Rossiya Scan: Latvia, Serbia and Billionaires

"How The World Sees Russia" Issue #29: 10/13/2018 From the Publisher: This week’s Rossiya Scan starts with Latvia. The former soviet nation, now full EU and NATO member recently had elections. Harmony, a left leaning party, with alleged Kremlin-ties received the most votes in the election. Leading some to believe that Russia might have won another battle against the EU by influencing the ballot box. How Much of a win is this for Moscow though? We try to answer this question, and make the case as to why Russia might not have gained that many geopolitical points with Harmony's win. What is it that bonds Russia and Serbia? In past issues we have discussed Russia’s moves in the Balkans. This is an area where their influence is quickly disappearing. However, in Serbia, this is not the case, and Russia at times even acts like a “brother” to this landlocked country. We look deeper into this relationship, and showcase why it’s so strong. U.S. global supremacy has been losing strength for a while. There are many reasons for this to be the case. The rise of new economic powers is amongst the main reasons. The U.S continues to be the most powerful country in the world, but its economic might is being challenged by both allies and foes. We delve deeper into this topic, plus look at Russia’s and the EU’s woes with the U.S to better grasp why this is happening. Finally, the UK continues to attack the Russians of "Londongrad". This is pushing some Russian emigres to consider a return to their homeland. What will this mean for London? Russia? Again, we try to make sense of things, in the hopes of providing you with tools for a better political and economic forecast. -Rossiya Scan Latvia : Is Harmony Pro-Kremlin? Harmony, a Latvian social-democratic party whose main support comes from ethnic-Russians, attained the most votes in last week’s election. The alleged pro-Russia party attained a little less than 20 percent of the vote, and is in the process of creating a coalition government. Latvia is a full member of both the EU and NATO and shares a 167-mile border with Russia. Hence,iIt’s relationship with the Kremlin are a cause of concern to the EU. Harmony’s links to Moscow have kept it on the sidelines of power in the past despite electoral victories. However, with this recent win, they could enter government. Harmony will hold 24 seats in the Latvian parliament. Allies from two other populist parties, will share 31 seats. Giving this group a majority in 100 seat parliament. Populist parties were able to outflank the ruling coalition due to perceived corruption, and generally bad governance. People felt stuck, and wanted a change. However, the EU doesn't see this as a standard change in leadership through democratic means. It sees Moscow’s playbook, and is quick to put the blame on the Kremlin. “Our problem is Russia, which is undermining whatever it can undermine in Europe,” said European Council President Donald Tusk, in an interview with Express. “I can provide numerous examples to prove that Russians will not refrain from any means to weaken European unity.” Tusk said that this election could, be a turning point for the Baltics and the EU. “A moment which was planned in the Kremlin and not in Europe,” he said. Is this a real win for Russia though? Nils Usakovs, the leader of Harmony, and current mayor of the capital, Riga, is in fact an ethnic Russian. Vjaceslavs Dombrovskis, Harmony’s candidate for prime minister, is an ethnic Russian as well. The party had a cooperation agreement with Russian President Vladimir Putin’s United Russia party. Latvian Russians have also shown a preference for it in elections. Practical reasons seem to be behind this partiality though, particularly its pledge to simplify the ability of ethnic-Russians to obtain an education in the Russian language. The party also calls for closer economic cooperation with Moscow. However, Harmony disbanded its agreement with United Russia in 2017, and joined the Party of European Socialist. It also recruited ethnic Latvian politicians to head many of its regional campaigns, and its candidate for prime minister was the only ethnic Russian in the upper echelons of the party's national campaign. This “shedding” of the Russian image has in fact probably weakened Harmony's overall ethnic Russian base, despite its recent win. In 2011, Harmony won an impressive 28.4 percent of the vote, in 2014 approximately 23 percent, and in the last election it again won less with just under 20 percent. Usakovs appears to be trying to mainstream his party, and built its Latvian base. “Simply put, Harmony managed to pick up few Latvian votes but lost quite a few Russian ones,” wrote Leonid Bershidky, a journalist and analyst, in Bloomberg. “Some of these went to the Latvian Russian Union, a fringe party more favored by the Kremlin.” The Latvian Russian Union only attained a paltry 3.2 percent. The latter is a number too small for it to enter parliament. So, is this a win for Russia? No, but it’s not exactly a loss either. Harmony is a party that will lessen tensions with Russia. This in itself, is a good thing