Putin, Facing Sputtering Economy, Declares a Tax Crackdown

By Gabrielle Tétrault-Farber

Sergei Karpukhin / Reuters

Putin speaking in the Kremlin on Thursday during his State of the Nation address. The president said he is not abandoning his spending pledges.

President Vladimir Putin capped off a year of aggressively seeking to fill the government's coffers by announcing Thursday that the government would begin to tax Russian offshore companies and no longer support foreign-registered enterprises

Pro lift export barriers, reform the education system and provide tax breaks to regions that support business development.

The unsurprisingly business-oriented speech and the new crackdown on tax evasion come amid Kremlin efforts to keep capital within its vast borders, an objective Putin addressed in last year's Constitution Day speech, as well as at this summer's Group of Eight summit and St. Petersburg International Economic Forum.
Putin has been keen to fill state coffers that were depleted following the 2009 recession. Economic growth has slowed to an expected 1.5 to 1.8 percent this year from 3.4 percent in 2012, leaving the government struggling to make ends meet and putting enormous pressure on both Putin and the Cabinet led by Prime Minister Dmitry Medvedev.
Putin, speaking in the Kremlin on the 20th anniversary of the adoption of the country's Constitution, said that companies could go offshore, but that they would have to "bring the money back to Russia."
Putin boldly suggested that Rosneft's takeover of TNK-BP, a Moscow-based oil company whose parent company is registered in the British Virgin Islands, was an example of problematic corporate conduct.
Rosneft head Igor Sechin, head of state-run oil company Rosneft and a close ally of Putin, defended his company's $55 billion offshore transaction in March, telling RIA Novosti on Thursday that business partners often insist that businesses be registered offshore.
Sechin also said that for Putin's announcement to come into effect, Russia would have to withdraw from agreements on the avoidance of double taxation with offshore companies.
Putin's efforts to keep capital at home left another longtime Putin confidant, former Finance Minister Alexei Kudrin, unimpressed.
"Unfortunately, the proposed measures will hardly stop the outflow of capital," Kudrin tweeted.
Indeed, Putin's measures, while matching the OECD's global efforts to fight offshore tax evasion, will not necessarily curb the flight of capital from Russia, said Art Franczek, president of the Moscow-based American Institute of Business and Economics.
"Companies have smart tax lawyers who will look for ways to get around this," he said. "Russian companies still do not feel the business environment is positive enough for them to keep their capital in Russia."
If Putin's plan were to succeed, the Russian government could collect an additional "tens of billions of rubles," said Finance Minister Anton Siluanov,  Interfax reported.
Capital flight totaled $48.1 billion in the first three quarters of 2013, the Central Bank said last month. On top of that, investment funds withdrew $355 million from Russia between Nov. 6 and Nov. 20, Prime reported.
Putin also used his annual address to appeal to his nationalist supporter base, exalting the Russian military's "superiority" and promising to enforce tougher regulations on migrant workers from other former Soviet republics.
"We are facing a complex task. We cannot sever our ties with the former republics of the Soviet Union, but we need to enforce order," he said.
Putin said that foreigners who entered Russia without a visa and remained in the country "without a purpose" could be banned from the country from three to 10 years.
Despite ordering a stricter regulation of Russia's migrant workers, Putin did not shy away from expressing Russia's willingness to exercise its "soft power" to win over and build ties with foreign allies.
"We need to significantly increase the export of high-quality educational services, to create conditions for education in Russian universities for foreign citizens and our compatriots, mainly from CIS countries," Putin said. "This is a serious tool for strengthening the cultural and intellectual influence of Russia in the world."
While openly promoting Russian cultural domination over the Commonwealth of Independent States, Putin denied that the Kremlin bullies the former Soviet republics.
"We do not impose anything on anyone," Putin said, referring to ongoing pro-European protests in Kiev.
Putin's speech was also imbued with subtle retorts to Russia's Western detractors.
Toward the end of his address, Putin obliquely backed Russia's "gay propaganda" law, which has infuriated rights groups and the international community.
"We know that more people in the world support our position on the protection of traditional values," Putin said, listing "traditional family values" first among Russia's array of moral principles.
Putin took another subtle shot at the West, making self-congratulatory remarks on his instrumental role in striking a United Nations Security Council resolution to rid Syria of its chemical weapons, which earned him a Nobel Peace Prize nomination.
"Our choice [regarding Syria] was made exactly on the basis of fundamental principles of international law, common sense and logic," Putin said.
Despite his forward-looking — albeit unsurprising — address, Putin remained surprisingly silent on a draft bill he submitted to the Duma on Monday that was to grant mass amnesty to scores of prisoners in honor of the 20th anniversary of the Constitution. The legislation, the brainchild of entrepreneurs' rights commissioner Boris Titov, could release, among others, thousands of businessmen jailed on tax and other charges that supporters say are fabricated.

