Offshore Jurisdictions (Including Cyprus), Corruption Money Laundering and Russian Round-Trip Investment

In this paper we analyze the link between corruption money laundering and round-trip investment via offshore jurisdictions utilizing Russian firm-level data. In particular we empirically explore location strategies of round-trip investors (namely, from Cyprus and British Virgin Islands) across Russia and compare them with the benchmark group of genuine foreign investors in Russia. We further study the determinants of the fraction of round-trip investment in total foreign investment in Russian regions. We find that round-trip investors tend to locate in more corrupt Russian regions than their genuine foreign counterparts and the fraction of round-trip investment is also significantly higher in corrupt regions. Taking into account that a large fraction of round-trip investment in Russia is concentrated in real estate and financial sectors, our results point to the conclusion that there is a strong link between round-trip investment and corruption money laundering.

Ledyaeva , Svetlana, Karhunen, Päivi and Whalley, John, Offshore Jurisdictions (Including Cyprus), Corruption Money Laundering and Russian Round-Trip Investment (May 2013). NBER Working Paper No. w19019