For now, U.S. and EU sanctions in response to the annexation of Crimea are limited to freezing the banks accounts of a few Russian individuals.
But if Western powers decide to tighten the screws by freezing Russian assets outside of the country, they won’t have to look far: Russia’s investment holdings are concentrated in a short list of small countries, according to the latest data available.
As the Russian government tightened its grip on the Crimean peninsula, annexed by military force, the White House and European Union this week responded with financial sanctions against 21 Russians, including government officials, aides to president Valdimir Putin and others “responsible for undermining the sovereignty, territorial integrity and government of Ukraine,” according the a White House statement. The move targets their personal assets, “but not companies that they may manage on behalf of the Russian state.”
Those assets—consisting of stocks, bonds and other personal financial holdings—were pretty easy to find.
Of the half a trillion dollars in investments held by Russians outside the country, roughly two-thirds is held in accounts in just three countries: Cyprus, the Netherlands and the British Virgin Islands, according to data collected by the Bank of Russia. The three countries have been popular tax havens for Russian wealth since a surge in capital flight began in the 2000s.
(Read more: Another Crimea? Ukraine’s neighbor asks to join Russia)
Beyond dodging taxes, oligarchs and other wealthy Russians have also parked their wealth in “safety nests” abroad because “Russian state support is weak for small and medium-sized investors,” according to a 2011 report by the Vale Columbia Center on Sustainable International Investment.
Those investors got a major shock a year ago, when a financial meltdown in Cyprus brought tight restrictions on bank withdraws and left many Russian investors unable to access their cash. Many diverted fresh investments to the British Virgin Islands, which saw an influx of $61 billion in new Russian holdings through the first three quarters of last year, according to the latest data available.
Despite the capital restrictions in Cyprus, another $7.5 billion in Russian assets (net of deposits and withdrawals) landed in the tiny island nation during the first nine months of 2013. Austria was the third-largest gainer, with $5.1 billion in net inflows during that period.
CNBC