Obnalichivanie (Russia)
| Obnalichivanie 🇷🇺 | ||
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| Location: Russia | ||
| Definition: The use of fraudulent property transactions to extract money illegally from the Russian maternity benefit system | ||
| Keywords: Russia – FSU – Property – Fraud – Brokerage – Family – Kinship – Motherhood – Scheme – Problem-solving | ||
| Clusters: Informal economy – Gaming the system | ||
| Author: James McMeehanRoberts | ||
| Affiliation: Alumnus, School of Slavonic and East European Studies, University College London, UK | ||
| Website: Profile page on LinkedIn | ||
By James McMeehanRoberts, Alumnus, School of Slavonic and East European Studies, University College London, UK
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Maternity (Family) Capital (Materinskii (semeinii) Kapital), usually referred to as Maternity Capital, is a maternity benefit programme in Russia, introduced on 1 January 2007. It is part of a package of measures introduced by President Vladimir Putin aimed at boosting Russia’s declining birth rate. It provides mothers with a capital sum when they give birth to, or adopt, a second or subsequent child. The capital is not provided in cash; rather, a certificate is issued, to be exchanged for one of several specific services. The claimant’s options to use the capital are the following:
The certificate can be changed only after the third birthday of the child, so the payments were made from the beginning of 2010. |
Initially the sum provided by the state was 250,000 roubles (equivalent to about $11,000 at that time). The value of certificates has increased steadily to take account of inflation, reaching 466,617 roubles from 1 January 2020 ($7,600 approximately). On 15 January 2020, Putin announced an extension of the programme to include first children and an increase for the second child to 616,617 roubles ($10,000).
The share of federal funds attributed to this benefit has been substantial, even before the 2020 increases. The scheme is administered by the Pension Fund of Russia (PFR), which stated in its latest Annual Report that 8.3 million certificates were issued and just over 2 trillion roubles dispersed between 2007 and 2017 (Pension Fund of the Russian Federation Annual Report 2017). Nearly 4 million of those certificates are still unused, most likely due to the impractical terms of use. In 2017 the amount paid out was 311.8 billion roubles, amounting to 1.9 per cent of total federal expenditure.
To date, 98.6 per cent of this budget has been used for the first option: “improvement of the family’s living conditions”. Amongst the poorer social classes in Russia, the most pressing needs of most new parents are not property-related, but food, clothing, warmth - the basics of everyday life. Cash therefore has infinitely higher utility than a certificate. The face value of Maternity Capital Certificates is substantially higher than the annual disposable income of the majority of Russian families: the Russian Statistical Service states that the average monthly wage was 46,674 roubles as at Jan 2020 – $650 per month or $7,800 per year. It is not surprising that from the time of its introduction, there has been a demand for the conversion of certificates into hard cash.
As early as 2010, a large contingent of agents or ‘brokers’ quickly arose offering to provide a service, known as “cashing out” - obnalichivanie. They seek out “clients” openly on the internet, newspapers and social media – but also with fly-posters on bus shelters, lamp posts, apartment blocks and any other available public space. They promise fast cash, often within one day, and minimum administrative hassle. Оbnalichivanie is an offence under the Criminal Code as an embezzlement of public funds and is punishable by a fine and imprisonment. Sanctions depend on whether the scam is organised by an individual or a group. For individuals, fines of up to 120,000 roubles or one year’s salary plus the return of all money obtained fraudulently, and imprisonment of up to 2 years are applicable. For an organised group fraud, fines of up to 1 million roubles or three years’ salary and deprivation of liberty for five to ten years. Certificate holders making use of these services are either unaware of the legalities, or are willing to take the risk, potentially jeopardising a significant amount of the cash.
These schemes operate in a variety of ways. For example, a near-worthless property in a remote location is priced at the level of a Maternity Capital Certificate’s value. A credit cooperative or microfinance company, often set up for the purpose, advances a loan to the certificate owner, who is able to purchase the property. On completion of the purchase, the relevant documentation and certificate are sent to the PFR, which sends the money directly to the providers of the credit, which then pass on part of the money to the claimant. In some cases, even the property itself is fictitious.
These schemes are particularly accessible to realtors, who are able to find suitably dilapidated properties or to employees of credit cooperatives who can provide documentation for fictitious loans. Civil servants working for the PFR have also been seen to have a hand in these schemes. Brokers usually charge a fee of perhaps a third of the certificate value. In some cases, however, the brokers keep the total sum and disappear. This has prompted some victims to report their loss to the authorities, resulting in their own prosecution.
