In the last six months, Russian officials, oligarchs, CEOs of state-owned businesses, parliamentary deputies, and regional governors have found themselves in a new world, with new missions, new economic circumstances, and new mechanisms for decision-making. Not many are comfortable with it, but enough of them are reaping benefits from it to keep the system going.
The Duma has taken the first step towards passing a law enabling Russians whose ‘rights have been infringed’ by the rulings of foreign courts, to receive compensation from the Russian state; and in doing so has more or less reawakened public debate between the parliamentary opposition, the government and the ruling United Russia party.
The ‘Rotenberg Law’
The new legislation is unofficially known in Russia as the ‘Rotenberg Law,’ after Arkady Rotenberg, a wealthy industrialist and close ally of Vladimir Putin, who had $40m of real estate in Italy seized by authorities there, under US and EU sanctions. But its potential beneficiaries include, for example, Igor Sechin, head of the oil giant Rosneft, which in 2004 swallowed up the assets of jailed tycoon Mikhail Khodorkovsky's Yukos. Khodorkovsky has accused Igor Sechin of plotting to have him arrested and plundering his oil company
Before any debate had taken place on the draft of the new law, the Russian government expressed disapproval of it, arguing that it would infringe not only international agreements (proposing as it does the possibility of Russians being compensated through the seizure of other countries’ assets in Russia, including those normally covered by diplomatic immunity) but also a clause in Russia’s own constitution that gives priority to other states’ laws. Later, however, it changed its position: Dmitry Medvedev’s press secretary explained that the PM had in fact been behind the initiative, from the start, but had needed to consult with legal specialists.
In a rare exception to their usual practice, the opposition parties in the Duma voted against the draft of the 'Rotenberg Law.'
Some sources explained the government’s U-turn by claiming that the people writing the initial report simply did not know what the PM thought about the law; others pointed to the fact that in any case it won’t work, and is a purely symbolic gesture towards the Russian elite. In a rare exception to their usual practice of rubber stamping all Kremlin initiatives, the opposition parties in the Duma voted against the draft, as did Minister for Economic Affairs Aleksei Ulyukayev, who told his fellow MPs it was effectively a recipe for the increased flow of yet more capital out of the country.
The wide public debate around the new law is very unusual. Over the last few months, the few senior members of the government bureaucracy and business world who have questioned Kremlin decisions, have at best found themselves excluded from decision-making, and not invited to high level meetings; and at worst asked to go.
At the beginning of March, my sources told me, when the annexation of Crimea had not yet been announced, but preparations for the referendum were already under way, a group of financial and business leaders tried at a meeting to ask the President what it was all about, and suggested that the consequences might not be entirely favourable to Russia. ‘They were literally told’, one source said, ‘to “watch the TV and you’ll find out,” and that “in a war there are always winners and losers.”’ Since the spring of this year it has no longer been possible to question in any way the President’s policies, even in private; all you can do is carry them out.
Since the spring of this year it has no longer been possible to question in any way the President’s policies.
Business and beaches as usual
For business people and senior officials, any change to their usual lifestyle is the least of their worries. Gennady Timchenko, a businessman who belongs to Putin’s intimate circle of friends, sold his shares in the global commodity trading company Gunvor in March, and complained in an interview with ITAR-TASS that because of sanctions he could not pay for medical treatment for his wife in Germany, visit her and his beloved dog in France or fly in his Gulfstream jet. But, he added, this was the price he had to pay for his friendship with the President; and he was prepared to hand his shares over to the state if necessary. Vladimir Yakunin, CEO of Russian Railways – one son and his family live in London, another son lives in Geneva – is worried about not being able to fly to Australia to see the kangaroos. Anatoly Chubais, head of the nanotechnology firm Rosnano, says that if the worst comes to the worst, he will be happy to live on buckwheat porridge.
Restrictions on holidays abroad have not yet had much impact on the elite. So far, the only people who have agreed to live within set limits are members of the government: after the introduction of the first sanctions they came to a tacit agreement not to visit countries imposing sanctions, even if they personally were not affected by them. The recommendations for ministers did not apply to medical treatment or their children’s education, but were more to do with image – trips abroad look bad if some of your colleagues are banned from foreign travel.
Middle-ranking officials have been given to understand that they may and indeed should travel in Europe, but to keep their heads down while they are there. For high-ranking figures it is no problem to take your holiday in Russia for once: they can still enjoy the magnificent scenery of the Altai, the peaks of the Caucasus, and hunting in Siberia. In any case, the blacklisting does not apply to their families, who can still go wherever they want. One deputy PM, for example, spent his summer in Siberia while his family went to Italy. The presidential administration, meanwhile, is unaffected by the sanctions, but anyone planning to go abroad has to send a note to its secretariat detailing their plans and listing any relatives they have living abroad.
The situation is more complicated for parliamentary deputies and senators; they have been responsible for the loudest anti-Western pronouncements. But nobody has rushed to boost newly annexed Crimea’s tourist trade by having their holiday there, even when instructed to give support to the area’s resorts. In the end, they had to be forcibly corralled for a session with Vladimir Putin, and three days of ‘meeting the voters’ on the peninsula. Yet Putin said nothing of much significance, and the legislators left as soon as they could, although their ‘Introduction to Russian Law’ programme for local officials had been extended.
