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Decker/Dorn Annotated Reply to Riley’s “Is Russia Imperialist?

” June

Dear comrades,

We have not been convinced by Tom’s document to change our position on the imperialist
character of Russia. Aside from dismissing major sectors of the economy and failing to fully
consider the role that Russia plays in global imperialist rivalries over markets and spheres of
influence, Tom’s document paints a misleading portrait of Russian finance capital and its
status in relation to capital export. While we have no doubt the distortions are unintentional
(they likely stem from a tendency to “read” the data on the basis of a pre-established view
of Russia as a sort of basket case, as well as from an inclination to use the United States as
an ideal type), they nonetheless contribute to a downgrading of Russia to something less
than the imperialist power it is today.

It is our view that the body of evidence of Russia’s imperialist status is substantial and
growing. And it is not limited to the economic questions addressed in Tom’s document, as
important as many of them are. Indeed, we do not believe that the debate can be settled (or
the imperialist character of Russia definitively established) simply by successfully countering
the points made in his document. We have elsewhere treated other aspects of the question,
and doubtless much more could be said. Nonetheless, Tom has put forward what he evidently
views as the core of the question, and insofar as what he has to say is misleading, it has been
necessary – at least for what we understand to be his central points, which we have bolded –
to insert our own comments. We have done so in red (in lettered/numbered entries),
occasionally breaking the original paragraphs. Our correction of misunderstanding/
misleading analysis in Tom’s document has mostly taken the form of placing the data in
context and comparative perspective, and supplementing with new data, revealing a very
different picture.

It is undeniable that the Russian economy is underdeveloped in important respects. Yet

Russia does not fit the picture of a dependent, underdeveloped country that Tom attempts
to paint. In some ways, it resembles the economies of the most advanced imperialist powers.
According to the CIA Factbook, Russia’s GDP by composition in 2012 was as follows:
agriculture = 3.9% ; industry = 36% ; services = 60.1%. According to the European Parliament:

“[Russia’s] service sector activity is, as a proportion of total value added, closing in
on levels observed in the EU. In 2010, services accounted for 68 per cent of total
value added in Russia, compared to the EU average ratio of 79.7 per cent, and ratios
of 50 per cent for China and 49.7 per cent for Indonesia.

“Thus, it is clear that over two decades of economic transformation in Russia has
resulted in an economy that is closer in structure to its rich EU neighbours than it is
to some other large, low- and middle income countries.”

- European Parliament, “The Economic Significance of Russia’s Accession to the
WTO,” June 2012

Of course, none of this is to deny that significant backwardness exists, and in some respects
Russian capitalism lags massively behind – Tom has pointed to much of this. But it is
important to get a sense of perspective, and not to accept on face value caricatures of
If Russia circa 1914 was imperialist despite the significant relative backwardness of its
economy (far more backward than modern-day Russia), it is difficult to see why Russia circa
2013 is not imperialist: it has large finance-capital corporations that dominate its economy
(and have important connections with the state); these corporations have maintained and
developed economic linkages (via capital export) with non-imperialist countries that transfer
value back to Russia; the Russian bourgeoisie is able to maintain what is probably the second
or third most powerful military on the planet; it has implicated itself in, or maintained its
position within, key institutions through which the great powers negotiate and struggle
against one another over matters of geopolitical concern (for instance the recent G8
negotiations over Syria); and it is quite arguably – in terms of the confluence of its economic
position/power, military strength and geopolitical weight – the second most powerful
capitalist state on the planet.
Decker/Dorn, 19 June 2013

3 June 2013

Is Russia Imperialist?
As Leon Trotsky observed in the Transitional Program: “Imperialism means the domination of
finance capital.” We are agreed that the imperialist world system operates to channel wealth from
relatively backward countries to the elites of the “developed” capitalist countries. Those
countries that are active participants in what Trotsky referred to as “the expansionist policy of
finance capital” (a policy at least partially mediated through a complex web of international
political and particularly economic institutions) can properly be considered imperialist.

A century ago, Tsarist imperialism was a hybrid of dynastic Romanoff 19th century
“imperialism” and the modern financial capitalist operations of Russia’s bourgeoisie in
neighboring more backward countries. At that time, Lenin observed, Russia’s military clout, like
that of its somewhat more advanced Japanese rival, supplemented and partially offset its relative
economic backwardness.

