Russian Taxpayer: Open Bar!

23 April 2013

In late March, experts, lawyers, and the opposition were shocked by the insolence of a bill introduced to the State Duma. Document #243734-6 allows Russian citizens to demand compensation through the courts for “foreign courts’ unjust decisions” at the expense of Russian taxpayers. A part of the elite that is worried by the possible requisition of their foreign assets supports this questionable bill. Political analyst Tatiana Stanovaya ponders whether the Kremlin will accommodate these lobbyists.

 

 

The draft law “On Compensation to Citizens for Violation of the Right to a Fair Trial within a Reasonable Time or the Right to Execution of a Judgment within a Reasonable Time” was prepared by members of United Russia party, Duma deputies Mikhail Starshinov and Irshat Fakhritdinov, and Senator Konstantin Tsybko. All three lawmakers belong to the category of so-called “backbenchers.” Until recently, Starshinov had been a member of A Just Russia party. After going over to United Russia, he quickly fit into the conservative wave and found himself among the authors of almost all of last year’s repressive laws: the law that provided an opt-out from direct gubernatorial elections, the law that banned adoptions of Russian orphans by Americans, the law on registration of NGOs as “foreign agents,” and so on. Starshinov also opposed legendary Russian TV host Vladimir Pozner. State Duma deputies could not forgive Pozner a past slip of the tongue in which he called the State Duma the “state dura” (i.e., “state fool”), which resulted in a proposal, supported by Starshinov in particular, for the so-called “Pozner’s Law.” This legislation would have established control over the salaries of journalists who, in addition to Russian citizenship, also held the citizenship of another country. The bill was not adopted, but Starshinov’s support for it was noticed.

Starshinov has an interesting biography. Born in Moscow, he received a diploma of higher education from the Chelyabinsk Institute of Physical Culture in the Urals region rather late in life (at the age of 33). A year later, Starshinov demonstrated his miraculous capabilities by receiving a second diploma of higher education, this time at St. Petersburg University of the Interior Ministry. Soon afterward, he got a decree in law. “Mikhail has one more post that is for some reason usually overlooked in the media. He is head of the Russian State Duma’s inter-caucus group for cooperation between civil society and the police and security services,” noted one blogger, obviously hinting at a relationship between Starshinov and the siloviki, that is, members of the security services, police, and armed forces.

Fakhritdinov, who represents in the Duma the interests of the Republic of Bashkortostan, used to serve in the military; he participated in the Afghan and Chechen wars, and was injured while a peacekeeper in Abkhazia. People with a military background are now in demand by the Russian authorities—who could be more efficient and sincere in protecting “national interests” from foreign and domestic “enemies”? Senator Tsybko, the protégé of Chelyabinsk Governor Mikhail Yurevich, was born in the Urals region. A lawyer and the author of a number of scientific publications, Tsybko, as head of the All-Russian Society of Nature Protection, is responsible for ecology issues in United Russia. Tsybko is hardly noticeable on the federal level; consequently, his authorship of the scandalous compensation bill is probably just an attempt to attract attention to his persona.

Why should a Russian taxpayer compensate the losses of wealthy Russian citizens, most of whom have “gray” and “black” income that they use to buy foreign assets?.

The bill’s openly lobbyist nature is shocking. According to the document’s explanatory note, the bill is aimed at (1) protecting the constitutional rights of Russian citizens that have been violated by the unjust decisions of foreign courts, and (2) protecting the property of the Russian Federation abroad, which can be requisitioned by a decision of a foreign court. This bill concerns the decisions of foreign courts on cases that are under the jurisdiction of Russian courts, implying that such intrusion is a violation of the state sovereignty of the Russian Federation, and consequently, that all foreign court decisions on cases that are under the jurisdiction of Russian courts are a priori unjust.

Current legislation regulates only those cases in which the rights of Russian citizens have been violated by unjust decisions of Russian courts. There is logic in this: if the judicial branch makes a mistake that results in losses by a Russian citizen, he or she has a right to demand compensation. But why should a Russian taxpayer compensate the losses of wealthy Russian citizens, most of whom have “gray” and “black” income that they use to buy foreign assets? The new bill introduced in the State Duma establishes the right (but not the duty) of the state to demand from the country whose court pronounced a “wrongful judgment” the reimbursement of budget funds used for compensation. This means that the Russian court—“the most humane court in the world”—considers itself vested with judicial power in regard to other countries, as well as having the right to decide which court decisions are just and which are not. The bill also establishes that in the case that a foreign state does not comply with the Russian court’s demand to reimburse the sum of compensation, the property of this foreign state on Russian territory can be requisitioned and transferred to the Russian Federation.

