capital flight.


"This is part of the whole program [Alexander] Livshits is pushing to create stronger currency control regulations," said Art Franczek, co-chairman of AmCham's customs committee. Livshits, Russia's special envoy to the Group of Seven leading industrial countries, announced to Russian journalists earlier this week that the government will propose "a range of tough measures to solve the problem of capital flight from Russia" in the near future, Noviye Izvestia reported Wednesday.


In fact, pinpointing the amendments' exact origins is a difficult task.


Gitin, who along with his Yabloko faction voted against the amendments, said that the bills were originally presented in April by Sergei Ignatyev, then the deputy finance minister.


However, he said that the bills probably originated elsewhere.


"The Finance Ministry isn't directly involved in capital flight issues," Gitin said. "My guess is that it was the State Customs Committee, or more likely the Central Bank, which is headed by a man of the old school, which favors administrative, rather than economic measures to deal with such problems."


Finance Ministry officials could not be reached for comment Wednesday.


Central Bank officials, who could only be reached for unofficial comment, said that they thought the amendments were somebody else's idea, although they couldn't say for sure yet.


Alexandra Semyonova, press secretary for Alexander Zhukov, the head of the Duma budget committee, also said the amendments did not appear to be the work of the Central Bank.


"They weren't excited about all the new paperwork it would involve," she said, "I think this was all part of [former Prime Minister Yevgeny] Primakov's packet of measures [to combat capital flight]."


Staff writer Catherine Belton contributed to this report.