The Russians Smuggled $37 Billion Overseas After the War

Although Russia’s access to the dollar and euro was restricted after the Russia-Ukraine war, Russians entered the black market out of economic concerns and turned to foreign bank accounts.

Despite the restrictions, according to Russian Central Bank data, the outflow of money from Russia continued this year instead of returning to pre-war levels.

Russian deposits in foreign banks have more than doubled since the start of the war, reaching 5.4 trillion rubles, or $67.3 billion, in April. The monthly inflow of rubles to foreign currency accounts abroad, on the other hand, reached levels more than 5 times higher than pre-war levels.

Russians flocked to informal currency dealers to exchange their rubles, while others took refuge in the banking systems of neighboring countries such as Georgia, Kazakhstan and Armenia, where they could still hold dollar accounts and Visa cards. Others have turned to crypto assets to get their money out of Russia.

Using these methods, the Russians have smuggled $37 billion abroad since January.

BANKS FROM NEIGHBORING COUNTRIES ARE USED

For Stepan Ermakov, an investor and finance blogger who lives in St. Petersburg and spends part of his time abroad, the quest to get his savings out of Russian banks began on February 24, 2022, when Russia invaded Ukraine. Ermakov, St. He says he has been tracking ATMs in St. Petersburg that recharge at night and withdraw US dollars until the Russian central bank puts a limit.

Saying that the dollar is more stable than the ruble, Ermakov also transfers his dollar from his Russian account at Raiffeisen Bank International in Austria to a brokerage house account in the US, as well as bank accounts in Armenia and Georgia.

While Ermakov says that it is dangerous to keep everything in rubles, one of the dangerous scenarios is the devaluation of the ruble to protect declining budget revenues from the oil and gas sector.

“FLOW TO FOREIGN BANKS WILL INCREASE”

The Russians point out that there are many reasons for exchanging the ruble for foreign currency and banks abroad. These include the 8% depreciation of the ruble against the dollar this year due to the impact of energy sanctions, the increase in the number of Russian banks sanctioned and the restriction of foreign transaction options. While the government has eased capital controls to stem the financial chaos, many Russians fear the controls will be reimposed.

Sofia Donets, a Russian economist at investment bank Renaissance Capital, said she expects an additional $30 billion to be invested in foreign banks this year, adding that uncertainty in the Russian economy is higher than ever and this means potential revenue losses. .

Donets said that capital outflows have not yet reached alarming levels for politicians. Russia still earns a significant amount of foreign currency income and runs a current account surplus thanks to its oil sales. However, the current account surplus is narrowing from last year’s record levels as energy sanctions cause oil revenues to fall.

LIMITED FACILITIES PUSH TO BUILD A WEBSITE

Russia relaxed some of the rules against the export of money that it had implemented in the early stages of the war. But withdrawal limits and banks’ reluctance to give up their foreign currency gave Russians limited opportunities to acquire dollars and euros.

Hundreds of thousands of Russians, especially men seeking to escape conscription, left the country and brought their money with them. Some Russian companies moved abroad. Some Russians have opened accounts abroad to buy goods and services abroad.

Andrey Avramenko, who left Russia in March last year to protest the war, waited 40 days for a transaction to go through due to high scrutiny from banks as he tried to withdraw his money. Avramenko later founded Ohmyswift.ru, a website that collects experiences related to international payments. The site reaches almost 2,000 visitors per day, with spikes as new challenges arise.

THEY MADE MONEY EXCHANGE

The Russians, whose money transfers took a long time, had to resort to risky methods such as exchanging money with foreigners. Avramenko converted about 400,000 rubles into euros with someone he met on his Telegram channel last year. As Avramenko digitally sent rubles to the Russian Sberbank account of the person he bought the euro from, he received the euros in cash by meeting at a restaurant in Budva.

Cryptocurrencies, which mostly operate outside of the regulated banking system, have also become a method of capital flight. A Russian, who says he uses cryptocurrency to make cross-border payments, said he paid $8,000 in rubles to lawyers in Moscow.

FLOW OF WORKED MONEY TO THE FORMER SOVIET STATES

Russian money sent abroad turned out to be an unexpected boon for smaller ex-Soviet states that were expected to be hit hard by the war. Bank profitability increased, currencies strengthened, and central banks created foreign reserves.

The Armenian economy grew 13 percent last year, making it one of the strongest among the 196 countries tracked by the International Monetary Fund. The Georgian economy grew by 10 percent, while the Kyrgyz economy grew by 7 percent.

According to data from S&P Global Ratings, Georgia saw a 565 percent increase in money transfers from Russia and a 382 percent increase in transfers to Armenia through March.

Foreigners invested about $514 million in the Azerbaijani banking system and $1.5 billion in Georgian banks last year.

“These are extraordinary growth levels,” said S&P’s Karen Vartapetov.