How Russia Is Surviving Western Sanctions
Economists: West should seriously consider economic punishment of the Kremlin
The range of measures is wide: from freezing assets and seizing illegal investments to a ban on investments in Russian securities
After a hearing in the British Parliament on March 28 about the “dark” money from Russia invested in the economy of the United Kingdom, many critics of the Kremlin were inspired: for the first time in Britain, where the rich and super-rich Russians have invested billions of dollars over the past 15-20 years , found a way to effectively respond to both the chemical attack in Salisbury and the general aggressive attitude of Moscow towards Europe and the West in general.
This example, according to economic experts, could be followed by other European countries, as well as the United States.In any case, this is what those who believe that Moscow should be punished for attempts to undermine Western democracies and for the annexation of the territory of neighboring countries.
Anders Aslund: We need to answer Putin and his friends by freezing their assets
In the Washington Post article “Time to Deal with Vladimir Putin’s Money in the West,” Anders Aslund – an economic adviser to the Russian government in the early 1990s and now writing a book on clan capitalism in Putin’s Russia – says that the money that has been siphoned off by the current the president of Russia and his entourage, huge.
“Boris Nemtsov, who was killed near the Kremlin, and the still active opposition politician Vladimir Milov exposed this kleptocracy in their brochure“ Putin and Gazprom ”in 2008 … General estimates point to the personal enrichment of Putin and his closest friends in the amount of 20 to 25 billion dollars a year, since 2006. Nemtsov and Milov reflected in their document the theft of $ 60 billion from Gazprom from 2004 to 2007, and this is probably just over half of their enrichment, which has only increased since then. By now, this group could accumulate from 240 to 300 billion US dollars “- reminds Aslund in his article..
The expert speaks of the need for the Magnitsky Law and the US Treasury Department’s sanctions in relation to those involved in the annexation of Crimea, but complains about the ineffectiveness of these rules:
“So far, unfortunately, these new laws have not been particularly effective as the US government has only found a few million dollars of their assets.”.
The volumes of “dark” money pouring into the US economy, according to Anders Aslund, are gigantic:
“In 2015, the US Treasury estimated that $ 300 billion was laundered in the United States per year. In a good year, the US government discovers 0.1 percent of that money, according to Raymond Baker, founder of Global Financial Integrity. Cause? Anonymous companies are allowed to invest in this country “.
“This needs to be stopped for the sake of national security. The best British and American asymmetric response to the Kremlin’s hybrid war is to uncover and freeze the holdings of Putin and his sanctioned friends in our countries, ”suggests Anders Åslund.
Boris Zilberman: The US authorities began to look closely at the control over the origin of money a year and a half ago
Boris Zilberman, an expert on Russia and Eurasia at the Center for the Defense of Democracies, in an interview with the Russian service of the Voice of America, notes that the US authorities have already thought about what Anders Aslund is talking about:
“The Congress is now carefully considering this problem, looking at what companies are buying real estate, this is being paid attention to by the Committee on Banking and Financial Services..
First of all, of course, they look at who is the real owner. There is a very definite movement in Congress towards clarifying such final beneficiaries who acquire expensive houses in New York, Miami or California, in order to remove the ambiguity in the question of where the investor came from “.
Zilberman says that it was only recently that interest in the issue has really been shown:
“This problem began to be taken seriously by Congress about a year and a half ago, when we took a closer look at what was happening both at home and from allies, in particular in London, where Russian oligarchs are buying up entire neighborhoods and using shell companies to buy property with money. taken offshore from Russia “.
The expert compares the penetration of Russian money into Britain and the United States: “Of course, Russian money has penetrated into the British financial system much deeper than into the US system – firstly, because the British system is smaller and more accessible for penetration. This was the case initially, when back in the 1990s, Russian wealthy people began buying properties in Britain, and this continued until the mid-2000s. But in the past ten years, we have seen a different trend, when Russian oligarchs began to come to the United States, their wives began to come here to give birth or brought children to receive American citizenship, and began to buy real estate in Florida “.
