European banks tighten control over Russians' accounts

European banks in preparation for the tax data exchange based on standards of the Organization for Economic Cooperation and Development (OECD) have begun to check in detail the non-residents' accounts and request additional documents not initially required when client accounts were being opened.

In some cases, verification leads to a restriction of the client's rights to dispose of their own funds. According to a source in at one of TOP 5 Swiss banks, thousands of Russians may be at risk of their foreign accounts being blocked "due to the creation of an appearance of changing their tax residency," the Russian news agency RBC reports, referring to several foreign bankers and lawyers.

The global exchange of financial data within the OECD Common Standard for Automatic Exchange of Financial Account Information is carried out in two stages depending on the jurisdiction. The first one (for over 100 countries directly involved in the development of the agreement and standards) ended on September 30, 2017.

Read alsoUkraine publishes top 100 taxpayers in 2017The second stage, which refers to Russia, will complete on September 30, 2018. The exchange assumes that financial institutions provide information about non-residents' financial accounts to their country’s tax authority, which transfers data to tax authorities of the associated states.

In connection with the launch of an international exchange of information to combat cross-border tax evasion schemes, European banks started the practice of updating client profiles in order to avoid reputational risks, says head of the International Law and Tax practice at "Lemchik, Krupskiy and Partners" law firm, Yana Semenyaka.

According to her, large banks have long been under close scrutiny by controlling bodies since they store assets, including those involved in the "Kremlin report" published by the U.S. Treasury. Now, the practice of tightening requirements for clients has spread to smaller banks, where only a passport was earlier required to open non-resident accounts.

Bankers say there are two key points that foreign banks pay close attention to. The first one is the source of the money. In this regard, banks request income statements to make sure that the money earned by their clients are comparable to the amounts stored in bank accounts. If the client cannot provide a documentary justification of the source of their money, banks have to options: to limit transactions for debiting funds or set a higher account maintenance fee.

Read alsoU.S. Treasury defends Russian billionaires’ list against critics - BloombergThe second determining factor in the verification by a foreign bank is confirmation of tax residency. Russia in 2018 will begin to receive information about its residents' foreign assets. As RBC previously wrote, wealthy Russians in 2017 massively changed their tax residency in order to conceal information about their foreign bank accounts from tax authorities.

However, according to Smartgen estimates, European banks have become very careful when assessing the tax status of their clients after Russia in December last year joined the agreement on automatic exchange of tax information with many countries (73 states will provide information on the accounts of Russian legal entities and individuals).