One Good Turn Deserves Another

Media Identify Prigozhin Firms as Developers of Judicial Quarter in Petersburg
According to Kommersant, Firms Affiliated with Businessman Yevgeny Prigozhin and Concord Management and Consulting Are Project Subcontractors
Grigory Dubov
RBC
December 26, 2018

755458040463897Judicial district construction site in Petersburg. Photo courtesy of Stanislav Zaburdayev/TASS and RBC

Firms affiliated with businessman and restaurateur Yevgeny Prigozhin will build the judicial quarter in Petersburg, a project costing 35.7 billion rubles [approx. 455 million euros] that will include residential buildings for the Russian Supreme Court and Boris Eifman’s Dance Palace, report sources quoted by Kommersant newspaper familiar with the project, which has been designed by the Russian Presidential Property Management Department and construction industry insiders.

The sources say the subcontractor was selected in the summer of 2018 without tendering. The newspaper’s sources claim firms affiliated with Prigozhin have launched the process of awarding commercial tenders and have been requesting bids from major construction companies for the construction of individual buildings without advance payment. One of the Prigozhin-affiliated companies engaged in sending out bid and tender requests is Lizena, a firm founded in 2014.

In 2016, the Russian Presidential Property Management Department pledged it would build two office buildings for the Supreme Court and Judicial Department, the Dance Palance, and four residential buildings containing a total of 600 apartments within four years in Petersburg. Construction was supposed to have begun in 2017, and the opening of the facility was scheduled for 2020. In May 2017, the Presidential Property Management Department declared the project top secret and obliged future contractors to maintain secrecy.

judicial quarterThe future judicial quarter in Petersburg is currently a giant sandbox. Photo courtesy of Alexander Koryakov/Kommersant

Construction was not begun, however. In September 2018, the Presidential Property Management Department acknowledged the deadlines it had set would be missed. As Kommersant wrote, the department failed to spend the 22.3 billion rubles allocated on the project. The funds were reallocated for 2021, when completion of construction has been planned. As transpired in December, an advance payment in the amount of more then 9.2 billion rubles was postponed from 2018 to 2021; no advances are envisaged in 2019 and 2020. As of December 1, according to the Federal Targeted Investment Program, builders in Petersburg had started to dig foundation pits for the residential complex. There was no information about the Supreme Court’s residence and the Dance Palace.

In March, the US Department of Justice imposed sanctions against Prigozhin and his companies Concord Management and Consulting, and Concord Catering. In February, Prigozhin and twelve other Russian nationals, as well as a number of legal entities, were indicted for interfering in the 2016 US elections. Included in the indictment was Prigozhin’s Internet Research Agency, which was abolished [sic] in 2016. RBC’s sources identified the IRA as the “troll factory” that, according to the US Department of Justice, had tried to influence US voters since 2014. President Putin called the charges made against Prigozhin by US officials “laughable.”

prigozhinYevgeny Prigozhin. Photo courtesy of Mikhail Metzel/TASS and RBC

A number of media outlets have also identified Prigozhin as “Putin’s chef.”

At his press conference on December 20, Putin said, “All my chefs are officers of the Federal Protection Service (FSO). All of them are military men. I have no other chefs.”

Translated by the Russian Reader

Are Russians Eating Well?

DSCN1832A fruits and vegetables stall at the famous Hay Market (Sennoy rynok) in downtown Petersburg, September 29, 2018. Photo by the Russian Reader

Eating Their Fill: Russia’s Food Security in the Wake of Crimea
Have Russians Eaten Better After the Government Moved to Defend Them from Western Food? 
Yevgeny Karasyuk
Republic
December 6, 2018

Soon after the embargo that was imposed four years ago in response to the stance of western countries on Crimea, analysts warned Russia itself would primarily suffer from food anti-sanctions.

“We won’t heighten the Russian Federation’s food security at all. In fact, we will reduce it,” Natalya Volchkova, a professor at the New Economic School, said at the time.