‘Predicting what Putin is thinking’
The elites are, however, facing more serious problems than where to top up their tans. In the first place, many have houses, bank accounts and shares abroad. This does not affect people in government service, who are forbidden to hold foreign accounts, but the bosses of state-owned and state-affiliated businesses understand that they need to start transferring their assets back to Russia. Secondly, foreign business executives, however much they want to work in Russia, are now surplus to requirements as the country moves into isolation mode; and formerly promising projects to open up Russia to the world, function as a global financial centre, and develop its internet, are no longer on many people's agenda.
Foreign business executives are now surplus to requirements as the country moves into isolation mode.
However, it would be equally mistaken to see the Russian administrative elite as either blinkered ‘hawks’ dreaming of tanks thundering into Kyiv or as sybarites dreaming of moving permanently to Monaco. In this context, the transcript of a recent meeting of the Russian Football Union is telling. The meeting took place to discuss the inclusion in the Union, of Crimean football clubs, a decision that might lead to Russian clubs being disqualified from international competition, and Russia losing the 2018 World Cup. The transcript (whose authenticity is confirmed by several people present at the meeting) records the range of (mostly negative) responses to possible sanctions and their implications, but at the same time stresses the categorical imperative of ‘predicting what Putin is thinking.’ Only two people expressed the opinion that ‘sanctions are neither here nor there; it’s a political decision.’ The President of the Central Army Sports Club, Yevgeny Giner, spoke of his business in Ukraine and his unwillingness to lose it, but reminded his colleagues that ‘we are all patriots here; with the money we have made we could be at least on holiday abroad, and not sitting here.’ Sergei Galitsky, founder and co-owner of the Magnit retail chain, known for keeping his distance from all the governing clans, told his colleagues that any football boycotts would not affect him personally, but would hit his employees, before repeating that he would support any decision taken by President Putin. ‘We might assume that our head of state would prefer us not to take this decision,’ he said, ‘if we take it without asking him he won’t thank us for it.’
But material interests have turned out not to be a priority for many members of Russia’s elite. ‘Putin’s mind works in geopolitical terms; he’s busy reshaping the world’, a high-ranking government official told me. ‘He doesn’t have time for the economy and finance.’ According to this official, much of today’s Russian leadership is hooked on geopolitics. ‘It’s simpler and more interesting to discuss the Russian World than to sort out the budget.’ As though to confirm his statement, senior executives have been making serious public pronouncements about Russia’s mission on the global stage – in the words of Anatoly Chubais, of ‘changing the world’s political architecture.’ Indeed, ‘mission’ is the buzzword of the moment.
Some of the governing elite can see advantages for themselves in this new order. In the first place, government-owned businesses are now able to lobby for preferential treatment and subsidies, whereas in the past these decisions were always held up by the position of the Ministry of Finance. In the second, uneconomic or complex and unnecessary government projects, such as the Lena River Bridge, can now be halted: any decision about cost cutting can be officially explained by the need to keep Crimea afloat.
The less desirable consequences of the new situation include a change in the decision-making process, in not only international but also internal politics, which has left most officials feeling like extras in someone else’s show. The decision to restrict imports of food products was debated for weeks, but then taken in a matter of hours without reference to the relevant ministries; most of the cabinet heard about Putin’s directive on the day it was published. The decision on freezing pension savings was taken while the Minister of Finance was on holiday; and one of his deputies was sacked for posting a critical remark on Facebook. The decision to restrict access to public free WiFi was pushed through when Deputy PM Arkady Dvorkovich, who had refused to sign off on it, was on leave. The presidential ‘inner circle’ and ‘politburo’ has changed; and Putin’s chief advisers are now the ‘siloviki’ (the ‘strongmen’ with a military or security services background) and the Security Council.
The people in the most difficult position are probably the regional chiefs.
The people in the most difficult position are probably the regional chiefs. The only positive thing for them is the end of the scramble for regional investment that was an important success factor in the eyes of Moscow. Everyone knows that now it’s not about investments, although the need for these investments, to balance regional budgets and create new employment opportunities, is as crucial as ever. ‘None of our foreign business partners has reneged on their agreements,’ one provincial governor told me, ‘except that the CEO of one potential partner company turned out to be a supporter and close personal friend of former NATO Secretary General Anders Fogh Rasmussen; and he put the project on hold for his own ideological reasons.’
The freeze in business and economic development is only one of the ways that both sanctions and counter-sanctions are hitting hardest at regional level. There is also a freeze on construction and investment from Russian state-owned banks, which are now facing life without long-term Western credit; and an increase in food prices. At the same time, the regions are still obliged to resettle refugees from Ukraine, for which governors are personally responsible.
Most officials, however, are prepared to put up with both their roles as stage extras, and the questionable decisions that are being made: ‘we know who we are working for,’ they say, ‘we’re all in the same boat,’ and ‘you can’t choose your country’. The Russian elite then, are clear about what they have to do today, and try not to think too much about tomorrow.
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