Cherkalin’s case highlights the economic footprint of the security apparatus forged during Vladimir Putin’s 20 years in power. While it doesn’t show up in official statistics or reports, the reach of the FSB and other law enforcement agencies extends across the business landscape, distorting markets and sapping investment. The vast sums of money at stake go a long way toward explaining why Putin hasn’t followed through on years of pledges to rein in the appetites of his powerful security underlings. “They’ve become one of the key elements of the economy,” says Oleg Vyugin, a former senior official at the Bank of Russia and the Ministry of Finance. “Unfortunately, they’re an element that’s an obstacle to its normal development.”

For years the banking sector was a gold mine for the security services, combining huge, often-illicit flows of cash with plenty of leeway for officials to either turn the screws or look the other way. The numbers are big even by oil-rich Russian standards. Regulators—including the central bank—say managers stole some 7 trillion rubles ($110 billion) in assets from their banks in the past decade, and the central bank has spent more than 5 trillion rubles on bailouts or to pay off depositors at those that didn’t survive, according to Fitch Ratings. Bankers fleeing the country as their institutions failed have become such a problem that Bank of Russia Governor Elvira Nabiullina asked Putin for the power to stop them at the border. He hasn’t granted it.
 

Eoin Treacy's view

This is a well written, engaging informative piece providing facts and figures relating to the corruption of Russia’s regulatory infrastructure by the security forces. It provides a testament to how low standards of governance in Russia are and how important it is for companies to be on the winning side of an internal divisions that arise.

However, the point I want to make is not about the poor state of governance in Russia, which is low but not surprising. Rather I want to highlight the complete lack of similar reporting about China from Bloomberg. A few years ago, Bloomberg journalists wrote a series of articles about Xi Jinping and provided a family tree of where his assets are being housed and under what aliases. They performed a similar exercise for a number of other highly ranked Communist officials in an effort to expose the incredible wealth they accrue for themselves. Shortly afterwards Bloomberg was told in no uncertain terms that if the articles did not disappear there would be dire consequences.

When I worked at Bloomberg no one was under any illusion that the purpose of the news service was to help sell terminals. At an annual subscription of nearly $25,000, income from terminals is the raison d’etre for the entire company. China is a major growth market for Bloomberg and the interests of the business were put ahead of journalistic integrity. The articles on Communist Party personal assets disappeared.  

Today we get puff pieces like this one about Chinese nationalist “fangirls” defending China’s honour on Facebook and Twitter. Never mind that the “50-cent army” is a group of government backed internet trolls whose sole purpose is pro-government propaganda or that the young people defending China on social media are a product of lifelong brainwashing.

The biggest point is they are performing this service on social media banned in China. Reporting of the Hong Kong protests is almost completely absent from mainland media. The only possible way they are accessing this information is by using virtual private networks (VPN) which are officially banned in China although obviously not in practice. If these same fangirls were writing anti-Communist diatribes on the same media they would be immediately shut down at home and have meetings at the local police station. In an article I read yesterday, a Bloomberg journalist used the word “alleged” with the regard to the existence of internment camps in Xinjiang. Therefore, the only rational conclusion is to accept that Bloomberg’s commentary on China is anything but objective.

Personally, I don’t agree with much of what the New York Times writes in other areas but their reporting on China is first rate.

This entire question may seem irrelevant in the wider scheme of the markets except for the fact Mike Bloomberg is belatedly running for President. I will not hazard a guess why he changed his mind but I don’t find the claim he is unimpressed with other candidates convincing. The much bigger question is how willing would Bloomberg be as President to stand up for democracy, standards of governance and to act as a bulwark against the steady march of authoritarianism all over the world? His record is not inspiring. His recent decision to ban Bloomberg journalists from investigating Democratic nominees, including himself is a case in point.