AMSTERDAM — The world’s financial system needs a “massive adjustment” to cope with higher interest rates, and key rules will have to be revisited, according to a top global regulator.
Klaas Knot, chair of the Financial Stability Board, an international standard-setting body, told POLITICO that rising interest rates fueled problems at several regional U.S. banks and similar losses may show up elsewhere.
“The speed with which interest rates have changed, that, of course, implies a massive adjustment in the financial system,” the Dutchman said in an interview from his office in Amsterdam. He added it was unclear exactly where those losses would be.
“In many, many places of the financial system, that adjustment will go well because it has been well-anticipated and has been well-managed. But history teaches us that is not always the case everywhere.”
The warning of potential trouble ahead echoes fears of other global officials and comes after the failure of Silicon Valley Bank, a $200 billion lender to the tech sector, sparked contagion across U.S. regional banks. The subsequent market panic contributed to bringing down Credit Suisse in Europe, forcing the Swiss government to hastily merge the lender with UBS.
Any domino effect can have huge impacts for the economy, businesses and households.
“We’ve seen the impact of rapidly changing interest rates manifest in the second tier of the regional U.S. banks,” Knot said. “But I would be very surprised if that was the only sub-sector of the financial system where you would have a significant impact.”
Despite the turmoil, Knot said he was more worried about risks stashed at “nonbanks” — a term that encompasses investment funds, insurers, private equity, pension funds and hedge funds — where authorities have less visibility on hidden losses.
“If they are hidden for a very long period of time, sometimes the problem then grows so big, that it only becomes unhidden or visible when it’s too big to deal with,” he said.
The FSB boss pointed to financial players that took the wrong side of a bet on interest-rates and may now be nursing losses. “I hope, of course, that this is well-dispersed over the financial sector,” he said. “Where we are worried is specific concentrations of such risk.”
In particular, he said, those losses could be amplified when there is a mismatch between hard-to-sell assets and easy withdrawals, and borrowed money is used to juice returns.
That combination has worried authorities for some time — but Knot said this didn’t mean regulators are behind. For instance, the FSB, whose membership includes central bankers, financial regulators and finance ministries, will issue recommendations for open-ended investment funds in July.
Under the plans, regulators would get more powers to trigger restrictions in a crisis, rather than leaving those decisions in the hands of the fund manager.
Rewriting the rules
The financial rulebook will need to be revisited substantially in light of recent events, he said.
“It’s a mistake to see the regulatory framework as something that is fixed, and something that should not be touched,” he said. “The financial industry is not at all fixed, it is continuously evolving. So, the regulatory framework should evolve with the evolving risks.”
The Dutchman said this means revisiting assumptions about how quickly banks can sell assets to meet depositor withdrawals, the speed of those withdrawals in a digital era, and the reserves that have to be set aside to cover potential unrealized losses from interest-rate risks — all of which were factors in the U.S. bank collapses.
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( With inputs from : www.politico.eu )
KYIV — From the glass cage in a Kyiv courtroom, Roman Dudin professed his innocence loudly.
And he fumed at the unusual decision to prevent a handful of journalists from asking him questions during a break in the hearing.
The former Kharkiv security chief is facing charges of treason and deserting his post, allegations he and his supporters deny vehemently.
“Why can’t I talk with the press?” he bellowed. As he shook his close-cropped head in frustration, his lawyers, a handful of local reporters and supporters chorused his question. At a previous hearing Dudin had been allowed during a break to answer questions from journalists, in keeping with general Ukrainian courtroom practice, but according to his lawyers and local reporters, the presence of POLITICO appeared to unnerve authorities.
Suspiciously, too, the judge returned and to the courtroom’s surprise announced an unexpected adjournment, offering no reason. A commotion ensued as she left and further recriminations followed when court guards again blocked journalists from talking with Dudin.
***
Ukraine’s hunt for traitors, double agents and collaborators is quickening.
Nearly every day another case is publicized by authorities of alleged treason by senior members of the security and law-enforcement agencies, prosecutors, state industry employees, mayors and other elected officials.
Few Ukrainians — nor Western intelligence officials, for that matter — doubt that large numbers of top-level double agents and sympathizers eased the way for Russia’s invasion, especially in southern Ukraine, where they were able to seize control of the city of Kherson with hardly any resistance.
And Ukrainian authorities say they’re only getting started in their spy hunt for individuals who betrayed the country and are still undermining Ukraine’s security and defense.
