1. New anti-American draft legislation threatens Russian business with criminal charges
Russian lawmakers are trying to help Vladimir Putin and Dmitry Medvedev come up with a worthy response to U.S. sanctions. Their most recent idea could become a true catastrophe. A bill was passed after the first reading making it a criminal offense to adhere to U.S. sanctions within Russia. This threatens not only foreign investors in Russia, who are already considering pulling out of Russia, but also major Russian businesses. The Kremlin and the Duma must now find a way out of this situation.
- The anti-American bill was put forward at the end of April and passed its first reading on May 16. The bill would make it a felony offense punishable with fines and prison terms of up to four years to adhere to U.S. sanctions within Russia. The potential damage to Russian business from this bill is difficult to even imagine — you don’t need to be an expert in international law to understand that all companies must abide by sanctions in order not to face sanctions themselves. The best example of this is Crimea. Due to the threat of new sanctions, not a single Russian state bank, national mobile phone operator or retail chain operates on the annexed peninsula. It is clear that in reality no one is going to bring criminal charges against a state bank — but officially any company could face this threat. It is not surprising that the “professional union” of major Russian businesses, the Russian Union of Industrialists and Entrepreneurs, was unusually sharply critical of the law, calling the law’s passage “absolutely unacceptable”.
- Russian business has nowhere else to go — but Western companies which have built factories in Russia may find that they have to leave the country. Producers of electronics and home appliances already threatened (Russian) to pull out of Russia (for example, both LG and Samsung have factories in Russia). The Association of European Businesses in Russia also expressed its “concerns” over the law. This group, despite its name, includes all the global automotive producers with production facilities in Russia: Renault-Nissan, Volkswagen Group, Ford, Toyota, Mitsubishi and others.
- It was impossible to ignore the loud and clearly justifiable protests from businesses. The second reading of the bill was hastily postponed at the last minute — now it will be rewritten, and before this, Duma deputies will “consult with business leaders”.
- Of course, no consultation could make such a law harmless. But one can hope that the bill might face the same fate as the first Russian bill regarding sanctions against the U.S. That bill gave the government the right to ban imports of a wide variety of American goods and to introduce other restrictive measures (we wrote about this at the end of April). But public opinion expressed alarm at a potential ban on imports of U.S. pharmaceuticals, and presidential administration lawyers came to the conclusion that the law would have a greater negative impact on Russian companies than on their American counterparts. In the end, the law was passed, but only with this type of language: “the government can put an end to cooperation and can forbid trade with any country which has introduced or supports sanctions against Russia”. The problem is, though, that the government already had these powers under the law.
Why the world should care
It is not surprising that the Russian government’s attempts to come up with retaliatory sanctions against the U.S. were as chaotic as the Trump administration’s process for coming up with its own sanctions, which is nicely described by Reuters. Both governments first make decisions, and only afterwards do they think and consult with the private sector. In the end, everything has to get adjusted in process. But there is one real difference — although U.S. sanctions affect U.S. and European companies, they still achieve their main goal. It remains to be seen what if any damage Russian counter-sanctions might inflict on the U.S..
2. The Bell Scoop: Russian anti-virus developer is moving its business to Switzerland in the hope of avoiding sanctions
While Russian business is busy saving itself from the unnecessary interference of its own government, U.S. sanctions are seriously threatening the anti-virus developer, Kaspersky Lab. Last year, a ban on use of Kaspersky software already ruined the company’s U.S. operations. Now the company is certain that it will be the next Russian company to be added to the American SDN list. No lobbying efforts can save the company from this, but Kaspersky is trying to find a lifeline to save itself from sanctions by moving (Russian) some of its operations to Switzerland.
- A source within Kaspersky told The Bell that he estimates that the company has a 99% chance of being included in the next sanctions list. The company hired U.S. lobbyists, who expect an expansion of sanctions against Russia within the next several months. Another source spoke with U.S. government officials and said that the U.S. government is “very determined” to introduce sanctions against the company.
- U.S. government officials refused already last year to work with Kaspersky Lab (the company is fighting this in court). This week, the government of the Netherlands announced a similar decision. Kaspersky did a lot of work for state companies in both countries, and for Kaspersky this is a big loss, sources told The Bell.
- Members of the U.S. Treasury Department’s Kremlin List told The Bell that it is impossible to prepare for sanctions. But Kaspersky is trying to reduce its risk. The company invested $12 million in a new user data centre in Zurich which will open in 2019. This will allow for information regarding malicious files of foreign users to be stored not in Russia, but in Switzerland. The decision was driven by geopolitics, Kaspersky admitted. In the U.S., the company is accused of potentially letting Russian government authorities access user data, and one of the main accusations is that the anti-virus company supposedly helped Russian security services access secret NSA documents.
