Putin’s Presidential Message: Russia Must Defend Traditional Values, And Get Its Economy Out Of The Financial Offshores

Russians continue to ponder and comment on Vladimir Putin’s Dec. 12 Presidential Message to the Federal Assembly, which was a comprehensive platform statement. The Morning Briefing of Dec. 13 reported on some of the highlights of Putin’s remarks on “the international situation from the standpoint of Russia’s national interests,” as state TV anchorman Dmitri Kiselyov put it this evening. Kiselyov’s Sunday-night Vesti Nedeli (News of the Week) program highlighted two other elements of the Presidential Message: Russia as a defender of traditional values, and Putin’s demand to get serious about the “de-offshore-ization” of Russian economic relations, a goal he announced one year ago.

The Vesti Nedeli report led with this passage from Putin’s speech: “We have always been proud of our country, but we do not lay claim to the label of a superpower, understood as laying claim to worldwide or regional hegemony. … We shall seek to be leaders, defending international law, seeking respect for the national sovereignty, independence and way of life of different peoples.” As in his speech at the Valday Club meeting this past autumn, Putin lamented that, “in many parts of the world, norms of morality are being revised, while national traditions and the distinctions of nations and culture are erased.” He upheld Russia as “defending traditional values,” which he called Russia’s “conservative position.” Said Putin, “In recent years we have seen attempts to force on other countries a supposedly more progressive model of development, have in fact brought retrogression, barbarity, and bloodshed. This has happened in a number of countries in the Middle East and North Africa, and this is how the dramatic situation took shape around Syria.”

A second segment on Vesti Nedeli explained to viewers the mechanism of offshore tax-evasion and money-laundering, as done by Russian businesses on a massive scale. As a list of 41 major offshore jurisdictions scrolled on the TV screen, the narrator pointed out that most of them were “Anglo-Saxon” (British) territories or centered around the Benelux countries and other havens nestled in Europe, like Liechtenstein. In his December 2012 Presidential Message, Putin had called for measures to be drafted for ending the role of the offshores in draining resources from Russia. In the same vein as his repeated harsh criticism of the government for failing to implement the package of domestic policy decrees he signed upon his inauguration in May 2012, Putin said that the job had not been done, and began to lay out what should be done:

“In last year’s Address, I spoke about the challenges in relieving the economy of offshore activity. This is another topic to which I want to draw your attention and which we must return to today. Why is that? I will tell you frankly that so far, the results are barely perceptible. Let me remind you about a major transaction that took place this year, worth over $50 billion. The sale of TNK-BP shares occurred outside of Russia’s jurisdiction, although we all know that the sellers were Russian nationals, and the buyer was one of Russia’s largest companies.

“Last year, according to expert assessments, $111 billion worth of Russian goods passed through offshores and semi-offshores — that’s 20% of our exports. Half of the $50 billion of Russian investments abroad also went to offshores. These figures represent the withdrawal of capital that should be working in Russia, and direct losses to the nation’s budget. Since nothing significant has been achieved in this area this year, I want to make the following suggestions.

“The incomes of companies that are registered in offshore jurisdictions and belong to Russian owners or whose ultimate beneficiaries are Russian nationals, must obey Russian tax laws, and tax payments must be made to the Russian budget. We must think through a system for how to collect that money. Such methods exist and there is nothing unusual here. Some countries have already implemented such a system: if you want to use offshores, go ahead, but the money has to come here. …

“Moreover, companies registered in a foreign jurisdiction will not be allowed to enjoy government support measures, including Vnesheconombank credits and state guarantees. These companies should also lose the right to fulfill government contracts and contracts for agencies with government participation. In other words, if you want to take advantage of the benefits and support provided by the state and make a profit working in Russia, you must register under the Russian Federation’s jurisdiction. …

“We need to maintain our fundamental, firm position on ridding our credit and financial system of various types of money-laundering operations. Meanwhile, the interests of honest clients and depositors in problematic banks should be securely protected. Today, the fight against the erosion of the tax base and the use of various offshore schemes is a global trend. These issues are widely discussed at the G8 and G20 summits, and Russia will conduct this policy at both an international and national level.”

Implementation of Putin’s intention would have far-reaching international implications. From a Russian domestic standpoint, the plan was welcomed in a commentary for the Fayl-RF (RF File) site by Development Movement leader Yuri Krupnov as “a pathway toward returning Russia to its citizens.” Besides the lunacy of having a huge chunk of the economy not subject to Russia’s own tax and other laws, Krupnov pointed out, “Offshore-ization directly promotes corruption. … The offshores become a means for foreign interests to control the [Russian] participants in dubious deals, which not only promotes corruption, but represents a threat to the national security.” Krupnov suggested that “the realization by businessmen that they should be playing for Russia and fighting for Russia, as the President insists, outweighs all the obvious benefits for state coffers, the investment climate, and so forth. It’s an important geoeconomic signal, which should have some follow-up. The President’s proposals should be supported, and every effort made in both the executive and legislative branches of government, for them to succeed.”

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