Totally Wired

Hackers Steal 7.5TB of Files From a Russian Spy Contractor

Russia’s FSB is an elite intelligence outfit, the successor to the KGB. (You’re familiar with their work.) A contractor of theirs called SyTech was hacked on July 13, with intruders apparently gaining access to the company’s IT network, including 7.5TB of files. This week, details of those files became public, outlining various FSB projects—including an apparent attempt to deanonymize traffic on the Tor network. Other undertakings found in the trove include efforts to monitor social media accounts, email contents, and peer-to-peer file-sharing services. None of these projects comes as a particular surprise, but it’s yet another embarrassment to Russia’s top spies—which have seen no shortage of them in recent years.

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Senate Intel Committee Explains the Full Scope of Russia’s Election Interference

The Senate Intel Committee this week released its (heavily redacted) report on Russian attempts to interfere with the 2016 election. The takeaway that got the most attention was that Russian hackers probed targets in all 50 US states—but DHS has already confirmed that back in April. Still, no harm in getting the word out again, especially since it appears that not many people paid attention the first time around. You can read the full report for yourself, or at least the parts not hidden behind thick black lines, here. And remember, as Robert Mueller said this week, Russia’s still at it, and Mitch McConnell apparently has no interest in stopping it.

Sources: YouTube, Wired, goodreads

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The Morning Paper

someone taking a shower

The United States is already under cyberattack from enemies and rivals. Iran, North Korea, and China have been implicated in hostile hacks, but the most is known publicly about Russian assaults. In 2014, Russian hackers used stock video footage and social media to spread panic over a fake chemical fire in Louisiana. The following year, the same agency faked an outbreak of food poisoning at Thanksgiving in New York and exacerbated racial tensions at the University of Missouri. These operations appear to have been warm-ups for the Russian project to stoke division and suspicion in the U.S. electorate during the 2016 campaign.

Attacks like these will become vastly more potent when images of celebrities, elected leaders — even your friends and family — can be seamlessly added to fake scenarios. In fact, given revelations that a Russian company has been collecting millions of images of everyday Americans, you might wake up one day to find yourself co-starring in a deepfake attack.

But to focus on Trump, and whether his actions constitute impeachable offenses, is to miss the real bombshell in Mueller’s testimony — the scandal that could be unfolding right there in front of us.

That was Mueller’s warning that what happened in 2016 could happen again. Asked by Rep. Will Hurd (R-Tex.) whether Russia might be planning another attack on the integrity of U.S. elections, Mueller replied: “They’re doing it as we sit here, and they expect to do it in the next campaign.” He said “many more countries” are developing the capability to do so as well.

“I hope this is not the new normal,” Mueller added, “but I fear it is.”

There is a good chance that Wednesday’s testimony marked the last time we will ever hear the former special counsel say anything on the subject in public. The message he wanted to deliver was that, in wrestling with the problematic past, we should not take our sights off a treacherous future. While that may not have made for electrifying television, Mueller delivered the goods.

Source: Washington Post

Image courtesy of Fluencia

Si prestas tu martillo, te prestaré mi hacha

On this latest episode of Departures, Robert Amsterdam speaks with an admired friend and colleague Dr. Anders Åslund, author of the new book, Russia’s Crony Capitalism: The Path from Market Economy to Kleptocracy.

In his book, Åslund contends that in his eighteen years in Moscow, Putin has succeeded in establishing a Russian state and economy that are “exceedingly reminiscent” of those that existed in tsarist Russia, a far cry from the democratic state and liberal market economy that global observers had anticipated would inevitably follow the collapse of the Soviet Union.

According to Åslund, Putin has accomplished this by constructing an “iron quadrangle” comprised of “four circles of power,” which are “vertical state power,” “big state enterprises,” Putin’s “cronies,” and “Anglo-American offshore havens,” respectively.

The consolidation of this iron quadrangle is the result of Putin’s years’ long effort to deinstitutionalize the Russian state, and devise a system that guarantees macroeconomic stability, but falls short of delivering economic growth. As Åslund describes, these circumstances will likely yield a Russia in regression, a nation that is increasingly patrimonial and, as a result, will accelerate the ongoing retreat of democracy. Should this continue unabated, global powers, particularly those in the West, may expect Putin to grow increasingly authoritarian, and in the tsarist tradition, grow evermore inclined to taking risks in seeking sources of legitimacy other than macroeconomic stability.