Because of historic ties with Russia, the Security Service of Ukraine and other security agencies, as well as the country’s arms and energy industries, are known to be rife with spies. Since the 2013-14 Maidan uprising, which saw the ouster of Viktor Yanukovych, Moscow’s satrap in Ukraine, episodic sweeps and purges have been mounted.
As conflict rages the purges have become more urgent. And possibly more political as government criticism mounts from opposition politicians and civil society leaders. They are becoming publicly more censorious, accusing Ukrainian President Volodymyr Zelenskyy and his tight-knit team of using the war to consolidate as much power as possible.
Volodymyr Zelenskyy said authorities were investigating more than 650 cases of suspected treason and aiding and abetting Russia by officials | Mandel Ngan/AFP via Getty Images
Last summer, Zelenskyy fired several high-level officials, including his top two law enforcement officials, prosecutor general Iryna Venediktova and security chief Ivan Bakanov, both old friends of his. In a national address, he said authorities were investigating more than 650 cases of suspected treason and aiding and abetting Russia by officials, including 60 who remained in territories seized by Russia and are “working against our state.”
“Such a great number of crimes against the foundations of national security and the connections established between Ukrainian law enforcement officials and Russian special services pose very serious questions,” he said.
***
But while there’s considerable evidence of treason and collaboration, there’s growing unease in Ukraine that not all the cases and accusations are legitimate.
Some suspect the spy hunt is now merging with a political witch hunt. They fear that the search may be increasingly linked to politicking or personal grudges or bids to conceal corruption and wrongdoing. But also to distract from mounting questions about government ineptitude in the run-up to the invasion by a revanchist and resentful Russia.
Among the cases prompting concern when it comes to possible concealment of corruption is the one against 40-year-old Roman Dudin. “There’s something wrong with this case,” Ivanna Klympush-Tsintsadze, a former Ukrainian deputy prime minister and now opposition lawmaker, told POLITICO.
And that’s the view of the handful of supporters who were present for last week’s hearing. “This is a political persecution, and he’s a very good officer, honest and dignified,” said 50-year-old Irina, whose son, now living in Florida, served with Dudin. “He’s a politically independent person and he was investigating corruption involving the Kharkiv mayor and some other powerful politicians, and this is a way of stopping those investigations,” she argued.
Zelenskyy relieved Dudin of his duties last May, saying he “did not work to defend the city from the first days of the full-scale war.” But Dudin curiously wasn’t detained and charged for a further four months and was only arrested in September last year. Dudin’s lead lawyer, Oleksandr Kozhevnikov, says neither Zelenskyy nor his SBU superiors voiced any complaints about his work before he was fired.
“To say the evidence is weak is an understatement — it just does not correspond to reality. He received some awards and recognition for his efforts before and during the war from the defense ministry,” says Kozhevnikov. “When I agreed to consider taking the case, I told Roman if there was any hint of treason, I would drop it immediately — but I’ve found none,” he added.
The State Bureau of Investigation says Dudin “instead of organizing work to counter the enemy … actually engaged in sabotage.” It claims he believed the Russian “offensive would be successful” and hoped Russian authorities would treat him favorably due to his subversion, including “deliberately creating conditions” enabling the invaders to seize weapons and equipment from the security service bases in Kharkiv. In addition, he’s alleged to have left his post without permission, illegally ordered his staff to quit the region and of wrecking a secure communication system for contact with Kyiv.
But documents obtained by POLITICO from relevant Ukrainian agencies seem to undermine the allegations. One testifies no damage was found to the secure communication system; and a document from the defense ministry says Dudin dispersed weapons from the local SBU arsenal to territorial defense forces. “Local battalions are grateful to him for handing out weapons,” says Kozhevnikov.
And his lawyer says Dudin only left Kharkiv because he was ordered to go to Kyiv by superiors to help defend the Ukrainian capital. A geolocated video of Dudin in uniform along with other SBU officers in the center of Kyiv, ironically a stone’s throw from the Pechersk District Court, has been ruled by the judge as inadmissible. The defense has asked the judge to recuse herself because of academic ties with Oleh Tatarov, a deputy head of the presidential administration, but the request has been denied.
According to a 29-page document compiled by the defense lawyers for the eventual trial, Dudin and his subordinates seem to have been frantically active to counter Russia forces as soon as the first shots were fired, capturing 24 saboteurs, identifying 556 collaborators and carrying out reconnaissance on Russian troop movements.
Roman Dudin is facing charges of treason and allegations that he eased the way for Russian invaders | Jamie Dettmer for POLITICO
Timely information transmitted by the SBU helped military and intelligence units to stop an armored Russian column entering the city of Kharkiv, according to defense lawyers.
