THE BELL WEEKLY: Rich Russians are bringing their money back home

Hello! This week we cover Russian millionaires repatriating their cash from abroad, despite the threat of nationalization and higher taxes. We also cover another border closure for Russian tourists and Moscow moving to recognise the Taliban government in Afghanistan.

The Great Repatriation: Russian millionaires bring their cash back to the Motherland

After trying to send their money overseas in the immediate aftermath of Moscow’s invasion of Ukraine, wealthy Russians are now bringing their millions back home, new data shows. The number of high net worth individuals jumped back above pre-war levels last year, after falling in 2022. Some 22,000 wealthy Russians account for almost $150 billion stashed in domestic bank accounts — around a quarter of the national total.

• In 2023, the funds held by high net worth clients — defined as those with more than 100 million rubles ($1.1 million) — in Russian banks and investment companies jumped by 62% to 13.1 trillion rubles ($148 billion), research from banking consultancy Frank RG showed. The number of those who qualify among the ranks of the country’s wealthiest jumped 50% to 22,000, with their combined assets accounting for 23% of Russia’s total financial capital. The cohort of super-rich banking clients, with at least $5.5 million of assets, grew even faster, up 62%.
• That marks a major reversal from 2022, when capital flowed in the opposite direction. Frank RG figures for the first year of the war showed a 21% fall in the number of high-net worth individuals, and a 27% drop among the super-rich category. The combined capital they held dropped by more than 20%. A panicked transfer of funds abroad after Russia invaded, combined with the plummeting stock market and the transfer of cash into non-liquid assets such as gold and foreign property also had an impact on bank balances.
• Many factors are behind the revival in 2023. Thanks to high interest rates (the central bank’s key rate is currently 16%), Russian banks are currently a profitable place to deposit cash. And after a collapse in 2022, the Russian stock market was up 44% in 2023. No less important than these financial factors was the political climate. Russian money turned out to be unwelcome in the West. Threatened with sanctions and the freezing of their assets, billionaires transferred tens of billions back into the relative safety of Russian jurisdiction. Bloomberg reported earlier this month that the richest Russians were continuing to repatriate their funds, even while they recognized the increasing domestic threat of forced nationalization.
• It is not just double-digit interest rates and the chance to strike it rich on the back of the militarization of the economy that await rich Russians investing at home. Higher taxes are also on the cards. Last week the State Duma was busy discussing tax reforms — the central plank of which will be an increase in income tax for the upper middle class (those with monthly income above $1,700) and corporate tax. President Vladimir Putin is leaning on the poorer segments of Russian society more and more for his support, meaning the country’s economic policy is inevitably drifting to the left. In the 2024 May decrees, Putin’s program for his latest presidential term, reducing wealth inequality was named a “national goal” for the first time.

Why the world should care

We never tire of pointing out that sanctions against individual Russian billionaires are probably the most dangerously ineffective of the West’s measures against Moscow. From day one, Western countries have put obstacles in the way of capital flowing out from Russia — something that could have seriously weakened the Russian economy — meaning wealthy Russians had little choice but to bring their money home. Now those funds are being tapped to spend on the war.

Europe’s last land border closes to Russian tourists

Norway has announced that it is closing its land border with Russia, the last remaining land crossing to Europe that was open to Russian tourists. During the 2022 mobilization, this was a popular way for Russians who did not want to be forced into the war to leave the country.

• From May 29, Norway will ban entry for Russian citizens traveling as tourists and “non-essential” purposes. Exceptions may be possible for those traveling to visit close relatives, for work or study. The Norwegian government said the new restrictions were needed to support its allies in their response to Russia’s war in Ukraine.
• Norway was the last European country bordering Russia that had not closed its borders to Russians traveling only on tourist visas. Although Norway is not an EU member, it is part of the Schengen visa-free zone, meaning once in Norway, Russians were free to travel onwards to most other countries in Europe.
• The decision could have implications for Russians trying to flee military call-ups. When Vladimir Putin announced a partial mobilization in September 2022, tens of thousands of men immediately tried to leave the country, triggering prices for air tickets to rocket and huge lines at Russia’s land borders with Georgia and Kazakhstan. Suddenly, the remote northern Norwegian border turned into an unexpected escape route: with a simple tourist visa for any Schengen country, it was enough to spend $100-$300 on a ticket from Moscow to Murmansk, then ride a couple of hours to the Norwegian border on a bus. A few hours after that, you could be in Oslo, able to fly to almost anywhere in Europe. Now this route will no longer be possible.
• All other European countries that border Russia — Estonia, Latvia, Lithuania and Poland — had long ago closed their borders to Russian tourists.

Why the world should care

The FT reported a figure close to the Russian military saying that by the end of 2024 or beginning of 2025 another round of mobilization would be “inevitable.” When it does happen, this time it will be far harder for men to get away than it was in 2022 — Russia’s repressive new conscription legislation, the creation of a digital register of call-ups and Europe’s border closures will see to that.

Russia moves towards recognising the Taliban

Russia is planning to recognise the Taliban as the lawful government of Afghanistan and remove it from the list of “banned” organizations. This will put an end to the absurd situation where Taliban representatives are officially received in the Kremlin, while journalists can be jailed for mentioning them in their articles.

• Russia is set to remove the Taliban, which seized power in Afghanistan in 2021, from its list of banned organizations, TASS reported on Monday. The step has been agreed upon by the foreign ministry and the justice ministry, and has been reported to Vladimir Putin. The foreign ministry anticipates that after this, Moscow will recognize the Taliban as the legal government in Afghanistan. The move could come ahead of Aug. 19, when the Taliban celebrates Afghanistan’s independence day — the date it seized control from the US-backed government and, as it says, threw off “three empires in three centuries”:  Britain, the Soviet Union and the United States.
• The Taliban has been a banned organization in Russia since 2003. However, the more Russia’s relations with the West deteriorated, the warmer the relationship with the Taliban became. The true start of closer contacts came in 2015, when Russia got involved in the conflict in Syria. At that time, the Russian authorities relied on the Taliban’s enmity towards ISIS and Al-Qaeda (also banned in Russia). Moscow’s position was partially rewarded when the Taliban seizure of power became inevitable — at a time of total panic in Kabul in August 2021, Russia’s embassy worked normally under a guard of militants.
• Since their return to power, Taliban delegations have regularly visitedRussia. This year, the Taliban-run foreign ministry strongly condemned the terror attack on the Crocus City Hall in Moscow, blaming it on ISIS, and in May an official Taliban delegation attended the “Russia – Islamic World” forum. 
• Throughout all this, Russian state media have continued to accompanyany mention of the Taliban with the label “banned organization.” For everyone else, even a mention of the Taliban carries the threat of a criminal charge. Just two weeks ago, journalist Nadezhda Kevorkova was arrested in Moscow on charges of “justifying terrorism.” One of the two accusations against her is justifying the Taliban’s terrorist activities. She faces up to seven years in jail.

Why the world should care

Despite grinding poverty at home, Afghanistan holds significant natural resources, including globally significant stocks of lithium and nickel (read more about this here). However, developing these resources is difficult, whether due to the lack of protection for investors or the absence of infrastructure and technology. For now, Russia’s relationship with the Taliban remains political, and the common factor remains their shared anti-Western agenda. Afghanistan’s main international partners are Iran, China and Pakistan. The Taliban mostly wants Russian cheap grain and fuel.