Currently, according to Boris Zilberman, Russian money still does not meet obstacles in the United States, especially if it is not clear at first glance that it is Russian:
“The rules are very easy, banks are not obliged to ask where the money actually came from, they do not need to know the buyer, and in this situation it is quite easy to hide where the money actually came from. While everything, I would say, is very careless “.
“Now the real owner is established only if a special investigation is carried out, or, for example, there is a divorce procedure: the data is disclosed, and it becomes clear who owned this or that asset. Actually, that’s why we don’t really have a clear picture of who bought what: it could be citizens of Russia or China who received money for this purchase as a result of illegal actions. We establish this only from time to time, we do not have a system or rules that would clearly regulate the solution of this problem, ”says Boris Zilberman.
At the same time, a specialist on Russia says that Congress is considering two bills (True Incorporation Transparency for Law Enforcement Act and Counter Terrorism and Illicit Finance Act), which are designed to solve this problem:
“There are legislative proposals that have been submitted to Congress by representatives of both parties, but they have not yet been adopted. Their adoption would be the first step in creating a system of effective control over who actually owns what. It is clear that the financial sector is not very interested in this kind of control: if there is money on the market, they want it, and this is a common problem. “.
Vladislav Inozemtsev: we need to stop trading Russian stocks
The well-known Russian economist Vladislav Inozemtsev, in a commentary for the Voice of America, said that Washington has the most powerful, but also the most dangerous, financial leverage over Moscow:
“The United States has the option of an extreme measure – to freeze Russian investments in the bonds of the US Federal Reserve. Russian government agencies – the Ministry of Finance and the Central Bank – sit in US government securities worth tens of billions of dollars. But this, in fact, would be a declaration of war, because this is a direct seizure of someone else’s property “.
“This has already happened, the so-called“ Iranian option ”, but there were still UN sanctions against Iran, and then any large developing country, be it Saudi Arabia or China, will think ten times over whether to invest in the American economy. And this is not a joke: China has more than a trillion dollars of these investments, so I think no one will go for this, ”warns Inozemtsev.
According to the economist, those wishing to influence the Kremlin through the economy should go the other way: “I would say that a ban on listing Russian companies on the London Stock Exchange would be a more serious blow. Their securities are quoted mainly in London, there are 80 percent of Russian stock exchange securities, and if they are kicked out of there, then I think it will be a very strong blow. All major investors are guided by the prices that prevail in the London market.
The very fact of such a decision will knock the capitalization of Russian companies down by ten percent, and this will be a serious blow to the oligarchic structures that are close to Putin. “.
“I assume that both the American and British governments have the ability to prohibit their country’s financial institutions from banning investments in Russian financial assets altogether. Or at least – companies with state participation: Sberbank, Gazprom, Rosneft, Surgutneftegaz. If all Western banks and companies receive a clear instruction not to invest in Russian debt, but to sell what they have by January 1, 2019, this will bring down the Russian borrowing market, ”the economist is convinced..
Vladislav Inozemtsev explains why access to loans to the world market is important for the Russian authorities: “Given the current oil prices, Russia does not need to attract additional serious funds, but it always wants to have access to the market. If such a measure is introduced, the risks to Russia will simply go off scale, and even among private banks there will be very few people willing to invest. China, which Russia strongly hoped for in 2014 after the introduction of the first sanctions, by and large, did not give Russia any money – only for future oil and gas supplies to several companies, but this is not much “.
The economist believes that a blow to Russian securities in the markets will be more effective than freezing the assets of individuals: “The Magnitsky Law is certainly the correct act, because those who commit lawlessness must be punished, but it is still weaning, freezing the property of individuals, it is always for whom something gives off voluntarism. It seems to me that it is necessary to consider the Russian state as a single criminal group, and everything that has a state trace – the same Eurobonds, shares and loans of state-owned companies, or companies with state participation – should be made the target of some measures of influence “.
Reporter for the Russian Service «Voices of America» in Moscow. Collaborates with «Voice of America» since 2012. For a long time he worked as a correspondent and presenter of programs in the Russian service of the BBC and «Radio Liberty». Specialization – international relations, politics and legislation, human rights.
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