Monthly Archives: June 2007

June 30, 2007 — Contents

SATURDAY JUNE 30 CONTENTS


(1) Rat Nation

(2) Russia and Terrorism

(3) Beslan Mothers Sue Kremlin for Killing their Childlren

(4) Russia and Corruption

(5) Annals of Russian Imperialism

Rat Nation

Writing in the Moscow Times, columnist Georgy Bovt explains that Russia is nation of squealing rats:

The Federal Tax Service has come out with an interesting new initiative. In an effort to identify people renting out apartments without paying taxes, they have asked people to report any “suspicious” people in their buildings. More than 100,000 apartments are rented out in Moscow alone, and the majority of landlords don’t pay the relatively low 13 percent tax on the income. The authorities have not been able to find a solution other than calling on neighbors to be vigilant. One well-known liberal figure who is founding a new political party told me he doubts the initiative will work. He said that the Communist period had so inoculated the population against the practice of informing on each other that few people will volunteer to help the authorities.

He may be partly right. People don’t trust authorities much, and they distrust law enforcement agencies the most. But informing is a tradition with deep roots in the culture. And the authorities have been making special efforts to praise people for their “openness.” During the Kremlin’s recent campaign against Georgians, for example, fliers were circulated in schools encouraging people to report children with Georgian surnames. There is also the long-standing practice of reporting structural repair work on neighboring apartments, the hiring of illegal immigrants, and so on.

A brief review of Russian history helps to explain this.

Under the Tatar-Mongolian yoke from the 13th century to the 15th century, snitching was a way to gain favor with the Golden Horde. Anyone coveting a personal fiefdom got it by informing on the rivals of the Tatar-Mongolian rulers. This is how Ivan Kalita, generally considered the founder of Russia’s centralized state, gained authority in the 14th century.

The larger the state grew, the more Muscovy relied on informers. Under Ivan the Terrible the practice was institutionalized. People were imprisoned, tortured, exiled and killed on the sole basis of denunciations. Peter the Great did away with secret church confessions and made priests inform on their parishioners. Then serfs were promised their freedom in return for informing on their masters. During the Soviet collectivization campaign, the same practice allowed poorer peasants to denounce the better off — and then scoop up and divide the booty when their victims were dispossessed.

Informing gradually became almost a reflex, and the two main features of the practice of informing began to crystallize from the very beginning. First, the practice was directed not so much at bringing social justice as at protecting the interests and security of the ruling regime. Second, social discord was often the chief motive, as informing came to be more a means of settling accounts with people than of establishing the rule of law. The Communist authorities elevated this to the level of a social virtue. Neighbors snitched on neighbors, spouses on spouses, and children on their parents. There was a monument erected in Moscow to a peasant boy, Pavlik Morozov, who informed on his prosperous peasant father. The father was shot and Pavlik became a hero in Soviet textbooks. Informers were encouraged in every way, including with bonuses and promotions at work. No sooner had Soviet citizens gained the right to travel abroad than denunciations of “improper” behavior outside the country’s borders began to pour in. There was a professional stool pigeon in every Soviet group traveling abroad who would file a report on arriving home.

Some estimates put the number of people working as informers for the secret police at more than 2 million. How many more would rat colleagues and neighbors out informally will probably never be known. As a result, it’s hard for me to believe in the “inoculation” theory — if for nothing else, because the saying “It’s not so to have no cows, if your neighbor’s cows have all died” is still around in the Russian language.

Russia and Terrorism

The Terror Finance Blog reports:

In addition to Iran and Saudi Arabia, which have funded and armed Hamas for decades, Russia, too, should be held accountable for the chaos in Gaza and the suffering of the Palestinian people. Asserting Russia’s influence in Middle East politics, President Vladimir Putin’s invitation to Hamas in February 2006, offered legitimacy to the U.S. designated terrorist organization.

Yuri Andropov, former Soviet and KGB leader may be dead, but his agenda survives with Putin, who like his former master uses terrorist organization to undermine the U.S. Indeed, Putin’s government crackdown on human and civil rights, and the brutal tactics used to consolidate Russia’s economic resources, reminds one of the former Soviet Union.

The Transparency International 2007 global report released on May 24 documents widespread Russian corruption and lack of independence in Russia’s legal system, and its courts in particular. This, according to the report, is due to the government’s growing political interference. Novaya Gazeta, Russia’s best-known opposition newspaper, claims that corruption in Russia is the rule, and “business is impossible without it.”

Moreover, Russian Minister of Economic Development and Trade German Gref, speaking at an investor conference in Moscow last week, admitted that “everyone knows the Taxation Service is corrupt.” Leading investigative reporter Roman Shleinov claimed recently in London, that attempts to expose this corruption resulted in more than 2,000 dead journalists in the last decade.