Why the world should care
There is no serious evidence of Kaspersky’s illegal cooperation with Russian security services, and we are sad to write about one of the few Russian companies which achieved global success — but if your business runs on Kaspersky software, you should be aware that U.S. sanctions will make things difficult for the company.
3. Russia’s new government has been formed — what to expect?
Russia’s new government has finally been formed. There is little point to write about the last nominations — all of the really important posts were already filled last week, and we wrote that then. Next week we’ll tell in more detail about the most interesting Friday’s ministry nominees — Putin’s former bodyguard and his friend’s and former FSB director’s son. However, now we can take a look at the main results of the process of the distribution of power, which took almost a month.
- Russia is not preparing for change. There are hardly any new faces in the new government. The cabinet indicates that Vladimir Putin does not plan to engage in any radical reforms during his fourth term, and the country will continue to run on inertia.
- Alexey Kudrin will not become the grey cardinal. The former minister of finance and the author of the reform program received, instead of an important role in the presidential administration or the government, leadership of the Audit Chamber — a second tier position, responsible for oversight over government spending. His personal relationship with Putin might have implied that Kudrin may be given more responsibility than his official title would indicate. But Kudrin’s reaction to his nomination illustrates that this is not the case: having received the offer, Kudrin was upset and wavered until the end about whether or not to accept the position, one of Kudrin’s acquaintances told (Russian) The Bell. The Head of the Audit Chamber is an influential position, but it is not enough to execute Kudrin’s plans, added another colleague of Kudrin, who was also given a role in the new government.
- The main, and possibly, the only reform that the new government will carry out in Russia is an increase of the pension age. Men in Russia are currently eligible to retire at 60, and women at 55; this is five to ten years earlier than in developed countries. The current age limits put enormous pressure on the Russian budget, which is still responsible for funding pension payments. It is high time for this reform, but it will be unpopular. Dmitry Medvedev is in such a hurry to push this reform through right after the elections that he issued an official order to begin the reform process to his future ministers this week — although his ministers have not yet officially been appointed. The government has been tasked with drafting and passing a pension reform bill within the next two months.
Why the world should care
The new government will at least be predictable for those foreign investors already working in Russia. But one shouldn’t expect any real economic reforms.
4. London court case between oligarchs could become an important source of information about Russian business
The court case has begun in London between Russian billionaires Oleg Deripaska and Vladimir Potanin, who are fighting over a stake in $30 billion Norilsk Nickel. We wrote about the background to the conflict in February. For Russian society, the oligarchs’ testimonies and those of their managers in the London court proceedings are perhaps the only chance to hear how the oligarchs run their businesses and to hear what they think about each other.
Kitchen conversations. “Our office is located in the center of Moscow, but we are never there,” admitted Abramovich’s head of investments, David Davidovich. “We all live in the suburbs and use Abramovich’s home as a meeting place – far more often than the office itself”. Davidovich himself often works by phone: he stays in one country as rarely as he appears in the office.
Potanin’s office on the yacht. Potanin, like Abramovich, prefers to conduct business without stopping in Moscow. Maksim Sokov, a top manager of Derpaska’s companies, couldn’t help but tell the court that Potanin “rarely comes to the office” and prefers to work from his dacha which is located 30-40 km outside of Moscow, and that in the summer he prefers to work from his yacht, “drifting along France’s southern coast”, and to conduct business from there, rather than from Norilsk. One could sympathize with Potanin: Norilsk is located above the polar circle, and the temperature there rarely rises above +10С.
Sensitive Abramovich. “Deripaska called Abramovich a cynic. Is it possible that he doesn’t know the real meaning of this word? We are all human, especially Roman,” said Davidovich. According to him, Abramovich “places great importance” on interpersonal relationships. “We are not cynics, we are pragmatists. We are interested in money, but how that money is made is also of interest to us,” he pathetically explained.
The language of Deripaska’s gestures. Potanin couldn’t hold back from telling the court about his personal experience dealing with Deripaska. “Mr Sokov is basing himself on his impression based on mimics and gestures. Looking through those statements of Mr Sokov, I start thinking that maybe I have chosen the wrong profession, maybe I should have tried a theatre or a movie star, because I usually use my words in order to explain what I think. I understand that Mr Sokov deals for a long time with Mr Deripaska and you, when you talk to Mr Deripaska, he very often doesn’t say much, and that’s why, in order to understand what he means, you need to read his face. But with me, it’s much easier. What I want to say I am saying in words”.
