Cashing in of money

Cashing in of money presents a realization of simple and complex financial schemes for the purpose of non-cash money withdrawal from accounts of legal entities and their conversion into cash.

Cashing in is performed in order to lower company’s profitability index for tax levies cutting and getting the right for tax deductions, for salaries payment and “envelope” bonuses, in order to “reach an agreement” with an “appropriate” person… Generally speaking, there are many reasons for realization of this financial operation, but all of them imply the desire to cheat the state, find money for bribes and kick-back schemes, and also put undocumented funds in own pocket.

In 2016 about $50.0 billion were withdrawn from companies’ accounts by cashing in and this is just in the capital, and Saint Petersburg does not remain short of it too, that is why it is not surprising that the list of companies ready to take risks and get kick-backs for rendering such a specific service is constantly increasing. Growth of grey market lets financial analysts state that despite the legislative provisions tightening for financial fraud, demand for cash continues to be extremely high. And for the next 5 years there is no sense to hope for its decrease (indeed, if Russia keeps on developing in the intended economic direction).


Schemes for cashing in of money

Nowadays there are more than fifty variants of schemes for cashing in of money, what is more, if before they were simple, now they are constantly becoming complicated, in order to make it impossible to find any ends eventually.

So, for example, just 2-3 years ago cashing in was performed by almost all bank structures, but after the law enforcement bodies and the Central bank began to study the problem of tax evasion seriously, introducing modifications regulating this point into the legislation base, top banks refused to participate in shadow schemes. On the level of small financial structures and short-lived banks operations are still performed at full blast.

However, let us consider the most popular schemes for today.

  1. Cashing in through an individual entrepreneur is the most popular scheme of illegal cash withdrawal. For that, a company is being registered on a front man, and this company renders some service to a main company (of course, fictitiously, just on paper, by means of contract conclusion). When money arrives in its account, this money is withdrawn, and the company is being liquidated. By a proceeding the blame is put on a front man that sometimes does not receive even regular kick-back. For example, in due time companies were registered on passports of drunkards or drug addicts for remuneration in the amount of 2000-5000 rubles.

  2. A popular scheme is money transfer to the account of a front man that is closed after withdrawal. The scheme is like with short-lived companies, that is why in case of disclosure the owner of the account has to carry responsibility.

  3. “Cash-out” is performed by conclusion of a fictitious agreement, stipulating extremely high fines for obligations default. Then a customer transfers a small sum to the account of a contractor, as advance payment for work performance, and when the last mentioned notifies of inability to fulfill its obligation to the deal, a customer brings a suit. A contractor, indeed, loses a case and returns transferred money and also default interest. These funds have legitimate origin that is why it is possible to convert them into cash on the official basis.

  4. As before, the offshore scheme with its concession taxation system and privacy on all levels is in full swing. The main advantage of such deals is that they are performed on legal grounds, according to real contract agreements, that is why this section involves a lot of national companies.

  5. A relatively new scheme is card withdrawal, what is more, there are many variations on this point. So, for instance, it is possible to stage a loss or what is better theft of a plastic card belonging to the company’s account (at first funds are converted into cash, and in 2-4 minutes an owner notifies a bank of a problem asking to freeze the card). In addition, there is a possibility to open salary cards registered on “ghost employees”. But the disadvantage of this scheme is a limited amount of finance admitted to withdrawal.

  6. Conclusion of contracts on the terms of long-term advance payment lets a company transfer advance payments to the business partner’s accounts for services to be rendered or goods to be supplied. During 10-20 years valid for the contract it is possible to transfer millions, and to the period of company liquidation they will already “sink into oblivion”. To prove fictitiousness of a scheme is quite impossible because of such a huge period of time.

  7. Cashing in is performed with the help of illegal lease contracts signing as well, according to which a company leases a property from employees. To prove that a car or a computer under a lease is used in company’s activity is not difficult, but this scheme will not generate large profit, as a company will have to pay income tax.

  8. Money withdrawal in the status of “payment royalty” to a definite person for the item of intellectual property belonging to him/her is used by companies able to prove that intellectual property is connected with company’s activity (for example, a brand name creation, or software for work optimization, know-how introduction). Besides, it is to register authors’ rights on a definite physical person at first.

  9. Dividends fraud is performed in a relatively legal environment, as according to the law a company’s founder has the dividend right every 4 months. Dividends amount is overrated by several times, but, in order to perform the scheme, dishonest entrepreneurs have to pay 9% of tax liabilities.

  10. Funds withdrawal is also performed within a framework of the government-sanctioned program “Maternity fund”, for that purpose fictitious operations with immobility purchase and sale are conducted, what requires to act through the “own” real estate agency.

What scheme of money withdrawal to use exactly, a company decides by itself. It depends on the fact what funds are at issue. Large amounts transferred to the account of a company that has been just established make the tax services pay attention to the party to a deal that transferred the money.


Liability for cashing in

Illegal encashment or encashment that just seems to be legal involves a full range of negative consequences and it is necessary to be aware of it, as well as to understand what risks and liability may be carried by both parties.

Firstly, companies participating in a deal or people, that became the object the companies were registered on or accounts held in the name of, may be simply abandoned after money withdrawal, as “figure-heads” are not admitted to the process of cashing in.

Secondly, despite the fact that the Criminal Code of the Russian Federation does not stipulate the term “illegal encashment” and there is no a separate article for this crime, criminal liability for violation of the tax legislation exists and it is mentioned in the following articles:

  • article 198 (for individual entrepreneurs and physical persons, not engaged in economic activity) – for tax evasion;

  • article 199 (for legal entities on the same charge);

  • article 199.2 – for participation in concealment of monetary resources subject to taxation;

  • article 327 – for papers forgery (fictitious contracts, agreements, labor contracts are considered to be illegal documents in that case if it is provable);

  • article 171 – for illegal conduction of business activity;

  • article 173 – for fictitious business activity (this fact is hard to prove, as a fictitious company chooses such spheres of activity that create intangible assets);

  • article 174 – for money laundering.

Indeed, from a legal point of view, it is hard to prove cashing in for the purpose of tax evasion, but the law enforcement bodies manage to reach definite results. Unfortunately, in comparison to the large scale of a problem, they are inconsiderable and every year the treasury loses billions of dollars. It is possible to decrease the volumes of illegal operations, if there is an opportunity to have influence on the reasons making companies take such a risk. It includes the following:

  • a taxation system that is not profitable for entrepreneurs. As a result of official payment of all taxes, profit of a successful company reduces by 50%-70%, that is why many entrepreneurs have to withdraw into the shadows exactly because of such a taxation policy;

  • a level of corruption – it is not a secret that in Russia many issues are settled by means of bribes and kick-backs, that require cash. Only when decreasing corruption pressure, many companies, that have to maintain “business communications” with government officials, will come out of shadow business;

  • absence of a distinct border between illegal and legal cashing in of money, because often legal operations of entrepreneurs become a trigger for initiating a criminal proceeding.

Summing it up, it is to state that business activity requires from Russian businessmen to have the ability to do some fancy footwork in the jungle of imperfect legislation, red tape and huge tax burden.

A lot of companies withdraw into the shadows exactly for this reason, making cashing in and not supplementing (or supplementing in minimum volumes) the Russian state budget. If we solve these problems, the situation may be turned around, but now, as analysts denote, we should not hope for that. Well, too serious money and big boys are involved in the sphere of unrecorded «cash».

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