Russian Money Laundering Bill Ratified

by Tatiana Smolensky, Tax-news.com, Moscow

04 June 2001

As part of a raft of measures designed to encourage, cajole, and bully Russians into paying their taxes, President Putin recently announced the ratification of a new money laundering bill. The law specifically targets high value foreign transactions and anonymous accounts for investigation, and is designed to claw back some of the estimated US$25 billion lost in unpaid taxes every year.

Russia was placed on the FATF money laundering blacklist last June, and President Putin made it clear in July 2000 that tax reform was a strong priority for his government. At the beginning of this year, a flat rate, across the board personal income tax of 13% was introduced, and although for the first quarter of 2001 there was a 63% increase in tax revenues, many Russian citizens were only paying the minimum rate of 12% under the old tax code, so for them it actually represents a tax hike, and is hardly an incentive to declare their full income.

Another problem which the government has to overcome is the people's deep-seated distrust of Russian tax officials, and the feeling that their money is safer in foreign banks. Many Russians feel that their tax money may end up lining the pockets of corrupt officials, and are therefore disinclined to pay their taxes, preferring not to declare them, or to place them in offshore or overseas accounts, in the case of wealthier Russian citizens.

However, the government says it is not discouraged by the drop in income tax declarations this year (only 2.6 million filings have been received), and feels confident that the new tax regime, supported by a number of poster and television advertising campaigns, will prove more efficient and attractive to Russian taxpayers in the long run.

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