Source: robertamsterdam.com

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South Korean jets fired warning shots at a Russian military plane. South Korea’s defence ministry said two Russian bombers and a surveillance plane, plus two Chinese bombers, had violated its airspace (above barren islands also claimed by Japan). Reports from inside the Korean government said the Russians acknowledged the incursion and blamed it on malfunctioning equipment.
The Economist Espresso, 24 July 2019

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What is Vladimir Putin goal [sic] for Russia and the Russian people?
Dima Vorobiev, Former Soviet propaganda executive
Answered Jul 18

Russian Federation is run as a highly profitable commercial project of about 100,000 families, with President Putin and a circle of a few influential state-oligarchical clans at the top.

They have been very successful and ensured two decades of stable and relatively wealthy existence for the broad masses of our population.

Vladimir Putin’s goal for Russia and the Russian people is to perpetuate this project for as long as possible.

Below, a resident of St. Petersburg, hugely impressed by many successes of President Putin, uses his portrait for personal protection in his daily affairs against bad luck, evil spirits, and corrupt government servants.

putinist

Source: Quora

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Giuseppe Conte, Italy’s prime minister, does not belong to either of the parties in his populist coalition government. But today the former law professor will report to parliament on the allegedly grave misdemeanor of one. Prosecutors are investigating allegations that the hard-right Northern League negotiated with Russian intermediaries for funding worth tens of millions of euros. The League’s leader, Matteo Salvini, who was not at the meeting in Moscow and denies receiving money, at first refused to make a statement to parliament, but now says he will give his version of events. It might be thought the claims should be particularly damaging since they are backed by a purported recording of the discussions. But they seem to have done Mr. Salvini no harm. A poll at the weekend showed backing for the League had risen nearly three points, to 35.9%, since before the recording was made public. For now, Mr. Salvini seems bulletproof.
The Economist Espresso, 24 July 2019

Inland Empire: Life in Russia Without Visa and Mastercard

buyerThis woman is happy she doesn’t live in Russia, where Visa and Mastercard may soon be banned. Courtesy of Fluencia

Inland Empire: How Will Russians Live Without Visa and Mastercard?
Sergei Khestanov
Republic
July 12, 2019

The new attack by Russian lawmakers on the international payment systems Visa and Mastercard may come to a head, successfully or unsuccessfully, this summer. For the law bill’s sponsors success would mean the near-total financial isolation of Russians from the rest of the world. All that would remain would be to adopt restrictions on foreign currency.

Going Our Own Way
There had long been talk of the need to talk of a completely autonomous domestic payments system, but the events of 2014 and, especially, the imposition of sanctions visibly accelerated the process.

In fact, in the spring of 2014, MPs in the Russian State Duma drafted amendments to the law “On the National Payment System” that would have forced Mastercard and Visa, which had been obliged to observe the sanctions against a number of Russian banks, to deposit amounts of money equal to their two-day turnover in special accounts at the Russian Central Bank. Visa said it would stop doing business in Russia. Negotiations with the Russian government and Central Bank followed this announcement. The draft law was considerably softened. The amount of the obligatory deposit was removed from the bill, and it was decided that international payment systems would operate in Russia through specially established local subsidiaries.

After Mir bank cards were launched, they were quite unpopular among Russians for a long time. Russians preferred time-tested foreign bank cards. Besides, initially there were purely technical problems with Mir that caused their cards to be rejected, but after the Russian Central Bank issued stern warnings, banks updated the software of their ATMs and payment terminals, more or less solving the glitches.

Another problem is that Russian cards are nearly useless abroad since they are accepted almost nowhere. However, given the small percentage of Russians who travel abroad, this is not such a huge problem.

The breakthrough in promoting the domestic cards came in 2018. On July 1, 2018, the electronic wage payments of all state-sector workers were transferred by law to Russian bank cards. By January 1, 2019, they had taken a big bite out of the share of the Russian market controlled by their famous competitors. According to the Federal Anti-Monopoly Service, during the period from January 1, 2018, to January 1, 2019, the share of actively used Visa cards among the Russian populace fell from 45% to 39.5%, while Mastercard’s share fell from 42% to 36%. The reduction in the international payment systems’ share of the Russian market happened as Mir doubled its share of active card users, which rose from 12.5% to 24.5%.

