The West is blinking in disbelief – Vladimir Putin just invaded Ukraine. German diplomats, French Eurocrats and American pundits are all stunned. Why has Russia chosen to gamble its trillion-dollar ties with the West?
Western leaders are stunned because they haven’t realized Russia’s owners no longer respect Europeans the way they once did after the Cold War. Russia thinks the West is no longer a crusading alliance. Russia thinks the West is now all about the money.
Putin’s henchmen know this personally. Russia’s rulers have been buying up Europe for years. They have mansions and luxury flats from London’s West End to France’s Cote d’Azure. Their children are safe at British boarding and Swiss finishing schools. And their money is squirrelled away in Austrian banks and British tax havens.
Putin’s inner circle no longer fear the European establishment. They once imagined them all in MI6. Now they know better. They have seen firsthand how obsequious Western aristocrats and corporate tycoons suddenly turn when their billions come into play. They now view them as hypocrites—the same European elites who help them hide their fortunes.
Once Russia’s powerful listened when European embassies issued statements denouncing the baroque corruption of Russian state companies. But no more. Because they know full well it is European bankers, businessmen and lawyers who do the dirty work for them placing the proceeds of corruption in hideouts from the Dutch Antilles to the British Virgin Islands.
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Putin and his allies have talked tough while enjoying the comforts of globalisation.
When the Soviet Union invaded Czechoslovakia in 1968, the Moscow stock market did not crash. That is because there was no Moscow stock market. By contrast, the news that Russian troops have taken effective control of Crimea was greeted, on Monday, by a 10 per cent collapse in shares on the Russian market.
This contrast between 1968 and now underlines why talk of a new cold war is misleading. The economic and political context of Crimea in 2014 is entirely different from Czechoslovakia in 1968. Russia no longer has an empire extending all the way to Berlin. The pain of that territorial loss is part of the reason why President Vladimir Putin is fighting so hard to keep Ukraine in Moscow’s much-diminished sphere of influence.
Just as important, the world is no longer divided into two mutually exclusive, and hostile, political and economic systems – a capitalist west and a communist east. After the collapse of the Soviet system, Russia joined the global, capitalist order. The financial, business and social systems of Russia and the west are now deeply intertwined. A new east-west struggle is certainly under way today but it is being fought on entirely different terrain from the cold war – and under different rules.
The Kremlin may assume that the west’s business dealings with Russia work in its favour. President Putin, the former KGB agent, probably still believes the old Soviet maxim that western foreign policy is dictated by capitalists – who will not allow their financial interests in Russia to be endangered. The west’s supine reaction to the Russian military intervention in Georgia in 2008 may have strengthened this impression. Ben Judah, author of a recent book on Russia, argues that the eagerness of western business people and former politicians to do business with Russia has made Mr Putin “very confident that European elites are more concerned about making money than standing up to him”.
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The U.S. should sanction Russian officials involved in the Ukraine military campaign by using a 2012 U.S. human-rights law named for a dead Russian whistleblower, according to one of his former colleagues.
The Magnitsky Act lets the U.S. freeze the accounts of Russian citizens placed on a list of suspected human-rights abusers and fine companies that do business with anyone on the list.
The law was named after Sergei Magnitsky, a tax lawyer for an international investment fund in Russia who earned the ire of Russian officials after he accused police and tax officials of stealing $230 million. His death in prison in 2009 at the age of 37, under suspicious circumstances, stirred an international uproar.
The Obama administration, which was seeking to “reset” relations with Moscow, initially opposed the law but signed it in December 2012 in conjunction with a measure giving Russia permanent normal trade relations after the country joined the World Trade Organization.
The U.S. administration put 18 Russians on the list last year, many with direct links to Mr. Magnitsky’s death, but hasn’t added any new names this year, disappointing Russia’s critics. The Kremlin responded to the law by preventing Americans from adopting Russian children.