Contact the author at g.tetraultfarber@imedia.ru

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The Moscow Times 

Russia-EU Tug of War Over Ukraine Escalates

By Yekaterina Kravtsova

Andrew Kravchenko / AP

U.S. Assistant Secretary of State Victoria Nuland, right, and U.S. Ambassador to Ukraine Geoffrey Pyatt offering food to riot police officers in Kiev.

As pro-European protesters continue to face off against riot police on Kiev's central square, a related confrontation between Western governments and Russia over the future of geopolitically crucial Ukraine is escalating, with both sides vying for the upper hand.
European Union foreign policy chief Catherine Ashton continued a two-day visit to Kiev on Wednesday, walking among the demonstrators on Maidan and meeting with Ukrainian President Viktor Yanukovych, and U.S. Assistant Secretary of State Victoria Nuland traveled to the Ukrainian capital as well in an effort to help "save Ukraine's European future."

"We also made clear that we believe there is a way out for Ukraine and it is still possible to save Ukraine's European future, and that is what we want to see the president lead, and that is going to require immediate security steps," Nuland told reporters after a two-hour meeting with Yanukovych, news agencies reported.
Meanwhile, in Russia, the State Duma issued a statement condemning Western countries for purportedly interfering in Ukraine's internal affairs and putting pressure on the country's government, echoing earlier sentiments communicated by Foreign Minister Sergei Lavrov. Russian lawmakers called on the Kiev protesters to "stop the illegal actions" that they said were destabilizing the country.
With Russia and the West dug in to their positions of trying to sway Kiev toward them, the Ukrainian government appears torn over how to proceed, and national polls show a roughly equal division in the country's population over which path to take.
Ukrainian Prime Minister Mykola Azarov said Wednesday that Ukraine was not going to discuss joining the Russia-led Customs Union at an intergovernmental meeting with Moscow next week and that talks with the EU were ongoing over an association agreement. Kiev had declined to sign a deal with the EU in late November after strong pressure from Russia.
But, speaking at a Cabinet meeting, Azarov also said Russia and Ukraine were close to a decision on bilateral trade, while Yanukovych said Tuesday that it was not possible to talk about the future of Ukraine without talking about restoring trade relations with Russia.
Azarov said that in order to prop up the struggling Ukrainian economy, the government would need 20 billion euros in financial assistance from the EU budget, presumably to compensate for revenues from trade with Russia that would be lost if the EU deal were signed.
"I want to draw attention to the motives behind the protests of our citizens," Azarov said. "Those who came to Maidan demand the immediate signing of the Association Agreement with the EU. The government also is in favor of signing the agreement as soon as possible, but we want to create conditions under which losses for the Ukrainian economy will be minimized."

Vasily Fedosenko / Reuters

Ashton, right, on a visit to Maidan.