In the traditional spirit of blat, some certificate holders find a solution within their own circle, buying a property from parents or other relatives or friends, but not occupying the house. The vendors give part or all of the money to the notional purchasers.
This criminal activity began in 2010, as soon as the first certificates issued became eligible for use. The delay until the first children born under the scheme reached their third birthdays provided ample time for criminal networks to develop, and to design adequate methodologies. In January 2012, the Ministry of Internal Affairs, responsible for the investigation of the crimes, announced it had uncovered a nation-wide criminal ring operating in 246 different cities. It had set up about 300 different ‘front’ companies to undertake the loan and property purchase transactions. The crimes were carried out over the previous two years (Demoscope Weekly 2012).
A second type of crime associated with Maternity Capital is obtaining certificates for which there is no entitlement. One large scheme in the North Caucasus in 2012 involved gynaecologists registering non-existent births and passing the documents to accomplices at local PFR branches. The fraudulent organisation created in excess of 160 fictional births and obtained 65 million roubles. Interestingly, the following year the Presidential Envoy to the North Caucasus reported that 110,000 births had been registered in the previous years, but school registration numbers did not match this figure (Forbes Russia 2013). It has been suggested that this could be the result of fraud related to Maternity Capital (Interview with Olga Golodets 2013). Such a level of misrepresentation would not only bring into question the effectiveness of the Maternity Capital programme, but also the State Statistical Service’s published fertility rates.
The scale of Maternity Capital fraud is difficult to quantify precisely. No official figures are published and the matter has not been publicly discussed. The PFR declines to answer questions on the subject, saying that identifying fraudulent schemes is the responsibility of law enforcement agencies. The Ministry of Internal Affairs does not provide statistics. It has recently stopped posting details of related prosecutions on its own website and removed all relevant previous posts. Of the 70 cases they reported between 2015 and 2019, 84 percent involved property transactions, representing 95 percent of individual criminal events and 97 percent of the cash value attributed to the benefit (670 million roubles out of 690 million) (author’s analysis based on data available at the Ministry of Internal Affairs in September 2019).
The design of the benefit is the main driver of fraud. Families in serious financial need are accredited a certificate that entitles them to receive a large sum of money. Yet when they try to access the money, they find that the restrictive conditions hinder them from profiting from the benefit.
The changes to Russian Maternity Capital benefits announced by Vladimir Putin in January 2020 will significantly increase the cost of the Maternity Capital scheme. About 40 percent of Russian women have only one child in their lifetime (Naselenie Rossii 2016: table 7.7 218-2019). They will constitute a whole new class of claimant. Additionally, they will be the first children of those who go on to have more. The certificate value for second children is increased by a third. Over time, the cost of the programme will more than treble, to a level twice the current Federal spending on Healthcare. At the same time, it will double the number of potential targets for the fraudsters (McMeehan Roberts 2020).
Entries in the online encyclopaedia linking to obnalichivanie
References
BFM.RU. 2012. ‘МВД вскрыло аферу с материнским капиталом в 246 городах’, 12 January, www.bfm.ru/news/166963
Forbes Russia, 2013. ‘На Северном Кавказе не могут найти 110 тысяч детей’, 14 March, https://www.forbes.ru/news/235650-na-severnom-kavkaze-ne-mogut-naiti-110-tysyach-detei
McMeehan Roberts, J. 2020. ‘Putin’s Pursuit of the Baby Boom – The Next Chapter’, UCL SSEES Post-Soviet Brief, https://sway.office.com/APVaVyizgmjd0QFG
Ministry of Finance of the Russian Federation. ‘Federal Budget and actuals 2006 – 2018’, https://www.minfin.ru/en/statistics/fedbud/
Ministry of Internal Affairs of the Russian Federation. https://мвд.рф/search?q=материнский+капитал&group= https://мвд.рф/news/item/[various report numbers]
Pension Fund of the Russian Federation. 2018. ‘Annual Report 2017’, http://www.pfrf.ru/en/about/annual_report/
Zakharov, C. V. (ed) 2018. Naselenie Rossii 2016, Moscow: Higher School of Economics, Institute of Demography
The Russian Government. 2013. ‘Olga Golodets’ [Interview with the Ekho Moskvy Radio Station], 21 June, http://government.ru/en/news/2573/