Today: March 22 2019
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Tomorrow you can forget about Russian trillions abroad

Tomorrow you can forget about Russian trillions abroad

Tags: Russia, Economy, Analytics, West, Sanctions

The media are actively discussing a number of statements by Western officials and politicians about the possible arrest of Russian-owned assets outside the Russian Federation. The topic is not new, but after the decision of Washington and its allies to expel Russian diplomats, it has acquired an acute urgency.

Only last week, threatening statements were made by British Prime Minister Teresa Mei, British Defense Minister Gavin Williamson, US Ambassador to Russia John Huntsman.

Agree with those who estimate this kind of economic sanction as unlikely, I can not, as I can not agree with the argument that Donald Trump, Teresa May and other Western statesmen are reasonable people. I write regularly about the inconsistency of Trump's actions in the economic sphere.

I just want to add that Trump's actions may soon provoke a second wave of the global financial crisis (the first took place in 2007-2009) and the world trade war. And, as the history of the twentieth century shows, the most "effective" way to overcome the crisis and achieve victory in the trade war (in terms of financial oligarchy) there is still the same "hot" world war.

It is unacceptable for Russia to build its economic policy on the assumption that its opponents will show prudence.

Recently in the Russian media there was one more argument in favor of the fact that the freezing of assets is not terrible for us: they say there is something to be answered. It turns out that "in return" we can not pay our debts. Indeed, Russia's external debts are quite impressive. According to the Bank of Russia, for 1 January, 2018, they together amounted to 518,9 billion dollars. I will quote for reference the main components of this aggregate figure by sector (billion dollars): government bodies - 55,8; Central Bank - 14,5; banks - 103,4; other sectors of the economy - 345,2.

And now let us turn to the statistics of the international reserves of the Russian Federation, which former Russian partners and now opponents (or opponents?) Of the Russian Federation threaten to freeze and even confiscate. At 1 January 2018, according to the Bank of Russia, they were equal to 432,7 billion dollars. They include monetary gold, which is estimated at 76,7 billion dollars. The rest is foreign currency in various forms, totaling 356,0 billion dollars. Gold It is impossible to arrest, but the currency of reserves is indeed under the sword of Damocles.

Optimists, however, argue that the balance is in our favor: Russia's external debts exceed foreign exchange reserves by 1,46 times. But this is only on paper. Authors of such "optimistic" scenarios proceed from the fact that exchange of blows will be conducted according to some rules. But in itself, the freezing of reserves is already a violation of all rules, because the country's official international reserves have the highest immunity, their freezing, arrest, confiscation and other restriction of the state's rights to own, dispose of and manage them are possible only by the decision of the UN Security Council. Such a decision can not be.

The game started without rules, and it will be conducted on a wide front. I mean that all foreign assets and obligations of the opposing sides (and not only official foreign exchange reserves and liabilities on foreign loans and loans) can be involved. And here the picture looks different.

Take the statistical data of the Bank of Russia on the international investment position (IIP) of the Russian Federation. The IIP is understood as the ratio of the country's foreign assets and its obligations to the rest of the world. Both in assets and liabilities, direct investments, portfolio investments, derivative financial instruments, as well as "other" investments (bank loans, loans in the form of debt securities, trade credits, etc.) are taken into account.

As of 1 October 2017, the foreign assets of the Russian Federation amounted to 1.322,8 billion dollars. Liabilities to non-residents (the rest of the world) were equal to 1.051,8 billion dollars. The difference between assets and liabilities (net international investment position) was plus 271,0 billion. This means that if the total freeze (or confiscation) of Russian assets around the world starts, the net loss of the Russian Federation will be 271 billion. By the way, for another 1 January 2017, the net IIP of Russia was equal to 222 billion dollars. For nine months, the past the year when the international environment continued to deteriorate, Russia "set up" more nearly fifty billion dollars.

Washington, London, Brussels will undoubtedly seek to ensure that all countries freeze Russian assets in this economic war. A number of countries will avoid this, but if we take the balance sheets of Russia's foreign assets and liabilities not with all countries of the world, but with the United States, Britain, Germany, France, Canada, Australia and some others, they will not be in our favor.

Unfortunately, the Bank of Russia does not expect such bilateral balances, but it is also possible to draw conclusions on individual fragments. At 1 October 2017, the accumulated direct investment from Russia to the US amounted to 7,61 billion dollars. And direct investments from the US to Russia at the same time - only 3,21 billion dollars. The possible net loss in this sector of the economic war is 4,4 billion.

All the figures I gave (the statistics of the Bank of Russia) are only the upper part of the iceberg. The Bank of Russia in its statistical summaries records only the legal transfer of capital across the border. And we all well know that a significant part of the capital is being moved illegally. And the vector of such a movement is from Russia beyond its limits: either to black offshore jurisdictions, or to Great Britain, Switzerland, the USA, the Netherlands, Luxembourg and other white off-shores.

There are many expert assessments of the scale of illegal export of capital from Russia. The most famous are the estimates of the American research organization Global Financial Integrity (GFI). According to her, Russia is on the second place in the world in terms of illegal withdrawal of funds abroad (on the first - China).