Of course, the criticism of the experts was ignored. No one in government questioned the policy of forced import substitution. Most Russians even imagined it was a rare instance when the government made a good decision. Only a few years ago, 71% of the populace [sic] spoke in favor of limiting imports.*

Time has passed, and the experts to whom no one listened have compiled figures showing where the policy has taken the country. A recent report, authored by a group of researchers from RANEPA, provides an analysis of its consequences.

Import substitution in the food sector was an obsession and, at the same time, a source of pride for ex-agriculture minister Alexander Tkachov. His replacement, Dmitry Patrushev, son of the Russian Security Council’s secretary and a none-too-successful state banker, has changed little in the government’s take on the situation. The new minister is certain Russia has reached a level of self-sufficiency above 90% in terms of basic food staples. Thus, Alexei Gordeyev, deputy prime minister for agriculture and an ex-agriculture minister himself, is convinced Russia has successfully carried out import substitution.

Food imports actually did slump sharply—by 46%—from 2013 to 2016. Although an unbiased analysis if how Russian producers succeeded in turning the tables and quickly saturating the market with their own products would point to the ruble’s sudden devaluation, rendering foreign imports uncompetitive, as had already happened in recent history, rather than to the success of the anti-sanctions.

Whatever the cause of Russia’s newfound food independence, however, it has not lead to food security. Citing the international standard, the authors of RANEPA’s report define food security as “the physical and economic availability of safe nourishment, sufficient for an active, fulfilling life.” In other words, there really are more domestically grown and produced food items in Russia nowadays, but the bulk of the populace has less and less access to them.

“Caloric Value of the Russian Diet.” The blue line indicates caloric value, while the dotted line indicates the recommended daily caloric intake per family member in kilocalories. The light purple area indicates the number of Russians who suffer from obesity, in thousands of persons, while the shaded dark purple area indicates the number of Russia who suffer from anemia, also in thousands of peoples. Source: Rosstat and RANEPA. Courtesy of Republic

Last year, Russia was ranked forty-first in the Global Food Security Index, compiled by the Economist Intelligence Unit, meaning that it ranked lower than it had in 2013, when it ranked fortieth. This was due, among other things, to insufficient funding of research and a reduction in the variety of food products.

According to official statistics, food accounts for approximately 35% of expenses in Russian household budgets, which is a high proportion when compared with the OECD countries, among which even the highest percentages, achieved by Poland and Mexico, fall short of 25%. Independent evaluation of spending on food, however, claim that the proportion of Russian family budgets spent on food is actually over fifty percent. Given the almost continuous drop in the real incomes of Russians, the selection of products has declined in quality and abundance. On average, Russian households continue to skimp on everything they can do without, as confirmed by the compilers of the Coffee and Milk Index, as published by Romir, a Russian marketing research company. (The index tracks sales of chocolate, coffee, milk, and bottled water.) RANEPA’s researchers noted the discrepancy between the excess fat in the food and bread Russians eat and the low number of calories in their diets.

By closing the borders to imports and showering the domestic agro-industrial complex with generous state subsidies—1.2 trillion rubles [approx. 15.9 billion euros] in the past six years from the federal budget alone—the regime has persuaded itself it has been filling the nation’s bellies and improving its health. Its expectations were exaggerated, however. Oversaturated with cheap carbohydrates, the standard fare eaten by many Russians remains unbalanced and low on energy. “This is borne out by widespread anemia among the populace as a whole and children in particular,” RANEPA’s researchers write. The number of Russians who suffer from obesity has grown for the same reason.

Obviously, these problems cannot be written off as temporary glitches in demand in the domestic food market, whose revival has been unanimously trumpeted by former agriculture ministers and the current agriculture minister. Rather, they are the natural consequence of systemic problems with the natural resources economy that shoulders the burden of the Kremlin’s geopolitical capers. The average Russian family often simply cannot afford a plentiful variety of healthy, high-quality food.

The authors of RANEPA’s report have emphasized this.

“Neglecting this fact can lead to a distorted picture of the state of food security,” they write.

However, there is still very little chance the alarming conclusions of the experts will be heard this time around, forcing the government to make adjustments to its food policy.