This is not surprising. The traditional Russian principle of pushing certain things, ironically dubbed the “voluntary compulsory” method, is rather effective. Outcomes are achieved quickly, making such methods of promotion quite popular. We should say, in all fairness, that this happens not only in Russia.

Such aggressiveness has a price, however. Compulsory promotion of goods and services reduces competition, since the advantages of using a particular service or buying a certain product derive from the market’s absence. Over time, products and services pushed in this way lag behind their absent competitors in terms of their quality.

Striking examples of diminishing quality in a market in which competition was restricted were the Soviet automobile and electronics industries. The latter lagged behind the world especially disastrously. Remember the old joke, “Soviet handheld calculators are the biggest handheld calculators in the worlds”?

Rejecting the Outside World
But degradation as a consequence of pushing goods and services through non-market methods is only half the trouble. It is much more dangerous to ban and expel foreign products and services from the domestic market. The new regulations described in the draft law “On the National Payment System” could force international payment systems out of Russia since they would be unable to comply with the regulations. Once they leave, Russian bank cards would not be accepted for payment abroad, and cards issued by foreign banks would not be valid in Russia.

Mir cardholders who never travel abroad would not even notice this nastiness. Everyone else would soon voluntarily be forced to join them. Give the Russian state’s high and growing share in the Russian economy, the regulations would not provoke fatal disaffection with the leadership.

Russia’s policy of self-isolation was adopted long ago, and a large segment of the populace has no real objections to it, while people who use their bank cards within Russia mostly do not care what system processes their transactions. What matters is that everything works fine and does not cost too much. Mir’s reliability is now on a par with the international payment system, and so are its rates. Besides, if push came to shove, the Russian Central Bank and the Federal Anti-Monopoly Service could force it to reduce its rates.

There are no rational reasons for establishing a homegrown system when the duopoly of Visa and Mastercard serve the Russian market just fine. China’s UnionPay and Japan’s JBC have been processed by certain Russian banks, but they have never played a significant role. You cannot make money in a highly competitive, mature market, long dominated by world leaders like Visa and Mastercard, unless you employ non-market methods of competition. The market simply does not need new players.

The reason for the persistent promotion of Mir card is not commercial. It is an insurance policy of sorts, one that will have claims made on it if real, harsh Iranian-style sanctions are imposed on Russia. If you regarded this scenario as a serious possibility you would have cause to establish a national system, especially because Chinese banks (on whom great hopes were placed in 2014) have essentially supported US sanctions. In these circumstances, it is better to have a stunted system in terms of its international access than to witness a sudden collapse of cashless payments if harsh sanctions are imposed.

However, this non-competitive idea immediately inspires people who are willing to make money by destroying their competitors.

If regulations pushing the international payment systems out of the Russian market were adopted, it would deprive Russians of the ability to pay for things abroad without cash, and the logical next step of banning or restricting the export of foreign currency from the country would be easy as pie. Simultaneously, Russians would find it much harder to purchase foreign goods in foreign online shops, something that would be incredibly difficult without access to international payment systems.

A side effect of the ban would be the promotion of Russian-registered joint ventures for selling Chinese goods to Russians.  This would have a positive effect on the receipt of VAT from these purchases. VAT matters since VAT revenues constitute up to a third of Russian federal revenues, making them comparable to Russia’s export revenues.

The natural consequence of depriving Russians of access to foreign online shops would be a rise in prices. At first, the government would profit slightly because VAT revenues would grow—until people stopped buying things.

The policy of isolating the Russian economy from the world economy in terms of Russian nationals being unable to spend money outside Russia has been reasserted, and yet another step on the long road of restrictions and bans may soon be taken. The tendency towards restrictions on foreign currency has once again been confirmed. We might recall the recent discussion about restricting unqualified investors from opening foreign currency accounts.

The hope remains, of course, that, as in 2014, the international payment systems would reach an agreement with the Russian government, Russian MPs would be reined in, and cardholders would not feel the pain. Unlike 2014, however, the Russian Central Bank has supported the bill.

Sergei Khestanov is a macroeconomics adviser to the director of Open Broker and associate professor of financial markets and financial engineering at RANEPA. Translated by the Russian Reader

Two Russian Nationals Jailed in Tripoli

Two Russian Nationals Jailed in Prison in Tripoli Suburbs
RBC
July 6, 2019

Two Russian nationals, previously detained by Libyan authorities, have been jailed at Mitiga Prison in the suburbs of Tripoli, according to Alexander Malkevich, president of the National Values Defense Fund [sic], as reported to TASS.

