M.N.: These are the signs and examples of the notorious "moral black hole" phenomenon, described with alarm by Ariel Cohen and others several years ago:
"A Moral Black Hole. The roots of the Russian elite’s discontent lie in imperial nostalgia, phantom pains of autocracy, and questionable morality. The end of communism resulted in a moral black hole—a deep spiritual and identity crisis among the elites. Corruption, alcoholism, and blurred lines between organized crime and authority reflect general alienation, recklessness, and fatalism. Nations fail, St. Augustine argued, because peoples fail. A healthy society can correct a deficient state, but even the best-designed states will founder if they are based upon a deficient civil society. This degradation bears directly on Russia’s conduct of its foreign policy. Those who keep calling for an engagement that will eventually transform Russia cannot see that it is the West, not Russia, that is being transformed by this contact." This sinkhole became close to the borders of the West literally and figuratively: criminal mentality and behavior are contagious and infectious. Then, if the diagnosis is correct, the interventions suggested by Karen Dawisha and others, of the same mind with her, are fully justified: "If these institutions instead risk being undermined by Russian actions that threaten to overwhelm them, then Russia should be excluded."
Since the collapse of the Soviet Union, an entirely new architecture was envisaged to incorporateRussia into Western institutions, from the Council of Europe to the World Trade Organization, from the High Courts of London to the New York Stock Exchange. Now, under Vladimir Putin, these institutions themselves risk being undermined by unethical Russian practices that provide at best a fig leaf of respectability for Russian behavior that no longer meets the minimal standards for classification as a “European” state. Kremlin-coordinated actions in Ukraine and elsewhere threaten to overwhelm European institutions meant to deepen Russian economic and political freedoms.
Welcoming Russian companies to Wall Street and the City should have improved the quality of Russian corporate governance and transparency. But it has not. Shady Russian oligarchs connected to the Kremlin have become fabulously wealthy from dozens of I.P.O.s in London and New York.
Until recently, the higher burden of compliance at the New York Stock Exchange had kept Russian companies away. But instead of protecting American investors, a large percentage of which are public pension funds, Congress included a provision in the 2012 Jobs Act that opened up the N.Y.S.E. to more Russian businesses by allowing emerging growth companies with revenues of less than $1 billion a five-year exemption from independent audits. The number of Russian companies traded on the N.Y.S.E. grew from two to over three dozen by 2014.
The market increasingly recognizes the risk of dealing with Russian companies, the largest of which is Gazprom. Despite having the world’s largest net profits, Gazprom was trading at one-third the stock market valuation of Exxon Mobil, due to what is widely regarded as rampant and Kremlin-directed corruption. Russian courts continued the house arrest of Vladimir Yevtushenko even after he had forfeited to the state his shares in Bashneft, a subsidiary of Sistema, the first Russian company listed on the London Stock Exchange. This suggests that even those companies of long standing are going to be subject to Kremlin pressure. Fearing that Sistema itself would collapse, its one-year return has plummeted by over 75 percent, losing investors, including Western investors, over $13 billion in the last year.
No one objects to Russian companies taking their rightful place in global markets, but not when it comes at the expense of investors who assume that Russian corporate governance will improve when actually the opposite is occurring.
Russian capitalism depends on the Kremlin’s closest circle marauding freely inside the country while safeguarding gains abroad.
Russian oligarchs consume the public goods produced in the West — including the rule of law and a reliable investment climate — while maintaining vast networks of shell companies. Their presence strengthens the worst aspects of our system, and weakens the best.
Mr. Putin has said he wants an end to corruption and bureaucratic bullying. If he is serious, this would be good news for Russia, as it might show that he is actually willing to lay down laws that everyone will have to abide by. But thus far he has only increased the power of the state at home, while treating the West like an à la carte menu — with public goods of his own choosing to be freely consumed. What he doesn’t understand, however, is that “the West” is a prix fixe menu: Its values and obligations must be consumed along with its pleasures.
Members of Mr. Putin’s inner elite routinely sue for damages in European courts even as the rule of law is flagrantly undermined in Russia. The largest cases in the U.K. Commercial Court involve Russians. The Kremlin is opening a case in London against the banker Sergey Pugachev, whose assets he alleges were raided by the Russian state, leading him to flee to Britain and claim that in Russia there is no private property — “only serfs who belong to Putin.”
In addition, soon to appear on the legal horizon in Europe will be the Russian challenge to European Union sanctions. In the United States, sanctions are imposed, and removed, by administrative fiat; but in Europe, they can, and they will, be challenged in court. In the European Court of Justice, Mr. Putin’s longtime friend and crony Arkady Rotenberg, along with the oil giant Rosneft, Russia’s largest commercial bank Sberbank and Gazprom Neft, the oil branch of Gazprom, are suing the European Union, claiming they had nothing to do with the annexation of Crimea.
The European Union is fighting what looks like a losing battle to stanch the tide of corrupt, predatory and anti-democratic behavior by Russia.
The Parliamentary Assembly of the Council of Europe (PACE) and the Council of Europe’s Group of States against Corruption have repeatedly investigated Russia’s refusal to sign more than a handful of the conventions it is legally bound to uphold, including provisions for election monitoring and the criminalization of corruption. Russia’s membership in PACE bought the regime time to parade as a country upholding European values, until its voting rights were suspended after the annexation of Crimea. The council will consider extending the suspension, but the chances of Russia being readmitted to full voting membership are slim.
Appearing to live up to its obligations to the Council of Europe — which Russia joined in 1996, committing it to a democratic path — gave Russia the status of a legitimate state with European values long after the regime had taken the country in the opposite direction. It is of course the case that as long as European institutions were able to make headway in gaining Russian compliance with European norms, it was beneficial for Europe to maintain Russian membership. But one must now wonder whether that benefit hasn’t faded...
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