for Moscow, which is embroiled in sanctions, and has few friends in the EU. However, Harmony is also a party that feels that it must prove to the EU, and Latvians that it stands with them, and not with Russia. Harmony would also be ruling with a coalition of parties that are likely to keep it check on any pro-Kremlin move. Time, and only time, will tell if this election is a win for Russia, and a thorn on the EU. Read more: "Latvia Election Results Sparks EU Crisis Warning As Pro-Russia Party Sweeps To Success," by Simon Osborne for Express. "Putin Shouldn't Feel Too Good About Russians in Baltics," by Leonid Bershidsky for Bloomberg. "Ethnic Russians Have Big Influence in Latvian Election," by Jari Tanner and Roman Koksarov for the Associated Press. "Fed-Up Latvians Reject Ruling Coalition," by Reuters staff. Russia and Serbia : A Slavic Brotherhood… It has been said that blood is thicker than water. At times, this seems like a paramount truth. Russia and Serbia go way back. Following the Ottoman Invasion of Serbia in the 14 th century, Serbian refugees found refuge in Russia. Once again in the 18 th century, a vast number of Orthodox Serbs had to re-settle in Russia’s military frontier region. The ethnic and orthodox ties between Russia and Serbia are robust. Notwithstanding, during the “Cold War” the West strategically supported Yugoslavia as a point of influence in the Eastern European communist garden. The Yugoslav leader Josip Broz Tito, at the time, was not aligned with the USSR, putting at risk this brotherhood which was cemented centuries ago; openly supporting policies which were encouraged by Western powers and conflicting with the USSR's. However, life, politics, interests and hypocrisy has a way of returning things to their natural state. Following the brief fling, Serbian and Western interests clashed, leading to air strikes by NATO on March 24, 1999 on the former Federal Republic of Yugoslavia, culminating in the independence of Kosovo. Russia strategically supported their Slavic brothers in opposing Kosovo’s independence, and condemning the air strikes, stretching out their arm once again. In return, Serbia did not forget the gesture and even though it applied to join the EU, omitting the consequences of their decision, Serbia was the only Balkan country backing Moscow on the Crimean resolution. The relationship between Serbia and the West, as well as towards Russia is at a conundrum. Belgrade applied to join the EU in 2009, despite the existing animosity born from breaking up the old Federal Republic of Yugoslavia. Unemployment is high (15.8%) and Serbia needs Foreign Direct Investment (FDI) for social and economic development. Russia has participated in injecting capital into the Serbian economy via a few major projects, which are aligned with Russian interests. Such as in 2003, Lukoil paid 117€ million to acquire a 79.5% share in Beopetrol—Serbia’s previously nationalized second-largest petrol chain—and its web of 180 filling stations. Additionally, Gazprom Neft bought a 51% share in Serbia’s petroleum industry (Nafta Industrija Srbije, NIS) for 400€ million in 2008. It’s worth noting that these figures/perceptions are far from the truth, as Russia’s grants/investments to Serbia from 2000 to 2015 represent a minuscule fraction compared to those of the EU and its member states—totaling 2.7€ billion. In Rossiya scan we have highlighted the difference between facts and perceptions, even though joining the EU would be positive for Serbia (they need it). There are signs that the EU is growing tired of its expansion (we believe Serbia perceives this, due to the relationship with Russia), and the local Serbs still feel attached to Russia. From 2009 to 2015, more than 80% of Serbs agreed that Serbia’s interests were best served by maintaining strong relationships with their Slavic brothers, numbers don’t lie. Read more : “Keys to Understanding Russia’s Relationship with Serbia,” by Leo-Paul Jacob for NATO Association “Russia, Serbia, and the Complexity of their Relationship,” by Savely Zakharenko for the Centre of Euro-Atlantic Studies . “Serbia Stands by Russia at UN on Crimea Resolution,” by Maja Zivanovic for Balkan Insight . “Relations Between Russia and Serbia,” by Elvin Aghayev for the Independent International Political Research Centre. The End of U.S Hegemony... “You either die a hero, or live long enough to see yourself become the villain." Inspector Harvey Dent, 'The Dark Knight' “It is also in the interests of the tyrant to make his subjects poor... the people are so occupied with their daily tasks that they have no time for plotting.” - Aristotle Looking back on what we have been saying over the course of several issues both

Billionaires “BEWARE” of London…

When the "Panama Papers" scandal erupted, the media went in uproar over the tactics that the super-rich were using to dodge taxes or hide assets. Yet in the end, despite the uproar, nothing truly changed. Western countries especially, the U.S, UK, Switzerland avoided taking any concrete action. This was not surprising, as these three are amongst the biggest havens for major fortunes, legitimate or ill-gotten.

