I have reported on federal and state amnesty programs; however, no such program in this country can compare to what Russian President Vladimir Putin has put together for his country.
According to news reports, President Putin proposes a full amnesty for capital being repatriated to Russia. The report continues that if a person legalizes his holdings in Russia, he or she will not be questioned about his sources of funds or the means used to acquire these funds. The promise is that tax collectors, prosecutors and administrative agencies would not be able to inquire about the funds. While the United States launched several versions of its Offshore Voluntary Disclosure Initiative (OVDI) and has been successful in collecting tax, interest and penalty, the Putin Plan is different.
First, it does not seek to collect taxes. Second, it offers the prospect of a hands-off approach to those citizens who may have crossed the line in methods used to acquire wealth, although the Rule of Law is not to be confused with the Rule of Putin. What the Putin Plan seeks is the inflow of capital.
There are three factors that were unanticipated by Mr. Putin and Russians who moved their capital outside of their country. First, the crisis is the Ukraine and the annexation of Crimea resulted in sanctions. The sanctions have hurt the Russian economy by depriving it of much needed capital. Mr. Putin is seeking to fill the gap by repatriating capital. Second, the drop in oil prices means that Russia, as a net exporter of oil, is unable to realize as much in the way of foreign currency. There are many influences on oil prices, such United States shale oil production, OPEC and Saudi Arabia. The third factor is currency weakening because of the drop in the demand for oil. If the growth of the economy will be stunted, the currency will continue to weaken.
Herein lies the challenge for Mr. Putin. United States citizens participated in OVDI because they intend to remain in the U.S. and they eliminated their risk of prosecution in most cases by participating in the program. There are three groups of Russians that have capital outside their country. Leaving aside the innocent, Russian organized crime and the wealthy oligarchs must determine if it safe to repatriate. The financial issue is whether it makes sense to repatriate capital to a country whose currency is weakening and may be blocked in the future.
The decline in the rubble creates headaches and opportunities for tax professionals
. Certainly there will be some analysis required to liquidate and repatriate. The Putin program is a variation of tax amnesty, though on a larger scale because of the implied pardon. What is not clear is whether there sufficient stability and rule of law in Russia to make repatriation attractive. If Russia were to announce its intention to ratchet up an U.S. style enforcement program upon expiration of Putin amnesty, this may be sufficient incentive for some to repatriate funds.