“The only order he didn’t carry out was to transfer his 25-strong Alpha special forces team to the front lines because they were needed to catch saboteurs,” says Kozhevnikov. “The timing of his removal is suspicious — it was when he was investigating allegations of humanitarian aid being diverted by some powerful politicians.”
***
Even before Dudin’s case there were growing doubts about some of the treason accusations being leveled — including vague allegations against former prosecutor Venediktova and former security chief Bakanov. Both were accused of failing to prevent collaboration by some within their departments. But abruptly in November, Venediktova was appointed Ukraine’s ambassador to Switzerland. And two weeks ago, the State Bureau of Investigation said the agency had found no criminal wrongdoing by Bakanov.
The clearing of both with scant explanation, after their humiliating and highly public sackings, has prompted bemusement. Although some SBU insiders do blame Bakanov for indolence in sweeping for spies ahead of the Russian invasion.
Treason often seems the go-to charge — whether appropriate or not — and used reflexively.
Last month, several Ukrainian servicemen were accused of treason for having inadvertently revealed information during an unauthorized mission, which enabled Russia to target a military airfield.
The servicemen tried without permission to seize a Russian warplane in July after its pilot indicated he wanted to defect. Ham-fisted the mission might have been, but lawyers say it wasn’t treasonable.
Spy hunt or witch hunt? With the word treason easily slipping off tongues these days in Kyiv, defense lawyers at the Pechersk District Court worry the two are merging.
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( With inputs from : www.politico.eu )
Russian President Vladimir Putin taking on the rotating monthly presidency of the 15-member United Nations Security Council came just after a young boy was killed by artillery launched by Moscow’s invading forces, Ukrainian President Volodymyr Zelenskyy said late Saturday.
“Unfortunately, we … have news that is obviously absurd and destructive,” Zelenskyy said in his daily address Saturday night. “Today, the terrorist state began to chair the U.N. Security Council.”
The Ukrainian leader announced that a five-month-old child named Danylo had been killed by Russian munitions in Donbas on Friday. “One of the hundreds of artillery strikes that the terrorist state launches every day,” the Ukrainian leader said. “And at the same time, Russia chairs the U.N. Security Council.”
Even though the position at the top of the Security Council is largely ceremonial, Ukraine’s Foreign Minister Dmytro Kuleba called Russia’s presidency a “slap in the face to the international community” given the ongoing conflict.
The last time Russia held the rotating monthly presidency was in February 2022, when Putin ordered the brutal full-scale invasion of Ukraine.
At present, in addition to the five permanent members, the U.N. Security Council also includes countries supportive of Ukraine such as Japan, Ghana, Malta and Albania, along with others such as the United Arab Emirates, Mozambique and Brazil which take a more neutral approach to the conflict.
In his Saturday address, Zelenskyy also said he had spoken with French President Emmanuel Macron for an hour on Saturday. He also welcomed Switzerland’s decision — as another temporary U.N. Security Council member — to join the 10th sanctions package against the Russian state.
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( With inputs from : www.politico.eu )
Swiss prosecutors have opened an investigation into possible illegal activity in connection with government support for UBS’s rushed takeover of Credit Suisse.
The two banks agreed to merge in March as part of an emergency deal targeted at avoiding a national financial crisis that could have had a knock-on effect globally.
“The Federal Prosecutor’s office wants to proactively fulfill its mission and responsibility to contribute to a clean Swiss financial center and has set up monitoring in order to take immediate action in any situation that falls within its field of activity,” the authority said in a statement.
Last month, Zurich-based UBS was forced by Swiss authorities to take over its longtime domestic rival Credit Suisse in a deal that creates a new bank.
The prosecutor’s statement said that the intention of the probe was to “analyze and identify any criminal offenses” associated with the deal, adding that various bodies had been contacted to provide clarifications and information.
The deal has been unpopular locally and on Sunday, Swiss daily Tages-Anzeiger reported that the new entity could slash jobs by up to 30 percent.
“If we had done nothing, [Credit Suisse] shares would have been worthless on Monday and the shareholders would have gone home empty-handed,” Swiss Finance Minister Karin Keller-Sutter said last weekend in justifying the deal.
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( With inputs from : www.politico.eu )
It’s a question worthy of a great TV detective: can streamers like Netflix still guarantee a certain proportion of European content if the goalposts are suddenly moved to exclude hits like Sherlock and Doctor Who?
They may soon have to, as the European Commission is considering removing the U.K. from the list of countries recognized as providing “European” content, according to a policy paper seen by POLITICO. That would put broadcasters and streaming platforms in a tight spot, as the U.K. is among the biggest contributors to their European catalogs.
