Russian economic influence and the integration of illicit funding in the fabrics of the European financial system has become a deep-seated risk to the national security of both the U.S. and the EU. This is one of the main conclusions of the second Kremlin Playbook: The Enablers report, developed jointly by the Center for the Study of Democracy (CSD) and the Center for Strategic and International Studies (CSIS), and launched at a Schieffers Series’ presentation on 11 March, 2019 at CSIS’ headquarters in Washington D.C.
The Kremlin Playbook 2 found evidence that Russian companies control directly or indirectly between around 6% and 10% of the economies of three enablers – Austria, Italy and the Netherlands. The indirect corporate footprint is by far the most significant element of the Russian influence as some of the largest companies have extensive business partnerships with Russian counterparts, especially in the energy sector, as well as have massively expanded their corporate presence on the Russian market.
In Italy, Austria, and the Netherlands alone, Russian FDI stocks have expanded from just €5.4 billion in 2006 to close to €160 billion at the end of 2017.
Russia has exploited governance loopholes and a degree of complacency in the old EU member-states to:
- acquire strategic assets without much scrutiny;
- use the liquidity and reputation of Western financial hubs to obfuscate ownership and launder money; and
- channel resources to business and political activities in Central and Eastern Europe that aim to firm the monopoly status of Russian energy companies in the region or to non-business related or political activities domestically
- develop patronage networks in Europе to lock-in the EU in long-term corrupt energy infrastructure projects that undermine unity and contribute to growing energy and national security risks.
Piecemeal approach in enforcement on the U.S. side and circumvention of rules in the EU prevents the effective countering of Russian malign economic influence. Gaps in the anti-money laundering regulations has become a national security risk for both EU and U.S. policy-makers, while illicit funding streams have been weaponized by authoritarian states such as Russia to support fringe political parties and capture key institutions with strategic implications for the EU countries’ energy and foreign policy.
To comprehensively target the Russian malign influence in Western Europe, there is a need to:
- realign US and European energy policies through a common understanding of the critical risks and the development of a common instrument for analyzing energy security.
- accelerate efforts to attract alternative natural gas supplies from the global markets by boosting the use of empty regasification terminals, the construction of West-East interconnection and the strict enforcement of gas market liberalization rules.
- reconsider the implementation of Russia-led gas pipelines such as Nord Stream 2 and Turkish Stream aiming to circumvent the Ukrainian gas transit because of the negative impact on security of supply, pricing and transit revenues for CEE countries.
- stem the flow of illicit funds through the European financial system, an urgent reform is needed to considerably strengthen the EU AML/CTF system, including through introducing a new supranational body and by ensuring much better coordination between EU and national banking and financial supervision and EU and national security agencies.
- scan and pre-empt risks to the integrity of the whole EU financial system, including non-Eurozone EU countries, and to step in and force national action in cases, which might threaten the European financial infrastructure, such as the different laundromat cases uncovered in recent years.