May 29th, 2013

Putin’s new law hits marriages, not corruption

This month Vladimir Putin signed into a law a ban on the government employees as well as their wives and under-aged children holding any financial assets abroad. Now ministers, members of parliament, judges, investigators, policemen, mayors and regional governors have three months to withdraw all their money from foreign banks and sell all foreign securities they own.

Igor Shuvalov is confident in his future

This move continues populist anticorruption campaign and tightens Putin’s control over Russian ruling class. The law not only imposes special restrictions on government employees, but also creates an additional barrier for business people to participate in elections since even small companies in Russia use offshore schemes and thus their owners possess assets abroad.

Even before the law was enacted, several members of both chambers of parliament had chosen to leave politics in order to avoid the consequences of the new order. About a dozen of State Duma deputies divorced with their wives since they own all family assets. Senator and billionaire Suleyman Kerimov donated his foreign assets to charity. The offshore assets of First Deputy Prime Minister Igor Shuvalov became public some time ago, so he had nothing to do but to transfer them to Russia. Unlike him, Vladislav Surkov probably didn’t want to expose his believed to be tangible foreign deposits and resigned from the Medvedev’s dismal cabinet. Nevertheless, all these cases are likely to be extravagant exceptions. Most not-so-public bureaucrats will find ways to keep their foreign assets through special offshore schemes.

The repressions against bureaucrats resonate well with the popular demand, but unlikely to have any positive effect on the Russian economy. The new law will hit the so-called “system liberals”, who have numerous ties with business. They are likely to be replaced by “siloviki” and professional bureaucrats who typically don’t understand business and often hate entrepreneurs. The shadow income of this group derives not from participating in additional profits, but from raids on business, often resulting in expropriation and destruction of their victims as it happened with YUKOS.

The policy of nationalization of the ruling class cements the negative selection in the public sector. Loyalists will continue to replace professionals. The serious fight with corruption should start from the freedom of speech and fair elections without falsifications.

BusinessWeek

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