In the aftermath of the Skripal incident, the UK passed a new law to combat ill-gotten gains, and requesting their provenance. The first to fall foul of these new rules is the wife of the former chairman of Azerbaijan’s largest bank. The UK is requesting information so as to understand how she could afford to purchase a mansion in central London and spend over $20 million in less than a decade when the annual salary of her spouse was under $150k.

This is not the first shot fired by the UK, the first having been their refusal renew Roman Abramovich’s visa. By doing this the UK intends to send a strong message to Russia, that ‘Londongrad’ is over.

For decades, the UK has been luring in money without asking much questions, offering golden visa schemes, and by becoming a legal safe haven for many murky business scions. The question is though…is the UK really changing? Targeting the Russian community in the aftermath of the Skripal incident is a political PR move. As sanctions were imposed on Russia in 2014, it is estimated that over $160 billion flowed out of Russia towards the West. Last estimates stated that there is over $1 trillion of Russian money abroad, which is 3 times the reserves of the country itself.

Let us put one perspective out there.

Russia has been poking the West, and its economy (even though in dire need of new cash influx) has not collapsed. That being said, wouldn’t it be good for Russia to entice some of their emigres to bring back their wealth? If these emigres see that they are being perceived as second rate citizens in their place of living (be it the UK, U.S or other places), and that their fortunes are no longer safe, they might, just might consider negotiating with the Russian government for a reprieve, and a return back home.

As a character in the UK series McMafia stated; “You do not come home as a beggar, you come home as a King”. This is a possibility, if these people manage to negotiate terms, and repatriate themselves.

For those who have visited Moscow in recent years, you will have noticed that the city is phenomenal. Offering the very best of everything, and a wealthy person can make its playground despite its harsh winters.

Of course, Russia does not offer the sophisticated, and straightforward legal system that the West has developed over centuries. However, the appeal of returning to a place where you can “negotiate” things with authorities, might seem like a better option for some.

By attracting back, the emigrated billionaires, Russian President Vladimir Putin would strike a major PR coup. Also, with fortunes being returned in fear of sanctions, the West is actually playing towards one of Putin’s end goals. That is, that he wants Russian money to be brought "home".

Let us take a different perspective. Recently, and since the Skripal incident, as well as hacking probes, the press has been blasting stories about "security failures" of the Russian intelligence agencies. Yet, why not consider that by taunting and apparently failing, the Kremlin is pushing Western government to impose ever harder sanctions on their citizens, so as to push them back to Russia? Let’s not forget, regardless of what you may think of him, Putin is still a formidable tactician.

The fact of the matter is, the exiling of Russia’s oligarchs and the money they extracted from Russia starting from the 1990’s has made the country poorer, and hampered its development. Where in the West, most great fortunes reinvested into their community or country, many Russians practiced capital flight. Maybe now is a time to "give back", or as a former Co-CEO of Goldman Sachs Russia put it: "it is time to pay one’s dues to Russia".

If London seeks to investigate Russian money, they should probably extend this to the Middle East, Asia, Africa and Latin America. If they do not… isn’t this discrimination? An illegal action that is contrary to the values of a country who asserts it respects the rule of law and is fair? Of course, we at Rossiya Scan see the world for the tough place that it is. The UK is playing politics, and will not punish the citizens of these other countries. Why? The positive PR yield would not be big enough, and the economic punch to their domestic economy would be too great.

"A Trio of Welathy Russian's Made Enemy of Putin. Now They Are All Dead," by Alan Cullison for the Wall Street Journal.

"Azeri Banker's High-Spending Wife Targeted by New British Anti-Graft Powers," by Michael Holden and Andrew McAskill for Reuters.

"Russia's Financial Watchdog Says No Request From Denmark in Danske Bank Case," by Reuters staff.

"Corporate Russia Feels Insulated from Sanctions," by Henry Foy for the Financial Times.