With the US and EU leading the sanctions against them, Russian oligarchs with their assets including yachts and private jets, are fleeing to various destinations worldwide. Some of them are Jewish, with Israel a potential destination because by law, as new immigrants, they are exempt from tax on overseas income for at least the next 10 years. The law is nicknamed the 'Milchan Law,' after billionaire Arnon Milchan, who was one of the first to benefit from the law when it was extended in 2018, and it is alleged that the then Prime Minister Benjamin Netanyahu worked to extend the exemption for Milchan's benefit.
Following Russia's invasion of Ukraine and the sanctions imposed on Russian oligarchs, many taxation experts are expecting a new wave of immigrants with 'deep pockets.'
"An opportunity for Israel"
Adv. Pinhas Rubin, chairman of the Gornitzky & Co. law firm and one of the architects of the 'Milchan Law' said, "There are two types of Jewish tycoons from Russia and Ukraine looking concretely at Israel just now. The first category are those who have already taken citizenship in Israel and see themselves as Israeli residents, even though they don't live here. Even so, they think, rightly or wrongly that they have the same ten year tax benefits."
According to Adv. Rubin, in the current climate of relations towards oligarchs worldwide, they will consider settling in Israel. "The second group includes oligarchs who have not taken citizenship in Israel," added Adv. Rubin, "I'm convinced there will be many such people. I very much hope there will be many of these."
Rubin does not reveal who has spoken to him and sought clarifications about Israel's taxation policy, but he is considered one of the country's senior attorneys and represents many of the top businesspeople in Israel and abroad. "A large part of Russia's rich won't come here out of Zionist motivations," he observed. "They will come here due to a reality that has been forced upon them. This is our opportunity to embrace them. This is a welcome and quality immigration and it has considerable capital potential."
Since the start of Russia's invasion of Ukraine, hundreds of Russian oligarchs and companies close to the Kremlin have been put onto the west's sanctions list.
In the US too, the Russian oligarchs and their families are a target for sanctions, including being cut off from the US financial system. According to Iris Stark, former president of the Institute of Certified Public Accountants in Israel, the country has always been an attractive destination for the wealthy but it has now become an especially interesting option for Jewish oligarchs. She claims that in the situation that has arisen, Israel should not be considered as a tax haven.
Stark said, "Israeli is a country designed to allow a safe life for Jews. Some of them are interested in Israel and come here to do business and this is an opportunity for them to consolidate the relationship and immigrate here."
"This is also an opportunity to increase immigration to Israel as well as to increase immigration of tycoons to Israel," said Adv. Rubin. "It's true that their immigration will grant them 10 years exemption but we are set for an unparalleled welcome wave of immigration, including tycoons. If we succeed in receiving them, we will profit."
However, even though the doors of the border are open to them, if those Jewish oligarchs want to bring in huge amounts of capital into the Israeli system, they are likely to encounter many problems. Adv. Rubin said, "It will be very difficult to bring money into the Israeli system, because of the excessive strictness of the money laundering law. This is a problem in itself that needs to be considered and a solution found for it."
Instructions have still not been formulated
Despite the sanctions on the Russian economy, the Bank of Israel has yet to issue instructions on how to conduct themselves towards Russian banks in general, and Russian oligarchs in particular, who hold Israeli bank accounts. This means that the banks conduct matters according to their internal instructions and in line with international policies towards Russia, mainly from the US and EU.
The Bank of Israel has a presence on the inter-ministerial team set up last week by the government, in order to examine the influence of international sanctions on Russia. The team is operating under pressures exerted by the Americans on Israel, so as to ensure that the money coming from Russian banks, on which sanctions have been imposed, won't reach the Israeli banking system.
The Bank of Israel explained that they are in constant contact with the relevant bodies in Israel and abroad, on everything regarding the various economic developments, due to the situation in Ukraine, and are following what is happening in the financial system.
Consequently, the banks are operating according to developments on two levels: the first level is the operations taken by the US authorities and especially the Office of Foreign Assets Control (OFAC) in the US Treasury. Since the outbreak of the crisis, OFAC has issued questions and answers regarding the situation in Ukraine, in such numbers that indicate the confusion in the world's banking system. Among other things, OFAC recommends that each deal of a bank's Russian customer be examined.
In addition, at least for the moment, money or bank accounts belonging to Russian citizens have not been seized but temporarily frozen. Immediately after the Russian invasion of Ukraine, the US, Canada, EU and UK announced that several Russian banks were blocked from the Swift worldwide banking payment network (but not the blocking of the entire Russian financial system). In this instance, Israeli banks have no say in the matter and transfers to the Russian banks blocked from Swift cannot be undertaken.
The second level relates to money laundering. Israeli banks have strict instructions from the Supervisor of Banks and the Money Laundering Authority on the issue, requiring them to anyway examine money transfers coming from abroad. These defined work procedures have strengthened due to the restrictions on the Russian economy and Israeli banks have raised their alertness, on everything regarding increased attempts to bring money out of Russia.
So even if the state has issued no clear instructions, the country's banks understand that ultimately they will be subject to punishment by the US authorities and so are responding accordingly. So for example, Bank Hapoalim has updated its website that according to international sanctions, transfer of money to and from Russia and Ukraine might not be executed.
Published by Globes, Israel business news - en.globes.co.il - on March 7, 2022.
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