How the Russia sanctions could backfire

Since Russia opened up in the 1990s, Russian businessmen have become adept at using the offshore banking sectors of the world to hide their wealth. In this, they are no different than Western businesses, who also park their cash places where their governments can’t get at it, but they do it on a totally different scale.

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According to the most recent figures from the Russian Central Bank (for the third quarter of last year), the biggest investor in the country was Cyprus ($4.5 billion), followed by the British Virgin Islands ($2.7 billion), Luxembourg ($1.6 billion) and the isle of Jersey—all of which are generally considered to be tax havens. China, Russia’s most powerful neighbour, invested $193 million during the quarter, less than Bermuda. Germany invested $428 million, little more than half the total from the Bahamas.

This is not Bahamian money, earned by hard-working hoteliers and invested in Russia in the hope of good returns. It is Russian money, part of the vast outflow that has left the country in the last two decades, and come to rest in bank accounts around the world. Last year, $63 billion left Russia. Thanks to the post-Crimea political turbulence, financial analysts predict that 2014’s total will be double that.

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