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

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The Policemen’s Ball

DSCN6837At €2.50, the official licensed sticker album of the 2018 World Cup is a steal. Russian officials also plan to steal the civil rights of their own citizens during the month-long tournament. Photo by the Russian Reader

Restrictions on Movement and Freedom of Assembly during the 2018 FIFA World Cup
Denis Shedov and Natalya Kovylyayeva
OVD Info
May 25, 2018

Russia welcomes the 2018 FIFA World Cup with Presidential Decree No. 202, which places restrictions on the movements of people and the staging of public rallies in cities hosting the matches. According to the decree, “enhanced safety measures” will be enforced from May 25 until July 25 (although the first match, between Russia and Saudi Arabia, will not be played until June 14). Denis Shedov and Natalya Kovylyayeva studied the decree specially for OVD Info.*

The restrictions will be introduced on May 25, 2018. They will be enforced in the cities and regions hosting 2018 World Cup matches: Moscow, Petersburg, Volgograd Region, Sverdlovsk Region, Nizhny Novgorod Region, Samara Region, Rostov Region, Kaliningrad Region, Krasnodar Territory, the Republic of Tatarstan, and the Republic of Mordovia.  Additionally, the decree also applies to certain neighboring regions where, in particular,  competing teams will be accommodated: Moscow Region, Leningrad Region, Kaluga Region, Voronezh Region, Stavropol Territory, and the Republic of Chechnya.

It is worth noting Decree No. 202 applies absolutely to everyone who is located in the regions listed during the period the decree is in force. In this light, OVD Info felt it was vital to discuss these changes.

Monitored and Restricted Areas
The decree introduces “monitored and restricted areas,” which will either be entirely off limits to people or will have restricted access. These areas include training grounds (including at other stadiums), team headquarters, hotels where teams and referees are staying, cargo inspection points, the broadcast center at Crocus Expo in Moscow, fan festival venues, press centers, and parking lots for special transport. You will be able to enter these “monitored areas” only after security guards have conducted a thorough inspection of all your belongings.

In addition, there will be special pedestrian security zones, so-called last miles, consisting of areas of one to two kilometers in radius around the stadiums where the matches will be held. Aside from World Cup transport, only residents of nearby buildings, equipped with special passes, will have access to these zones. To obtain the passes you need your internal passport and the papers for your car and your flat. Information about these zones has been posted on the official municipal websites of the cities hosting matches and published in local periodicals.

  • During the 2014 Winter Olympics in Sochi, the city was off limits to cars from other cities, i.e., cars not registered in Sochi, with the exception of vehicles owned by the secret services and vehicles that had received accreditation as municipal maintenance and 2014 Winter Olympics support vehicles. Vehicles registered in Sochi were restricted from traveling in “monitored areas.” 

Mandatory Registration for Everyone
Upon arrival in a city, you must register with the local immigration authorities within three days. This rules applies to everyone except those who are registered to live permanently in the particular city. Additionally, special rules for registering domiciles and temporary stays will be introduced in the cities where World Cup matches are scheduled.

Russian nationals and foreign nationals must register with the police within 72 hours of arriving. Usually, during “normal” times, Russian nationals have the right to spend up to 90 days in another Russian region without registering, while foreign nationals have seven days to register. Decree No. 202 specifies that the party hosting the visitor, i.e., the hotel, spa, holiday home, etc., must notify the proper authorities of the arrival of foreign nationals within 24 hours, as stipulated by Russian federal law.

Immigration authorities in the regions mentioned in the decree will be open for business daily during the World Cup, including weekends and holidays. There are several ways of registering your stay in another city:

  • Submitting an application to the management of the hotel, hostel, camping ground or youth hostel where you are staying, or the management company, proprietor or landlord, if you are staying in a private flat.
  • Reporting to the local immigration authorities yourself.

Foreign nationals must personally present their papers to the regional office of the Interior Ministry (i.e., the police) or a multi-service center, or their official hosts must do it for them. It is forbidden to register via the post office or a government services website.

Arriving foreign nationals are obliged to provide notification of their arrival, a copy of their identity card (e.g., passport or either ID), a copy of their Russian visa, and a copy of their migration card. This rule applies to all foreign nationals, regardless of their nationality and status in Russia. If the host party is a legal entity, this organization must supply the authorities with a complete set of documents.

Private individuals who act as hosts need only present their Russian internal passports, proving they are permanent residents, a copy of their passports, and a copy of their ownership deed to the dwellings where they will house foreign nationals.

If these rules are violated, Russian nationals will be obliged to pay an administrative fine. In Moscow and Petersburg, the fine will range from three to five thousand rubles, while in the regions it will range from two to three thousand rubles. Foreign nationals who violate these rules can be expelled from Russia.

Restrictions on Freedom of Assembly
According to the decree, from May 25 to July 25, 2018, assemblies, rallies, demonstrations, marches, and pickets that have nothing to do with the 2018 FIFA World Cup can be held only in places, along routes, and at times approved by the authorities. The authorities can also determine the number of attendees and the duration of the event.

Decree No. 202 was first enforced during last year’s Confederations Cup, also hosted by Russia. A large number of activists involved in group protests and solo pickets were apprehended at that time. Some of the people detained during solo pickets were subjected to “explanatory discussions” by the police, while others were written up for violating the rules for holding public events and fined as much as 20,000 rubles.