Why the world should care
The legendary London court proceedings in 2011 between Roman Abramovich and the late Boris Berezovsky became one of the main sources of information regarding the relationship between Russian business, organized crime, and the Russian government in the 1990s and early 2000s. At the same time, this source was confirmed by the authority of the British court. It’s unlikely that the present case between Potanin and Deripaska will lead to such revelations, but we will surely learn a lot about the real workings of Russian business.
5. An entrepreneur who lost his $2 billion business in Russia now builds businesses catering to wealthy Londoners
Businessman Yevgeny Chichvarkin built in the early 2000s from scratch Russia’s largest retail chain selling mobile phones with 5000 retail outlets. In 2008, security services tried to take his business away, by filing criminal charges. The entrepreneur was forced to sell the company and move permanently to the UK. In London, he is involved in a totally different kind of business: in 2012, Chichvarkin opened a luxury wine store which boasts the largest assortment of wines in the city. In April of this year, Chichvarkin opened a restaurant with a Michelin chef, who The Guardian named the most wanted in Britain. At the same time, the businessman is trying to participate in Russia’s political life and to raise money for the opposition. The Bell founder Liza Osetinskaya spoke with Chichvarkin for our video project «Русские норм!» (“Russians are OK!”) and we translated the most interesting quotes from the interview.
On Russia in the Putin era. I imagine those oligarchs [in the shopping mall in Kemerovo, where dozens of children died during the fire while locked in the cinema halls]. In school, they locked us in the classroom, until we said who through the watermelon out the window. For two and a half hours. That was Soviet shit. In the Putin era, all the shit has floated to the top. It runs things, it makes money. It commands. It’s an upside-down pyramid, a pure meritophobia. The opposite of a meritocracy.
On how Russia is portrayed in the British media. Any mass hysteria makes me feel like I’m going to vomit. I don’t love pop culture, nor mass movements, I don’t like anything mass. Some stupidly write, others stupidly read. When people with IQ of 140 pack themselves into a large auditorium and stand tightly next to each other, their collective IQ drops to 80. Sky News comes to me — “And Russian money, dirty money, we have a lot of Russians – dirty money…” I explained it to them in detail — but almost none of it was left in the interview, because they need blood. But London is a very educated city, the amount of people who are able to separate the wheat from the chaff is significantly high here. I don’t know anywhere else like it.
About the UK’s fight with Russian money. So how to fight with capital? It’s the mouse against the cheese. Here everything is built so that capital, which could be taken away, can be saved and multiplied. Imagine. A bureaucrat worked. In business. In the 1990s. He made some money. That money has been here for 15 years already. Part of that money he already made here, by renting out flats that he bought. What basis do you have to arrest him? Ok, they might arrest him, and then discover: the money was earned in the 1990s or the 2000s in clear transactions. That money in turn was used to buy a flat. A big and expensive one. His kids live in the flat. What basis is there to take it away? There is no such law here.
On the future of the Russian economy. Half a year, a year — and we will see the results of the doctrine of economic isolation. By the end of 2019, per capita income in Russia will be 25% lower than today. That is not a joke. A 25% fall in real income over the course of two years.
On working with wealthy clients in London. We once calculated: in an 800 meter radius around us there are 42 Michelin stars and more than a trillion dollars of assets owned by companies registered within this radius. So our business could never have been in budget or discount retail. It’s pointless to fight corporations funded with debts and investments with 0%. We realized we could focus on the area where a lot depends on service, reputation, speed and how you serve your customers. Our restaurant has two wine lists: 400 wines right here, and 6800 on a Friday evening with delivery within 15 minutes. We want, among a city of 8.5 million and Europe of almost 300 million, to crystallize and attract those people for whom the taste of food and of wine is of critical importance.
On his own life goals. My partner, Tatiana, asked me a question: can you quickly say, using one noun and adjective, who you are? I thought for a second and said: I am an improver of this world. Everywhere where I am, everything gets better. I bought a house – the house became beautiful. The whole street changed, everyone started to work more, to work better. We opened a store — London’s entire wine industry changed. The restaurant will do the same.
Why the world should care
Chichvarkin started his business in Russia in the midst of the country’s wild capitalism of the 1990s with a stall in Moscow’s famous Luzhniki market. His Russian experience had nothing in common with London’s luxury food and wine scene, but eventually his entrepreneurial skills proved relevant in winning customers prepared to pay £17,000 for a bottle of wine.
Peter Mironenko, The Bell
This newsletter is made with the support of the Investigative Reporting Program at UC Berkeley.
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