Timur Kerimov
Lawyer
The problem of illegal cashing out of money is still relevant in Russia. Both small and large enterprises do not leave attempts to reduce the tax burden, therefore every year there are more and more new ways of “cashing out”. Timur Kerimov, Acsour’s Lawyer, warned business persons against making controversial financial transactions and described to “Raschet” magazine how inspectors identify them.
“Cashing out” refers to the actions of companies to withdraw funds from their accounts and receive money outside the accounting reports in order to evade taxes. The appearance of “cashing out” in Russia in the early nineties became a frequent, if not massive, phenomenon. The transition from a planned economy system to a market one facilitated to the establishment and development of a new legal and economic system, accompanied by a high level of instability of internal regulatory processes. Today, owing to the restoration of the economy and the formation of clear business processes, the number of cases of illegal withdrawal of funds is decreasing, which is confirmed by official statistics of the Bank of Russia and industry experts.
As for foreign jurisdictions, here in most cases illegal cashing out also takes place, this phenomenon is called anti-money laundering. The legal community understands this term as the process of legalization, in other words, the laundering of illegally obtained funds. It is clear that both tax evasion and money legalization have the same goal – the withdrawal of cash.
PRIMARY SIGNS
“Cashing out” through intricate schemes involving several entities is a process familiar to tax inspectors. Therefore, the identification of unconscientious business persons is a simple procedure for inspectors. Here are some of the most obvious signs that may evidence illegal attempts to reduce the amount of fiscal deductions: systematic money transfers, transfers in excess of 100,000 rubles, withdrawals without an account balance.
Simultaneously, the tax system continuously complicates the process of “cashing out” for the organizers, they need to increasingly control the number of participants in the scheme, change the recipients and senders of funds at each stage of the transfer, control the amounts, etc. Each such action leads to additional expenses.
GLOBAL LEVEL
The methods of “cashing out” that are more difficult for the tax authorities to determine include the withdrawal of funds to foreign jurisdictions, the receipt of money using securities and digital financial assets.
To combat these methods at the international level, there is an appropriate legislation. In particular, the Convention on Mutual Administrative Assistance in Tax Matter dated January 25, 1988, the Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime dated November 8, 1990. Bilateral agreements between Russia and other countries also contribute to the successful fight against such schemes.
Among other things, one should not forget that, apart from the tax authorities, money flows in Russia are controlled by banks within the framework of Federal Law No. 115-FZ dated August 7, 2001 “On anti-laundering of the income, obtained by criminal means, and terrorist financing”. Therefore, carrying out such an operation can lead to blocking the account, adding the client to the “stop list”. And this, in turn, can become an obstacle to further opening an account in other banks.
Please note that not only inspectors are fighting against cashing out of money. Other public services can also be involved in the relevant types of control: the Federal Labour and Employment Service (abbreviated in Russian as “Rostrud”), the Federal Service for the Supervision of Consumer Rights Protection and Human Welfare (abbreviated in Russian as “Rospotrebnadzor”), the Russian Federal Service for Ecological, Technical and Atomic Supervision (abbreviated in Russian as “Rostekhnadzor”), etc.
LIABILITY
It is important to note that Russian legislation does not provide for a separate body of a crime or offense when cashing out of money. This is owing to the fact that such acts may fall under other, already existing bodies of crimes that are the result of “cashing out”. Thus, different ways of carrying out the procedure itself follow: through individual entrepreneurs (IE), individuals without IE status, the self-employed, legal entities, etc.
The structure of “cashing out” by popular sectors of the economy: construction, services, wholesale and retail trade in industrial goods, wholesale and retail trade in consumer goods, production. Most often, liability for “cashing out” is brought under article 199 of the Criminal Code of the Russian Federation, evasion of payment of taxes, levies payable by an organization, and (or) insurance premiums payable by an organization paying insurance premiums, and article 172 of the Criminal Code of the Russian Federation, illegal banking activities.
In addition, practice knows cases of prosecution under article 174 of the Criminal Code of the Russian Federation, legalization (laundering) of funds or other property illegally acquired by other persons, article 171 of the Criminal Code of the Russian Federation, illegal entrepreneurship, article 187 of the Criminal Code of the Russian Federation, illegal circulation of funds of payments.
And administrative liability for “cashing out” can occur under article 15.11 of the Code of Administrative Offenses of the Russian Federation for a gross violation of accounting requirements, for example, for understatement of amounts and taxes by more than 10%, registering imaginary transactions, and so on.
How often, in the pursuit of “whitewashing” the market, companies that really work transparently get accusations of illegal cashing out of money? The short answer is no. Let us take a look at the current court judgements in this area.
