Financial Intelligence has estimated the volume of the shadow economy in Russia at ₽20 trillion

2024 Author: Seth Attwood | [email protected]. Last modified: 2023-12-16 15:55

The volume of the shadow economy in Russia last year exceeded 20 trillion rubles. and amounted to about 20% of the country's GDP, follows from the preliminary estimate of Rosfinmonitoring, which was reviewed by RBC.

The volume of the shadow economy in Russia is decreasing: in 2018 it is equal to about 20% of the country's GDP compared to 28% in 2015-2016, follows from the annual assessment of Rosfinmonitoring (financial intelligence), which the department sends to the Ministry of Internal Affairs.

The assessment is given in the draft document of Rosfinmonitoring, which analyzes the level of Russia's compliance with the recommendations of the FATF (the international Group for the Development of Financial Measures to Combat Money Laundering); RBC has the project. Its authenticity was confirmed by a source in Rosfinmonitoring.

• In 2016, the shadow economy amounted to 28.3% of GDP, or 24.3 trillion rubles.
• In 2017, the volume of the shadow economy, according to Rosfinmonitoring, decreased by almost 8 points, to 20.5% of GDP (18.9 trillion rubles).
• According to preliminary estimates, in 2018 the shadow economy amounted to about 20% of GDP.

20 trillion - a lot or a little

The shadow economy in Russia, according to Rosfinmonitoring, is more than 20 trillion rubles. This is more than the expenditures of the entire federal budget for 2019 (18 trillion rubles), three times more than the annual revenue of Gazprom (6.5 trillion rubles in 2017), more than a third of all monetary incomes of Russians in 2018 (57, 5 trillion rubles).

Perhaps the sharp decline in the shadow economy in 2017 is associated not only with a real reduction in hidden and illegal activity, but also with a change in the Rosfinmonitoring methodology (some part of the shadow economy has ceased to be considered such). At the same time, Rosfinmonitoring itself notes that in recent years, the volume of suspicious funds withdrawn abroad has "significantly decreased", and the inflow of shadow financial flows from abroad has also "significantly decreased".

What Rosfinmonitoring takes into account

The document does not provide a methodology for the assessment. But Rosfinmonitoring, among other things, includes in the shadow economy:

• gray imports (import of goods with lower import duties due to inaccurate declaration),
• concealment of income from tax and customs payments,
• payment of gray salaries.

In addition, Rosfinmonitoring notes that illegal economic agents are actively using fictitious foreign economic activity to transfer criminal proceeds abroad. “Funds are withdrawn abroad according to organized complex schemes, using for the stratification and transit of financial flows many accounts of“one-day”firms opened in various banks. Transfers abroad are mainly carried out under the guise of foreign trade transactions for the supply of goods or the purchase and sale of securities,”the special service writes. RBC sent an official request to Rosfinmonitoring.

What is the shadow economy (as well as the unobserved / hidden / informal economy)

The concept of the shadow economy is sometimes confused with the concept of the non-observed economy. The latter is wider; according to Aleksey Ponomarenko, Director of the International Institute for Professional Statistical Education of the National Research University Higher School of Economics, it includes:

• hidden economy (legal production that is hidden from taxation and administrative procedures, for example, the informal use of workers in the construction of a house);
• criminal production (for example, drugs, illegal arms trade, prostitution);
• informal production (eg “garage economy”, selling vegetables grown on the market without any registration of activity);
• production for own consumption.

Rosfinmonitoring, most likely, considers the first and second components, but informal production does not - these are, for example, “garage” production, cash payments between sellers and buyers, said Simon Kordonsky, a professor at the Higher School of Economics. If we add the informal economy, this will add at least 10% of GDP to the shadow economy according to Rosfinmonitoring, estimates Kordonsky.

“We can estimate how many people are leaving the state to one degree or another in the spheres that the state considers the shadow economy. For full-time employment, this is about 20 million citizens of working age, and for part-time employment, it is impossible to count. From our point of view, about 10 million more able-bodied citizens may be in such facultative shadow relations,”said RBC Kordonsky.

The main factor that determines the scale of the shadow economy in Russia is corruption, as well as excessive government regulation and high taxes, from which business seeks to “go into the shadows” and pay salaries in envelopes, says Yuliy Nisnevich, research director of the HSE Anti-Corruption Policy Laboratory.

As estimated by Rosstat and the IMF

Rosfinmonitoring also cites Rosstat data on the shadow economy: according to Rosstat, in 2017 the size of the shadow economy was about 16%. Rosfinmonitoring points out that Rosstat usually uses an estimate of income from hidden and unofficial economic activities permitted by law to calculate the share of the shadow economy. That is, Rosstat considers everything (hidden economy, informal economy), except for illegal business.

In January 2018, the IMF published a cross-country study in which it estimated the volume of the shadow economy in different countries from 1991 to 2015. At the same time, the IMF also did not include illegal or criminal activities in its assessment. The level of the shadow economy in Russia turned out to be much higher than the official estimates - 33.7% of GDP in 2015 - and above the average for 158 countries (27.8%). In developed countries, the indicator turned out to be within 10% of GDP (in Canada - 9, 4%, in Germany - 7, 8%, in Japan - 8, 2%, in the USA - 7%). At the same time, the Russian indicator turned out to be comparable with Venezuela (33.6%), Pakistan (31.6%), Egypt (33.3%).

According to Rosstat estimates at the end of September 2018, 14.9 million people are informally employed in the Russian economy (20.4% of the total number of employed). And the so-called hidden payroll (wages in envelopes and in the unofficial sector) amounted to 11.8% of GDP in 2017 (about 10.9 trillion rubles).

Checking every ten years

Rosfinmonitoring is currently finalizing preparations for the fourth round of the FATF assessment. The organization's experts assess the country's technical compliance with the FATF recommendations and the effectiveness of the state's work in combating money laundering and countering the financing of terrorism. Based on the results of the assessment, international experts will determine the extent to which Russia has achieved the FATF goals. Based on the results of the previous assessment in 2008, the FATF experts identified a number of shortcomings (including inadequate transparency of information on beneficial owners), which led to Russia being put under regular monitoring.

Alexander Zakharov, partner of Paragon Advice Group, believes that from the point of view of formal assessments, Russia will receive an assessment close to excellent. “However, the geopolitical situation, as well as the cases in which Russia is involved, can affect the overall assessment,” he says, citing the example of the “Russian Laundromat” (a shady laundering operation involving Moldova and Latvia), mirror deals of the Russian branch of Deutsche Bank, money laundering through the Danish Danske Bank.

Authors: Maxim Solopov, Yulia Starostina, Ivan Tkachev