Azarov said European officials were "not in a hurry" to help Ukraine financially, but Reuters reported late Wednesday that the EU was holding talks with the International Monetary Fund and the World Bank on arranging assistance for Kiev were it to sign the association deal.
Ashton visited Maidan on Tuesday night and held talks with Yanukovych on both Tuesday and Wednesday, saying in a statement Wednesday that she was "impressed by the determination of Ukrainians demonstrating for the European perspective of their country."
Speaking at a news conference Wednesday, Ashton said Yanukovych had told her that the crisis in Ukraine would be resolved within 24 hours, Interfax reported. She did not elaborate.
Riot police moved to clear the protesters from Maidan overnight Tuesday to Wednesday but were repelled, and they retreated. On Wednesday evening, Yanukovych, who a day earlier in a televised meeting with three former presidents of Ukraine called the protests a "shameful page" in the country's history, called for dialogue with opposition leaders who are presiding over the protests.
Yanukovych also met Wednesday with U.S. Assistant Secretary of State Victoria Nuland, who visited protesters at Maidan earlier in the day and said it was still possible to for Ukraine to move closer to the EU.
U.S. Secretary of State John Kerry used stronger language in a statement Tuesday, saying the U.S. was disgusted by the actions of the Ukrainian authorities.
"For weeks, we have called on President Yanukovych and his government to listen to the voices of his people who want peace, justice and a European future. Instead, Ukraine's leaders appear tonight to have made a very different choice," he said, referring to the attempted clearing of Maidan by riot cops.
But Viktor Mironenko, head of the Ukrainian Research Center at the Russian Academy of Sciences, said Western politicians' statements did not represent serious pressure on Ukraine when compared to the actions of Russian authorities.
"Today, Russia announced that it would no longer buy delivery vehicles produced in Dnepropetrovsk, so both economic and political pressure on Ukraine will be continued," Mironenko said by phone. "But the pressure that started this summer has been so strong that it is difficult to imagine how much stronger it can be in the future."
Russia tightened customs controls at the Ukrainian border over the summer, signaling to Kiev that economic punishment was in store if it signed the EU deal.
Mironenko also said that even though Ukraine did need economic help, it was unlikely that the EU would provide it until the situation in the country became stable, adding that 20 billion euros was a "fantastical amount" and the mechanisms for the EU to give it were unclear.
Given the aggressive tug of war over the country, Mironenko said the future of Ukraine was unclear.
"Ukraine has turned into a reason for a fight between Russia and the West. The situation in the country could develop in a completely unexpected direction," he said.

Contact the author at e.kravtsova@imedia.ru

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Moscow Minimum Wage Set at $384 per Month From January 1

The Moscow Times

Timothy Misir / MT

January ses a 400-ruble raise in the city's minimum wage, and a further increase of 250 rubles in July.

The minimum wage in Moscow will increase to 12,600 rubles ($384) a month starting in January, with a further 250-ruble raise planned for July.
Moscow Mayor Sergei Sobyanin signed the order after negotiations with the city's trade unions and employers' associations, an unidentified official said, Interfax reported Tuesday.

In July, the minimum wage in the capital was raised from 11,700 rubles to 12,200 rubles.
The average monthly wage in the city is about 57,000 rubles, a city official said in October. The official country-wide minimum wage, as decreed by President Vladimir Putin this year, is 5,205 rubles.

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Putin Shuts State News Agency RIA Novosti

By Gabrielle Tétrault-Farber

Vladimir Filonov / MT

Late-afternoon traffic zooming past the massive headquarters of the RIA Novosti news agency next to metro station Park Kultury on Zubovsky Prospekt.

President Vladimir Putin on Monday issued a decree ordering the liquidation of RIA Novosti, the massive state-owned news agency, and mandated the creation of a new global news agency to be headed by an aggressively pro-Kremlin television host.
In its own article about the news, RIA Novosti's English-language service said the decision signaled a strengthening of the Kremlin's grip over media in the country.

“The move is the latest in a series of shifts in Russia’s news landscape, which appear to point toward a tightening of state control in the already heavily regulated media sector,” the news service wrote.
The presidential decree came as a shock to the Russian media scene — including to RIA Novosti employees, who were not informed of their agency's reorganization ahead of time. One employee of the agency, who requested anonymity because he was not authorized to speak to the media, said the corporate New Year's party had been cancelled and that everyone was “demoralized.”
Another RIA Novosti employee said they were told that after a change in leadership over the next month, the organization could be sold off piece-by-piece to other Russian media companies.
Kremlin administration head Sergei Ivanov justified the decision to shut the agency on financial grounds, while also admitting to the “soft power” purposes behind its replacement, to be called Rossia Segodnya.
“The new agency is a more rational use of budgetary funds allocated to state information resources, and we are talking about reducing — and not increasing — funding,” Ivanov told journalists, Interfax reported.
“Russia is pursuing an independent policy, firmly protecting its national interests and explaining this to the world is not easy, but it can and must be done,” Ivanov said.
The direct translation of Rossia Segodnya is “Russia Today,” the former name of state-owned English-language television channel RT. The new agency apparently will remain separate from RT, however, while it remains unclear what languages it will publish in.
RIA Novosti is the successor of the Soviet Information Bureau, founded in 1941 to cover World World II. It has since become Russia's most prominent news agency and is considered one of the most objective media outlets in the Russian government's large array of holdings. The agency has hundreds of employees, including in 69 cities across Russia and in 49 countries.
The move to close it came as no shock to political analyst Stanislav Belkovsky, who said there had been talk within the government for almost a year of replacing RIA Novosti editor-in-chief Svetlana Mironyuk with a “harsher Putin propagandist.”
“I was not terribly surprised to hear of RIA Novosti's liquidation,” said Belkovsky, who is founder and director of the Moscow-based National Strategy Institute.
“The regime is in a state of degradation. They needed a new agency to more adequately circulate Putinist propaganda abroad,” Belkovsky said.