“The need to re-define the concept of European works has been raised in the context of Brexit. It is arguable that, since the U.K. is no longer a member of the EU, works originating in the U.K. should no longer be considered as European,” said the paper. It also raised the idea of cutting Switzerland from the scope of European works.
Under the Audiovisual Media Services Directive, television and streaming must include a share of “European works” in their transmission schedules or on-demand catalogues. These are defined as programs originating in, and produced mainly by nationals of, EU countries or those that have ratified the Council of Europe’s European Convention on Transfrontier Television (ECTT), which includes neighbors such as the U.K., Turkey and Ukraine.
The Commission is now considering how to tighten these criteria.
In the approach laid out in the paper, dated December 2022, countries that have signed up to the ECTT should also have close ties with the EU and its internal market, singling out members of the European Economic Area, EU candidate countries, or potential candidates and sovereignties which signed agreements to use the euro like the Holy See and San Marino.
Move over, Fleabag
That would be bad news for broadcasters and streamers. The U.K. gobbled up about 28 percent of platforms’ European investments in 2021, compared to about 21 percent for German productions and 15 percent for French, according to the European Audiovisual Observatory.
“It is a wrong discussion, at a wrong time,” Sabine Verheyen, chair of the European Parliament’s Committee on Culture and Education, told POLITICO in response to the Commission document. She warned against excluding such an “important partner, even if they are not a member of the Union anymore.”
As early as June 2021, the Association of Commercial Television in Europe (ACT) warned against any move to exclude U.K. productions. “Despite Brexit, the audiovisual community continues to work hand in hand across the channel,” it said. “We should focus on building bridges, not burning them.”
In a reaction to the Commission paper, a spokesperson for the U.K. Department for Digital, Culture, Media & Sport said: “the U.K. remains committed to European works. We continue to support its contribution to cultural enrichment across Europe and to provide audiences access to content they know and love.”
The Commission hasn’t yet indicated how it might roll out the changes, and it hasn’t made a definitive proposition to exclude U.K. content; any such move would no doubt trigger opposition from industry. The EU is due to evaluate the audiovisual directive by the end of 2026.
A Commission spokesperson said in a statement that the EU executive “is currently undertaking a fact-finding exercise” to make sure European works benefit from a “diverse, fair and balanced market.”
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( With inputs from : www.politico.eu )
FRANKFURT — Swiss banking giant UBS will buy the country’s second-largest bank Credit Suisse in a deal that will come as a relief to financial markets in Europe and across the world.
UBS said in a statement that the total price is 3 billion Swiss francs, or about $3.25 billion, in UBS shares.
The deal was pushed through in an effort to avoid further turmoil in global banking following the failure of Silicon Valley Bank and another regional lender in the U.S.
“With the takeover of Credit Suisse by UBS, a solution has been found to secure financial stability and protect the Swiss economy in this exceptional situation,” the Swiss National Bank said in a separate statement, noting that the deal was made possible with the support of the Swiss federal government, the Swiss Financial Market Supervisory Authority FINMA and the Swiss National Bank.
The central bank added that UBS and Credit Suisse can obtain a liquidity assistance loan of up to 100 billion francs.
Highlighting the urgency of securing a deal for the bank before markets open on Monday, Swiss authorities adjusted laws to allow further provision of liquidity by the Swiss central bank, while the government agreed to provide additional guarantees.
The expeditious rescue of Credit Suisse was welcomed by the European Central Bank as well as the Federal Reserve in the U.S.
The “swift action” by the Swiss authorities “are instrumental for restoring orderly market conditions and ensuring financial stability,” ECB President Christine Lagarde said in a statement.
The 167-year-old Credit Suisse has been involved in a series of scandals that have undermined the confidence of investors and clients. It has thus found itself in the eye of the storm when the collapse of Silicon Valley Bank sparked fears of a banking crisis.
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( With inputs from : www.politico.eu )
SRINAGAR: After a hiatus of seven years, film maker Karan Johar is all set to shoot the last pending romantic song of his movie Rocky Aur Rani Ki Prem Kahani, in the snow clad mountains of Kashmir.
Directed by Karan Johar, the epic love story stars Alia Bhatt and Ranveer Singh in the lead roles.
As per the latest buzz, the song will be a tribute to the late film maker Yash Chopra, who Karan idolizes. Ranveer and Alia will recreate the looks of Sridevi and Rishi Kappor from the film Chandini directed by ace director Yash Chopra in late 1980’s. Alia will be seen donning chiffon sarees while Ranveer for a change will be in the formal attire.