Russia today plays little or no role in key global institutions established after World War II
through which imperialist policy (e.g., the “Washington Consensus”) is developed and
implemented in the neocolonies.

[A1] It is not clear what this statement means, either empirically or analytically.
First, Russia does indeed play a role in key postwar institutions like the United
Nations Security Council, the G8, the World Trade Organization (to which it was
admitted in 2012) and the IMF. In the IMF, Russia has about 2.5% of the quotas of
Special Drawing Rights, just a nudge below Canada and more than Belgium,
Switzerland, Australia and Spain. Nonetheless, it is true that, for the IMF at least,
Russia is not a core member (Brazil has 1.8% of SDRs). But then neither are most
countries we call imperialist, with the exception of the U.S., Japan, Germany, France
and Britain.
[A2] Second, there is no unified “imperialist policy” agreed upon by all of the world’s
major powers. Lenin’s view of imperialism was distinguished in part by its insistence
that the imperialist countries have antagonistic relations that render a joint “policy”
toward the neocolonies unlikely, to say the least. The post-WWII period did indeed
see a considerable degree of cooperation for obvious reasons, but even then no
common policy was developed. The Washington Consensus institutions are not the
collective managing committee of imperialist domination of the neocolonies. It is to
be expected that hostile new-comers will tend to be under-represented.
Russian banks and corporations have derived no benefit from the give-away privatizations
imposed by IMF “structural adjustment” policies. Nor does the Russian bourgeoisie operate a
separate, or parallel, state system, in which it dominates and oppresses weaker countries.

[B1] Russia is the dominant member in the Commonwealth of Independent States, the
Eurasian Economic Community and, along with China, the Shanghai Cooperation
Organization, though the latter has a largely military purpose. It is not clear what we
are supposed to compare these institutions to – the IMF, the EU or what? Russia cannot
be disqualified as an emerging imperialist power because of the weakness of the
formal institutions through which it is attempting to reinforce its dominance over
dependent countries. The fact that it finds itself at the center of fledging institutions
which are intended, from the standpoint of Moscow, to play this role is itself
There are no mechanisms, beyond the sale of oil and gas at world market prices, by which
Russia extracts wealth from less developed countries on any significant scale.

[C1] As demonstrated below, Russia has significant investments abroad that transfer
value back to the country.
It appears that the only time Trotsky explicitly discussed the criteria by which to determine
which countries were imperialist was in 1938 in the context of a discussion of the position
revolutionaries should take in the event of a military conflict between Czechoslovakia and Nazi

Germany. Trotsky stressed the importance of “finance capital” and pointed to Czechoslovakia‘s
highly developed industrial capacity, as well as its alliances with other imperialist powers:

“I believe that Czechoslovakia is a small country and in the event of war her existence would be
directly threatened [my emphasis]. But the difference between Czechoslovakia and France lies in
the fact that France has colonies. It is an imperialist country. Czechoslovakia has no colonies. But
this difference is only apparent. Czechoslovakia is an imperialist country in every respect. It is a
highly developed country with finance capital in a leading position in a very concentrated
industry, the very important war industry. This is why Czechoslovakia is a developed capitalist
country, but not only that. In Czechoslovakia we now have a population of about 15 million. It is
not a big country. Under European conditions it is a medium-sized country.”
. . .

“I forgot to add that Czechoslovakia is a partner of a world corporation of imperialist countries. If

it doesn't have colonies, it has loans from Britain. These loans are possible because of Britain's
colonies; likewise with military support from France. It is a link in the imperialist chain.”
—LTWritings, 1937-38, p. 353, 356

Russia is certainly not a link in any imperialist chain. Nor can finance capital be said to be in a
leading position, for reasons outlined below. Nor is the Russian economy highly developed,
despite the fact that in a few specialized fields, particularly military, its inheritance from
the Soviet degenerated workers’ state allows it to produce world class goods.
[D1] The Russian economy continues to combine considerable backwardness with
important elements of the most advanced capitalism based on high technology. The
origins of the advanced sectors is irrelevant, and the military industry cannot simply
be dismissed with the wave of a hand. Most imperialist countries borrow technology
from others; Russia does this, and it has inherited substantial advances from the
Soviet degenerated workers’ state – advances which it has maintained and continued
to develop. Aggregate labor productivity in Russia is admittedly low compared to
other imperialist countries (just over 40% of “high-income” OECD countries), and the
significant progress that was made in the 2000s has slowed since the onset of the
global economic crisis. On the whole, Russian manufacturing is not particularly
competitive, but there are sectors that can compete globally – most notably,
chemicals and metals, though other key industries (e.g., transport vehicles) lag
behind (Ye.Yasin et al., “Russian Manufacturing Revisited: Industrial Enterprises at
the Start of the 2008 Financial Crisis,” Bank of Finland). UNCTAD confirms this
assessment, noting that Russia’s “Metallurgy and chemicals are already competitive in
world markets and operate without major subsidies” (World Investment Report 2012,

