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A villa abroad is fine, but close your bank account

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Well-off Russian bureaucrats have got used to having a second home abroad, whether it’s a cottage in Ukraine or a castle in Spain. But these are now under threat from Vladimir Putin’s latest intervention – a ban on foreign bank accounts. Mikhail Loginov reports.

Mikhail Loginov
16 September 2013

A new phrase has entered Russian politics over the past year: ‘the nationalisation of the elite’. Vladimir Putin doesn’t want the ruling class to own property outside his jurisdiction. Earlier this year, Russia’s parliament has passed a law banning government officials — including MPs and members of regional legislatures — from holding foreign bank accounts. FSB staff have also been ordered to get rid of any property they may own abroad. But the elite has become used to having a little bolt hole away from the security service’s prying eyes and ears, and is sabotaging Kremlin attempts to confine its material assets to the motherland. 

‘Baht’ is a four-letter word  

‘Aleksandr Timoofeevich, do you have a contract in Russian, or at least in English?’ asks Katerina for the nth time. She is a lawyer who is looking after the paperwork for candidates to the Zabaikalye regional assembly. ‘Sorry,’ replies the candidate disconsolately, holding out a document written in Thai. ‘This is all I have’. 

‘I didn’t realise I’d have problems like this’ says the candidate, a local businessman. ‘All my friends have bought flats in Pattaya, and they all have contracts in Thai.’ ‘But your friends’, the lawyer points out, ‘aren’t standing for election to the regional assembly’. 

This may be no fun for the candidate, but it’s even trickier for the lawyer. Katerina has been working on election campaigns for six years, but the 2013 season has been the worst. In May Vladimir Putin signed into law new legislation requiring election candidates to declare all their property, any deals relating to this property over the last two years, and also any property belonging to close family members. And this of course includes property abroad. Many wealthy residents of the European part of Russia own a home in Finland, Montenegro, Bulgaria or Spain. Those living east of Lake Baikal prefer Thailand. Groups of friends travel south to the sun, in the same way as they would go fishing together, and they all buy flats in high-rise blocks in the popular resort of Pattaya, so they can hang out together there too. 

‘I didn’t realise I’d have problems like this’ continues the candidate, a businessman from the city of Chita. ‘All my friends have bought flats in Pattaya, and they all have contracts in Thai.’ 

‘But your friends’ Katerina points out, ‘aren’t standing for election’. 

The candidate has been nominated by Russia’s ruling party, United Russia, so his problems are solved by the team in charge of the party election campaign. The contract is translated into Russian by a Moscow translation agency, and an official bank receipt is received, giving the exchange rate of the Thai Baht to the Russian Rouble. For several days the very word ‘Baht’ is the expletive of choice at party headquarters.

Not a rouble outside Russia!    

The Chita businessman’s problem is only one example of the campaign to ‘nationalise the elite’ which began in mid 2012. After Putin was re-elected President of Russia and the wave of protests suppressed, the Kremlin propaganda machine turned its attention to encouraging a patriotic frame of mind in the Russian public. But then a paradox emerged: many of the ruling elite had more than one home, and one of them was outside Russia. MPs and regional assembly members, regional governors, city mayors and senior civil servants had accounts in foreign banks and property abroad. The state controlled media started trumpeting the need to ‘nationalise the elite’ – ‘those’, they went, ‘who rule the country should have their property there, within the borders of the Russian Federation, and ideally shouldn’t even go abroad for holidays.’  

Andrei Isayev, a moralistic and patriotic United Russia MP, turned out to own a hotel in Germany. He argued that it was a church and adjoining hostel for pilgrims, but according to his denouncers, it served meat during Lent (forbidden by the Orthodox Church).

A curious incident took place in autumn 2012: the speaker of the Volgograd regional assembly celebrated his birthday at an Italian resort, chartering a plane to take him and a 50-strong ‘delegation’ there and back. Although in the old days this kind of jaunt was commonplace, this time it made not just local but national media headlines as well. Then at the end of the year Aleksei Navalny forced the resignation of United Russia MP Vladimir Pekhtin, who, as Navalny had discovered, owned an apartment in Florida. The scandal was particularly juicy because Pekhtin headed the Parliamentary Ethics Committee and had more than once accused the few opposition MPs of serving the interests of the USA. Pekhtin initially claimed that the apartment in fact belonged to his son, but then did resign, and the Russian language gained a new word, ‘pekhting’, meaning the pursuit of corruption. 

Andrei Isayev, another moralist and patriot from the United Russia ranks, was also at the receiving end of some hefty criticism when it turned out that he owned a hotel in Germany. Isayev argued that it was a church and adjoining hostel for pilgrims, but, according to his denouncers, it was a hotel worth €800,000 and it served meat during Lent (which is absolutely forbidden by the Russian Orthodox Church). In December 2012 a bill was drafted, banning government officials, including MPs, from owning any property outside Russia, whether real estate, bank accounts or stocks and shares. 

