Russia = Putin = Corruption = Disaster


and how to “PEP” up sanctions

 

Ben Judah has a great article on the Russian problem in today’s (July 27, 2014) Sunday Times which can be summarized as a set of simple equalities:

 

Russia = Putin = Corruption = Disaster

 

In Stalin’s time, the USSR (especially in the period after the Second World War to his death in 1953) was equated with one man – Stalin – and he ruled through intense fear. When Gorbachev succeeded in the destabilization of the Soviet Union, the West believed that the tumbling Berlin Wall symbolized the breakdown of Soviet norms, the ending of Communism and the establishment of democracy.

 

What was misunderstood (and remains misunderstood) was that the intrusion of market economics into an historically centralized set of nations that made up the USSR had massive risks. The risks were not considered by the libertarian economists that ruled in the 1980’s and for some time after that. In mature economies, the rivalry between Keynes and Hayek could be maintained with pendulum swings from one to the other as decades passed. Indeed, as we now know (or some of us know) the drive towards economic equilibrium is a fantasy but mature economies can adjust regularly and maintain decent GDP growth (even if the measure if substantively flawed).

 

In the newly emerging states that had formed the Soviet Union, the drive for libertarian economies in states that were predominantly centralized in terms of power and decision-making led (without any real checks and balances) to an elite ownership of resources (mainly natural resources) through which wealth in such under-developed economies was generated. Thus, the oligarchs were formed – and they have dominated those states ever since.

 

The oligarchic state is driven by elites and supported by fear, corruption and domination of those not in power. To many in those countries, this is just another chapter in their history of such elite domination. The incipient middle class (as Ben Judah points out), which had been promised a new world order, is now dispossessed. The working class sees no change and as long as jobs are there for them cannot force themselves to complain.

 

Into this oligarchic domain, Vladimir Putin has risen to the top. He is no more than the prime oligarch – the most elite in a country of corrupt elites. His ability to clean up the chaos after Yeltsin and to show who’s boss in a country that always seemed to prefer strong, central leadership (an ingrained characteristic made part of the Russian DNA for centuries) meant that he could dominate political and economic levers. Those who he considered risks were quickly destroyed (sent to prison or even killed). He is not Stalin and he does not control the masses because of a communist-type brainwashing. There is no-one in Russia who believes he has a moral suasion. It is the immoral suasion of power through corruption that keeps him in power and he is tolerated by many and venerated by many others for just that.

 

This power through corruption showed itself in a country like Ukraine. Yanukovych was simply Putin’s oligarch in situ – his corrupted vassal in Russia’s little sister. The danger to Putin that began with Yanukovych’s downfall was stark and a risk to his strategy of power through corruption. When people (some who may well be of the extreme right and no better for that) rise up and force out one strand of corruption in a vassal state, it is a danger for Russia and Putin in particular. This could not be tolerated.

 

It has led directly to the deaths of 298 passengers on Malaysian Airways flight MH-17, most likely hit by missiles from a Russian Buk anti-air missile system stationed in Eatern Ukraine and manned by Ukrainian dissidents. This disaster is a natural outcrop from the corruption at the heart of Russia and Ukraine. In my earlier paper on this I showed the Triangle of Misrule at the heart of such societies:

 

 Slide1

 

This triangle which engulfed Russia and several of its ex-Soviet Union states, now impinges on the West. The deaths of 298 people from across the world as a direct result of Russian corruption provides a shocking example of the risks. Putin has put himself above the law in Russia in a similar way to the Chinese politburo in China and the dos Santos family in Angola (and many others around the world).

 

The UK has played its part in that London has acted as the money-launderer for many oligarchs that have bought properties here and used the banking system to wash money corruptly (although not illegally under Russian law – until Putin changes the implementation of those laws) gained.

Sanctions

As the West considers its next move, it should be ensuring that each and every wealthy Russian seeking to move money outside of Russia is seen as a PEP (politically exposed person). Banks have to treat individuals that are politically entrenched in their own countries and have to seek assurances that their money is not the result of illicit political activities.

 

In Russia, every oligarch has been involved politically – that is how most obtained the “rights” to natural resources or phone systems or whatever in order to make their money. Why not do the obvious and require each bank world-wide that is asked to deal with such individuals to treat them all as PEP’s unless they can prove otherwise? FATF (Financial Action Task Force) produces guidelines on PEPs which describe them as people who have had or have a prominent position that can be abused. In endemically corrupt nations, all senior corporate positions are such – you don’t have to be a government minister or civil servant to have a prominent position that can be abused (or where the prominent position was the result of such abuse).

 

Make all such oligarchs and their staff and their lawyers and accountants PEP’s. It won’t stop them doing business but it could reduce their ability to flow their corrupt money around the world – and money is the basis for their power. It is also the basis for Putin’s – a PEP if ever there was one who has used the banking system and hidden behind the opacity of trusts and companies seemingly owned by others to stash billions outside Russia. Now is the time for Governments to deliver on better transparency in international cash flows and identities of companies and trusts.

 

Opacity = corruption = elites = Putin = Disaster

 

 

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