For the most part, however, Russian products are not competitive on the world market. Nouriel
Roubini, an insightful analyst who was among a handful who predicted the 2008 financial crash

years before it occurred, provided the following thumbnail sketch of Russia’s economic situation
in the aftermath of that event:

“The weakness of the Russian economy and its highly leveraged banks and corporations, in
particular, which was masked in recent years by the windfall brought by spiking oil and gas
prices, burst into full view as the global economy tumbled. Saddled with a rust-belt infrastructure,
Russia further disqualifies itself with dysfunctional and revanchist politics and a demographic
trend in near-terminal decline.”
—“Another BRIC in the Wall?,” 15 October 2009
Russia has the attributes of a large and (because of its Soviet inheritance) militarily
formidable power which is able to play a major role in global politics.

[E1] We need to ask how Russia maintains this “inheritance”? It has been a generation
since the fall of the Soviet Union, and yet capitalist Russia has become a world power
and continues to produce world class, advanced military technology. Russia’s military
industry, like the Russian economy as a whole, is marked by combined (or at least
differential) levels of development, and the military exhibits both backwardness and
advancement. Western media have often emphasized the backwardness (and we heard
echoes of this in our debate, when Russia’s military apparatus was once compared to
“spears” in the face of America’s “Gattling guns”). It seems the only time that the
advanced character of some of Russia’s war technology is acknowledged in the U.S.
media is when it threatens to interfere with American plans, as demonstrated by the
announced sale of advanced anti-aircraft S-300 missiles to the Syrian government.
[E2] The fact that Russia plays “a major role in global politics” is both an expression/
reflection of its imperialist status and a means by which the Russian bourgeoisie is
attempting to leverage its military and geopolitical power into economic advances.
Russia’s ruling class is an independent and powerful player within the global order.
It is also a country with enormously valuable natural resources. At the same time the
development of the Russian bourgeoisie (and its ability to reduce the gap separating it from its
more advanced capitalist rivals) is deformed by cultural backwardness and bureaucratic
corruption. In a 2010 report on “The state of Russia” the Economist wrote:

“By 2005 the bribes market, according to INDEM, a think-tank, had risen to $300 billion, or 20%
of GDP. As Mr Khodorkovsky said in a recent interview, most of this was not the bribes paid to
traffic police or doctors, but contracts awarded by bureaucrats to their affiliated companies.
“Unlike private businessmen, who started to invest in their core businesses (Yukos among them)
in the late 1990s, bureaucrat-entrepreneurs have little incentive to do so. Their wealth is
dependent on their administrative power, rather than newfangled property rights. The profits are
often stashed away in foreign bank accounts or quickly spent: on luxury property in European
capitals, or on their children's education in British private schools. All this is inevitably
accompanied by anti-Western rhetoric and claims of Russia's resurgence.
“Unsurprisingly, surveys now show that the young would rather have a job in the government or a
state firm than in a private business. Over the past ten years the number of bureaucrats has gone
up by 66%, from 527,000 to 878,000, and the cost of maintaining such a state machine has risen

from 15% to 20% of GDP. At the same time, Russia's standing in indices of corruption, property
rights and business freedom has deteriorated. “
—Economist, 9 December 2010
The Russian economy is both integrated into the world market and overwhelmingly dependent
on resource extraction, particularly hydrocarbons. Revenues from oil and gas sales in the past
dozen years have tended to mask the problems at the core of Russian capitalism, particularly a
failure to diversify economically and an inability to produce commodities that are competitive

