With the Russian ruble’s value at historic lows and the country’s central bank predicting an imminent recession, President Vladimir Putin struck a combative tone in his annual address to the Federal Assembly in Moscow on Thursday. Criticizing international sanctions imposed after Russia’s invasion of Ukraine, he said, “talking to Russia from a position of force is an exercise in futility.”
If Putin meant to instill confidence in the health of the Russian economy among his listeners, he probably lessened the effect by practically begging Russians with assets overseas — even assets obtained through potentially illegal means — to bring their money home.
“It means,” he continued, “that if a person legalizes his holdings and property in Russia, he will receive firm legal guarantees that he will not be summoned to various agencies, including law enforcement agencies, that they will not ‘put the squeeze’ on him, that he will not be asked about the sources of his capital and methods of its acquisition, that he will not be prosecuted or face administrative liability, and that he will not be questioned by the tax service or law enforcement agencies.
“We all understand that the sources of assets are different, that they were earned or acquired in various ways. However, I am confident that we should finally close, turn the ‘offshore page’ in the history of our economy and our country. It is very important and necessary to do this.”
In Russia, two of the major classes of people who have large amounts of capital overseas are organized criminal groups and the so-called oligarchs, the people who profited in extraordinary, and sometimes illegal, ways after the fall of Communism left control of former state enterprises up for grabs. In stressing that there would be no prosecution, Putin appeared to explicitly leave the door open to money obtained illegally.
“He’s talking to people who have engaged in corporate raiding,” said Professor Louise Shelley, founder and director of the Terrorism, Transnational Crime and Corruption Center at George Mason University in Fairfax, VA. “There are thousands of cases where people who have used criminal processes and false documents to acquire assets. He’s talking to organized crime figures who have taken over businesses.”
She added, “There are no large fortunes that are entirely clean money in Russia.”
It should be no surprise that Russia is desperate to bring more capital into the country.
In the months since Russian troops invaded Ukraine’s Crimean peninsula last summer, capital flight from country’s economy has intensified. The Finance Ministry now predicts total outflows of $125 billion in 2014, and has increased its estimate for 2015 to $90 billion from $50 billion. In addition, foreign direct investment in Russia has largely dried up.
“It's an astonishingly naive — or disingenuous — proposal,” wrote New York University Professor Mark Galeotti in an email. “The primary reason for the massive and increasing levels of illegal capital flight, despite Russia's low tax rate, is precisely because people do not trust the system. They fear predatory and corrupt officials within the tax authorities, the judiciary and the other control mechanisms, and do not believe the courts can or do protect property rights adequately.”
Galeotti continued, “A simple promise from the president will not, in my opinion, make the slightest difference. However, given that this is as close to a concrete policy proposal in what is the most arid and insubstantial State of the Federation address that I can remember, it very much demonstrates both the lack of ideas in the Kremlin and their concern about the outflow of money, reflecting a lack of faith in the government and Russia's future.”
In his speech, Putin also addressed international outrage over his country’s annexation of Crimea earlier this year. And, despite his claim that “we will never enter the path of self-isolation, xenophobia, suspicion and the search for enemies,” he posited a U.S.-led conspiracy to repress the Russian state.
“Crimea, the ancient Korsun or Chersonesus, and Sevastopol have invaluable civilizational and even sacral importance for Russia, like the Temple Mount in Jerusalem for the followers of Islam and Judaism,” Putin said. “And this is how we will always consider it.”
Putin discussed the efforts of the U.S. to assist the struggling Ukrainian government, saying, “I mentioned our American friends for a reason, since they are always influencing Russia’s relations with its neighbors, either openly or behind the scenes. Sometimes it is even unclear whom to talk to: to the governments of certain countries or directly with their American patrons and sponsors.”
Putin said the sanctions imposed by the West after the invasion of Crimea — and stiffened in response to Russia’s ongoing support for violent separatist groups in the eastern part of Ukraine — are actually part of a larger plan to diminish Russia, and would have been implemented regardless of events in Ukraine.
“If none of that had ever happened, they would have come up with some other excuse to try to contain Russia’s growing capabilities, affect our country in some way, or even take advantage of it,” he said. “The policy of containment was not invented yesterday. It has been carried out against our country for many years, always, for decades, if not centuries. In short, whenever someone thinks that Russia has become too strong or independent, these tools are quickly put into use.”
“It didn’t work. We didn’t allow that to happen,” he said. “Just as it did not work for Hitler with his people-hating ideas, who set out to destroy Russia and push us back beyond the Urals. Everyone should remember how it ended.
“We will do this even if some governments attempt to create a new iron curtain around Russia.”
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