Wealth Transfer

Russian billionaires create companies in the British Virgin Islands because they find its legal system, which is based on British law, more attractive than their own, according to Steven Philippsohn, a senior partner at PCB Litigation, a London-based firm that helps banks track offshore assets held by Russians.

Cyprus-based entities allow them to benefit from lower tax rates available under the double-tax avoidance treaty signed by the Mediterranean island nation and Russia in 1998. Cyprus also caps taxation of dividends paid from Russia at 5 percent and allows tax-free cash transfers to the British Virgin Islands, according to Artem Toropov, a senior associate at Goltsblat.

The transfer of wealth from the Russian state to individuals began when President Boris Yeltsin kick-started Russia’s privatization era, declaring in an April 1992 speech a future with “millions of owners, not hundreds of millionaires,” according to “The Oligarchs,” a book by journalist David Hoffman published in 2003.

Public Assassinations

Yeltsin’s moves led to the so-called loans-for-shares program, which allowed a small number of private banks and the entrepreneurs who led them to make loans to the Russian government in exchange for liens on state assets. When the government defaulted, those entrepreneurs took control of large swaths of the country’s oil, aluminum, precious-metal and mining assets. They soon moved those assets offshore.

Oleg Deripaska, Russia’s 15th-richest man, described Russia’s economic environment at the time as one of beatings, boardroom intimidations and public assassinations, according to his written defense in a 2012 London lawsuit. The suit was brought by exiled Russian businessman Michael Cherney, who claimed he was owed money for his stake in United Co. Rusal. Deripaska, 45, called him a mobster who extorted money in return for protection.

In 1994, Deripaska established his DKK foundation in Liechtenstein. He was later persuaded by Cherney to use Syndikus Treuhand Anstalt, a Vaduz, Liechtenstein-based nominee trust company, to hold his aluminum assets, according to the suit.

‘Clear Shift’

Syndikus provided credit cards to government and business contacts in Russia, including the country’s deputy minister of industry, the chairman of the Russian Federation on Metallurgy, directors of important aluminum plants and their wives, and Yeltsin’s tennis coach, according to the suit.