Russian Elites Navigate Wealth Transfer Challenges Amidst Ukraine Conflict and Sanctions

Key Takeaway

• Western sanctions and the Ukraine conflict force Russian elites to reconsider wealth transfer, moving assets from Cyprus and Switzerland to places like UAE or Russia.
• Wealthy Russians adapt by transferring assets to heirs early and exploring new legal structures amidst fears of state seizure and global financial isolation.
• Despite Russia's efforts to repatriate wealth with tax benefits and private foundations, concerns over asset safety and a 30% inheritance levy for non-resident heirs persist.

Wealth Transfer Challenges

For Russia's elite, the ongoing conflict in Ukraine and resultant Western sanctions have significantly complicated the process of wealth transfer. Traditionally favored jurisdictions for managing family trusts, such as Cyprus and Switzerland, have imposed bans on services to trusts involving Russian nationals. This shift has prompted some wealthy Russians to look towards relocating assets to more receptive countries like the United Arab Emirates or even moving them back to Russia, especially if their wealth is predominantly based there. The Russian government has incentivized the repatriation of assets, offering structures purported to protect private wealth, though fears of state seizure persist. A critic of President Putin has indicated an expectation of increased state seizures.

Adapting to Sanctions

The imposition of sanctions and the global financial isolation of Russia have accelerated the need for the country's billionaires to rethink their strategies for wealth preservation and succession. Some, like telecom-to-property mogul Vladimir Evtushenkov, have transferred assets to their heirs to safeguard their holdings. The unique nature of Russian wealth, largely amassed post-Soviet Union's dissolution and often kept abroad for legal security, faces unprecedented challenges. Russia's lack of inheritance taxes and efforts to repatriate wealth through tax benefits and special administrative areas have seen mixed success, with the wealthy wary of new structures' safety and effectiveness.

Legal and Informal Structures

Russia's approach to encouraging wealth repatriation includes the introduction of private foundations for easier asset transfer to heirs, with about 30 such funds established since early 2022. However, the uptake has been cautious, with concerns over the safety of these structures and a 30% inheritance levy for heirs not resident in Russia for tax purposes. Beyond formal legal mechanisms, the business environment in Russia is heavily influenced by informal relations and agreements under President Putin's regime. The importance of maintaining favorable relations with authorities to avoid asset seizures underscores the challenges of transferring not just wealth but also the protective mechanisms built on personal ties and informal agreements.

Street Views

• Alexey Stankevich, Strategic Consultant for Ultra-High Net-Worth Russians:

  "People act based on their current capabilities and limits. The degree of unpredictability has grown exponentially."

• Daria Nevskaya, Dubai-based Lawyer:

  "Each case is unique and depends on where people plan to live in the future and where their core assets are located."

• Roman Margulis, ASB Consulting Group:

  "The Moscow-based firm gets between 10 and 15 enquiries each month and that the numbers have multiplied over the past two years. The fear of sanctions and of getting assets frozen abroad is adding to the appeal."