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TCS Group: More on Tinkov's US tax troubles

  • The US Department of Justice has published details of the indictment against Oleg Tinkov

  • The US DoJ alleges that Tinkov under-reported his income and net worth in 2013

  • The documents state that the 2013 IPO of Tinkoff Bank generated gross proceeds of more than US$199mn for Tinkov

Tolu Alamutu
Tolu Alamutu

Credit Research Analyst, Banks

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Tellimer Research
6 March 2020
Published byTellimer Research

The US Department of Justice (DoJ) has published details of the indictment against Oleg Tinkov, the founder of TCS Group/Tinkoff Group, and its largest single shareholder. The US DoJ alleges that Tinkov under-reported his income and net worth in 2013, the year the IPO of the bank took place and the year he renounced his US citizenship (three days after the IPO, according to the indictment). That act (renouncing citizenship or ‘expatriation’) is considered a taxable event by US authorities (in certain circumstances). The US authorities state that the sale of shares during the IPO generated gross proceeds of more than US$199mn. The authorities also state that Tinkov’s stake in the bank was worth more than US$1bn at the time.

The maximum penalty for all this is three years in prison plus a fine of US$250,000 – for each of the two counts of tax fraud. There could also be ‘restitution’ and ‘monetary penalties’ involved. In summary, this could be costly for Tinkov – but US authorities will need to successfully secure extradition from the UK first.

One other interesting fact to highlight is that the indictment was signed in September 2019, but has only now been made public (following Tinkov’s arrest).

There are bound to questions about what this could mean for the bank. In the very worst case, could its founder be forced to sell all or some of his stake in TCS Group? It is probably too early to speculate on this, and it seems likely that this particular founder will do all that’s possible to keep this exceptionally profitable lender. Further, the case may be quite complex – a lot more may need to be explained concerning the ownership structure of the bank (which is/was via various entities) and more details on Tinkov’s income and net worth in 2013 may be needed – the indictment only references gross amounts. In addition, the view taken by an article published by RT on this issue may be of interest. Nonetheless, here are just two points which may be worth considering:

  1. Tinkoff Bank isn’t currently classified as systemically important but the bank’s share of some parts of the Russian credit market significant. It’s also a very profitable and well-capitalised lender. This ought to mean that intervention from the Central Bank of Russia (CBR) or Deposit Insurance Agency (DIA) is not needed, ie there should ordinarily be parties interested in acquiring this bank.
  2. Tinkoff Bank partnered with Sberbank in some businesses. Management previously stated that Tinkoff Bank didn’t get paid for this partnership but benefited from information flows. At the time the Sberbank partnership was announced, there were questions about further interest from Sberbank. This was denied. However, talk of such interest could return if the US case is not resolved quickly.

In a 5 March report, we discussed relative value, related party exposure and recent results. We still don’t expect this case to impact the issuer in the long term, and note that management has stated that operations of entities in the Group have not been impacted by the news.