Mikhail Klimentyev / RIA Novosti / AP

Dmitry Kiselyov in 2008

The “Putin propagandist” to replace Mironyuk will be Dmitry Kiselyov, a television host on Russia's state-owned Channel One, who was appointed head of the new Rossia Segodnya agency with the stated goal of “highlighting the state policies and social life of Russia abroad.”
Kiselyov is infamous for praising Stalinist politics and saying in August that the hearts of homosexuals should be “buried or burned” if they were to die in an accident.
Last week, Kiselyov raised eyebrows again by saying that Sweden, Poland, Lithuania and Ukraine had used recent anti-government protests in Kiev to “foment war with Russia.” Kiselyov argued that these foreign nations were “taking revenge” on Russia for the 1709 Battle of Poltava, in which the Russian Empire defeated Swedish forces.
“The Kremlin's direct nomination of the head of the agency inherently jeopardizes its journalistic independence,” said Johann Bihr, head of the Eastern Europe and Central Asia Bureau at Reporters Without Borders. “While we are only speaking of a 'reorganization' of the agency, the announcement does not change the Kremlin's vertical control of the media.”
Russia currently ranks 148th in Reporters Without Borders' Freedom of the Press Index, placing behind Libya, Angola and Afghanistan.
Anna Kachkaeva, dean of the media communication department at the Higher School of Economics in Moscow,  expressed her dismay at the decision, writing on her Facebook page that the appointment of Kiselyov “was a 'slap' for all critics and many dissatisfied journalists” and that the decree meant a “return to the Soviet Union” and demonstrated “a remarkable lack of understanding of the current world of communications.”
While the reorganization of RIA Novosti and the expected purge of its senior management seems to point to the Kremlin's desire to increase the loyalty of its media outlets, the agency faces similar financial challenges to those of other international news organizations, many of which have been forced to cut spending and lay off staff in recent years.
RIA Novosti's presence in 45 countries and coverage in 14 languages has come at a high cost. In 2011, the government allocated 3.15 billion rubles ($109 million) in "subsidies" for the news agency, three times more than for Itar-Tass, the country's oldest state agency, which received 1.1 billion rubles.
RIA Novosti editor-in-chief Mironyuk told The Moscow Times in 2011 that the agency would supplement its state subsidies with its own earnings, a sum equal to 25 percent of the government grants, and planned to increase its earnings share to 33 percent.
The liquidation of RIA Novosti, which had received the status of national host agency of the 2014 Sochi Winter Olympics, also raises questions about Russia's coverage of the event with its new outlet.
An International Olympic Committee representative told The Moscow Times that it was aware of Putin's decree and that it “understands it would not impact the Games' operations.” The representative did not elaborate.
Putin's decree also abolishes the State Fund of Television and Radio Programs, subjugating it to the All-Russia State Television and Radio Broadcasting Company. It also places Voice of Russia, a state-owned broadcasting corporation, under the management of Rossia Segodnya.

Contact the author at g.tetraultfarber@imedia.ru

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Greenpeace Activists Seeking Exit Visas

Twenty-six of the “Arctic 30” posing in St. Petersburg. The four not pictured: Francesco Pisanu of France, Tomasz Dziemianczuk of Poland, and Yekaterina Zaspa and Andrei Allakhverdov of Russia.