* How did they do that? Was a nationwide referendum held? The author, of course, is referring to a so-called public opinion poll in which, at best, a thousand or two “ordinary” Russians were asked loaded questions, to which they gave the “right” answers. {TRR}

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Russians Spend 30% of Their Budgets on Food
Georgy Tadtayev
RBC
December 17, 2018

Russians spend nearly a third of their household budgets on food. Russia lags behind Montenegro, Latvia, and Turkey in this sense. Russians spend less than seven percent of their budgets on culture and leisure.

According to RIA Rating, as reported by RIA Novosti, Russians spent 31.2% of their household budgets on food in 2017.

The estimate of the percentage of their household budgets people in forty European countries, Russia, Kazakhstan, and Turkey spend on food was based on information from the IMF and national statistics agencies. Russia ended up in the bottom ten of the ranking, ranking 31st. Its nearest neighbors were Montenegro (29.7%) and Latvia (31.7%).

Ukrainians spend the greatest portion of their household budgets on food: 50.9%. People in Kazakhstan (46%, 39th place) and Moldova (43.4%, 38th place) also spend more than 40% of their budgets on food.

Western European countries topped the rating. Luxembourg came in first place. Residents of the duchy spend a mere 8.7% of their money on food. Close behind Luxembourg were Great Britain (10%) and the Netherlands (10.6%).

The agency also ranked countries according to percentages of income spent on alcohol and cigarettes. Residents of three Balkan countries—Romania (8.2%), Bulgaria (5.1%), and Serbia (4.7%)—spend the most on bad habits. Luxembourg (1.3%), Moldova (1.5%), and Cyprus (1.6%) spend the least on alcohol and cigarettes. Russia ranked 24th: Russians spend 3% of their househould budgets on bad habits.

Sweden was the top-ranked country in terms of spending on culture and leisure: Swedes spend 18.7% of their budgets for these purposes. Moldovans spend the least on leisure and culture: 1.3%. Russia ranked 21st: Russians spend 6.9% of their money in this category.

Translated by the Russian Reader

Let’s Give In to Russian Blackmail

nod-constitution day-1“The Russian Constitution: The Basic Law or Legal Sabotage?” Front page of a newspaper handed out on the streets of Petersburg by memberx of NOD (National Liberation Movement) on December 12, 2018, celebrated as Constitution Day in Russia. This article argues that Russia’s current constitution, adopted in 1993, was drafted by CIA agents working under the cover of USAID. Their goal, allegedly, was to colonize Russia by subjugating its sovereignty to international law.

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Don’t Let Russia Leave the Council of Europe
Yuri Dzhibladze and Konstantin Baranov
oDR
December 13, 2018

Those who wish to punish the Kremlin for its aggressive actions in Ukraine and elsewhere are missing the target: it is not the Russian government, but the Russian public who will suffer if the country leaves the Council of Europe.

After the Kerch Strait incident, proponents of pushing Russia out of the Council of Europe seem to have got additional justification for their position in a discussion that rages in the Council’s Parliamentary Assembly (PACE). In fact, the potential costs of this departure appear to be too high and far-reaching—not only for the Russian society, but for the whole of Europe.

More than four years since its delegation has been deprived of voting and participation rights in the PACE, Russia is now a step away from leaving the Council of Europe – either at its own initiative or as a result of expulsion for non-payment of its membership fees. In recent months, the situation has reached a deadlock due to an uncompromising position of both the Russian authorities and their critics in the PACE.

Those who wish to punish the Kremlin for its aggressive actions in Ukraine and elsewhere miss the target: it is not the Russian government, but the Russian public who would suffer the most should the country leave the Council of Europe. Since 1996, when Russia joined the organisation, for millions living in the country (including nationals of other states), the European Court of Human Rights (ECtHR) has been an ultimate hope for justice, which they cannot find in Russia. In this period, almost 2,500 judgements have been delivered to Russia. In 2017 alone, the state paid over 14.5 million euros as just satisfaction to victims. The judgments have had a significant positive impact on Russian laws and judicial practice, despite their implementation being far from ideal and counting to roughly one-third of cases. Should Russia depart from the Council of Europe, the scope of human rights problems in the country will grow exponentially, including a threat of speedy reinstatement of the death penalty.

