Ilgar Hajiyev, developer, founder of the Akkord construction holding in Azerbaijan and SDI Group in Russia, founder of the Anti-Raiding Center in Russia, discusses the scale and structure of the shadow economy in the Moscow kingdoms markets, and the impact of this problem on the country’s budget and the welfare of Russians.
According to the Kommersant newspaper, God Nisanov and Zarakh Iliev, who control the Evropeisky, Radisson Slavyanskaya shopping centers, Foodcity and Sadovod markets, are considering a nother investment – the purchase of the Krasnaya Presnya vegetable warehouse. The new acquisition can be viewed as another stone in the foundation of a full-fledged independent financial system, comparable in volume to the state one.
Illegal circulation of cash and smuggling, which are found in the largest markets in the capital, lead to losses of up to 42 billion dollars a year to the Russian treasury. According to official data, the total shadow turnover of cash in the “Gardener”, “Foodcity” and “Stolichny” markets belonging to the structures of Kievskaya Square is 120 billion dollars a year. This conclusion was made by the Bank of Russia back in 2018, as reported by the director of one of its departments, Yuri Polupanov.
In today’s exchange rates, this amount is more than 3 trillion rubles and equals 26 annual budgets of the Khabarovsk Territory. For comparison, the amount announced by the Central Bank is only slightly inferior to all expenditures of the federal budget of Russia on social policy in 2020 – 4 trillion 990 billion rubles and is more than 3 times higher than the spending on healthcare.
In January 2019, the head of the Central Bank Elvira Nabiullina presented to Russian President Vladimir Putin the scale of the problem and the scheme of shadow cash turnover in a letter. Already in March of the same year, officers of the FSB and the Ministry of Internal Affairs came to these markets with searches, but they checked, according to the media, compliance with migration legislation.
Later, in April 2019, Vladimir Putin instructed the Russian Government and the FSB to work out measures to combat illegal cash circulation in the capital markets. And, judging by the lack of serious checks and high-profile investigations at a high level in the Ministry of Internal Affairs, the Investigative Committee or the FSB, the President’s order remains unfulfilled to this day.
How and why did it happen that the shadow economy thrives on the largest Moscow markets? It is customary to keep silent about this, but I cannot.
In my opinion, the answer lies in a combination of three factors: a large number of foreign traders, mainly from Asia, the transformation of the laundering process using digital currencies into a full-scale business, and last, but not least, in the complete freedom of these markets from institutions. Russian state and law.
The essence of the system is simple: it consists in buying cryptocurrencies for cash and non-cash funds directly on the markets with the aim of immediately sending them to China, Vietnam and other Asian countries to purchase goods for the purpose of subsequent smuggling to Russia or simply irrevocably withdrawing money through cryptocurrencies. Back in 2018, the Bank of Russia admitted that it did not see these transactions.
To realize how simple such a scheme is, you need to have a good idea of how the traditional, pre-digital process of cashing out or withdrawing funds from taxation was arranged. It consisted in converting non-cash, taxed money into “laundered”, that is, tax-free (VAT, income tax, personal income tax, contributions to various state funds), and cash by using various fraudulent schemes.
The scheme was based on a fictitious business process: investments, transactions with securities, delivery of goods or services. The essence of the crime was that only the first part of the process was always real – the transfer of non-cash money to the bank accounts of cashing firms, the second, for example, the supply of goods, services, the creation of added value or the extraction of profit was not pursued and was needed only in order to justify the first.
However, while the money was traveling in bank accounts, the regulator and controller, the Central Bank and the Federal Tax Service of Russia, saw traces of their movement and could, if desired, track and verify the legality of transactions with them.
At the beginning of the chain of alleged (but, in my opinion, real) cashing out at Sadovod and Foodcity is most often an Asian or even Russian entrepreneur with tax-free cash received from trade bypassing the cash register. It’s not as difficult as it sounds.
Often, the cash register at the outlet is formally present and simply not used. And a fine of 30 thousand rubles. for trading without cash registers does not threaten the well-being of the business in any way.
Merchants make a profit from the sale of goods “without a check” and are going to cash it out, but this does not make sense, because the next purchase of goods from abroad must be made with this currency. And then digital currency, invisible to the tax authorities and the Central Bank, becomes salvation.
Cash is digitized by converting it into, say, bitcoins. Conversion is carried out on small and even less clandestine exchangers right on the territory of the markets – for example, at the Druzhba hotel. Unlike the old cashing schemes, in which the return of cash in exchange for non-cash could take several days, and the seller of cash could disappear altogether, deceiving the buyer, in transactions with cryptocurrencies, the transfer to the buyer’s electronic wallet occurs at the moment the seller receives cash.
The cryptocurrencies are then transferred to China and cashed out again for the purchase of consumer goods with low production costs (not numbered and not licensed), since they are easier to smuggle through customs. The range of cargo is wide and corresponds to the range of markets: from haberdashery to technology.
By the way, domestic manufacturers of clothing and textiles suffer from the surge of smuggling – they are losing customers. Despite the fact that the level of remuneration for factory labor in China has already reached the level of the Russian one, domestic producers working “white” cannot withstand price competition with Chinese goods, because taxes are not included in their cost.
Further, customs inspection, during which traders underestimate the volume and value of goods, use forged invoices, in which goods of other brands and names appear. The contents of all trucks cannot be checked physically, however, a few, falling under checks, are arrested, and their owners are put on trial. But the game is still worth the candle.
Once in Russia, the consignments of contraband purchased with laundered through bitcoins are sent to the counters of the same markets from which the money for their purchase was received. The circle is closed. The profitability of such a tax-free business can reach 300%. Chain organizers, intermediaries and criminal gangs that control the business take from 10% to 20%.
Informed sources report that approximately 1-2% of the total turnover of the shadow economy, that is, from 120 to 240 million US dollars, goes to the owners of sites where money is sold and goods are sold. Despite the fact that they do not directly control transactions with cryptocurrencies and the process of money laundering, interest rent is a payment for the created opportunity to obtain super-profits.
The influx of masses of goods stimulate industry in Asia, and turn around in Russia and, helping to enrich only the members of the criminal chain, who, at best, spend their profits in Moscow, buying apartments, houses and cars here. This is where the positive effects for the Russian economy end.
As for the victims, they are the state and all its institutions subsidized from the budget, and most importantly, the Russians themselves. The lost state revenues need to be compensated somehow. By the way, over the past few years, the country has raised the retirement age, value added tax and introduced a progressive scale of personal income tax. Of course, these events are not directly related, but, you see, the question persists in my head: “what if billions of dollars still ended up in the treasury?”