Environmental campaign group Greenpeace said Wednesday it was seeking to obtain documents allowing its foreign activists being prosecuted by the Russian authorities to return home to their families for Christmas.
Twenty-six of the 30-member international crew of the icebreaker Arctic Sunrise, detained by Russian border guards in the Arctic in September and bailed last month, plan to leave the country pending trial as soon as they receive the proper permits, the organization said.

"They were not planning to come to Russia, so they do not have any visas," Mikhail Kreindlin, a representative of Greenpeace Russia, said Wednesday.
The activists have been registered by the Federal Migration Service at a St. Petersburg hotel where they are staying. They have their passports but no documents that would allow them to cross the Russian border, Kreindlin said.
The 28 activists and two journalists were arrested last month after some of them attempted to scale the Prirazlomnaya oil platform, owned by an affiliate of state-owned energy giant Gazprom, in protest at offshore drilling in the environmentally sensitive Arctic.
They face a maximum sentence of seven years in jail in convicted.

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Russian Banks Exposed in Ukraine's Political Crisis

Gleb Garanich / Reuters

Protesters in Kiev are not planning to allow a return to business as normal.

VIENNA/MOSCOW — The political crisis in Ukraine, sparked by an East-West power struggle in which Moscow has gained the upper hand, is increasing the risk to the country's financial system and creating a particularly acute headache for Russian banks.
As crowds took to the streets to protest after Ukrainian President Viktor Yanukovych rejected a trade and cooperation deal with the European Union last week in favor of closer ties with Russia, Ukraine's rattled central bank, low on reserves, appealed to people not to pull their deposits from the banks.

Ukraine has a "systemic" problem with bad loans, but its interbank money market is functioning normally despite the upheaval of the past week, Russia's state development bank VEB said Wednesday.
Ukraine seems to have little immediate prospect of additional financial help to meet its big external deficits and financing needs, making it even less attractive to the foreign banks that flocked there before the 2008 collapse of Lehman Brothers triggered the worst of the global financial crisis.
While other foreign lenders have cut their Ukraine exposure in the five years since — to 20 percent of Ukraine banking sector assets in 2012 from 40 percent in 2008, according to a Raiffeisen Research survey — Russian banks have maintained a strong market presence, still accounting for 12 percent.
Among foreign banks, the Russians have easily the biggest exposure, more than twice that of Austrian lenders, the next biggest.
In a credit outlook note this week, ratings agency Moody's cited President Vladimir Putin as saying Ukrainian borrowers owed about $28 billion to four Russian banks and named Gazprombank, VEB, Sberbank and VTB as creditors.
"We estimate that these banks' exposure to Ukrainian risk is $20 billion to $30 billion, a sizable amount indeed, considering that their combined Tier 1 capital was $105 billion in June," Moody's said.
Moody's, which estimated that 35 percent of all bank loans in Ukraine were problem loans, said the country's severe economic problems would keep local borrowers under pressure and could result in higher loan losses for the Russian lenders.
In the absence of the Association Agreement with the EU, Russian-Ukrainian trade is likely to rise, and the four big Russian banks may well increase their exposure to Ukraine, it added.
Yekaterina Trofimova, a Gazprombank board member, played down the concerns.
"Gazprombank is the least exposed to Ukrainian risk among major Russian banks. Gazprombank has no subsidiary in Ukraine. Gazprombank does not lend locally [and] has no retail lending in Ukraine. All credit exposure is contract-based secured lending," she said.
A spokesman for VEB said its own loan exposure in Ukraine was nearly $4 billion, mostly through subsidiary Prominvestbank, which it said had a corporate loan book of $3.5 billion and interbank lending of about $250 million.
"It is indeed the case that one of the systemic problems that Prominvestbank encounters is the low quality of debt servicing," the VEB spokeswoman said in e-mailed comments, saying the bank held more than $1 billion in problem loans. Prominvestbank was working flat out to recover these loans and had won $287 million in repayments through the courts in the form of money and property, the spokesman said, adding that no risks had materialized on the interbank markets following last weekend's protests, in which 350,000 people rallied in Kiev to demand Yanukovych's resignation.
Sberbank, Russia's largest bank, declined to detail its exposure to Ukraine when it announced third-quarter results last week. VTB declined to comment.