“Corruption was also excessive in the 2000s, but it was compensated for by strong economic
growth and fast-rising incomes. This, and soothing television pictures, created a sense of stability.
But the global financial crisis hit the Russian economy harder than that of any other large
industrial country, exposing its structural weakness. As Vladislav Inozemtsev, an economist,
argues in a recent article, the improvement in living standards was achieved at the cost of massive
under-investment in the country's industry and infrastructure. In the late Soviet era capital
investment in Russia was 31% of GDP. In the past ten years Russia's capital investment has been,
on average, about 21.3% of GDP. (For comparison, the figure over the same period in China was
“Despite rising oil prices and a construction boom, Mr Inozemtsev says, in the post-Soviet period
Russia has built only one cement factory and not a single oil refinery. The Soviet Union used to
build 700km of railways a year. Last year, it built 60km. ‘We have lived by gobbling up our own
future,’ he argues. Peter Aven, the head of Alfa Bank, the largest private bank in the country,
thinks today is like the late Soviet period: ‘Once again the main source of wealth is oil and gas,
which is being exchanged for imported goods.’”
While generating immense profits, Russia’s oil and gas sector is technologically backward
by world standards.

[F1] Although many imperialist countries are home to powerful corporations

specializing in fossil fuels (e.g., BP, ExxonMobil), the suggestion here is that oil and
gas capital in Russia don’t really count as finance capital due to the relative
technological backwardness of Russian natural resources industries. While it is true
that Gazprom and other Russian energy companies have partnered with other
companies to borrow their technology, this does not render the Russians dependent on
Britain, for example. Such partnerships are normal across imperialist countries. Nor
does Russia’s relative technological backwardness in these strategic sectors mean that
it is working with shovels. The fact that large Russian energy corporations in many
respects lag behind their U.S. competitors is hardly a reason to disqualify them as
examples of imperialist finance capital.
When Lukoil (a major Russian producer) won a contract to develop a portion of Iraq’s oil fields
it had to subcontract most of the work to a U.S. firm (see Appendix A “In Rebuilding Iraq’s Oil
Industry, U.S. Subcontractors Hold Sway”). American authorities claimed the fact that Iraqi
contracts mostly went to foreign oil corporations proved that the conquest of Iraq had nothing to
do with seizing oil assets. They were well aware that U.S. companies, with their advanced
technology, stood to reap most of the benefits: “While Baker and its American peers are poised
to make significant profits from such work in Iraq, wafer-thin margins seem to await Lukoil….”

This phenomenon was described in the “Theses on the Eastern Question” adopted at the Fourth
Congress of the Comintern in December 1922:

“The progress of indigenous productive forces in the colonies thus comes into sharp contradiction
with the interests of world imperialism, since the essence of imperialism is its exploitation of
the different levels of development of the productive forces in the different sectors of the
world economy, in order to extract monopoly super-profits.”

—emphasis added

Russia’s rulers enjoy relative independence both from imperialist economic penetration
and the political control that goes with it, but this is not sufficient to qualify as an
imperialist power. To a considerable extent this “independence“ is a product of social
dysfunction—investors steer clear of places where the judicial system cannot be relied upon
to enforce contracts and ensure payments.
[G1] The term “independence” is used in a confusing way here. Our position is not
that Russia is an “independent” player in the global economic order in the sense that
it receives less investment than neocolonies (after all, a significant proportion of
imperialist investment is directed toward other imperialist countries), but rather
that the Russian bourgeoisie is not subordinate to, or dependent on, other imperialist

Turkey, Venezuela, India and various other non-imperialist countries have also periodically
asserted considerable political independence from Washington and its allies in recent years. In
1917 No. 29 we discussed the possibility of a U.S. defeat in Iraq resulting in Iran emerging the
primary “regional power“ in the Persian Gulf.

I. Large Ogopolistic Corporations: Russia & Brazil Compared

In his 6 April 2011 preconference document arguing that Russia should be considered an
imperialist power (the most recent statement of that view that has been circulated) comrade
Decker pointed to an “economy dominated by large oligopolistic corporations (combining
banking and industrial capital)”:

“Russia has several massive corporations listed in the Forbes 500, including in the banking, steel
and telecommunications sectors. Most importantly, of course, are oil and natural gas: Gazprom
was the 16th largest corporation in the world in 2010, while Lukoil was 69th and Rosneft was

He added that “Sberbank (93rd) and VTB Bank (437th) are large Russian financial institutions,”
and rounded out the list with “Severstal, the largest steel company in Russia, is 313th” and
Novolipetsk Steel (390th),” another steel producer.