Russia’s economic growth — more than $515 billion in foreign currency and gold reserves — make Putin very popular among his people, despite the corruption and his regime’s growing restrictions on civil and human rights, freedom of the press, and private, public and foreign entities. Most recently, his popularity reached over 70% approval ratings. Not surprisingly, Putin disregards whatever domestic and foreign criticism of his centralized and authoritarian government. He even declared: “I am an absolute, pure democrat… I am the only one, there just aren’t any others in the world.”

Russia’s long tradition of autocratic regimes seems to empower Putin’s undermining of Russia’s recent history of democratic capitalism. With ever-increasing frequency, Russia uses its corrupt courts to legitimize nationalizing and confiscating private and public corporations from entrepreneurs who built their wealth and the Russian economy on the ashes of the crumbling Soviet infrastructure. Those allowed are holding onto their corporations and vast personal wealth, carrying out Putin’s agenda of centralization and consolidation of domestic and even global strategic resources and industries such as aluminum and steel, and above all, energy.

Putin began consolidating Russia’s energy industry four years ago, with the now familiar ploy of accusing oil company Yukos, and its owner Mikhail Khodorkovsky with tax fraud. Russia’s biggest, state-owned gas and oil company, Gazprom, and its state-owned oil company, Rosneft, grabbed the bankrupted Yukos assets, and Khodorkovsky was sent to prison for nine years. Since then, Yukos’ foreign shareholders are engaged in costly lawsuits outside Russia in attempts to recover damages.

In September 2006, alleging environmental violations, the Russian government revoked the Royal Dutch Shell company license to operate the world’s biggest liquefied gas development in Sakhalin. Less than three months later, Shell was forced to hand over control of the $22 billion project to Gazprom.

The latest casualty is the international oil company BP. The Russian government threats to revoke its development license, culminated when Putin publicly stated: “how much longer do we have to tolerate this?” On June 22, BP was forced to sell its 62.9% stake in the world’s largest natural gas field in Kovykta — worth an estimated $20 billion — to Gazprom for only pennies on the dollar, a mere $700- $900 million.

So it’s no surprise that Canadian investors in Magna International, an auto parts manufacturer and supplier, look askance at plans to sell 20 million shares and partial control for $1.54 billion, in exchange for entry into Russia’s market. The proposed buyer, Russian Machines, is a manufacturing giant controlled by Vladimir Putin’s billionaire crony, “Aluminum King” Oleg Deripaska, whose entry visa to the U.S. was recently revoked.

Deripaska, rumored as Russia’s wealthiest oligarch, would get only 42% of Newco, the new holding company that would control Magna, rather than the 94% that those shares represent. Moreover, according to the agreement, the Canadian owners and executives of the company would receive the equivalent of $883 per share, — though their shares are worth some $93. That doesn’t compute. “When smart, rational people do things like that, and nobody can tell me why — I start getting suspicious,” said one Magna shareholder.

Considering Deripaska’s close personal ties to Putin, Magna shareholder skepticism rose on hearing an assurance from the Canadian company chariman, Frank Stronac, that Putin “endorsed” Deripaska as a business partner. Why is that important, they rightly wonder? Rather than giving Magna entry into Russia’s market, it indicates that Deripaska’s foothold in the company would lead to yet another Russian takeover, and a total loss for Magna’s existing Canadian shareholders.

That would fit Deripaska’s reputed practices, which are often disputed. In May 2007, Deripaska settled a $500 million lawsuit in which his former partners in Tajik Aluminum Smelter TadAZ charged him with fraud and sought an estimated $220 million, plus costs, interest, and damages. Another former business partner, Michael Cherney, is now suing Deripaska for violations of an agreement granting Cherney 20% of RusAl. Initially, Deripaska denied the agreement. Since the document surfaced, Deripaska has been attempting to evade the British lawsuit by claiming lack of jurisdiction. Unless he settles this dispute, too, his plan to take RusAl public for $30 billion in London later this year may be affected.

All this leaves one questioning the wisdom of U.S. officials, who are now inviting further Russian investment in and joint venture with U.S. businesses. On June 18, U.S. Deputy Treasury secretary Robert Kimmitt declared: “We want to be sure they consider investment opportunities in the United States.”

But smart buyers, bankers and regulators will worry about the provenance of assets offered in Russian IPOs — and how long it will take before Russia “legally” confiscates and fully controls those assets. Moreover, those assets may well be used to fund Islamist terrorist organizations.

