Sunday,
20 August 2017
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OpinionFinancial evacuation begins

The events of the recent weeks persistently convince us that the Kremlin authorities have launched massive evacuation of their assets. The latest news from Moscow give us an idea of the general trend of the Russian economy being “zeroed” and the attempts to withdrawal from the country any capital, which is still available to the master of the Kremlin and his entourage.

The Russian Finance Ministry is considering the possibility of applying a bail-in mechanism to the deposits to individuals, which is a forced conversion of the claims of creditors of the third line into subordinated liabilities or share capital of troubled banks. Following the example of Cyprus, initially large, but then also the smaller depositors may be denied access to their deposits under the pretext of the need to save the Russian economy. In exchange, they might be provided with some sort of guarantees of the return of deposits in uncertain terms, which may generally repeat the scenario of the seizure of the population’s deposits at the time of the collapse of the Soviet Union. At the same time, the seized funds will be transferred into the “reliable” accounts of a narrow circle of individuals and disappear in void. That is, the Russian Federation is on the verge of another bank robbery to be committed by the state.

Secondly, not so long ago, Russia and Hong Kong have signed an intergovernmental agreement on avoidance of double taxation and prevention of tax evasion on income taxes. Previously, this issue was banned by the Russian authorities.

Now that the question arose of transferring money into the secure jurisdictions from those controlled by the West (after all, sanctions still remain in place) Hong Kong was very helpful.

Now that the question arose of transferring money into the secure jurisdictions from those controlled by the West (after all, sanctions still remain in place) Hong Kong was very helpful. But the most interesting thing is that it looks like another trap for the Kremlin. Once the significant amount of funds is gone to this financial harbor, the trap will slam shut. Quite notably, according to Russia’s Central Bank, the subsidiaries of China’s China's leading credit institutions, for example, Bank of China, began withdrawing their assets from Russia in December 2015. In particular, in December 2015 alone the volume of Bank of China's assets in the Russian Federation dropped by 31% from RUB 55.9 billion to RUB 38.6 billion. These figures are not catastrophic, but the process itself is very revealing. The Russian banking analysts have already started saying that "the U-turn to the East” is over.

Thirdly, the open sources claim that the Russian government was to start the sales in the domestic market of natural diamonds from the State Fund. The first auction is scheduled for late February. The very scheme is set up in such a way that only those who are close to the Kremlin are able to take part. The estimated price of tens of kilos of natural diamonds could reach $7 billion. The real price will be significantly understated. According to Russian experts, the main purpose of this operation is to withdraw billions of dollars in diamonds from the state ownership.

The unexpected disappearance of a $35-billion Chinese loan for Rosneft is also worth mentioning. The money was given as part of an advance payment for future deliveries of Russian oil to China. That is, the money is already in the pockets of Rosneft’s top management while the "black gold" has yet to be supplied. The loan may also be returned in the other shape. For example, this may be the shares of Rosneft.

We also leave a bit of conspiracy theories for dessert. Some very symbolic meetings have been taking place recently. For example, an almost 93-year-old heavyweight veteran of the U.S. politics Henry Kissinger paid a visit to the Kremlin. The official reason - an attempt to safeguard a dialogue with Russia to solve the most acute problems of international security (actually, those created by Vladimir Putin): Ukraine and Syria. The informal reason is a discussion of plans for the Kremlin to accept the scenario of political, financial and military surrender, with the change of Putin’s regime (probably with some guarantees of personal safety of the Russian president as far as it is possible after what he has done), but without the collapse of the Russian state. It is likely that the Obama administration, the American and European elites in general can’t allow any risk of losing control over Russia's nuclear facilities. It is likely that this is the exact reason why we have not witnessed the collapse of Putin's Russia so far. It may seem as a paradox, but the U.S., the Obama Administration are the most solid guarantors of the integrity of the Russian Federation.

There is another nuance. The meeting of Pope Francis and head of the Russian Orthodox Church Patriarch Kirill scheduled for February 12, to be held in Cuba. Allegedly as a result of the meeting a declaration on cooperation will be signed by the two Churches. But the important thing is that the meeting is unexpected and announced in a rush. It was not on the initial public agenda of the two religious leaders. Moreover, the ROC used to refute even a hypothetical possibility of such a meeting. It is important to understand that Pope Francis has already held several meetings with Putin. The two may have discussed the issue of preservation of part of Putin’s assets by Vatican, according to many experts and analysts. Most likely, the meeting between Francis and Kirill in Cuba (Putin’s foreign visits are a huge risk now that the decision of the London court in a Litvinenko case was announced) will be devoted to the same subject – the ability to save and return the Russian money amid the tightening external pressure on the Kremlin. It is likely that Vatican will require compensation for its services, for example - a gradual withdrawal of the ROC from Ukraine. It may even be more than a request. Rather, a prerequisite.

In conclusion, it should be said that there are numerous signs indicating that the Russian top officials are desperately trying to withdraw as much of their assets and funds as possible out of the country to the safer jurisdictions. Such a process is a sign of the approaching end of the Putin’s regime, and perhaps of the Russian state in its current form.

Another thing is that, in order to hide the withdrawal of capital from Russia, the Kremlin will set up large-scale cover operations. There is no doubt that some of them will take place in Ukraine.

Another thing is that, in order to hide the withdrawal of capital from Russia, the Kremlin will set up large-scale cover operations. There is no doubt that some of them will take place in Ukraine. In this context, Putin and his entourage will be acting like street magicians, creating various illusions for the audience. The most likely of those will be the escalation of hostilities and a threat of World War III. It is likely that the phase of financial evacuation will be followed by the final act of the transformation of the Putin’s regime into its new version. There will be plenty of parallels with 1990.

It is important for the West not to repeat its past mistakes.

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