The romantic song will be shot in Kashmir in a ten-day schedule beginning on March 1. The crew has already left for Kashmir while Karan will leave for the valley with Ranveer Singh and Alia Bhatt on February 28 and join the crew.
Karan Johar wanted to film the song in Switzerland but after Alia Bhatt’s pregnancy he moved it to Kashmir as the film maker believes that snow has same feel in Kashmir as it has in Switzerland.
Alia will be accompanied by her baby Raha for the ten-day shooting schedule.
With this song in Kashmir, the entire shooting of Rocky Aur Rani Ki Prem Kahani, a tribute to Karan’s favourite director Yash Chopra, will be complete.
Foreign Minister Cassis: government will allow re-exports if Parliament amends the law
Swiss Foreign Minister Ignazio Cassis said that if the parliament changes the law on the export of military equipment, the country’s government should allow the re-export of weapons to Ukraine. His words lead RIA News.
Now the Swiss parliament is studying the possibility of amending the relevant law, and if it is changed, it will become a legal basis “which will force the government to act,” the diplomat called a necessary condition for re-export.
At the end of January, the commission of the National Council supported the initiative allowing the re-export of weapons produced in Switzerland to Ukraine. Subsequently, however, the Security Commission of the Council of Cantons opposed the corresponding initiative.
Switzerland rejected requests from European countries to re-export ammunition to Ukraine, citing the principle of military neutrality, according to which a country can refuse to export military equipment if the state for which it is intended is involved in an international conflict.
Swiss President Alan Berset admitted that the country could lose confidence as a neutral due to the re-export of weapons to Kyiv. He stressed that the state must be committed to its fundamental principles.
LONDON — Joe Biden’s “protectionist” Inflation Reduction Act won’t help the U.S. counter the rise of China and could create a “single point of failure” in key supply chains, Britain’s trade chief Kemi Badenoch warned.
Speaking at a POLITICO event Tuesday night, Badenoch — recently promoted to head up the U.K.’s new Department for Business and Trade — predicted the flagship law would not achieve its key aims, and insisted the U.K. is not sitting on the sidelines in the transatlantic tussle over the plan.
The comments came just minutes after the U.S. ambassador to the U.K. mounted a spirited defense of the IRA at the same event.
The Inflation Reduction Act offers billions in subsidies and tax credits to try and incentivize take-up of electric vehicles and build up green infrastructure. But European and British carmakers are particularly concerned about the impact on their own industries of massive help for U.S. firms.
Speaking on Tuesday night, Badenoch said Britain — which has been lobbying against the plan but is not prepping its own subsidies — is “working very well with a group of like-minded countries who are worried about the Inflation Reduction Act.”
“The EU is very worried and we’re working jointly with them on it,” she said. “It’s not just the EU doing stuff and we’re not in the room. Japan is worried. South Korea is worried. Switzerland is worried.”
Many countries, Badenoch contended, are now “looking at what the U.S. is doing” with concern.
“It is onshoring in a way that could actually create problems with the supply chain for everybody else,” she said.
“And that will not have the impact that it wants to have when it’s looking at the economic challenge that China presents. So no, I don’t think it’s a good idea, not just because it’s protectionist. But it also creates a single point of failure in a different place, when actually what we want is diversification and strengthening of supply chains across the board.”
Speaking earlier Tuesday night, U.S. Ambassador to the U.K. Jane Hartley argued that the plan could have major positive implications for countries beyond the U.S.
“One of the things I would say is there’s going to be a huge amount of money, R&D — the technology is going to improve, the technology is going to be cheaper,” she said. “The technology is going to be used by everyone in the world — not just the U.S.”
Hartley stressed that U.S. Treasury Secretary Janet Yellen is “looking pretty hard” at the act during its so-called comment period, when U.S. agencies take feedback on a plan. Both President Biden and U.S. Trade Secretary Katherine Tai had, she said, stressed that their country “didn’t do this to hurt our allies — we want to protect our allies.”
CORRECTION: A previous version of this article misstated Janet Yellen’s job title. She is the treasury secretary.
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( With inputs from : www.politico.eu )
BERLIN — In an earlier life as a reporter in Moscow, I once knocked on the door of an apartment listed as the home address of the boss of company that, our year-long investigation showed, was involved in an elaborate scheme to siphon billions of dollars out of Russia’s state railways through rigged tenders.
To my surprise, the man who opened the door wore only his underwear. He confirmed that his identity had been used to register the shell company. But he wasn’t a businessman; he was a chauffeur. The real owner, he told us, was his boss, one of the bankers we suspected of masterminding the scam. “Mr. Underpants,” as we called him, was amazed that it had taken so long for anyone to take an interest.