The total amount of such capital export in the 10-year period 2004-2013. amounted to 1,05 trillion. On average, for a year - 105 billion dollars. If this average annual rate is extrapolated for the entire period of the Russian Federation (1992-2017), we will get the total amount of illegal export of capital from Russia, equal to approximately 2,5 trillion. Even based on very conservative estimates of the profitability of assets of Russian origin, which were formed for a quarter of a century outside the country, we will get an amount of about 1 trillion. Doll.

Thus, foreign assets of Russian origin, formed as a result of illegal export of capital, can be estimated (at least) in 3,5 trillion. Plus to this 1,3 trillion. dollars of legal foreign assets of Russian origin. Total all foreign assets of Russian origin - 4,8 trillion. And this is against the backdrop of foreign assets in the Russian jurisdiction, equal to about 1 trillion. Doll.

It turns out that Russia's net international investment position is not 271 billion dollars, according to the Central Bank, and 3,8 trillion. The reader understands with what account the round of war on mutual freezing of assets can end.

To a large extent, the lack of a real picture of Russia's monetary authorities about the scale of foreign assets of Russian origin is due to the fact that in the middle of the 2000-X years, the Russian law on currency regulation and currency control introduced such amendments that simplified the possibilities for illegal withdrawal of capital.

If liberalization of control over the cross-border movement of capital took place in Russia, in the West, on the contrary, there was a toughening. The impetus for this was the 11 September 2001 events. Russian oligarchs and kleptomaniacs believed that if there was no control at the "exit" (from Russia), then it would not be at the "entrance" (in various "quiet hills"). It's an illusion.

The entrance control was, and it was constantly toughened. Financial Intelligence and other US special services have set up work to track the flow of foreign capital not only to the territory of their own state, but also to other countries. About this work and the close ties of American intelligence agencies with the FRS, with the SWIFT system, with the financial regulators of the US and Europe, I already wrote. The preparation of the "Kremlin report" was only a visible part of the not-publicized activities of Western special services to track illegal flows of capital from Russia.

Returning to the topic of possible freezing of international reserves, I want to note that it can be made not in the forehead, but in a roundabout way. The Bank of Russia manages its foreign assets using the SWIFT information and communication system. Washington can get SWIFT from the same name to block operations of Russian banks through this system (as it managed to do in 2012 with Iran).

In this case, the enemy will kill several birds with one stone: it paralyzes all calculations and payments related to foreign trade, credit and other international commercial transactions of Russian banks and companies, and at the same time deprives the Bank of Russia of access to managing its reserves. In fact, this will mean their freezing.

It is also possible to organize such a freeze, which will not look like an economic sanction, but will qualify as "an action connected with the resolution of commercial disputes". A vivid example of such a campaign is the freezing of foreign assets of Kazakhstan in connection with the dispute between this state and an entrepreneur from Moldova named Anatoly Stati.

The last in the 2000-ies began to seek from the government of Kazakhstan "satisfaction" in the form of compensation for damage suffered as a result of cooperation with this state (in the oil business). Initially, the amount of claims did not exceed 0,5 billion dollars. As events unfolded, the amount began to increase, and the scope of the dispute went far beyond Kazakhstan. Anatoly Stati (a rather mysterious figure) began to file suits in international courts. Last year, they already reached the bar in 4 billion dollars.

According to the decisions of various international and national courts, the process of blocking assets of Kazakh origin in the territory of a number of European countries - Belgium, Sweden, Luxembourg, the Netherlands - began. The apogee of this story was the blocking in December of 2017 of the funds of the National Fund of Kazakhstan (sovereign fund) in the subsidiary structure of the American Bank of New York Mellon, operating in the jurisdiction of the Netherlands. The amount of blocking exceeded 22 billion dollars, which is equivalent to 40% of all funds of the National Fund of Kazakhstan.

What's even more surprising: the amount of blocked funds exceeded the maximum amount figured in the claims in 5,5 times. Figuratively speaking, the amount of the claim can be one ruble (dollar, euro), and the amount of blocked funds - per thousand. Astana believed that there was a "misunderstanding" that would be resolved before the end of the year. Three months have already passed 2018, and the funds of the National Fund of Kazakhstan (NFC) remain frozen. The story of NFC money is a visual aid for those in Russia who think that "everything will go well".

By the way, others assure that Russia is not afraid of freezing its international reserves, since most of them are not bank deposits, but securities (primarily, treasury bonds and US bills). They say that the papers are with us, they are anonymous, they can not be arrested. The papers that make up international reserves are noted by such "optimists" in depositories in Europe and the US, and they (depositaries) have a double-key system. Of those 22 billion dollars of NFC assets that are frozen, according to Astana data, half are accounted for by the US Treasury bills.

It is better to learn from other people's mistakes. Today there is something else you can do. Tomorrow it will be possible to forget about trillions of assets of Russian origin abroad.

Valentin Katasonov
Moscow - Third Rome
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