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The man behind the Magnitsky Act explains why now is the time to go after the Russian elite’s assets
As much as everyone is very mad at Russia right now for its actions against Ukraine, it still isn’t exactly clear what will happen next. Might the United States and Western Europe send troops into battle against Russia? Even if Russia weren’t a nuclear power, that seems incredibly dangerous.
Instead, the discussion is moving to economic measures, with the Obama administration saying it is “highly likely” they will use sanctions against Russia.
However, at least one person is arguing that there may be another option, one that could zero in on the interests of the Russian elite more accurately without hurting the Russian public in general: a 2012 human rights law known as the Magnitsky Act.
“This is exactly what the Magnitsky Act was created for,” Bill Browder, founder of the investment fund Hermitage Capital Management explained in a phone call from his London base Monday morning. For Browder, his link to the act isn’t just political — it’s also personal. The man for whom “the Magnitsky Act” is named worked for him.
The story of the Magnitsky Act began in 2008, when Sergei Magnitsky, a Moscow-based lawyer working for the Hermitage Fund, testified in a Russian court that he had uncovered a huge scam by top police officials. According to Magnitsky, the officials had embezzled $230 million in taxes from money that Hermitage Fund companies had paid in 2006, with corrupt police officers using stolen corporate seals and documents seized in a 2007 raid on Hermitage’s Moscow offices to set up fake companies under the same names, and then used these fake companies to get a tax rebate.
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The Obama administration is considering placing Iran-style banking sanctions on selected Russian financial institutions if Moscow were to send troops into eastern Ukraine.
The banking sanctions are one of a series of measures that the administration has been discussing with Congress in recent days as it seeks to find ways to isolate Moscow diplomatically and economically, according to congressional aides and officials.
Banking sanctions are a powerful tool which take advantage of the US’s central role in the international financial system and which have helped place considerable pressure on the Iranian economy over the past two years. If a Russian bank were targeted, then any bank in the world that continues to do business with it can be cut off from the US financial system.
The banking sanctions are being examined as secondary series of measures, which are aimed more at deterring Russia from taking military action in eastern Ukraine. In response to the immediate crisis in Crimea, the administration is considering placing senior Russian officials on a visa ban and asset freeze list. The idea of broader trade and investment sanctions, which secretary of state John Kerry alluded to at the weekend, is only being analysed as a much more distant prospect.
The debate in Washington over what sort of economic tools to use against Russia comes amid some signs of friction between the US and Europe over how quickly – and how aggressively – to apply economic pressure.
European diplomats have expressed frustration that they are portrayed as dithering while the US is seen as decisive, when the stakes are far higher on their side.
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Documents found at Viktor Yanukovych’s country residence link his business activities to Russian corruption uncovered by lawyer Sergei Magnitsky.
Newly found documents show that three companies with links to ousted Ukrainian president Viktor Yanukovych are also connected to the money-laundering scandal uncovered by Sergei Magnitsky, the Russian lawyer who died in prison after exposing high-level fraud and embezzlement among Russian officials.
An investigation by Hermitage Capital Management, the investment firm for which Magnitsky was employed, shows the companies named in the documents uncovered at Yanukovych’s presidential palace are registered at the same United Kingdom address, and share the same offshore shell companies and Latvian directors as were found in Magnitsky’s investigation.
An employee of Hermitage, Vadim Kleiner, sifted through the documents uncovered by Ukrainian journalists after Yanukovych’s flight from Kiev and posted his findings to YanukovychLeaks.org, a website created to compile the nearly 200 folders of documents found at the estate. He found that three companies mentioned in the documents as holding some of Yanukovych’s assets or being otherwise tied to the president — Navimax Ventures, Roadfield Capital LLP, and Fineroad Business LLP — had strong links to entities exposed in Magnitsky’s investigation into $230 million in tax revenues which were stolen by Russian officials from Hermitage holding companies. The results of Kleiner’s inquiry were provided to BuzzFeed by Kleiner and William Browder, the head of Hermitage.