The end of Abramovich’s political career  

In January 2013, as the bill was being put to the vote, Vladimir Putin’s parliamentary representative added an important amendment; it was only foreign bank accounts that would be forbidden. But, even in this modified form, the law changed Russia’s political landscape. Russia’s richest businessman, Dmitry Ananyev, owner of ‘Promsvyazbank’, stood down from the Upper House of Parliament, the Federation Council. And the government lost its Deputy Minister for Telecommunications, Denis Sverdlov, whose wife refused to close down her foreign bank accounts. 

Roman Abramovich also left Russian politics for good, standing down from his position as chair of the Chukhotka Autonomous Region assembly in July. Abramovich, a poster boy for the first decade of Putin oligarchy, initially saw having a government post as part of the social responsibility of business (he was Governor of Chukhotka from 2001-2008), but later it became simply a question of the prestige attaching to the post. And, given Abramovich’s foreign business interests and the need for bank accounts to service them, he had no option but to go. 

What was more serious for Russian internal politics was the refusal of another billionaire, businessman Mikhail Prokhorov to enter the Moscow mayoral race. Prokhorov’s business interests abroad are slightly larger even than Abramovich’s, and it would have been impossible to get rid of them within a few months even if he had wanted to. 

High profile oligarchs such as Abramovich and Prokhorov have had to choose between politics and foreign bank accounts, but the thousands of unknown bureaucrats with such accounts will only be ‘outed’ if they get on the wrong side of the security services.  

It should be mentioned that opposition leader (and mayoral candidate) Aleksei Navalny was recently accused of having business interests outside Russia, and the bank accounts to service them. Bloggers running a smear campaign on the Kremlin’s behalf found a firm in Montenegro owned by him. His supporters retorted that the firm wasn’t engaged in any business and had no assets, but in any case, if Navalny becomes a government official, he will have three months to close the firm down. 

A log cabin in Belarus or a castle in Spain

Critics of the new law point out that it has not in fact affected the majority of Russian bureaucrats, who have been allowed to keep their properties abroad. High profile oligarchs such as Abramovich and Prokhorov have had to choose between politics and foreign bank accounts, but then it’s common knowledge that that they are not only wealthy, but that much of their wealth is stashed away abroad. However, thousands of unknown bureaucrats in both Moscow and the provinces also have foreign bank accounts, but their names will only become known to the public if they get on the wrong side of the security services.  

Thousands of unknown bureaucrats in both Moscow and the provinces have foreign bank accounts, but their names will only become known to the public if they get on the wrong side of the security services. 

Foreign properties owned by politicians are quite another matter. It’s not difficult to find out about them, since in most countries you can just order a copy of a land registry entry: that’s how ‘pekhting’ became possible. But having a property abroad is not illegal for a government official or election candidate, as long as they declare it. United Russia members have their own theory about the selective nature of the new law. According to Nikolai Pustotin, the party’s Leningrad Region leader, the law’s authors took pity on MPs and officials who had inherited property in former Soviet, now independent, republics – a log cabin in a Belarus village that had belonged to their parents, for example. The opposition, however, is quick to point out that today’s MPs worry less about cabins in Belarus and more about mansions  in London and castles in Spain, although the usual foreign property is of course neither a cabin nor a castle, but something in between – an apartment or suburban house. However, the law’s critics believe that ownership of any property abroad implies the existence of a foreign bank account – otherwise, how do you pay for your gas and electricity, not to mention your income tax? 

We love Putin – especially when we’re abroad

Russian MPs periodically suggest that the ban on bank accounts is just the first step towards the ‘nationalisation of the elite’, and that soon another law will be passed, extending the ban to property. But this is highly unlikely: there are too many reasons why the political elite want to keep their foreign homes, and preferably businesses as well. There is the weather factor: Bulgaria, Thailand and Spain have such warm, sunny climates. There is also the financial factor: food, drink, and other household expenses such as utilities are much cheaper in many countries than they are at home. 

If you’re caught out on just one corrupt deal, you might get away with it, but you might equally well get done for it, so a villa somewhere warm, ideally with a bank account to maintain it, is a good fallback. 

And then there is the Putin factor: the elite have found his return to the Kremlin a little scary. All his talk about patriotism and a war on corruption may be understood as mere figures of speech, but they are still a cause for concern. The Serdyukov affair, when the Minister of Defence was fired as a sop to public opinion, and of course the Pekhtin case, have put the frighteners on them. You might get away with just one corrupt deal; but you might equally well get done for it. If you put all these factors together, a villa somewhere warm, ideally with a bank account to maintain it, is a good fallback. The elite is still loyal to Putin, but would like to have an apartment abroad as well, just in case.     

Thumbnail: Flickr / wolfgang_redspot

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