Connect with us

Economy

Seventh Package of Sanctions against Russia Presents Unaccounted-for Risks

Avatar photo

Published

on

The seventh package of the European Union sanctions against Russia in connection with the events in Ukraine will be remembered for its ban on the import of Russian gold, the expansion of export controls, as well as its list of blocked individuals and organisations. However, an important new feature hasn’t been thoroughly discussed. In Art. 9 Council Regulation EU No. 269/2014, a rule was introduced that sanctioned individuals are required to report to the competent authorities of an EU country about their assets in the jurisdiction of the European Union. The deadlines are stringent. Reports must be submitted before September 1 of this year. Those who are slapped with sanctions in the future must report within six weeks. In addition, blocked persons are obliged to cooperate with the competent authority in the verification of this information.

Let’s recall that the essence of blocking sanctions is that the assets of individuals and organisations that fall under them in the EU are frozen. In other words, they formally remain the property of such persons, but their use is forbidden. These assets may include bank accounts, real estate, capital goods, vehicles, etc. In addition, blocked persons are prohibited from providing “economic resources”. This essentially means a ban on most economic relations with them.

What is the meaning of this new feature? Most likely, the EU authorities want to facilitate the search for the assets of blocked persons. They specify that the sanctioned individuals themselves should do this “legwork.” If they refuse to comply by reporting their assets, then according to Art. 9 of the said Regulations, their actions will be regarded as circumvention of the sanctions regime. In turn, violation of the Regulations may lead to criminal liability and the confiscation of property obtained as a result of the circumvention of the sanctions. Article 15 of the Regulation obliges Member States to develop criminal prosecution measures for violation of the EU sanctions regime, as well as to take all necessary measures to confiscate the proceeds of such a violation. In other words, by failing to report their assets in the EU, blocked persons risk being sued, facing criminal charges, or losing their property.

The West has actively discussed the confiscation of the assets of blocked Russians since February 2022. Work on legal mechanisms is underway in the United States. In Canada, the forfeiture framework has been approved by the Senate.

Now that the seventh package of sanctions has been adopted, a similar mechanism is now being seen in the EU, albeit in the context of circumventing sanctions due to failure to provide information.

It is not yet clear how these rules will be applied. However, the existing legal mechanism may well be interpreted by the member countries in a way that is detrimental to the sanctioned individuals. To date, 110 legal entities and 1,229 individuals have been targeted by EU blocking sanctions over the Ukrainian issue. While not everyone has property in the EU, for others, the value of the assets may be huge, and attempts to confiscate or prosecute will inevitably cause new political tensions. For example, within the framework of the seventh package, Rossotrudnichestvo, which has a network of Russian centres of science and culture in the EU countries, was blocked. The same applies to the Russkiy Mir Foundation and its Russian Centres in the EU countries. It can be assumed that Sberbank and a number of other blocked Russian banks, enterprises and individual entrepreneurs have assets in the EU. Access to their property should be blocked by EU authorities anyway. The new rules of the seventh package also add the risks of confiscation in the event of a lack of reporting within the specified timeframe or a refusal to cooperate with the competent authorities.

The experience of the crisis concerning transit to the Kaliningrad region has shown that the authorities of individual member states can interpret EU sanctions very broadly. It cannot be ruled out that the new features of the seventh package will receive similarly broad interpretations. It is necessary to be ready for a scenario where the property of individuals and structures in the EU is confiscated, as well as their criminal prosecution in certain EU countries for violating sanctions legislation.

From our partner RIAC

RIAC Director of Programs, RIAC Member, Head of "Contemporary State" program at Valdai Discussion Club, RIAC member.

Continue Reading
Comments

Economy

Baltic reality: High inflation and declining of living standards

Published

on

The Baltic States’ economy is in bad condition. The latest estimate from the EU’s statistics body shows that Eurozone inflation is continuing to soar to record highs.

The Baltic countries continue to be the hardest hit. These states in particular are experiencing the highest levels of inflation in the Eurozone. Thus, inflation in Latvia and Lithuania hit 22.4 per cent and 22.5 per cent respectively. Estonia also has seen inflation rise year on year from 6.4 per cent in September 2021 to 24.2 per cent in September 2022. The more so, the Baltic States continue to see soaring energy and food prices which lead to declining standard of living.

The Bank of Lithuania has published its latest economic forecast and revised gross domestic product (GDP) growth projections for 2023 from 3.4% to 0.9%.

Statistics Lithuania also reports that in September 2022, the consumer confidence indicator stood at minus 16 and, compared to August, decreased by 5 percentage points. The decrease in the consumer confidence indicator in September was determined by negative changes in all of its components.

According to SEB bank economist Tadas Povilauskas, the number of poor people in Lithuania will increase. Living standards will be affected by rising food and energy prices. The current price of natural gas is too high and the economy cannot “go” with it. It is evidently that energy prices shocks have far-reaching effects on Lithuanian economy and population.

