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. Last Updated: 07/27/2016

State Plans to Drag Economy Into Open




President Vladimir Putin's administration is taking a carrot-and-stick approach to bring the economy into the open.


It is creating economic incentives to draw cash transactions out of the shadows and simultaneously planning to punish those who try to stay in the dark.


The government announced Tuesday that it intends to penalize those who refuse to declare their incomes oncethe State Duma has approved a new tax package. A law on money laundering is likely to be passed at the same time.


"The law foresees a simplified procedure for reporting suspicious transactions," said Alexander Mikhailenko, deputy head of the economic crimes department of the Interior Ministry and head of the Money-Laundering Center set up last July.


Meanwhile, the police say they are increasing the scope of a campaign against money laundering and that cross- border transactions worth $1.15 billion are under investigation.


The police returned $185 million to the state last year, after investigating some 20,000 cross-border transactions.


With the help of Liechtenstein police, local law enforcement officials arrested a group of Russian citizens who tried to take $200,000 from banking accounts using forged documents, Mikhailenko said Tuesday at a news conference.


A criminal investigation was launched against one of the directors of oil company Bashneft, accusing him of not returning export revenues worth $8 million, Mikhailenko added.


Bashneft officials were not available for comment on Tuesday.


The criminal police also disclosed plans to launch criminal proceedings in Spain against a Moscow mafia clan that used proceeds from a local business to buy real estate in Europe, Mikhailenko said. He revealed no further details.


A law on money laundering was approved by the State Duma last summer, but was vetoed by the administration of President Boris Yeltsin.


Interior Ministry officials say the new money-laundering law could be approved by the end of July because all disagreements on the law have been resolved since Yeltsin's veto.


Separately, the government intends to introduce obligatory invoices for taxpayers, starting from 2002, First Deputy Finance Minister Sergei Shatalov said Tuesday.


Earlier this month, the government pushed through the Duma a first draft of the Tax Code that would introduce a flat income tax rate and a regressive social tax in order to stimulate the legalization of payroll payments.


"The basic idea underpinning Shatalov's tax plan is to take the economy out of the shadows," said Leonid Grigoryev, head of the Bureau of Economic Analysis.


He said that paying salaries through schemes that avoided the tax man cost roughly 25 percent of the total amount of payments, so a reduction in income- and social-tax payments could make such schemes unnecessary.


However, the limited resources the state has to deal with money launderers' diverse schemes may mean many continue to evade the law.


"Tax dodgers should know that we keep track of everybody," said Leonid Ratmanov, head of the economic crime department. "If we do not prosecute them, it's simply due to lack of staff."


The police estimate that each month between $1 billion and $1.5 billion has been leaving the country in the form of capital flight, but after the Central Bank tightened the screws last year flight to offshore zones contracted to some $300 million a month.


Lawyers say that the proposed draft merely introduces already existing legal norms in the form of a law, while previously they existed as regulations issued by the Central Bank and other regulatory bodies.


"The law will work only if an amnesty is declared on capital that has already fled the country," said Sergei Avramov, associate with Baker & McKenzie legal firm. "Otherwise, it can hardly be enforced."