The potential consequences would go far beyond the deterioration of the internal situation. This move would not resolve the issue of the annexed Crimea or put an end to the armed conflict in Donbass. On the contrary, expelling the violating country would demonstrate the weakness of the European system of protection of human rights and the rule of law in dealing with such gross violations.

What is more, Russia’s withdrawal would definitely worsen conditions of citizens of Ukraine and other countries who are held in Russian prisons and face unfair trials, torture and inhuman and degrading treatment. It would also result in a denial of the protection of the European Convention on Human Rights (ECHR) to inhabitants of Russia-controlled Crimea. It would eliminate effective guarantees from deportation for refugees and asylum seekers from Syria, Afghanistan and Central Asia. Finally, the practice of expulsion of a member state might trigger other countries to leave the Council and deter Belarus from returning to a special observer’s status at the PACE.

Politicians should assume full responsibility for making the choice that may define Europe’s future and work towards a solution that would preserve the common European legal framework and space for critical dialogue aimed at promoting human rights, democracy and the rule of law on the entire territory of Europe, including Russia.

We do not demand to “give in to blackmailing.” Lifting all restrictions on the Russian delegation in the PACE would be indeed unprincipled. However, finding a reasonable solution, in our view, would be a courageous decision to take responsibility and to advance the core values of the organisation by allowing the critical dialogue to continue. Amending the PACE rules of procedure – restricting national delegations’ rights only within the Assembly itself and not depriving them of the voting rights in elections of non-PACE mandates—including ECtHR judges, Commissioner for Human Rights and Secretary General—appears such a legally sound and reasonable solution.

Threats by Russian officials to leave the Council of Europe are not just a bluff to raise the bargaining stakes. There are many influential people in the Russian political establishment in favour of isolationist policies who actually want the country to withdraw. If a reasonable solution is not found before next spring, Russia’s authorities will not wait for the official discussion of its potential expulsion at the Committee of Ministers in June 2019 and will announce the withdrawal from the Council before.

It should be clear to everyone: Russia’s departure from the Council of Europe would not stop human rights violations and halt the authoritarian backslide in our country, or prevent the Kremlin’s aggressive behaviour in the international arena. Instead, it would put an end to a difficult struggle of Russian civil society to make Russia an important part of Europe on the basis of shared norms and values of democracy, rule of law and respect for human rights. It will turn a large territory in Europe into a legal “grey zone” for decades to come.

The authors represent a group of Russian human rights defenders who recently issued a Memorandum on the crisis in relations between the Council of Europe and the Russian Federation.

About the authors

Yuri Dzhibladze is a founder and president of Moscow-based Centre for the Development of Democracy and Human Rights and advocacy coordinator at the EU-Russia Civil Society Forum. He has worked on human rights, democracy, and international organisations since the late 1980s.

Konstantin Baranov is member of the Coordinating Council and international advocacy coordinator at the Youth Human Rights Movement, an international NGO enjoying participatory status with the Council of Europe. He is an expert on the protection of civil society space and fundamental freedoms in Russia and the post-Soviet area.

NB. This article was originally published by oDR under a Creative Commons Attribution 4.0 International licence

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When will Russia stop behaving like the enemy of Western Europe?
Dima Vorobiev, I worked for Soviet propaganda
Quora
Answered Feb 18

Russia is not the enemy of the Western Europe. The disruptive policy of President Putin is aimed at (1) weakening the political and military dominance of the US in Europe and/or (2) full or partial acceptance by the West of the following list of Russia’s political objectives:

  • Recognition of Crimea as Russian territory
  • Total freeze on expansion of NATO. No membership for Sweden, Finland, Ukraine or Georgia.
  • No NATO bases in the Baltics, Poland, Czech republic and Slovakia, Romania and Bulgaria. Removal of the American anti-ballistic bases in Central Europe.
  • Finlandization of Georgia, Ukraine and guarantees of such arrangement for Belarus, in case it gets a pro-Western government in the future.
  • Guarantees of unhindered land connection through Lithuania between the Russian heartland and the exclave of Kaliningrad. The unhindered transit through the Suwalki gap would be very useful for Russia as a gauge of the level of determination on the part of NATO in the case of a swift escalation in tensions.
  • Recognition of Russia’s right to permanent military presence in the Mediterranean (through bases in Syria and possibly in Libya or other places)
  • Repeal of all sanctions against Russian oligarchs, their companies and sectoral interests.