Mr. Underpants leapt immediately to mind when, nearly a decade on, I learned that a sulfurous academic dispute had erupted over whether foreign companies really are bailing out of Russia in response to President Vladimir Putin’s invasion of Ukraine and subsequent international sanctions.
Attempting to verify corporate activity in Russia — a land that would give the murkiest offshore haven a run for its money — struck me as a fool’s errand. Company operations are habitually hidden in clouds of lies, false paperwork and bureaucratic errors. What a company says it does in Russia can bear precious little resemblance to reality.
So, who are the rival university camps trying to determine whether there really is a corporate exodus from Russia?
In the green corner (under the olive banner of the University of St. Gallen in Switzerland) we have economist Simon Evenett and Niccolò Pisani of the IMD business school in Lausanne. On January 13, they released a working paper which found that less than 9 percent of Western companies (only 120 firms all told) had divested from Russia. Styling themselves as cutting through the hype of corporate self-congratulation, the Swiss-based duo said their “findings challenge the narrative that there is a vast exodus of Western firms leaving the market.”
Nearly 4,000 miles away in New Haven, Connecticut, the Swiss statement triggered uproar in Yale (the blue corner). Jeffrey A. Sonnenfeld, from the university’s school of management, took the St. Gallen/IMD findings as an affront to his team’s efforts. After all, the headline figure from a list compiled by Yale of corporate retreat from Russia is that 1,300 multinationals have either quit or are doing so. In a series of attacks, most of which can’t be repeated here, Sonnenfeld accused Evenett and Pisani of misrepresenting and fabricating data.
Responding, the deans of IMD and St. Gallen issued a statement on January 20 saying they were “appalled” at the way Sonnenfeld had called the rigor and veracity of their colleagues’ work into question. “We reject this unfounded and slanderous allegation in the strongest possible terms,” they wrote.
Sonnenfeld doubled down, saying the Swiss team was dangerously fueling “Putin’s false narrative” that companies had never left and Russia’s economy was resilient.
That led the Swiss universities again to protest against Sonnenfeld’s criticism and deny political bias, saying that Evenett and Pisani have “had to defend themselves against unsubstantiated attacks and intimidation attempts by Jeff Sonnenfeld following the publication of their recent study.”
How the hell did it all get so acrimonious?
Let’s go back a year.
The good fight
Within weeks of the February 24 invasion, Sonnenfeld was attracting fulsome coverage in the U.S. press over a campaign he had launched to urge big business to pull out of Russia. His team at Yale had, by mid-March, compiled a list of 300 firms saying they would leave that, the Washington Post reported, had gone “viral.”
Making the case for ethical business leadership has been Sonnenfeld’s stock in trade for over 40 years. To give his full job titles, he’s the Senior Associate Dean for Leadership Studies & Lester Crown Professor in the Practice of Management at the Yale School of Management, as well as founder and president of the Chief Executive Leadership Institute, a nonprofit focused on CEO leadership and corporate governance.
And, judging by his own comments, Sonnenfeld is convinced of the importance of his campaign in persuading international business leaders to leave Russia: “So many CEOs wanted to be seen as doing the right thing,” Sonnenfeld told the Post. “It was a rare unity of patriotic mission, personal values, genuine concern for world peace, and corporate self-interest.”
Fast forward to November, and Sonnenfeld is basking in the glow of being declared an enemy of the Russian state, having been added to a list of 25 U.S. policymakers and academics barred from the country. First Lady Jill Biden topped the list, but Sonnenfeld was named in sixth place which, as he told Bloomberg, put him “higher than [Senate minority leader] Mitch McConnell.”
Apparently less impressed, the Swiss team had by then drafted a first working paper, dated October 18, challenging Sonnenfeld’s claims of a “corporate exodus” from Russia. This paper, which was not published, was circulated by the authors for review. After receiving a copy (which was uploaded to a Yale server), Sonnenfeld went on the attack.
Apples and oranges
Before we dive in, let’s take a step back and look at what the Yale and Swiss teams are trying to do.
Sonnenfeld is working with the Kyiv School of Economics (KSE), which launched a collaborative effort to track whether companies are leaving Russia by monitoring open sources, such as regulatory filings and news reports, supported where possible through independent confirmation.
Kyiv keeps score on its Leave Russia site, which at the time of writing said that, of 3,096 companies reviewed, 196 had already exited and a further 1,163 had suspended operations.
