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Russian Influence in Central and Eastern Europe
 
The impact of the Russian influence has been felt across most of Central and Eastern Europe. After 2008 the Russian leadership has aggressively deployed its resource-based resurgent economic power in combination with old time security networks and skilful use of traditional soft power appeal to exploit and further strategic vulnerabilities in the region with the goal of undermining the EU cohesion and the strength of the Transatlantic relations. These are some of the conclusions reached by our 16-month study of the Kremlin Playbook trying to understand Russian involvement in the politics and economics of Central and Eastern Europe.

Russia has used its economic influence as a leverage to exploit governance deficits within the democratic systems of the CEE countries to ensure the maximisation of the benefits of its engagement with the region (i.e. market share in the energy sector) and enrich members of the inner power circle around the Kremlin through large-scale infrastructure projects or lucrative M&A deals. Another equally vital motivation is to weaken the European Union and the West’s desirability, credibility, and moral authority, including among EU aspirant countries such as Serbia, Ukraine, Moldova and Georgia, in order to reduce their enthusiasm to cooperate with and integrate into these structures. Last but not least, Russia’s assertiveness in the past decade is driven by its desire to reclaim its lost sphere of influence in Central and Eastern Europe and elevate its model of governance as a more attractive alternative to the U.S.-dominated international order: an illiberal sovereign “democracy” that should be respected at least as an equal player in global affairs.

The three strategic objectives behind Russia’s influence in the CEE region could be seen as interdependent albeit not necessarily centrally designed. It is instead a combination of intent and opportunism. In 2007, President Putin’s historic speech at the Munich Security Conference signalled the beginning of a new era of confrontation between Russia and the United States and Europe. A year later, the 2008 Russian-Georgian conflict was the physical manifestation of this new confrontation. Senior Russian officials publicly underscored the weakness of the European project and Europe’s inability to economically sustain the regions of Central and Eastern Europe that were lagging behind in the aftermath of the 2008 global economic crisis, providing a growing body of evidence that a new policy agenda was geared toward undermining the West. Russia followed the rhetoric with actions aiming to strengthen its grip on the region’s energy market through large-scale infrastructure projects led by state-owned companies such as Rosatom, Rosneft and Gazprom.

Yet in parallel Russia activated its network of Kremlin-linked companies both domestically and within the region conduct strategic projects and investment deals via a web of non-transparent offshore entities that allows for a multitude of corruption transactions that have enriched a number of intermediaries or have been used to capture key institutions and policy-makers. The private benefit from corruption linked to mega projects could be then leveraged to ensure the control of an extensive network of individuals. Some of these investments have also been used to facilitate political party financing and in some cases even direct campaigns for producing political and/or economic instability.

The motives behind Russia’s increased involvement in the region after 2007 can easily explain the methods that have been employed and they are not new to the region. Political and regulatory capture, financing political parties, the whole range of soft power instruments, including historical, religious, and ethnic symbols, Russian international media presence and local media ownership, organizing massive media campaigns (like the anti-shale gas campaign), have compounded economic levers, such as acquiring critical (energy) sector companies to form a potent Russian government toolbox for influence in CEE. A mixture of economic muscling, corruptive (energy-related) mega deals, media propaganda, and geopolitical pressure have cost considerable resources and/or swayed many governments in the region, including those of some NATO members, to adopt policies that are not consistent with their national security needs and trend lines but benefit the interests of foreign private and state interests.

We estimate that, on average, Russia’s economic footprint in the five case countries we studied (Serbia, Bulgaria, Latvia, Hungary and Slovakia) has ranged from about 11 percent of the economy (in the cases of Hungary and Slovakia over the course of the study period) to an astonishing 22 percent in Bulgaria. The full extent of Russia’s reach, however, remains unknown as Russia has sought to conceal its economic activity behind a web of foreign shell companies and offshore accounts. There are different mechanisms that Russia uses in order to amplify its economic influence in the CEE region including:

  • Playing on structural economic vulnerabilities on bilateral level;
  • Exploiting governance deficits, e.g. in state-owned enterprises, regulatory bodies, the court system, the tax authorities, etc.;
  • Capturing influential policy-makers and/or power brokers through corruption or intimidation;
  • Leveraging corporate profits and presence;
  • Pulling old time security networks’ strings; and
  • Raiding pred-89 shared assets.

While in principle, there is nothing wrong about Russian corporate presence in a particular country, evidence shows that the Russian capital has been 1) used by Kremlin to carry through interrelating economic and political interests, and 2) Russian state-owned resources in particular have been seen as used in party financing, protest campaigns and the acquisition of media channels outside of the usual corporate governance frameworks. The combination of the two factors may have been used to provoke government change, the rise of bogus extremist or nationalistic parties, the shift in foreign policy priorities and the opposition to EU common legislative initiatives. Additionally, the domestic Moscow proxies echo Russian interests or lobby for a pro-Russian policy stance.

Recommendations:

  • EU institutions and member states should substantially enhance anticorruption and development assistance mechanisms to help the most vulnerable countries build greater resilience to Russian influence.
  • Enhance EU internal benchmarking and governance mechanisms built around its anticorruption report. The European Union should augment the report’s follow-up mechanisms and make individual country recommendations more specific (including with comments on third-country capture risks). Compliance with these recommendations should be linked to EU development assistance penalties.
  • Enhance European Union oversight of EU development funds and require full disclosure of company ownership when meeting EU diversification requirements.
  • National antitrust authorities should provide public biannual assessments of the diversification of strategic economic sectors, particularly the energy sector, aided by tax and customs authorities and other agencies to clearly establish final beneficial ownership and linkages to other market players and determine potential national security threats. EU governments should disclose final beneficial ownership and offshore havens to strengthen the transparency, knowledge, and understanding of their national economic base in relation to Russian influence.
  • Encourage NATO and EU members to task their own financial intelligence units with developing dedicated units that track illicit Russian transactions.
  • Prioritize enhanced EU-U.S. financial intelligence cooperation. An EU-U.S. Summit should be held on the margins of the 2017 NATO Summit, and one of its top agenda items must be preventing undeclared, cross-border money flows invested in strategic areas or economic sectors of the economy.


Event:

The Kremlin Playbook: Understanding Russian Influence in Central and Eastern Europe, 13 October 2016, Washington D.C.
The event on the CSIS website
Video recording on the CSIS website
Video recording on the C-SPAN website
16 Policies to Combat the Kremlin’s Playbook at the CSIS website


Publication:

The Kremlin Playbook: Understanding Russian Influence in Central and Eastern Europe

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