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JULY 2018  |   IFC REVIEW

Transparency and Compliance: The Russian Family Office View

By Andrey Pozhitkov, Head of Business Development, UFG Wealth Management



Relations between Russia, the US and the UK are currently stressed and under a lot of press and political scrutiny. The Salisbury incident has only added pressure. Some would even say that this incident was used by Russia's adversaries to further sanctions, with the House of Commons Foreign Affairs Committee ordering the Moscow's Gold: Russian Corruption in the UK report. I would agree with British ambassador to Russia, Laurie Bristow's comment, that "there are no sensible Russophobes in the UK."

Then there are the conspiracy theories — the idea, for example, that the Salisbury incident was used by the British government to put pressure on the British Overseas Territories to develop public registers of beneficial owners by the end of 2020 in a bid to get at various high-net-worth individuals (and not only those with a Commonwealth of Independent States (CIS) background).

Others say this is simply another step in the drive for greater financial transparency.

After all, as the Paradise Papers showed, Russian and CIS businessmen are nowhere near the biggest users of offshore tax planning and structuring schemes. The truth is — as always — somewhere in the middle. UK enforcement authorities may now apply for court orders against persons suspected of being involved in, or connected to, serious crime or 'politically exposed persons' outside the European Economic Area, requiring them to explain the source of their assets. The new orders, known as 'unexplained wealth orders' or 'UWOs', have wide geographical scope and may apply to any property, tangible or intangible, with a value greater than £50,000. UWOs were introduced by the UK Criminal Finances Act 2017. This piece of legislation is obviously not targeted at any one country.

What we see, is that banks are now asking more questions of their clients, whether it be an inquiry into the source of their funds (even if they have been clients for many years), or to provide more details about their account operations. A bank in Cyprus, for example, recently asked a single-family office to explain payments made for certain legal services, and if they conformed to the company's business profile. The sum in question was less than €100,000. Details were provided and the payment was released but this illustrates the scrutiny banking clients face. Whether the same level of attention applies to non-Russian clients, it is difficult to say, but one may probably safely assume that this will soon apply to all clients, even if Russia is currently the flavour of the month. Such questions are being asked of clients in Switzerland, Cyprus and the Baltics.

Multi-family offices have recently had an inflow of client requests to work with banks to provide updated know-your-customer (KYC) materials, source-of-wealth details and other similar matters. These requests come not only from clients on the so-called 'Putin list' (a list of 210 prominent Russians, many with close associations with the Kremlin, which the US administration had been required by law to release) and sanctioned persons who require legal advice and interaction with the US Treasury's, Office of Foreign Assets Control, but from HNWIs who have been international bank clients for over 20 years. Some major Swiss banks are asking CIS clients to take their money elsewhere.

The situation where bankers were queuing up to woo Russian clients has changed. Not only has the entry ticket to open a private bank account for a Russian increased, it has also become difficult and requires professional help to navigate the various anti-money laundering and KYC requirements imposed by the EU, the US and Asian banks.

At the same time, we know that many wealthy Russians feel welcome in London — as long as they can explain their earned fortunes. It is true, however, that the more one is distanced from the Russian ruling elite, the easier it is to fit into life in the UK.

One thing is certain — the world of finance is becoming more transparent and compliance driven, with multi-million pound penalties imposed on banks should any financial misconduct slip their nets.



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