Beslan Mothers Sue Kremlin for Killing their Children


The Moscow Times reports:

Relatives of children killed in the 2004 Beslan attack have filed a lawsuit in the European Court of Human Rights accusing the government of failing to properly investigate the massacre that killed 330 people.

Ella Kesayeva, head of the Voice of Beslan group, said late Wednesday that 89 people had signed a lawsuit filed to the Strasbourg court. The application says Russian authorities violated human rights treaties by denying victims’ relatives the right to an objective investigation of the case.

Meanwhile, a court in Kabardino-Balkariya charged two police officers with negligence Wednesday in connection with the attack. The officers, Mukhazhir Yevloyev and Akhmed Kotiyev, are accused of failing to prevent the attackers from setting up their training and staging camp in Ingushetia.

Russia and Corruption

The Alyssia A. Lappen blog reports:

The Transparency International 2007 global report released on May 24 documents widespread Russian corruption and lack of independence in Russia’s legal system, and its courts in particular. This, according to the report, is due to the government’s growing political interference. Novaya Gazeta, Russia’s best-known opposition newspaper, claims that corruption in Russia is the rule, and “business is impossible without it.”

Moreover, Russian Minister of Economic Development and Trade German Gref, speaking at an investor conference in Moscow last week, admitted that “everyone knows the Taxation Service is corrupt.” Leading investigative reporter Roman Shleinov claimed recently in London, that attempts to expose this corruption resulted in more than 2,000 dead journalists in the last decade.

Russia’s economic growth — more than $515 billion in foreign currency and gold reserves — make Putin very popular among his people, despite the corruption and his regime’s growing restrictions on civil and human rights, freedom of the press, and private, public and foreign entities. Most recently, his popularity reached over 70% approval ratings. Not surprisingly, Putin disregards whatever domestic and foreign criticism of his centralized and authoritarian government. He even declared: “I am an absolute, pure democrat… I am the only one, there just aren’t any others in the world.”

Russia’s long tradition of autocratic regimes seems to empower Putin’s undermining of Russia’s recent history of democratic capitalism. With ever-increasing frequency, Russia uses its corrupt courts to legitimize nationalizing and confiscating private and public corporations from entrepreneurs who built their wealth and the Russian economy on the ashes of the crumbling Soviet infrastructure. Those allowed are holding onto their corporations and vast personal wealth, carrying out Putin’s agenda of centralization and consolidation of domestic and even global strategic resources and industries such as aluminum and steel, and above all, energy.

Putin began consolidating Russia’s energy industry four years ago, with the now familiar ploy of accusing oil company Yukos, and its owner Mikhail Khodorkovsky with tax fraud. Russia’s biggest, state-owned gas and oil company, Gazprom, and its state-owned oil company, Rosneft, grabbed the bankrupted Yukos assets, and Khodorkovsky was sent to prison for nine years. Since then, Yukos’ foreign shareholders are engaged in costly lawsuits outside Russia in attempts to recover damages.

In September 2006, alleging environmental violations, the Russian government revoked the Royal Dutch Shell company license to operate the world’s biggest liquefied gas development in Sakhalin. Less than three months later, Shell was forced to hand over control of the $22 billion project to Gazprom.

The latest casualty is the international oil company BP. The Russian government threats to revoke its development license, culminated when Putin publicly stated: “how much longer do we have to tolerate this?” On June 22, BP was forced to sell its 62.9% stake in the world’s largest natural oil field in Kovykta — worth an estimated $20 billion — to Gazprom for only pennies on the dollar, a mere $700- $900 million.

So it’s no surprise that Canadian investors in Magna International, an auto parts manufacturer and supplier, look askance at plans to sell 20 million shares and partial control for $1.54 billion, in exchange for entry into Russia’s market. The proposed buyer, Russian Machines, is a manufacturing giant controlled by Vladimir Putin’s billionaire crony, “Aluminum King” Oleg Deripaska, whose entry visa to the U.S. was recently revoked.

Deripaska, rumored as Russia’s wealthiest oligarch, would get only 42% of Newco, the new holding company that would control Magna, rather than the 94% that those shares represent. Moreover, according to the agreement, the Canadian owners and executives of the company would receive the equivalent of $883 per share, — though their shares are worth some $93. That doesn’t compute. “When smart, rational people do things like that, and nobody can tell me why — I start getting suspicious,” said one Magna shareholder.

Considering Deripaska’s close personal ties to Putin, Magna shareholder skepticism rose on hearing an assurance from the Canadian company chariman, Frank Stronac, that Putin “endorsed” Deripaska as a business partner. Why is that important, they rightly wonder? Rather than giving Magna entry into Russi’s market, it indicates that Deripaska’s foothold in the company would lead to yet another Russian takeover, and a total loss for Magna’s existing Canadian shareholders.