  • In May 2017, five activists from the local headquarters of opposition leader Alexei Navalny were detained for setting up a campaign booth on the main square in Kazan. Law enforcement said the action had not been authorized by the authorities. All the detainees were sentenced to ten to twelve days in jail, as well as 35 hours of community service.
  • During the Navalny-inspired anti-corruption rallies that took place in a number of cities on June 12, 2017, including Petersburg, Moscow, and Sochi, police detained protesters on the basis of Paragraph 11 of the decree, as paraphrased above. Although in Krasnodar, where the rally against corruption had been authorized, no one was apprehended, despite the special security regime.
  • During the protest rally “Farewell to the Communications Ministry,” in Moscow in June 2017, a teenager was detained when he tried to leave flowers outside the ministry due to restrictions on freedom of speech in Russia, including the possible blockage of the Telegram messenger service. The arresting officer cited the presidential decree restricting rallies during the Confederations Cup and the 2018 World Cup when he detained the boy. The teenager was taken into a police station for questioning before being released.
  • In mid-June 2017, fifteen people holding solo pickets against Moscow’s massive “renovation” program were detained outside the entrance to the State Duma.
  • Several activists who held solo pickets in support of mathematician Dmitry Bogatov and demanded an end to the prosecution of nationalist Dmitry Demushkin were detained on June 24, 2017, in Moscow.
  • Solidarity Party activist Mikhail Lashkevich was detained on July 4, 2017, while holding a solo picket demanding the people behind opposition leader Boris Nemtsov’s assassination be found. The police admitted he had a right to carry out a solo picket and released him from Basmanny Police Precinct in Moscow without writing him up. Subsequently, Roman Petrishchev, another Solidarity Party activist, was detained for a solo picket.
  • In early July 2017, five activists of Protest Moscow were detained in different parts of the city while they held solo pickets against censorship. All of them were charged with violating the rules for holding public events, punishable under Article 20.2 Part 5 of the Administrative Offenses Code.
  • On July 5, 2017, the well-known democracy activist Ildar Dadin was detained during a solo picket outside FSB headquarters in Moscow, since his protest had not been authorized by law enforcement. On July 7, 2017, the Meshchansky District Court found him guilty of violating the “rules of solo pickets” and fined him 20,000 rubles.

In May 2017, Alexander Pomazuyev, a lawyer with Navalny’s Anti-Corruption Foundation (FBK) asked that Paragraph 11 of the decree be declared null and void in a suit he filed with the Russian Supreme Court. Pomazuyev claimed he had been denied the right to hold a solo picket. He also argued the presidential decree infringed on civil liberties guaranteed by the Russian Constitution, including the right to free speech and freedom of assembly. The court threw out Pomazuyev’s suit, thus rubber-stamping the restrictions on rallies and pickets during the Confederations Cup and the 2018 FIFA World Cup.

In February 2018, organizers of the Boris Nemtsov Memorial March in Nizhny Novgorod wrote an open letter to FIFA president Gianni Infantino asking him to protect freedom of assembly in Russia in the run-up to the World Cup. The football functionary did not react to the letter, apparently.

“Although the decree restricts certain rights only from May 25 to July 25, 2018, even the smallest pickets have been turned down by the authorities on the grounds of the terrorist threat,” the march organizers wrote on their Facebook page.

Commentary by Lawyer and Human Rights Activist Alexander Peredruk
Yes, Presidential Decree No. 202, dated May 9, 2017, definitely violates people’s constitutionally guaranteed rights to freedom of assembly in Russia.

If you want to hold a public rally from May 25 to July 25, 2018, at a venue of your choosing, there is no guarantee you will pull it off. The authorities could turn you down on the grounds the venue you have chosen was not vetted by the Interior Ministry and the FSB. 

As last year showed, when several applications to hold rallies were filed simultaneously, the authorities would reject all the applications. However, when the applications were filed, the authorities had not yet determined what venues could be used. They drew up a list of permissible venues only after looking over the first applications. It was thus a “complete coincidence” that the venues indicated in the applications that were submitted to the local authorities were not on the list of permissible venues. 

In other words, the rejections were perfunctory and practically groundless. The authorities were not interested in conducting a proportionality test, in striking a balance between public and private interests.

In addition, questions are raised about the legitimacy of the division between public sporting events, which are permitted during this period, and public political events, which are virtually banned. Russian citizens are thus subject to discrimination.

During the 2014 Winter Olympics in Sochi, a local man, David Hakim, was detained while holding a solo picket in defense of the convicted environmentalist Yevgeny Vitishko. (Hakim was jailed for four days for his “crime.”) Agora used his case to challenge the president’s Olympic decree in the Russian Constitutional Court. However, the court refused to examine whether the decree complied with the Constitution, since it had expired by the time the complaint was examined. 

* If you are worried about how Presidential Decree No. 202 will affect foreign fans traveling to Russia for the World Cup, you shouldn’t be. They are required to purchase special “fan IDs” that will exempt them from most if not all of the decree’s strictures. // TRR

Denis Shedov is a lawyer with the Memorial Human Rights Center in Moscow. Natalya Kovylyayeva is a journalist. Translated by the Russian Reader