The main cause of such state of affairs is deteriorated relations with Russia. Russia has lately been the EU’s top supplier of oil, natural gas, and coal, accounting for around a quarter of its energy.

The conflict in Ukraine and political confrontation between Russia and the West has exacerbated the energy crisis by fuelling global worries it may lead to an interruption of oil or natural gas supplies from Russia. Moscow said in September it would not fully resume its gas supplies to Europe until the West lifts its sanctions.

It is obviously that the conflict in Ukraine dramatically worsened the situation on the markets, as Russia and Ukraine account for nearly a third of global wheat and barley, and two-thirds of the world’s exports of sunflower oil used for cooking. Ukraine is also the world’s fourth-biggest exporter of corn.

According to Euronews, the prices of many commodities – crucially including food – strained global supply chains, leaving crops to rot, caused panic in many European countries, including the Baltic States.

High inflation has become the direct consequence of sanctions imposed on Russia. As for the Baltic States, the lack of wisdom to find compromises and blindly following the European Union’s decisions have lead to declining standards of living. The desire to punish such huge state as Russia played a cruel joke on the Baltic States. It will be difficult to explain the population why they should turn down the heating in homes, schools and hospitals over the winter.

Continue Reading

Economy

Policy mistakes could trigger worse recession than 2007 crisis

Avatar photo

Published

on

st

The world is headed towards a global recession and prolonged stagnation unless fiscal and monetary policies holding sway in some advanced economies are quickly changed, according to a new report released on Monday by the UN Conference on Trade and Development (UNCTAD).“There is still time to step back from the edge of recession,” said UNCTAD chief Rebeca Grynspan.

‘Political will’

“This is a matter of policy choices and political will,” she added, noting that the current course of action is hurting the most vulnerable.

UNCTAD is warning that the policy-induced global recession could be worse than the global financial crisis of 2007 to 2009.

Excessive monetary tightening and inadequate financial support could expose developing world economies further to cascading crises, the agency said.

The Development prospects in a fractured world report points out that supply-side shocks, waning consumer and investor confidence, and the war in Ukraine have provoked a global slowdown and triggered inflationary pressures.

And while all regions will be affected, alarm bells are ringing most for developing countries, many of which are edging closer to debt default.

As climate stress intensifies, so do losses and damage inside vulnerable economies that lack the fiscal space to deal with disasters.

Grim outlook

The report projects that world economic growth will slow to 2.5 per cent in 2022 and drop to 2.2 per cent in 2023 – a global slowdown that would leave GDP below its pre-COVID pandemic trend and cost the world more than $17 trillion in lost productivity.

Despite this, leading central banks are sharply raising interest rates, threatening to cut off growth and making life much harder for the heavily indebted.

The global slowdown will further expose developing countries to a cascade of debt, health, and climate crises.

Middle-income countries in Latin America and low-income countries in Africa could suffer some of the sharpest slowdowns this year, according to the report.

Debt crisis

With 60 per cent of low-income countries and 30 per cent of emerging market economies in or near debt distress, UNCTAD warns of a possible global debt crisis.

Countries that were showing signs of debt distress before the pandemic are being hit especially hard by the global slowdown.

And climate shocks are heightening the risk of economic instability in indebted developing countries, seemingly under-appreciated by the G20 major economies and other international financial bodies.

“Developing countries have already spent an estimated $379 billion of reserves to defend their currencies this year,” almost double the amount of the International Monetary Fund’s (IMF) recently allocated Special Drawing Rights to supplement their official reserves. 

The UN body is requesting that international financial institutions urgently provide increased liquidity and extend debt relief for developing countries. It’s calling on the IMF to allow fairer use of Special Drawing Rights; and for countries to prioritize a multilateral legal framework on debt restructuring.

Hiking interest rates

Meanwhile, interest rate hikes in advanced economies are hitting the most vulnerable hardest

Some 90 developing countries have seen their currencies weaken against the dollar this year – over a third of them by more than 10 per cent.

And as the prices of necessities like food and energy have soared in the wake of the Ukraine war, a stronger dollar worsens the situation by raising import prices in developing countries.

Moving forward, UNCTAD is calling for advanced economies to avoid austerity measures and international organizations to reform the multilateral architecture to give developing countries a fairer say.

Calm markets, dampen speculation

For much of the last two years, rising commodity prices – particularly food and energy – have posed significant challenges for households everywhere.

And while upward pressure on fertilizer prices threatens lasting damage to many small farmers around the world, commodity markets have been in a turbulent state for a decade.

Although the UN-brokered Black Sea Grain Initiative has significantly helped to lower global food prices, insufficient attention has been paid to the role of speculators and betting frenzies in futures contracts, commodity swaps and exchange traded funds (ETFs) the report said.

Also, large multinational corporations with considerable market power appear to have taken undue advantage of the current context to boost profits on the backs of some of the world’s poorest.