That would fit Deripaska’s reputed practices, which are often disputed. In May 2007, Deripaska settled a $500 million lawsuit in which his former partners in Tajik Aluminum Smelter TadAZ charged him with fraud and sought an estimated $220 million, plus costs, interest, and damages. Another former business partner, Michael Cherney, is now suing Deripaska for violations of an agreement granting Cherney 20% of RusAl. Initially, Deripaska denied the agreement. the document surfaced, Deripaska has been attempting to evade the British lawsuit by claiming lack of jurisdiction. Unless he settles this dispute, too, his plan to take RusAl public for $30 billion in London later this year may be affected.

All this leaves one questioning the wisdom of U.S. officials, who are now inviting further Russian investment in and joint venture with U.S. businesses. On June 18, U.S. Deputy Treasury secretary Robert Kimmitt declared: “We want to be sure they consider investment opportunities in the United States.”

But smart buyers, bankers and regulators will worry about the provenance of assets offered in Russian IPOs — and how long it will take before Russia “legally” confiscates and fully controls those assets.

Annals of Russian Imperialism: They’re going after the Arctic!

The Guardian reports:

It is already the world’s biggest country, spanning 11 time zones and stretching from Europe to the far east. But yesterday Russia signalled its intention to get even bigger by announcing an audacious plan to annex a vast 460,000 square mile chunk of the frozen and ice-encrusted Arctic.

According to Russian scientists, there is new evidence backing Russia’s claim that its northern Arctic region is directly linked to the North Pole via an underwater shelf.

Under international law, no country owns the North Pole. Instead, the five surrounding Arctic states, Russia, the US, Canada, Norway and Denmark (via Greenland), are limited to a 200-mile economic zone around their coasts.

On Monday, however, a group of Russian geologists returned from a six-week voyage on a nuclear icebreaker. They had travelled to the Lomonosov ridge, an underwater shelf in Russia’s remote and inhospitable eastern Arctic Ocean.

According to Russia’s media, the geologists returned with the “sensational news” that the Lomonosov ridge was linked to Russian Federation territory, boosting Russia’s claim over the oil-and-gas rich triangle. The territory contained 10bn tonnes of gas and oil deposits, the scientists said.

Russia’s Komsomolskaya Pravda newspaper celebrated the discovery by printing a large map of the North Pole. It showed the new “addition” to Russia – the size of France, Germany and Italy combined – under a white, blue and red Russian flag.

[…]

“Frankly I think it’s a little bit strange,” Sergey Priamikov, the international co-operation director of Russia’s Arctic and Antarctic Research Institute in St Petersburg, told the Guardian. “Canada could make exactly the same claim. The Canadians could say that the Lomonosov ridge is part of the Canadian shelf, which means Russia should in fact belong to Canada, together with the whole of Eurasia.”

Annals of Russian Imperialism: They’re going after the Arctic!

The Guardian reports:

It is already the world’s biggest country, spanning 11 time zones and stretching from Europe to the far east. But yesterday Russia signalled its intention to get even bigger by announcing an audacious plan to annex a vast 460,000 square mile chunk of the frozen and ice-encrusted Arctic.

According to Russian scientists, there is new evidence backing Russia’s claim that its northern Arctic region is directly linked to the North Pole via an underwater shelf.

Under international law, no country owns the North Pole. Instead, the five surrounding Arctic states, Russia, the US, Canada, Norway and Denmark (via Greenland), are limited to a 200-mile economic zone around their coasts.

On Monday, however, a group of Russian geologists returned from a six-week voyage on a nuclear icebreaker. They had travelled to the Lomonosov ridge, an underwater shelf in Russia’s remote and inhospitable eastern Arctic Ocean.

According to Russia’s media, the geologists returned with the “sensational news” that the Lomonosov ridge was linked to Russian Federation territory, boosting Russia’s claim over the oil-and-gas rich triangle. The territory contained 10bn tonnes of gas and oil deposits, the scientists said.

Russia’s Komsomolskaya Pravda newspaper celebrated the discovery by printing a large map of the North Pole. It showed the new “addition” to Russia – the size of France, Germany and Italy combined – under a white, blue and red Russian flag.

[…]

“Frankly I think it’s a little bit strange,” Sergey Priamikov, the international co-operation director of Russia’s Arctic and Antarctic Research Institute in St Petersburg, told the Guardian. “Canada could make exactly the same claim. The Canadians could say that the Lomonosov ridge is part of the Canadian shelf, which means Russia should in fact belong to Canada, together with the whole of Eurasia.”