Evenett and Pisani are setting a far higher bar, seeking an answer to the binary question of whether a company has actually ditched its equity. It’s not enough to announce you are suspending operations, you have to fully divest your subsidiary and assets such as factories or stores. This is, of course, tough. Can you find a buyer? Will the Russians block your sale?
The duo focuses only on companies based in the G7 or the European Union that own subsidiaries in Russia. Just doing business in Russia doesn’t count; control is necessary. To verify this, they used a business database called ORBIS, which contains records of 400 million companies worldwide.
The first thought to hold onto here, then, is that the scope and methodology of the Yale and Swiss projects are quite different — arguably they are talking about apples and oranges. Yale’s apple cart comprises foreign companies doing business in Russia, regardless of whether they have a subsidiary there. The Swiss orange tree is made up of fewer than half as many foreign companies that own Russian subsidiaries, and are themselves headquartered in countries that have imposed sanctions against the Kremlin.
So, while IKEA gets an ‘A’ grade on the Yale list for shutting its furniture stores and letting 10,000 Russian staff go, it hasn’t made the clean equity break needed to get on the St. Gallen/IMD leavers’ list. The company says “the process of scaling down the business is ongoing.” If you simply have to have those self-assembly bookshelves, they and other IKEA furnishings are available online.
The second thing to keep in mind is that ORBIS aggregates records in Russia, a country where people are willing to serve as nominee directors in return for a cash handout — even a bottle of vodka. Names are often mistranslated when local companies are established — transliteration from Russian to English is very much a matter of opinion — but this can also be a deliberate ruse to throw due diligence sleuths off the trail.
Which takes us back to the top of this story: I’ve done in-depth Russian corporate investigations and still have the indelible memory of those underpants (they were navy blue briefs) to show for it.
Stacking up the evidence
The most obvious issue with the Yale method is that it places a lot of emphasis on what foreign companies say about whether they are pulling out of Russia.
There is an important moral suasion element at play here. Yale’s list is an effective way to name and shame those companies like Unilever and Mondelez — all that Milka chocolate — that admit they are staying in Russia.
But what the supposed good kids — who say they are pulling out — are really up to is a murkier business. Even if a company is an A-grade performer on the Yale list, that does not mean that Russia’s economy is starved of those goods during wartime. There can be many reasons for this. Some companies will rush out a pledge to leave, then dawdle. Others will redirect goods to Russia through middlemen in, say, Turkey, Dubai or China. Some goods will be illegally smuggled. Some companies will have stocks that last a long time. Others might hire my old friend Mr. Underpants to create an invisible corporate structure.
A stroll through downtown Moscow reveals the challenges. Many luxury brands have conspicuously shut up shop but goods from several companies on the Yale A list and B list (companies that have suspended activities in Russia) were still easy to find on one, totally random, shopping trip. The latest Samsung laptops, TVs and phones were readily available, and the shop reported no supply problems. Swatch watches, Jägermeister liquor and Dr. Oetker foods were all also on sale in downtown Moscow, including at the historic GUM emporium across Red Square from the Kremlin.
Swatch watches, Jägermeister liquor and Dr. Oetker foods can all be bought in downtown Moscow, including at the historic GUM emporium across Red Square from the Kremlin | POLITICO
All the companies involved insisted they had ended business in Russia, but acknowledged the difficulties of continued sales. Swatch said the watches available would have to be from old stocks or “a retailer over which the company has no control.” Dr. Oetker said: “To what extent individual trading companies are still selling stocks of our products there is beyond our knowledge.” Jägermeister said: “Unfortunately we cannot prevent our products being purchased by third parties and sold on in Russia without our consent or permission.” Samsung Electronics said it had suspended Russia sales but continued “to actively monitor this complex situation to determine our next steps.”
The larger problem emerging is that sanctions are turning neighboring countries into “trading hubs” that allow key foreign goods to continue to reach the Russian market, cushioning the economic impact.
Full departure can also be ultra slow for Yale’s A-listers. Heineken announced in March 2022 it was leaving Russia but it is still running while it is “working hard to transfer our business to a viable buyer in very challenging circumstances.” It was also easy to find a Black & Decker power drill for sale online from a Russian site. The U.S. company said: “We plan to cease commerce by the end of Q2 of this year following the liquidation of our excess and obsolete inventory in Russia. We will maintain a legal entity to conduct any remaining administrative activities associated with the wind down.”
And those are just consumer goods that are easy to find! Western and Ukrainian security services are naturally more preoccupied about engineering components for Putin’s war machine still being available through tight-lipped foreign companies. Good luck trying to track their continued sales …
Who’s for real?
Faced with this gray zone, St. Gallen/IMD sought to draw up a more black-and-white methodology.
