To counter a Russian cash flight to the Netherlands, we have to tackle so-called ‘letterbox firms’, says the Dutch’ Lower House. Why is this so important? Peter Kavelaars, Professor of Economics of Taxation at Erasmus School of Economics, explains why the Netherlands is so interesting for Russians to stall their money in an interview with AD (6 March 2022).
Letterbox firms are firms that exist only on paper and have no office and no employees. The Netherlands has always been a popular destination for global cash flows. By flowing billions of dollars through Dutch letterbox firms, all kinds of ultimate beneficiary owners can circumvent taxation without punishment. Currently, there are about 12.400 letterbox firms in the Netherlands. The Professor states that it is very hard to stop the cash flow through our country via those tax constructions. Financial institutions have set up huge supervision programmes to counter money laundering and criminal financial flows for several years. Still, it is very hard for even the biggest banks to retrieve cash flows via letterbox firms. “If there are five firms between the letterbox firm and the ultimate beneficiary owner, then it is easy to lose track.”
According to the IMF, the OESO and even the Russians, the Netherlands is the third-largest money gateway for Russian investments. Only Cyprus and Bermuda are more popular destinations for Russian investments. According to the Russian Central Bank, in 2019 almost 45.7 billion dollars of Russian capital and goods went to our country, 80% of which can be attributed to financial assets. Kavelaars argues that this may indicate a large usage of letterbox firms in the Netherlands. However, it remains hard to estimate exactly how much letterbox firms have been used since nobody really knows how these schemes are set up. Most of the time, those schemes are deliberately designed to prevent anyone from finding out the source and origin of the cash flow.
Ban on Russian money?
The minister of finance has hinted that perhaps she would impose a ban on Russian money for trust companies. Kavelaars is critical of this policy. The Russian cash flows will not just disappear if you impose a ban, since the cash flows will find other routes. For instance, China is not actively participating in the sanctions, therefore Russian individuals can channel money to the Netherlands through a Chinese firm.