UNCTAD has asked governments to increase public spending and use price controls on energy, food and other vital areas; investors to channel more money into renewables; and called on the international community to extend more support to the UN-brokered Grain Initiative.

Continue Reading

Economy

‘Sanctions Storm’: Recovery After the Disaster

Avatar photo

Published

on

After the start of the special operation in Ukraine, a “sanctions storm” hit Russia; more sanctions were imposed against Russia in a few months than against Iran in decades. But a catastrophe did not take place, and the stage of stabilization came.

Indeed, almost all the weapons in the sanctions arsenal were used one after another: commodities exchange was suspended in some sectors, export and import controls were put in place, restrictions on air and sea transportation were introduced. The sanctions have spread to the investment and financial sectors, paralyzing many transactions with the West and complicating them with the East. An image impact came from the mass withdrawal of foreign business from the Russian market—not directly caused by the sanctions, but demonstrating “over-compliance,” excessive submission to them.

In the public mind, the destabilizing wave created the impression of the end of the story of the market economy in Russia, an impending catastrophe. But the catastrophe did not happen. The stage of stabilization has come, and it is important to use it correctly.

What to do?

In the near future, the Russian authorities and business will have to solve three groups of interrelated tasks. First, they must provide the domestic market with necessary goods, and restore value chains by the use of alternative partners. Second, they need to establish reliable financial mechanisms for working with these partners. Third, it is necessary to look for new growth points for the future, industries in which dependence on the West was critical. It is important to work out the possibilities: for new partners entering the markets and for attracting investors from friendly countries, as well as trying to integrate into new value chains.

Partners, first of all, include China and India. The southern direction is also not unpromising—to begin with, this includes Iran and Turkey, as well as a search for investors in the Arab world and the development of logistics routes through the Middle East. Nevertheless, in all areas, the key obstacle is the threat of secondary sanctions by the United States and the EU—which means that the second task becomes the main one: building a safe infrastructure for financial cooperation.

China remains Russia’s first trading partner—but despite the strategic partnership on the political level, large Chinese companies and banks that are active in the international market are suspending cooperation with Russia, fearing secondary US sanctions. In these conditions, it is important to work on explaining the nuances of the sanctions policy for Chinese business, creating secure payment channels that do not depend on foreign banks or on the dollar and the euro, and developing profitable package offers. Beijing seeks to use the opportunities opening up in the Russian market to occupy the vacant niches and strengthen the yuan in international payments, which means that its interest in finding a common solution is high.

A similar situation is developing in the Indian market, with the difference that Indian business is more connected than Chinese business with America, and its awareness of doing business in Russia is lower. As a consequence, Indian companies and banks integrated into the global economy will comply even more closely with sanctions restrictions, despite their interest in developing ties with Russia. Accordingly, even more active informational work is needed to establish Russian-Indian business ties, as well as the creation of a secure settlement mechanism. India already has similar experience, from doing business with Iran. In particular, UCOBank was formed to trade with it in rupees. Similar structures can be created in the Russian direction.

If the necessary channels are laid, both China and India can not only replace some Western goods in Russian markets, and ensure purchases from the Russian energy, agricultural, and military-industrial sectors—preserving their prospects for business—but also become zones of qualitative economic growth. Chinese partners can become a support in the development of bilateral cooperation in the fields of electronics and digital technologies (including 5G), and Indian, in pharmacology and high-tech agriculture. It also makes sense for business to look at these countries from the point of view of the development of green technologies in energy and agriculture, and the introduction of ESG practices, since these countries are also interested in this.

From our partner RIAC

Continue Reading

Publications

Latest

Reports34 mins ago

Ten years of Afghan economic growth, reversed in just 12 months

A year on from the Taliban takeover in Kabul, Afghanistan is gripped by “cascading crises”, including a crippled economy that...

Religion3 hours ago

Betting on the wrong horse: The battle to define moderate Islam

Proponents of a moderate Islam that embraces tolerance, diversity, and pluralism may be betting on the wrong horse by supporting...

Defense4 hours ago

Ukraine Joins NATO: Assessing Future Disasters

News related to the Russo-Ukrainian war is still for public consumption and scholar nowdays.  As  chess game, Russia-Ukraine are in...

Europe6 hours ago

European Union Trucks Banned From Entering Russia

In a reciprocal step, an executive order banning European Union haulage trucks crossing borders into Russia’s territory aggravates economic situation...

Economy9 hours ago

Baltic reality: High inflation and declining of living standards

The Baltic States’ economy is in bad condition. The latest estimate from the EU’s statistics body shows that Eurozone inflation...

Europe11 hours ago

For A New Foreign Policy in Italy

The sad and notorious vicissitudes of the non-existence of an Italian foreign policy have hit rock bottom over the last...

Intelligence17 hours ago

Who Masterminded the Suicide Attack on Hazara Students’ Educational Center Kaj in Kabul?

According to explicit intelligence information, last Friday, September 30, 2022, a suicide attack on Hazara students in an educational center...

Trending