If the West won’t agree to such a new global security arrangement, the current confrontation will continue, with variations only in the level of tensions. Because of the technological gap, the Russian military-industrial complex will increasingly depend on China for high-tech components for our weapons systems. Russian economy will also be more and more streamlined to accommodate the needs of Chinese manufacturing.

This stalemate can continue for many years, unless one of the following happens:

  1. Unexpected massive deterioration of economy in Russia.
  2. Low-probability, high-impact catastrophe in the US or Europe that makes the West seek help from Russia
  3. Power shift in Russia with full revision of national policy. (Highly unlikely with President Putin still in power).

House of Cards

mir-sberbankA disembodied hand proudly holding a Sberbank-issued Mir card. Photo courtesy of PressTV

Central Bank Preparing for Cutoff of Some Banks from International Payment Systems
Regulator Asks Small Banks to Have Backup Intermediary Able to Service Their Cards
Anna Yeryomina
Vedomosti
December 6, 2018

The Russian Central Bank has asked small banks to find a backup partner that would be able to service their bank cards. This would be an asset if their current intermediary banks were cut off from international payment systems.

The Central Bank is concerned with the continuity of card transactions in banks that work with payment systems indirectly, that is, via an intermediary bank. The regulating authority has advised these indirect clients of payment systems to contract with another bank, besides their primary intermediary bank, that could supply them with access to card payment systems. Five bankers confirmed to us they had received the memorandum.

The memorandum also says the contract should provide for a test exchange of information when integrating with the new intermediary banks. It also states payment systems should draft an action plan and recommend it to their participating banks.

The major intermediary banks are Payment Center Credit Union, Uralsib, VTB Bank, Rosbank, and Promsvyazbank.

A Central Bank spokesperson stressed the memorandum was only advisory, but it was based on international recommendations for risk management in payment systems. The need for banks to contract with backup intermediary banks is not so obvious. According to several of its recipients, in early autumn the Central Bank had sent banks a letter urging them to draft plans to ensure the continuity of payments, but it had not recommended any specific measures.

Switching intermediary banks is a time-consuming, expensive process that takes between three to six months, notes Maya Glotova, director of Kartstandart, a processing center that partners with Payment Center Credit Union. The most high-profile case occurred in 2013 after Master Bank’s license was revoked. As Glotova recalls, Master Bank had functioned as an intermediary bank in payment systems and provided payment processing services. Small banks had to halt their operations for several weeks, and several of them had to leave the payments business. Glotova estimates it would cost a single bank more than $100,000 to switch intermediary banks in the three payment systems.

Intermediary banks had little to say about the memorandum. A spokesperson at Promsvyazbank promised to follow the Central Bank’s recommendations, while a spokesperson at VTB Bank said their own intermediary program had worked well.

Several bankers believe the Central Bank is hedging not only against the collapse of intermediary banks but also potential sanctions, which are fraught with the possibility that intermediary banks would be cut off from Visa and Mastercard, as occurred in 2014 and 2015. The United States has been drafting a new set of sanctions that could affect major banks. Payments within Russia would not be affected: these transactions are processed by the National Payment Card System (NSPK). Russian bank cards, however, would not function abroad. (A spokesperson for NSPK, which operates the Mir payment system, said they had not received the Central Bank’s memorandum.)

VTB Bank had drafted a plan to counter sanctions, its president, Andrei Kostin, told the TV channel Rossiya 24 in October.

“We have been mapping out with both the government and the Central Bank how to avoid the consequences, especially for individuals and companies. I think we can overcome them. I don’t think the sanctions will be wholesale and directed against the entire financial sector,” Kostin said.