The current Forbes 500 lists nine Russian companies—two thirds of them gas and oil
corporations, including five of the top six.

[H1] One must be careful with the Forbes list, as it sometimes masks the real
ownership structure of big companies. For instance, if one looks at the profile of the
Netherlands (which has ten entries, two of which are oil and natural gas companies),
one finds VimpelCom, a telecommunications company. Yet VimpelCom, while
headquartered in Amsterdam, is majority owned by Alfa Group, a large Russian
investment company headquartered in Moscow. VimpelCom is the “sixth largest
mobile network operator in the world” (Wikipedia).

[H2] Some imperialist countries have roughly similar profiles on the list to that of
Russia, while others barely register. Norway has three entries in the Forbes 500, one
of which is an oil and natural gas company that dwarfs the other two combined.
Austria has two entries, one of which is an oil and gas company. New Zealand, to take
an extreme case, does not even have a single entry among the top 500 – one has to
scroll down to #1820 to find a New Zealand company.

[H3] Inclusion of large corporations on the Forbes 500 is an important indicator of the
weight of an economy in the global order, but this fact must be studied in relation to
the role which this capital plays in relation to neocolonial countries, and weighed
against other factors.

The other major BRIC capitalist economies hold a roughly similar position: six Brazilian and ten
Indian ten corporations are listed. The Brazilian and Indian companies are less heavily weighted
in resource extraction than their Russian equivalents. Brazil’s six entries, coincidentally, have
roughly the same market value as Russia’s nine.

[I1] Setting aside the important question of what these companies do and what
relationship they have to neocolonial countries and the global economic order, it is
worth noting – in order to gain some perspective on the above observation – that the
profits of the Russian entries totaled $96.6 billion, while those of the Brazilian
entries was $35.4 billion.

In general the Indian firms are ranked somewhat lower (see Appendix B).

The BRIC countries are grouped rather closely in terms of entries on Forbes list ogopolies. It is
notable that Russian entries (7 of 9) are resource companies, whereas four of the six
corporations from Brazil are in the financial sector, including one “Major Bank.” All other
BRIC financial institutions are categorized as “Regional Banks.”

[J1] The suggestion is made here that since energy corporations play a relatively
greater role in the Russian economy than do banks, Russia is comparable to – or even
at a disadvantage when set against – semi-colonial countries like Brazil and India in
terms of status in the global imperialist order. This is a spurious argument, whose
premise is that the energy sector somehow doesn’t really “count” as finance capital.
By this logic, we would have to exclude ExxonMobil, Royal Dutch Shell, Chevron and

[J2] It is unclear how Forbes determines what is a “major bank” versus a “regional
bank” – there is no mention in their methodology that we can find to explain this. We
note that Brazil’s Itaú Unibanco Holding is listed as a “major bank” with $453.6 billion
in assets, $6.2 billion in profits and $82 billion in market value, whereas Russia’s
Sberbank is downgraded to a “regional bank” with $441.1 billion in assets, $10.8
billion in profits and $73.3 billion in market value. By contrast, Austria’s Raiffeisen
Bank International – with a mere $190.5 billion in assets, $1.3 billion in profits and
$7.6 billion in market value – is considered a “major bank.” Nor is it clear that sales
are a factor: Austria’s “major bank” had only $13.9 billion in sales compared to $36.1
billion for Russia’s “regional bank.” Perhaps these classifications reflect the
particular network standpoint of Wall Street than they do any objective measurement
of financial capital.

The fourth “BRIC” state—China—has 39 entries on the list, more than the other three combined
and second only to the U.S. which has 160. Britain is in third place (30), followed by France (27)
with Germany and Canada tied for fifth (23 each).

II. Foreign Direct Investment: Russia & Brazil Compared

A second criterion posed by Decker’s 2011 document was:“Does Russia have an exploitative
‘finance capital’ relationship with neo-colonial countries?”There is no question that substantial
amounts of Russian money is sent abroad, but this is not necessarily evidence of imperialist
activity. The pattern of foreign investment by Russia closely parallels that of Brazil, and is
distinct from core imperialist countries like France, Canada, et al. Attachments 1 & 2 are
scans of several documents that provide important information about Russia’s foreign holdings,
particularly in comparison to Brazil’s. (The first of these, a 2008 Deutsche Bank report, was
extensively cited in Decker’s 2011 contribution.) Some of the texts have been abbreviated to

include only only those portions that seemed most relevant. For ease of reference the scanned
pages have been numbered sequentially.