CONFIRMED FACT
As a result of the tax audit, it was revealed that the company provided documents containing inaccurate information and not confirming the fact of business transactions with contractors. The court, having considered the details of the dispute, came to the conclusion that the papers submitted by the company for verification contain inaccurate data, in particular, from a comparative analysis of contracts, additional agreements, basic source documents, it follows that the works performed between the company and contractors is not scheduled and not named, and it is not possible to identify exactly what works were performed and transferred to the company as a customer under the contract. Certificates of acceptance of works performed are impersonal. Documents between the company and contractors have discrepancies, errors and typos. The court also found that the contractors do not have the necessary resources to fulfill contractual obligations. Finally, the payment under the contract was cashed out (Resolution No. F04-6604/2020 of the Commercial (‘Arbitration’) court of the West Siberian District dated February 4, 2021 in case No. A03-8704/2019).
FORMAL DOCUMENT FLOW
The company sold its products through a chain of intermediaries, but the court concluded that there were no real business transactions between the company and the declared contractors. In fact, the sale was carried out directly to the final buyers. The company created a tax evasion scheme aimed at understatement of the income from the sale of products by formally concluding contracts that were not actually real participants in transactions for the purchase and sale of products. The revenues hidden from taxation by the company were partially transferred to the account of the founder of the company, partially cashed out, partially directed in the form of interest-free loans to the accounts of organizations controlled by the founder of the company (Resolution No. F07-3348/2019 of the Commercial (‘Arbitration’) court of the North-Western District dated April 18, 2019 in case No. A56-3298/2018).
NOT DISPUTABLE PRODUCT
In another dispute, the judges came to the conclusion that there were no real business transactions between the company and the controversial contractor for the supply of the disputed goods. The parties created a document flow only for the illegal receipt of unjustified tax profit and cashing out funds. Upon receipt of funds within one or two days, the company transferred them to the settlement accounts of “day-fly” (some of these enterprises were controlled by the founder of the company), through which the funds were cashed out. The remuneration received by intermediaries is calculated in the amount of 2.5–5% of the amounts of money (Resolution No. F10-3818/2020 of the Commercial (‘Arbitration’) court of the Central District dated November 2, 2020 in case No. A54-1900/2018.).
SUMMING UP
After analyzing the above and other similar court judgements, it could be concluded that the reasons for accusations of “cashing out” are mainly either intent or negligence of economic entities.
Intent can be expressed in the deliberate illegal actions of persons, for example, when a company is aware of the “cash out” scheme and takes an active part in it as an intermediary or organizer. Negligence can be expressed in unawareness and in low legal literacy, for example, when a person does not follow the accounting reports or does not check contractors. The bodies of crimes provided for by the Criminal Code of the Russian Federation imply specific wrongful acts, the ambiguous interpretation of which is unlikely in practice. For example, all contractual obligations have a specific result, tangible or intangible, which is not difficult to prove, especially under the risk of criminal liability. On the contrary, companies that operate transparently conduct a thorough due diligence of contractors, evaluate potential contracts, etc. The popularity of this practice affects the statistics of “cashing out” in Russia, the amount of which, as we know, is decreasing every year.
Simultaneously, the tax authorities, both domestically and through international cooperation, have sufficient resources to track illegal money flows. The complication of the “cashing out” procedure is forcing companies to switch to the legal environment and declare their income in full. Recent court judgements on cashing out are made in the presence of a high-quality body of evidence from the prosecution that does not allow for ambiguous interpretation, therefore companies that do operate transparently rarely receive accusations of illegal cashing out, namely, within the limits of the average miscarriage of justice. In the field of using digital financial assets, the activities of state authorities are well-established and stable, the legislation is developing.
In conclusion, we would like to recommend that businesses conduct a qualitative analysis of contractors in order not to become a participant in “cashing out”: study the arbitration cases database, check business partners on the public services of the Ministry of Internal Affairs of Russia, the Federal Bailiff Service of Russia, use the services of law firms.
IN THE DIRECTION OF THE NUMERAL
Recently, owing to the growing popularity of digital economy tools, cases of illegal cashing out of funds using digital financial assets (DFA) have become more frequent. By the projections of experts, digital platforms will become a new milestone in the history of cashing out.
Although the legislative framework is in its formative stage, but it is already in place. This means that the company can be held liable for violations. Thus, for example, in addition to numerous banking blockings and restrictions, the norms of articles 198 of the Criminal Code of the Russian Federation and 122 of the Tax Code of the Russian Federation for violations in the field of taxation, article 171 of the Criminal Code of the Russian Federation for carrying out activities without registration in the procedure prescribed by law (even in the absence of a special OKVED, the courts may equate activity with crypto currency to entrepreneurial one) and article 172.2 of the Criminal Code of the Russian Federation can be applied to the violators.
For any activity with the DFA, it is important to study the Federal Law No. 259 dated July 31, 2020, the Federal Law No. 259 dated August 2, 2019, the Federal Law No. 34 dated March 18, 2019. You should also remember about the submitting of tax reporting.
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