Translated by the Russian Reader

Stability

DSCN1722Russians queued up at a popular currency exchange in central Petersburg on September 19, 2018, as the ruble took yet another plunge, fueled by rumors that the regime was planning to “dedollarize” the Russian economy. Photo by the Russian Reader

Foreign Currency Deposits Withdrawn from Sberbank: Depositors Take Out Over $2 Billion in Two Months 
Vitaly Soldatskikh
Kommersant
October 6, 2018

In September, Russians continued to aggressively withdraw foreign currency from accounts in Sberbank (Savings Bank). Over the past month, the amount of these deposits decreased by $900,000,000, while the amount has decreased by more than $2 billion dollars since the beginning of August. The outflow of funds from the savings accounts of individual depositors took place as rumors of a possible forced conversion of foreign currency deposits grew. However, after reasurring statements by Elvira Nabiullina, chair of the Russian Central Bank, as well as a rise in rates on foreign currency deposits, the outflows may decrease.

On Friday, Sberbank published its monthly statement before other Russian banks, as usual. According to these figures, as we have analyzed them, the populace’s foreign currency-denominated bank deposits in Sberbank decreased by $901 million or 2.7% in September and now total $32.5 billion. Likely as not, Russians simply withdrew this money from the bank without exchanging it for rubles and redepositing it. According to Sberbank’s statement, the populace’s ruble-denominated sight deposits and term deposits descreased last month by 45.78 billion rubles or half a percent to 9.65 trillion rubles. Overall, the outflow of foreign currecy deposits slowed compared with August, when individual clients withdrew $1.18 billion from the bank.

Sberbank’s press service confirmed the outflow of $900 million in deposits by retail clients in September, but noted the inflow of funds from commercial clients amounted to approximately $1.5 billion. (This calculation was made using the bank’s in-house method.)

Sberbank termed August’s outflow of foreign currency deposits the product of a “managed evolution of the bank’s balance sheets.”

Meanwhile, in late August, Sberbank introduced a new seasonal foreign currency deposit plan, valid until the end of September, with annual interest rates that varied from 1.5% to 3%. (The highest rates was for customers willing to deposit a minimum of $150 million for a period of three years.) Currently, Sberbank’s highest interest rate for dollar-denominated deposits is 2.06%, whereas a number of major banks, including VTB Bank, Russian Agricultural Bank (Rosselkhozbank), Alfa Bank, and Rosbank, offer interest rates on dollar-denominated deposits of 2.5% per annum.

September’s outflow of deposits from Sberbank occurred as VTB Bank chair Andrey Kostin made a series of statements about the possible implementation of harsher sanctions, under which Russia’s state-owned banks could be stripped of the ability to make dollar-denominated transactions. Were this to occur, Kostin said, VTB Bank could not rule out having to disburse funds from dollar-denominated accounts in another currency as a way of upholding the bank’s obligations to its clients. These statements by the head of Russia’s second largest bank did not go unnoticed. Central Bank chair Elvira Naibullina was forced to calm bank customers by denying the possibility of a compulsory conversion of deposits. According to Naibullina, such moves would only undermine confidence in Russia’s banking system.

According to our analysis, foreign currency deposits held by commercial clients at Sberbank increased by $1.43 billion in September. This occurred largely due to the growth of long-term deposits by commercial firms. Deposits made for terms of three years or longer grew by $1.56 billion, while deposits for shorter terms shrunk. Also, the balances on the accounts of foreign companies grew by $902 million. The ruble-denominated balances on Sberbank accounts held by commercial clients grew by more than 222 billion rubles in September. This increase was mainly due to the nearly 151 billion rubles in additional monies raised by the Federal Treasury.

According to Fitch Ratings, the most considerable outflows in corporate funds, adjusted for fluctuations in the foreign currency exchange rate, were observed at Sberbank (117 billion rubles or 1.7%), Gazprombank (87 billion rubles or 2.8%), and Rossiya Bank (58 billion rubles or 9.4%). Retail deposits also declined mainly at Sberbank (107 billion rubles or 0.9%) and banks undergoing reorganization by the Central Bank (35 billion rubles or 3.2%), while other banks enjoyed a fairly uniform increase in retail deposits.