Eyeing The Exit 

Foreign banks have $28.2 billion in cross-border claims and local loans in foreign currency, according to the Bank for International Settlements, whose figures cover 31 countries excluding Russia.
Gianni Franco Papa, head of Italian bank UniCredit's market-leading central and eastern European business, said the bank was not being put off by the drama playing out on Kiev's streets. The country has handled crises in the past. "Whether they are able to cope this time or not we will know in a few days."
An executive at Greece's Piraeus Bank, whose Ukraine unit has 60 branches, said: "There is no panic and no deposit outflows. Ukrainians are used to political crises. But what does happen — with us and at other banks, too — is that there is increased interest to buy foreign currency, mainly U.S. dollars."
Some European banks have already pulled out of Ukraine since 2008, including Commerzbank, Erste Bank and Swedbank. Emerging Europe's second-biggest lender Raiffeisen Bank International has said it would not rule out an exit from Ukraine as it sharpens its focus.
Dimitry Sologoub, head of research at Raiffeisen in Kiev, said the banks had learned lessons from the 2008 crisis, so were much less exposed to credit risk, liquidity risk and forex risk, and the central bank was calming matters by providing liquidity and foreign exchange.
"The question is how long it will go? The reserve cushion of the national bank is not so big."
In the meantime, Ukraine might secure short-term benefits from its closer ties with Russia, enough perhaps to stave off the kind of currency crisis that nearby Belarus suffered in 2011, said Charles Robertson, chief global economist at Renaissance Capital in London.
"In the long run, it will probably keep Ukraine poor. This is bad for Ukrainians and bad for Russia," he added.
"Instead of being a strong, successful economy on Russia's borders, able to buy plenty of Russian exports, Ukraine risks becoming another Belarus."

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The Moscow Times 

Yota Launches Double-Sided Russian Smartphone Across Europe

By Guennadi Moukine

Vladimir Filonov / MT

Yota Devices chief Vladislav Martynov speaking at Wednesday’s presentation of his firm’s new smartphone.

Russian technology firm Yota Devices launched the world's first dual-screen mobile phone on Wednesday, breathing fresh air into the fast-growing and competitive smartphone market.
The YotaPhone has two screens — a 4.3-inch touch screen with a familiar Android interface on the front and a curved Kindle-like electronic paper display on the reverse side. Both screens are protected by the state-of-the-art scratchproof Gorilla Glass.

The back screen is designed to display e-books, alerts and text messages. As it only uses power to generate new images, the phone battery lasts up to 85 hours in e-book reading mode.
Even when the phone is switched off, the image on the back screen does not disappear — a convenient feature for displaying a boarding-pass barcode, a map or just a wallpaper.
The device is not just another smartphone, Yota Device's chief executive Vladislav Martynov said at the launch. It is "a new user experience" that will change the way people use their phone.
Founded in 2011 to produce mobile connectivity devices for Yota, a private wireless internet provider, the base of Yota Devices' business is LTE modems and routers, where the company has a worldwide market share of 6 percent.
The YotaPhone goes on sale this month. It will be available in Russia for 19,990 rubles ($600), and in Austria, France, Germany and Spain for 499 euros ($680). Next year sales will begin in the Middle East at a similar price. Currently, there are no plans to try the U.S. market.
"If we really hit the mark then in two to three years everyone will be copying us, and we will be happy" Martynov said.
Artyom Lutfullin, editor of mobile-review.com, however, poured cold water on that notion, pointing out that products with similar functionality already exist, such as mobile phone cases with inbuilt electronic paper displays on the back.
Bayram Annakov, from Moscow-based mobile application developer Empatika, said that while the idea of the always-on electronic paper display sounds interesting, it has yet to be seen if the market will adopt it.
"Most likely, the device is not intended to become a smartphone as such, but as a platform upon which to sell applications and services suitable for the back screen," Annakov said.
Yota Devices' goal was to create a product that was unlike anything else on the market, and they succeeded, said Lutfullin. YotaPhone cannot and will not compete against the market leaders, he said — it has created a market segment of its own.
Yota may have a good chance — smartphone sales grew 44.5 percent year-on-year in the first half of 2013 to reach 77.5 billion rubles, according to data from telecoms giant MTS.

Contact the author at g.moukine@imedia.ru

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