The documents are the following:

1. “Russia’s outward investment” by Deutsche Bank, 30 April 2008” <p1-6>
2. “Russian outward FDI [Foreign Direct Investment] and its policy context”, Columbia FDI
Profiles, 13 October 2009 <p 7-15>
3. “The growth of Brazil’s direct investment abroad….”, Columbia FDI Perspectives, 17 August
2009 <p16-19>
4. “Inward investment in Russia and its policy context,” Columbia FDI Profiles, 30 November
2010 <p20-32>
5. “Russia’s emerging multinational companies amidst the global economic crisis,” Dr. S.
Filippo, Delft University, 21 January 2011 <p33-38>
Passages that seem particularly significant are marked. The following comments related to
information in the scanned documents (with references to page numbers being those written in
the lower right corner.)

“Russia’s outward investment” by Deutsche Bank

P 2 Note that Russia has only 6 companies rated as “global challengers” compared
to 20 for India and 13 for Brazil (footnote #4).
[K1] Actually, the Deutsche Bank report was citing a Boston Consulting Group
paper with a measure of “global challengers” that was more restrictive than
what DB itself included in Chart 1 – DB said that the global reach of the
Russian corporations was “not clear-cut” from its own perspective. DB did
note, however, that “Russia’s ODI stock became the second largest among
emerging markets in 2006” (Hong Kong [China] was the largest).
[K2] Nonetheless, Brazil’s foreign investment has reached impressive levels –
while there are good reasons to view Brazil as playing a qualitatively different
role in the global economic system, there is no reason to deny that on certain
important measures it is quantitatively close to Russia.
P 3 Russia’s share in ODI (outward direct investment) by “emerging markets” is
estimated at 9% for 2006, but as Table 5 on page 4 shows emerging market ODI was
only 13% of the total, so Russia’s share of total ODI was approximately 1.2% of the
total—hardly what one would expect from an “imperialist” country with the world’s 6th
largest GDP (PPP adjusted). Even if this was all money invested in attempts to realize
higher rates of profit than available domestically (which most of it is not, see below) it
would still portray Russian “finance capital” as only a very minor factor in the
world economy.
[L1] While the 2008 DB report is an important document, it is somewhat
dated. The most recent figures demonstrate that Russia has further
entrenched itself as a finance capital power. Russia’s share of global outward
FDI stock has continued to increase, as has its share of global outward FDI flow
(aka ODI) – roughly speaking, the “stock” is the accumulated “flow” adjusted
for revaluations, so the stock variable of an emergent imperialist power is
expected to be relatively low for some period of time. The following chart is
compiled from UNCTAD data.
Russia’s Share of Global Outward FDI (%)

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Outward 0.3 0.3 0.7 1.7 1.5 1.4 1.6 2.1 2.8 3.7 3.6 3.9
Flow (%
of world
Outward 0.3 0.6 0.8 0.9 0.9 1.2 1.4 1.9 1.3 1.6 1.8 1.7
(% of
[L2] According to UNCTAD, the so-called BRICS (Brazil, Russia, India, China and
South Africa) accounted for 9% of the total outward FDI flow in 2012 (“Global
Investment Trends Monitor,” special edition, 25 March 2013). Of that 9%, China
and Russia accounted for the vast majority – 54% and 40% respectively. In other
words, Russia accounted for 3.6% of world FDI outflow in 2012, which is
slightly down from the year before but double the figure from 2006.
[L3] Brazil’s profile is more erratic, and it does not appear to play the same
role as Russia. (Note: instead of Brazil, one could have subbed in India, which
plays a similarly small role.) Zeros are used for negative values.
Brazil’s Share of Global Outward FDI (%)

2000 200 200 200 200 200 200 2007 200 200 201 2011
1 2 3 4 5 6 8 9 0
Outward 0.2 0 0.5 0.1 1.1 0.3 2.0 0.3 1.0 0 0.8 0
Flow (%
of world

