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Money from Russia boosts Switzerland’s wealth

Last year there was a veritable avalanche of Russian money Reuters

Over the past few years, Russians have been transferring ever larger amounts of money abroad. Switzerland now tops the list of destinations. Why is this?

Until very recently, the billions of US dollars sent home each year by migrant workers to their families in former Soviet republics accounted for the bulk of money transfers from Russia. However, in a sign of the difficult economic times, Moldavian, Tajik and Uzbek workers are now sending less back to their families. Instead, it is wealthy, upper middle class Russians who, alarmed by the structural imbalances in the Russian economy and the political situation, and seduced by the reliable and efficient banking systems of Western Europe, are now transferring the largest overall volume of money abroad.

As a result, countries outside the Commonwealth of Independent States now receive up to three quarters of all money transfers from Russia, and Switzerland has overtaken Uzbekistan as the main destination for private money transfers.

According to data from the Russian central bank, Russian citizens transferred some $6.8 billion (CHF6.7 billion) to Switzerland in the first three quarters of 2014. This was twice as much as in the same period in 2013. Meanwhile, $4.7 billion was sent to Uzbekistan in 2014, down from $5 billion in 2013.

While migrant workers clearly outnumber rich Russians, the sums transferred are simply not comparable. The former may regularly send a few hundred dollars home to their families, whereas the latter transfer tens of thousands in one go. According to the head of the Russian Federal Migration Service, Konstantin Romodanovsky, the number of migrant workers in Russia has not decreased, but their earnings have dropped as a result of the economic crisis that hit the country in 2014.

Money transfers: a litmus test for the economy

It is not the first time that Switzerland has topped, or nearly topped, the list of destinations for Russian money transfers. The first was in 2007, when the US mortgage crisis began to grow into a global financial and industrial crisis. Then in 2008, after Lehman Brothers bank went bust, Switzerland almost achieved the same status. But what happened last year eclipses anything ever seen before. There has been a veritable avalanche of Russian money. Transfers to Switzerland in the first quarter of 2014 averaged some $51,000 apiece, for a total of $3.3 billion.

“People were obviously panicking. This was a completely understandable reaction by the upper middle class to the sanctions and the weakening of the rouble,” explained Fedor Bizikov, senior portfolio manager at the Russian company GHP Group. The value of the Russian currency had already begun to drop sharply in 2013. But in 2014, with the events in Ukraine and the sanctions imposed by the West, the rouble simply went into free fall. So wealthy people started to think about what they could do to save all their “hard-earned money”.

“Switzerland remains a symbol of reliability in the global financial system,” according to Valentin Zhurba, portfolio manager at the company General Invest. “People don’t trust the Russian currency and financial institutions, and they like the stability of the Swiss franc. They also fear that the Russian government will embark on a further tightening of currency legislation.”

Will this capital ever return? Yes, but probably only if there is a qualitative improvement in the economic situation in Russia. Curiously, despite the meagre, even negative, yield on investments and deposits in Switzerland, Russians who transferred money there one year ago have been able with minimum risk to receive not just reliable returns but windfall profits, given the 80% increase in the value of the franc against the rouble.

A safe haven

The situation is all the more alarming given that the Russian central bank statistics are just the official ones. According to Bizikov, “the Russian central bank only has data on legal transfers made by individuals who have a legally confirmed income and are legally holding money in private rouble accounts”. But, because of Russian government measures to step up financial control, wealthy citizens are increasingly resorting to different mechanisms to provide financial support to their families who have left the country and are living abroad.


It is well-known that the wives and children of Russian oligarchs prefer to live in peaceful Switzerland. The country is not part of the EU or NATO, it is neutral, and its banking system, even considering the impending demise of the fabled Swiss banking secrecy, is nonetheless still a cut above others in terms of the quality of services provided and its long-standing experience in managing private fortunes.

In 2014, the total volume of financial transactions from Russia involving real estate in Switzerland nearly tripled as compared with the previous year. This is understandable, as families who have left Russia need somewhere to live. Large sums were transferred for the payment of loans, goods and services, including education, health care and tourism. And this is also understandable: children need to study, spouses need to take care of their health, and all of them want to travel, both around Switzerland and to the surrounding countries, in order to broaden their horizons. So what we are talking about here are transfers made for everyday, banal purposes.

What will happen next?

Bizikov is convinced that much will depend on the political and other risks threatening Russia and on whether, and how fast, the general situation returns to normal. “If 2015 brings a rapid normalisation, then the record outflow of funds seen in 2014 will have been just a one-off reaction to the general turbulence,” he surmised. “If this does not happen, then money transfers to Switzerland will likely become a trend.” But, the expert stressed, “everyday” transfers were just the “tip of the iceberg”, and one could only guess about the money flow of a “systemic character” coming out of Russia as a result of the above-mentioned structural distortions in the economy and political risks. “The official statistics of the central bank do not reflect the full picture by a long shot,” he concluded.

“After all, anyone who wants to hide illegal funds does not open a personal account. Such people open numbered accounts, generally through offshore companies. So I would not be surprised if Switzerland always were the top recipient of money transfers from Russia, if one takes into account all funds, and not just the official ones. Of course, a small circle of Swiss bank executives knows who owns which account, but they won’t risk their reputation by disclosing this information to interested parties. All the more so because Swiss cooperation with the Russian tax authorities is nowhere near as developed as with the United States, which is making sure that Swiss banking secrecy becomes less secret with each passing year.”

Since January 1, 2015, it has been illegal for Russian government officials and senior executives of state-owned companies to own foreign bank accounts. The legal outflow of money may therefore now drop to a mere trickle. However, the new law is not retroactive and so those who already have such accounts and other assets abroad will not be affected. 

The case of the $100 billion

In February 2015, the International Consortium of Investigative Journalists (ICIJ) published data leaked from the Swiss subsidiary of the British-based bank HSBC. The documents, which were smuggled out by a former HSBC employee, Hervé Falciani, and handed to the French authorities, contain data on 100,000 people and legal entities from more than 200 nations. In total, they had deposited $100 billion in accounts opened before 2007. According to the published data, Russian clients, holding a total of $1.7 billion, ranked 35th on the list in terms of the overall volume of deposits. The list includes details of 740 clients from Russia, who had opened 1,560 bank accounts.

Journalists from the Russian-language business daily Vedomosti analysed the Russian part of the list, but did not find any top government representatives or major political figures there. However, there were a fair number of government officials and managers of state-owned companies and banks, some of whom had also opened accounts for their relatives. The investigation is complicated because more than 40% of the Russia-related accounts are numbered accounts. This means that they are identified by a number rather than the name of the depositor, thus ensuring maximum confidentiality. Some 35% of such accounts in the Geneva division of HSBC are associated with Russia. A further 25% of “Russian” accounts are linked to offshore companies (the average stands at around 15%). 

(Translated from Russian by Julia Bassam)

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SWI - a branch of Swiss Broadcasting Corporation SRG SSR