Malkevich confirmed that two Russian nationals, sociologist [sic] Maxim Shugaley and interpreter Samer Hasan Ali, who is a  dual Russian-Jordanian national, had been jailed. There were a total of three people in their research group [sic]. Malkevich also claimed fund staff members had not meddled in election campaigns in Libya. Their work was limited to monitoring the situation there.

The Russia-based National Values Defense Fund (FZNTs) reported on July 5 that their staff members had been detained in Libya. It claimed they had only been carrying out sociological surveys and researching humanitarian, cultural, and political conditions in Libya.

According to Bloomberg, the Russian nationals were detained in May of this year. In particular, two of them had arranged a meeting with Saif al-Islam, son of former Libyan leader Muammar Gaddafi. Saif al-Islam is considered a possible Libyan presidential candidate.

As noted in a letter sent by the Libyan Prosecutor’s Office to PNE [sic], the information found on laptops and flash drives confiscated from the detainees proved both of them worked for a company “specializing in meddling in the elections scheduled in several African countries,” including Libya. The prosecutor’s office also noted a third Russian national had managed to leave Libya before the special services arrested the men.

Thanks to Grigorii Golosov for the heads-up. Translated by the Russian Reader

fundRussian Orthodox Archpriest Vsevolod Chaplin, Russian MP Vitaly Milonov, and Alexander Malkevich presenting the National Values Defend Fund at a press conference at Rossiya Segodnya News Agency in Moscow in April 2019. Photo courtesy of Znak.com

Grigorii Golosov
Facebook
July 7, 2019

As for the National Values Defense Fund, which sent a poor spin doctor (identified as a “sociologist”) to Libya, it is a new project, obviously run by [Yevgeny] Prigozhin. Its website makes it clear it is going to defend Russian national values primarily in Africa.

You can read more about the project here.

I realize Putin’s ex-chef Prigozhin has long been more than an errand boy for the man with whom he has been involved in the asymmetrical albeit profitable relationship of vassal and liege lord. Prigozhin has his own business interests in Africa. Russian foreign policy is now so arranged that Prigozhin’s business interests are Russia’s national interests.

So be it. China also has interests in Africa. They are backed by colossal investments that are gradually exchanged for political influence. This happens really slowly because the Africans are quite touchy about it: Chinese influence makes people unhappy. But the investments it makes go a long way toward containing the unhappiness.

Russia has taken a different route. It helps its cause to educate African army officers at the relevant Russian universities, but that is a long-term deal. The powers that be want things to happen quickly, hence the appearance on the continent of mercenaries [like Prigozhin’s Wagner GroupTRR] and spin doctors to aid dictators in fixing their so-called elections and squashing protests through trickery.

In other words, the Chinese approach involves spending money now to obtain influence later, while the Russian approach involves trying to gain influence now in order to make money later. I don’t need to tell you there is no better way to make “Russia” a swear word in Africa and elsewhere, and all Russian nationals into automatic personae non gratae.

Our current rulers will surely take pride in the fact they managed to make as many countries and regions as possible hate Russia. This how they imagine defending national values.

Thanks to Louis Proyect for the link to the article about Jane Goodall’s campaign against Chinese influence in Africa. Translated by the Russian Reader

What Are You Waiting For?

800px-Flag_of_Georgia.svg

On Sunday, RBC reported that the well-known Georgian jazz singer Nino Katamadze had announced she would no longer perform in Russia because she regarded the country as an invader. Her boycott is, of course, a response to the latest attempt by the Kremlin to bring what it regards as a colonial vassal to heel while using the incident to spark a moral panic on the home front.

Actually, no one should perform again in Russia, including Russians, until Putin and his fascist clique clear out of Dodge for good. It’s just funny that tiny, virtually unarmed countries like Georgia and Estonia have the moxie to stand up against the Kremlin, while much richer, stronger countries like the US, the UK, and Germany try to avoid the topic.

This is not to mention Russians themselves, who, especially in the capitals, have more means at their disposal to oppose tyranny than their poor Georgian ex-countrymen, who still hold them in the highest regard despite getting the Russian neo-imperialist treatment now and in the recent past with hardly a peep from “liberal” Russians.