According to Ruslan Korshunov, director for bank ratings at Expert RA, the largest Russian credit rating agency, “Rumors of the Russian economy’s dedollarization and the possible conversion of foreign currency deposits into rubles could have pushed a segment of the populace to withdraw their money from state-owned banks, against which sanctions could be strengthened.”

At the same, Korshunov noted the outflow of retail deposits in September could also have been caused by a seasonal factor: the return of the populace from holiday and, consequently, an increase in consumer activity. However, he believed these factors had a one-off effect and such outflows were highly unlikely in October.

Translated by the Russian Reader

The Annals of PreCrime: “An Absolute Nightmare”

precriminals.jpegUnder legislation currently tabled in the Russian parliament, these up-and-coming Russian businesswomen could do hard time in a penal colony for the wholly fanciful crime of “complying” with western sanctions against target businesses and individuals. Image courtesy of Credit Bank of Moscow

Sanctions Victims Refuse the Russian State’s Protection
Big Business Categorically Rejects Adopting Law on Anti-Sanctions
Yelizaveta Bazanova, Anna Kholyavko and Yekaterina Burlakova
Vedomosti
May 16, 2018

“An absolute nightmare”: that was the phrase used by the majority of lawyers and executives of Russian and foreign companies whom we asked to comment on plans to imprison people who “implemented” foreign sanctions. On Monday, a law bill to this effect, tabled by State Duma Speaker Vyacheslav Volodin, Federation Council Speaker Valentina Matviyenko, and leaders of all four parliamentary factions was passed in its first reading. The second reading has been scheduled for Thursday.

Under the law bill, if a company refuses to sign a public contract with an entity on the sanctions list, the company and its executives would be threatened with a maximum fine of ₽600,000 [approx. €8,200] and a maximum prison term of four years.

The board of the Russian Union of Industrialists and Entrepreneurs (RSPP) has decided passage of the law would be completely unacceptable. Companies would find themselves between the frying pan and the fire: violations of sanctions would threaten them with secondary sanctions, while complying with sanctions would make them criminally prosecutable in Russia.

The RSPP’s resolution was supported even by board members who had themselves been sanctioned.

“We believe it would cause further damage to the Russian economy, including business with foreign and Russian companies, and both Comrade Vekselberg [Renova Group Chair Viktor Vekselberg] and I voted for the resolution,” Interfax has quoted VTB Bank president Andrei Kostin as saying.

A spokesperson for Vekselberg did not respond to our questions. We were also unable to contact a spokesperson for Oleg Deripaska, another target of western sanctions, yesterday evening.

If passed, the law would be unlikely to have a considerable impact on how businesses operate, but it could be a means of threatening and pressuring them, the entrepreneurs we surveyed said unanimously. The wording of the law bill is harsh. Nearly anyone could be prosecuted on the flimsiest of pretexts, complained an executive at a transnational food producer.

The key risk is the absence of clear criteria for defining what would constitute a violation of the proposed law, our sources all agreed. Even the Russian Finance Ministry could be prosecuted. In its Eurobonds prospectus, it pledged not to use the funds raised to support entities targeted by western sanctions. In January, Alfa Bank warned Russian defense companies it would not handle their accounts due to sanctions. Spokespeople for the Finance Ministry and Alfa Bank did not respond to our inquiries.

The Kremlin has also been unhappy with the law bill, said a federal official close to the presidential administration.

The law bill, if passed, would also generate risks for those companies who refuse to do business in Crimea due to sanctions, said Alexei Panich, a partner at Herbert Smith Freehills. These include the state banks Sberbank and VTB, as well as mobile telecom operators. Andrei Isayev, deputy head of the State Duma’s United Russia faction, claimed  companies who do not open branches in Crimea would not be affected by the law. What was at stake, he said, were the ordinary deals and transactions companies perform almost automatically. However, refusal to do business with counterparts in Crimea could be considered a criminal offense under the terms of the law, said an attorney at a major international law firm. The law could complicate public offerings, the issuing of loans, and contracts and transactions, he specified.

