A few quick footnotes to Ed Caesar’s piece on Deutsche Bank’s Russian adventures in The New Yorker. A sensible article, unexpectedly since it deals with finance and modern Russia, both difficult subjects for a literary magazine.
Still it doesn’t mention the question that comes to mind first: “was Deutsche the biggest culprit, or merely the only one that got caught?” I think the answer is obvious; the UK FCA might come up with it one day.
Apart from that, one wonders why the rubles could not be converted into dollars in the forex market. According to the US Department of State:
While the ruble is the only legal tender in Russia, companies and individuals generally face no significant difficulty in obtaining foreign exchange… Russia has no capital controls…
Which is a rare case among emerging markets. On the other hand, there are certain reporting and anti-laundering requirements:
Currency controls exist on all transactions that require customs clearance, which, in Russia, applies to both import and export transactions and certain loans. A business must open a “deal passport” with the authorized Russian bank through which it will receive and service the transaction or loan. A “deal passport” is a set of documents that importers and exporters provide to an authorized bank which enables the bank to monitor payments with respect to the transaction or loan and to report the corporation’s compliance with currency control regulations to the Central Bank.
These currency controls are about transparency, not about getting permission to convert. In other words, if a Russian company or individual wants to buy dollars, it/she can do that but will have to disclose the purpose of the purchase to the regulator. It follows that the reason why Deutsche Bank’s Russian customer(s) chose the expensive (forex brokers don’t charge 0.5%) mirror-trade channel is not because they could not buy dollars otherwise but because they did not want to share this information. Share with whom exactly? Hiding from whom?
The rubber duck scam is nicely explained, although I would replace “tax” with “import duty,” ostensibly introduced to protect Russia’s nascent rubber-duck industry. Alas, hiding the purchase of dollars to pay for the 9,990 ducks from the forex regulator is not enough. The importer has to make the physical entry of the 9,990 items into Russia invisible to the customs. How does the customs’ fee for looking the other way compare with Deutsche’s?