Twenty years of nonstop Putinism has done such a number on Russian brains that you wouldn’t believe it unless you had witnessed it up close and personal for nearly the whole time, as I did.

It’s worse than you can imagine and it’s much, much, much worse than most Russians can imagine since, apparently, all they can imagine is inflicting Putinism on themselves and the rest of the world till kingdom come.

Correct me if I’m wrong. Show me the two million people who were just on the streets of downtown Moscow. Don’t believe the hype generated by “flash mobs” that are mostly ghosts in the social media machine.

The regime will go when millions of Russians hit the streets in all the major cities and everywhere else, too. That means two million people in Moscow, one million in Petersburg, hundreds of thousands in all the other big cities. This is what “the opposition” should be organizing toward. Neither the country nor the world has any more time for the Theory of Small Deeds 7.0 or whatever version Russia’s beautiful souls have recently launched.

I see lots of my Russian friends going to great pains and putting themselves through excruciating intellectual contortions to separate themselves and their country discursively from the current regime and government. That’s a cop-out. They either have revolt for real or things will get much, much worse very quickly.

As if they weren’t beyond awful right now. There are TWO show trials underway in Petersburg right now. Isn’t that enough to boycott Petersburg and Russia until further notice?

What are we waiting for? What are you waiting for? {TRR}

Image of Georgian flag courtesy of Wikipedia

Russian Import Substitution Blues

cherry coke 2018“Try Ripe Cherry Coca-Cola.” Billboard, Petersburg, July 28, 2018. Photo by the Russian Reader

The Consequences of Countersanctions: Food Import Embargo Makes Russian Producers More Inefficient
Vladimir Ruvinsky
Vedomosti
June 25, 2019

Vladimir Putin has extended Russia’s food embargo until the end of 2020, but the policy’s positive effect has dried up. Instead, it has been making Russian producers less efficient and driving up prices. The Kremlin imagined an embargo would be a good response to western sanctions over the annexation of Crimea, but Russian consumers have had to foot the bill.

Putin’s ban has been in effect since August 2014. It prohibits the import of meat, fish, and dairy products from the United States, the European Union, Canada, Australia, and Norway. During his televised “direct line” to the nation the other day, Putin explained that, over the past five years, the sanctions those countries imposed on Russia had led to the loss of $50 billion for the Russian economy since 2014. The west, however, had lost more. According to Putin, the EU had lost $140 billion, while the US had lost $17 billion. Apparently, Russians should take heart knowing they have not been the main losers in the sanctions war.

First, however, the economies of the EU and the US are many times bigger than Russia’s, so, in fact, Russia has lost the most. Second, the losses do not boil down to simple arithmetics. Third, the subject of countersanctions has not really been discussed. Natalya Volchkova, director of applied research at the Center for Economic and Financial Research (CEFIR), has calculated the protectionist policy costs every Russian 2,000 rubles a year: this is the sum total of what we overpay for products in the fourteen categories affected by the countersanctions. She argues that, out of this sum, 1,250 rubles go to Russian producers and 500 rubles go to companies importing food from countries not covered by countersanctions, while the toll on the Russian economy’s efficiency amounts to 250 rubles per person per year.

Full import substitution has not been achieved: suppliers from the sanctioned countries have been replaced by suppliers who work with other countries, who often charge more for their goods. Restricting competition was meant to give Russian agriculture a leg up, and some domestic producers have, in fact, increased output. According to Rosstat, retail food imports decreased from 34% in 2014 to 24% in 2018. Since 2016, however, the dropoff in imports has trailed off. Volchkova complains that most Russian import-substituted goods have increased in price. They are produced by businesses that had been loss-making. This is the source of the overall inefficiency.

Natalya Orlova, the chief economist at Alfa Bank, divides countersanctions into two phases. When they are implemented they have a positive effect, but over time the risks of negative consequences increase.  The only good option on the horizon is the lifting of the sanctions. When it might happen is not clear, says Orlova: it is currently not on the agenda. When it does happen, however, it will be bad news for Russian producers. Countersanctions have helped major players increase their shares of the domestic market. They have become more visible in such cushy conditions but less competitive as well. The longer the conditions are maintained, the less ready the Russian agro-industry will be to face the harsh competition. When the walls come tumbling down, we will see again that European producers are more sophisticated technologically.

Translated by the Russian Reader