Outward 0.7 0.6 0.7 0.6 0.6 0.6 0.7 0.7 1.0 0.9 0.9 1.0
(% of
[L4] As discussed below, there is some reason to discount a chunk of Russia’s
outward FDI stock (and flow). Such a procedure could, however, just as easily
be justified for Brazil as well, meaning that the difference between the two
countries in terms of outward FDI profile would likely remain roughly the
same. More importantly, in the case of Russia we are looking at a country that
has, unlike Brazil, jumped onto the outward FDI flow scene in a big way since
2000-2001, when the two countries were fairly similar in profile. Here is a
graph illustrating the dramatic expansion of outward FDI flow from Russia
(billions of dollars) over the last decade:





2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Source: UNCTAD

[L5] The dramatic expansion of Russian capital export was linked to the
consolidation of large Russian corporations:

“Russian outward investment is boosted by rising volumes of cross-border

M&As. While M&A purchases by Russian TNCs tripled between 1992–1996 and
1997–2000, and between 1997–2000 and 2001–2004, they soared more than 10
times in the last four years. This pattern confirms the evolution of Russian
TNCs which started consolidating their competitiveness through oligopolistic
or monopolistic advantages, first at home and later on abroad.”

- Kalman Kalotay and Astrit Sulstarova, “Modelling Russian outward FDI,”

[L6] Many other imperialist countries are roughly comparable to Russia in terms of
outward FDI flow, and only slightly exceed Russia in terms of outward FDI stock
(which is not surprising, since they are more established finance capital powers
that have had more time to accumulate stock). For example in 2011, Spain’s share
of global outward FDI flow was 2.2% (its share of stock was 3.0%); Italy’s flow
figure was 2.8% (and 2.4% of outward stock); and the Netherlands’ flow figure was
1.8% (its stock figure was 4.5%). And Russia is not too far behind the most
advanced imperialist powers. In absolute terms in 2011, Russia’s outward FDI flow
was $67 billion, compared with $397 billion for the U.S., $114 billion for Japan,
$107 billion for the UK, and $90 billion for France. It was ahead of Germany, which
had $54 billion, though Germany’s figure is normally higher (Nigel Driffield et al.,
“Outward FDI from the United Kingdom and its policy context,” Columbia FDI
Profiles, 25 November 2012
UK_OFDI_-_25_Nov_2012_-_FINAL.pdf). In terms of outward FDI stock in 2012,
Russia ranks 15th in the world, behind (in this order): U.S., UK, France, Germany,
Hong Kong (China), Switzerland, Belgium, Netherlands, Japan, Spain, Canada,
Italy, China (mainland) and Australia. The size of Russia’s outward FDI stock was
$413 billion compared with $537 billion for Italy (source: CIA Factbook).
[L7] What about the net effect of FDI flow in and out of Russia? Since 2009, Russia
has been a net exporter of FDI flow. In 2011, it took in $53 billion in FDI flow and
exported $67 billion – the only country in the CIS that was a net exporter. Which
other countries in the world are net exporters of FDI flow? In addition to Russia,
they are (in alphabetical order, according to the most recent figures found in
UNCTAD’s World Investment Report 2012): Austria, Canada, Finland, France,
Germany, Italy, the Netherlands, Norway, Spain, Sweden, Switzerland, United
Kingdom and the United States. (Some countries normally considered imperialist
are not on the list, e.g., Belgium and New Zealand, and there are some non-
imperialist countries that do appear – more on this below.) How does Russia’s net
FDI outflow rank in relation to other imperialist countries? In 2011, Russia’s net
FDI flow export was $14.4 billion, while it was $14 billion for Germany, $49.2
billion for France, $53.2 billion for Britain and $172.5 billion for the U.S. Spain,
which is considered imperialist, had a net FDI outflow of $7.8 billion, i.e., about
half that of Russia.

[L8] What about the presence of non-imperialist countries on the list of net FDI
exporters? Egypt was a net exporter only because foreign investment collapsed in
2011 (otherwise it is a consistent importer, and its exports do not even reach $1
billion). British Virgin Islands is a net exporter, though this is due to its role in
round tripping. Angola is technically a net exporter, but only because its FDI flows
have been negative (set against very small positive FDI outflows). Portugal swings
between being a net importer and net exporter, as does Thailand, Bahrain, Qatar,
Yemen and French Polynesia (and most of these countries’ net exports are
miniscule in value). There are a handful of other non-imperialist net exporters
whose inclusion might be explained for other reasons: South Korea, Taiwan,
Malaysia, Kuwait. It is worth noting that there appears to be no consistent pattern
for oil exporting countries (e.g., Saudi Arabia is a net importer).