In his investigation, Magnitsky followed $40 million to a Latvian bank account for Technomark Business Ltd., a U.K.-registered company with an ownership in Nevis. Technomark shared the same registering address as Navimax, and the names of its Latvian directors also appear in documents relating to the other two companies.
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As quickly as the Sochi Olympic flame was snuffed, so was the brief respite on politically motivated repression and arrests in Vladimir Putin’s Russia. On Monday, mass arrests of Russian pro-democracy activists began in earnest after eight protesters were sentenced for protesting against the Putin regime in May, 2012. And news is emerging that Russia has put troops on alert in the western military district.
Among those arrested in Moscow were former deputy prime minister Boris Nemtsov, anti-corruption activist Alexey Navalny, members of Pussy Riot – including Canadian landed immigrant Nadezhda Tolokonnikova – and others. The group was protesting outside of a courthouse and then shifted to a nearby square where the police moved in.
Radio France journalist Elena Servettaz witnessed police arresting bystanders whose only mistake was to stop and silently watch the small protest. Activists tweeted on Tuesday that Mr. Nemtsov had been sentenced to 10 days in prison and Mr. Navalny for seven.
What is alarming, is that these new cases were argued in front of the same judge who actively participated in the prolonged detention of Russian whistleblower Sergei Magnitsky, who died in custody in 2009 after being beaten in jail and denied medical treatment. He died in prison of pancreatitis in 2009.
In November, 2012, The United States adopted “Magnitksy” legislation that targets Russian officials who engage in and benefit from corruption and the abuse of human rights in Russia. It bans such individuals from traveling to the U.S. and freezes their U.S.-based assets. A European version of the law has been actively debated in the EU and in January, The Parliamentary Assembly for the Council of Europe recommended the adoption of Magnitsky legislation. In Canada, Liberal MP Irwin Cotler introduced a similar private members bill in 2011.
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The most effective method of hurting those who murder their own people is to recover the wealth they have amassed.
The guards who tortured Sergei Magnitsky at Moscow’s Matrosskaya Tishina prison, and refused to allow doctors to treat the pancreatitis that eventually killed him did not understand that they had fashioned a weapon for democracies to wield against dictatorships.
Until that moment, on 16 November 2009, all the talk of globalisation had missed one obvious fact – the wealthy could indeed move their money across national borders in ways that were once unimaginable. However corrupt a communist was in the cold war, his wealth had to stay in the old Soviet Union or in China or eastern Europe. From 1991 on, oligarchs or red princelings could hide their money where they wanted.
But the options for those who robbed or murdered their own people were not limitless. They did not stash their loot in their own countries, as a rule. They feared revolutionaries taking power and taking back the stolen goods. They could direct wealth to Russia, the new capital of global reaction. But trusting the Putin regime and Russia’s corrupt banking system and judiciary has never been wise. Instead, they wanted what oligarchs and the willing servants of dictatorial regimes have always wanted: a town house in Mayfair, an apartment in Manhattan or a villa on the Riviera, where they could be safe; and City, Swiss or Wall Street lawyers and bankers, who could protect their wealth. The democratic world was their bolt hole and pension plan.
On Thursday night, Ukrainian liberals and journalists reported that private jets were taking off from Ukraine as fears grew – and let us hope they are not groundless – that President Yanukovych and his death squads were entering their last days. The charter manifest at Kiev’s Zhulyany airport on 20 February, said one, read like a Who’s Who of Ukraine’s richest men. Which way would they head – east or west? As far as Ukraine’s planespotters could tell, they wanted to head west to countries with the rule of law and protections for private property, rather than east into the hands of the rapacious Putin and his officials.
Just like the families of Chinese communists, who store their wealth in the British Virgin Islands, when the moment of choice comes, they prefer financial security to ideological conformity. For instance, one of Ukraine’s richest men has paid more than £100m for a luxury apartment in London. We should not be surprised if such men decide to delight us with their company if the old regime falls and its unreasonable replacement takes against them.
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