An employee at a major international firm explained it would be hard to determine whether a company refused a deal with a counterpart due to their bad reputation or the threat of sanctions. An auto dealer agreed the threat of criminal prosecution would be powerful leverage. To encourage its partners to agree to a deal, a business could threaten to report them to law enforcement agencies, argued Panich.

The proposed measures were excessive, agreed a spokesperson for an agricultural commodities trader. Some companies have in-house rules restricting such deals. Our source said the law bill appeared to be means of coercing such companies. Theoretically, it could be used as leverage. A company or person on the Specially Designated Nationals And Blocked Persons List (SDN) could show up and demand another company do business with them, agreed the head of major private bank. It was difficult to imagine how banks would solve such dilemmas, he said.

“There are many ambiguities in how the law would be interpreted, and what specific actions or inactions would be punishable,” he concluded.

Foreign businesses could interpret the law bill as a signal it was time to wrap up their operations in Russia, said the vice-president of a major foreign company that produces popular consumer products. No one has any intention of sacrificing their top executives to the Russian law enforcement and judicial system.

All issuers of bonds include in their covenants the refusal to do business with entities targeted by sanctions. Perhaps expatriates who do not want to take risks would leave the country, argued an employee at a large foreign company.

Passing the bill into law would be a mistake, said political scientist Yevgeny Minchenko. The law would have to be seriously amended over time.

“Knowing how this could affect both Russian companies and foreign business operating in Russia, this is very risky decision in my opinion,” Minchenko told us.

Spokespeople for Sberbank and Credit Bank of Moscow declined to comment.

With additional reporting by Vladimir Shtanov, Darya Borisyak, Alexandra Astapenko, and Svetlana Bocharova

Translated by the Russian Reader

How Don Trump Gave the Russian Economy a Leg Up

Brent-Crude

Buying Dollars No Way to Stop: Russian Finance Ministry Purchasing Foreign Currency at Record Pace in Aftermath of Putin’s Announcements
Alexander Pirozhkov
Delovoi Peterburg
May 10, 2018

As of today, the Russian Finance Ministry will be buying dollars at a record pace over the next four weeks. It will spend a total of ₽323 billion on these deals during the period. Since the start of the year, the Finance Ministry has spent nearly ₽3 billion on replenishing its foreign currency reserves. If we take into last year’s transactions, it has spent a total of ₽1.8 trillion.

High oil prices have made it possible to buy up foreign currency aggressively. This week, the price of Brent crude jumped above $76 a barrel, its highest price in three and a half years. Russian Urals crude, which is traded at a discount of several percentage points to Brent, exceeded $70 a barrel. The price rise has continued for several months, producing a huge surplus in the federal budget (₽344.35 billion in the first quarter of 2018), since budget revenues had been planned based on a Urals price of $40 a barrel. Thanks to favorable trends in extractive resources markets, both President Putin and Prime Minister Medvedev cheerfully announced earlier this week that finding an additional ₽8 trillion to implement the president’s so-called May decree would not be a problem.

In turn, oil prices have been conquering new heights not only due to the efforts of OPEC and the countries allied to it. Quoted prices for black gold flew up an additional five to seven dollars thanks to statements by US President Donald Trump, who has been trying to dissolve the nuclear deal with Iran while blaming OPEC for high oil prices on his Twitter acccount for appearance’s sake. The US’s exit from the nuclear deal means sanctions cancelled under the previous US leader, Barack Obama, would be reintroduced against Iran, thus removing from the market, according to various estimates, 500,000 to 700,000 barrels of Iranian oil a day.

While Trump has been bending over backwards to give the Russian economy a leg up, Putin has spoken of the need to “untie” it from the US dollar in order to boost economic sovereignty. Perhaps these are mere words, not backed by real intentions, especially since they are at odds with the Finance Ministry’s actions. However, Iran itself earlier took certain steps in the same direction as it faced the threat of renewed sanctions. There is a risk the example of our Middle Eastern neighbor will prove contagious.

Translated by the Russian Reader. Image courtesy of Business Eye