The opportunities for manipulation and corruption that this bill would provide are unthinkable. For example, imagine a businessman who uses questionable financial sources to buy assets, which are then seized by a decision of a foreign court. How easy money laundering would become if one were compensated for any losses from the Russian budget! Starshinov, however, disagrees with this view of the problem. “I do not understand the indignation toward our bill,” he told Ogonek magazine. “As if everyone thought that one could line one’s pockets from this law! I am used to thinking that people are good, that is why I know that our citizens will use it to defend their rights.”

Whose rights is “people’s representative” Starshinov going to defend? Will these be the rights of owners of boats, mansions, and offshore companies? It is noteworthy that in 2012, capital drain from Russia reached almost $58 billion; in 2013, the Ministry of Economic Development expects capital drain to amount to $50 billion. According to Moody’s, a credit rating agency, Russians keep $19 billion in Cypriot banks alone. A number of media outlets connected the proposed compensation bill with the Cyprus financial crisis.

However, in reality, the explanation is much simpler and stands out a mile away. After the adoption of the Magnitsky Act in the United States, many assets and accounts of Russian businessmen (successfully disguised as officials and lawmakers) fell under the threat of sanctions. Although the public part of the sanctions list has been reduced to a minimum, the list also has a secret part. According to American law, financial sanctions cannot be applied to persons from the secret list. However, even the possibility that they might end up on the public list or the idea that similar laws could be adopted in other countries makes the Russian elite nervous.

 

The Magnitsky Act was adopted by the US Congress and signed by President Barack Obama in 2012.

 

“I just went nuts when I saw the text of the [compensation] bill. Excuse this unparliamentary language,” said opposition Duma member Dmitri Gudkov. “Let us suppose that American, European or other secret services come across a Russian swindler who moved abroad the capital that he had previously stolen. A foreign country’s court then proves that the money had been stolen and confiscates it under the program to fight money laundering. Or else freezes and confiscates the bank accounts of those who are on the Magnitsky list. Then all these swindlers return to their homeland, file complaints to the Arbitration Court, and the latter compensates them for their losses at the expense of the federal budget, that is, at our expense.”

Lawyers are also shocked by this legislative “find.” Andrei Fedotov, a key expert of the National Research University’s Higher School of Economics, told Ogonek: “[This is] the most complicated branch of legal science. It includes a big number of bilateral and multilateral conventions and agreements on mutual legal assistance. . . . You see, it is a mechanism with a very fine tuning, a sort of legal supercomputer! And what do our lawmakers do? They go and hit it with a heavy hammer in order to make it work better. Diplomatic immunity cannot be applied to new groups of Russian citizens on a unilateral basis. One cannot just come forth and say aloud: I do not recognize your system of justice! What will one hear in return then?” questioned the puzzled expert. Irina Lukyanova, senior research fellow at the Institute of State and Law of the Russian Academy of Sciences, agrees: “Article 5.6 of the bill is dedicated to the ‘principle of reciprocity in the relations between states.’ According to general understanding, this principle is based on the mutual respect of states. Unfortunately, this bill is based on mutual suspicion of hostility and dishonesty. The negative reaction of foreign states to Russia’s interpretation of legal regulations will not be late in coming.”

Any economic crime committed by corrupt Russian officials could be backed up by Russia’s “rubber” federal budget.

The question is what position will the Kremlin adopt? It is probable that the bill is being lobbied by a part of the Russian elite that is offering a deal to the government: officials will renounce their foreign bank accounts and agree to declare any property and assets abroad, and in return, expect a guarantee that in case they lose assets as a result of the Kremlin’s conflicts, they will be compensated for their losses.

For Putin, this bill’s potential consequences are rather ambiguous. On the one hand, he has to take into account the interests of the pressure groups that form the base of his regime. The bill will undoubtedly be submitted for his consideration as part of an elaborate “package”—as a measure to protect national sovereignty against the claims of foreign pursuers of world hegemony. The Cyprus situation was similar to this one. It would have been embarrassing for Putin to be seen as saving the billions of Russian oligarchs—the people would not have understood it. As a result, Russia’s state-controlled TV stations depicted the whole situation as if the government was defending the motherland against foreign intervention.

They will do the same with regard to this bill. Putin will have to weigh all the pros and cons and take into consideration the possible negative social effects of United Russia’s initiative, as well as the risk of unprecedented abuses (it seems that the Russian leader does not think about his international image anymore). This way, any economic crime committed by corrupt Russian officials could be backed up by Russia’s “rubber” federal budget. One can only hope that the Kremlin will not dare to adopt such an odious bill. Otherwise, this will become one more sign of growing panic within the Russian elite, which eager to save its assets, no matter the cost.

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