To reach their conclusions, Evenett and Pisani downloaded a list of 36,000 Russian companies from ORBIS that reported at least $1 million in sales in one of the last five years. Filtering out locally owned businesses and duplicate entries whittled down the number of owners of the Russian companies that are themselves headquartered in the G7 or EU to a master list of 1,404 entities. As of the end of November, the authors conclude, 120 companies — or 8.5 percent of the total — had left.
The Swiss team was slow, however, to release its list of 1,404 companies and, once Sonnenfeld gained access to it, he had a field day. He immediately pointed out that it was peppered with names of Russian businesses and businessmen, whom ORBIS identified as being formally domiciled in an EU or G7 country. Sonnenfeld fulminated that St. Gallen/IMD were producing a list of how few Russian companies were quitting Russia, rather than how few Western companies were doing so.
“That hundreds of Russian oligarchs and Russian companies constitute THEIR dataset of ‘1,404 western companies’ is egregious data misrepresentation,” Sonnenfeld wrote in one of several emails to POLITICO challenging the Swiss findings.
Fair criticism? Well, Sonnenfeld’s example of Yandex, the Russian Google, on the list of 1,404 is a good one. Naturally, that’s a big Russian company that isn’t going to leave Russia.
On the other hand, its presence on the list is explicable as it is based in the Netherlands, and is reported to be seeking Putin’s approval to sell its Russian units. “Of course, a large share of Yandex customers and staff are Russian or based in Russia. However, the company has offices in seven countries, including Switzerland, Israel, the U.S., China, and others. What criteria should we use to decide if it is Russian or not for the purpose of our analysis?” St. Gallen/IMD said in a statement.
Answering Sonnenfeld’s specific criticism that its list was skewed by the inclusion of Russian-owned companies, the Swiss team noted that it had modified its criteria to exclude companies based in Cyprus, a favored location for Russian entrepreneurs thanks to its status as an EU member country and its business-friendly tax and legal environment. Yet even after doing so, its conclusions remained similar.
Double knockout
Sonnenfeld, in his campaign to discredit the Swiss findings, has demanded that media, including POLITICO, retract their coverage of Evenett and Pisani’s work. He took to Fortune magazine to call their publication “a fake pro-Putin list of Western companies still doing business in Russia.”
Although he believes Evenett and Pisani’s “less than 9 percent” figure for corporates divesting equity is not credible, he bluntly declined, when asked, to provide a figure of his own.
Instead, he has concentrated on marshaling an old boys’ network — including the odd ex-ambassador — to bolster his cause. Richard Edelman, head of the eponymous public relations outfit, weighed in with an email to POLITICO: “This is pretty bad[.] Obvious Russian disinformation[.] Would you consider a retraction?” he wrote in punctuation-free English. “I know Sonnenfeld well,” he said, adding the two had been classmates in college and business school.
Who you were at school with hardly gets to the heart of what companies are doing in Russia, and what the net effect is on the Russian economy.
The greater pity is that this clash, which falls miles short of the most basic standards of civil academic discourse, does a disservice to the just cause of pressuring big business into dissociating itself from Putin’s murderous regime.
And, at the end of the day, estimates of the number of companies that have fully left Russia are in the same ballpark: The Kyiv School of Economics puts it at less than 200; the Swiss team at 120.
To a neutral outsider, it would look like Sonnenfeld and his mortal enemies are actually pulling in the same direction, trying to work out whether companies are really quitting. Yet both methodologies are problematic. What companies and databases say offers an imprecise answer to the strategic question: What foreign goods and services are available to Russians? Does a year of war mean no Samsung phones? No. Does it mean Heineken has sold out? Not yet, no.
This has now been submerged in a battle royal between Sonnenfeld and the Swiss researchers.
Appalled at his attacks on their work, St. Gallen and IMD finally sent a cease-and-desist letter to Sonnenfeld.
Yale Provost Scott Strobel is trying to calm the waters. In a letter dated February 6 and seen by POLITICO, he argued that academic freedom protected the speech of its faculty members. “The advancement of knowledge is best served when scholars engage in an open and robust dialogue as they seek accurate data and its best interpretation,” Strobel wrote. “This dialogue should be carried out in a respectful manner that is free from ad hominem attacks.”
With reporting by Sarah Anne Aarup, Nicolas Camut, Wilhelmine Preussenand Charlie Duxbury.
Douglas Busvine is Trade and Agriculture Editor at POLITICO Europe. He was posted with Reuters to Moscow from 2004-08 and from 2011-14.
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( With inputs from : www.politico.eu )