[L9] What about other so-called developing or rising economies – are they on the
list? Notable countries which, unlike Russia (with +14.4 billion in 2011), are not
net exporters of FDI flow: China (-$170.5 billion), India (-$17.4 billion in 2011) and
Brazil (-$67.7 billion in 2011). In other words, Russia’s role in the pattern of
global FDI – at least since 2009 – is different from the other BRIC countries.

P 4 In fact very little of the 1.2% of global ODI that originated in Russia is invested.
Most of it has been sent to Cyprus (37.5%), Luxembourg (26.7%) and other financial
centers only to later be returned to Russia in a tax evasion maneuver known as
“round-tripping” (see footnote 16 on page 4 and Table 9 on page 5).
[M1] Russians use Cyprus as a tax haven and transit country, and it is true that
a non-negligible percentage of Russian capital export can be discounted in this
way. Not everyone agrees with what that percentage is. There are, for
instance, wild discrepancies between what the Russian and Cypriot banking
authorities report in terms of FDI stock and flows between Russia and Cyprus
(see “The 2013 Cyprus bailout and the Russian foreign direct investment
platform,” Kalman Kalotay [UNCTAD], 23 May 2013;
sol3/papers.cfm?abstract_id=2269634). According to the Russian figures cited
by Kalotay, approximately 1/3 (33.6%) of Russian outward stock was in Cyprus
in 2011. According to the Cypriot figures cited by Kalotay, a negligible 0.5% of
the Russian outward stock officially recognized by the Bank of Russia was in
Cyprus. (Similarly unbelievable discrepancies were recorded for flow
[M2] Much of Russian “investment” in Cyprus is indeed round-tripping that
ends up back in Russia. But it is also true that Cyprus is a temporary home to
some Russian capital, which then gets invested elsewhere, including in Central
Asia. This process is known as “trans-shipping,” which is distinguished from
“round-tripping”. Cyprus in fact advertised itself as a good jumping off point
for investors looking to branch out in the world. It would seem, however, that
a majority of Russian capital sent to Cyprus was round-tripping, not trans-
shipping – about 28% of Russia’s inward FDI stock, according to the Russian
source cited by Kalotay, is from Cyprus (most of that presumably being
[M3] But how different is Russia in terms of round-tripping? Certainly the
rampant corruption seen in Russia (which in itself is not an indicator for or
against imperialist status) is not seen to such an extreme in many other
imperialist countries in the modern era (though was fairly typical of these
countries at the dawn of the imperialist era). And this will presumably mean
that the problem of round-tripping is larger in Russia than it is in other
imperialist countries. It would indeed seem that a higher proportion of
Russia’s outward FDI is accounted for by round-tripping. But “round-tripping”
is not a Russian word. Take the case of Britain. In 2011, approximately 10% of
the inward FDI stock in the UK was from “UK offshore islands” and the tiny
“grand duchy” of Luxembourg alone (Grahame Allen & Aliyah Dar, “Foreign
Direct Investment,” House of Commons Library, 14 March, 2013). UNCTAD’s
World Investment Report 2012 complains that tax-haven countries like
Luxembourg and Cyprus (which are also home to SPEs – “special purpose
entities” that disguise real ownership) obscure the true picture of world FDI
flows. In 2011, the British Virgin Islands received over $54 billion in FDI inflow
– a figure that was more than that for France and Germany (each with around
$40 billion) and nearly identical to that for the UK itself (i.e., around $54
[M4] The recent G8 summit in Britain, aside from wrangling over Syria, was
significant in part because of the focus on clamping down on tax havens.
According to a leaked government report that was initially seen by the
Guardian (9 May 2013), there is a network of “complicated financial structures
using companies and trusts stretching from Singapore and the British Virgin

Islands to the Cayman Islands and the Cook Islands.” Britain’s wealthiest,
alongside billionaires from other imperialist countries (including Russia), have
hidden, according to a recent report by the International Consortium of
Investigative Journalists, trillions of dollars in tax havens – equivalent to a
staggering 44% of global GDP. Summarizing the revelations, the WSWS (30 May
2013) noted:
“The clients of these offshore tax havens include the super-rich from
nearly every country. The clientele ranges from American billionaires to
Russian oligarchs, Hong Kong property developers, corrupt government
bureaucrats, and gangsters. According to the leaked documents, about
$10 trillion is the property of a mere 100,000 individuals. On average,
this tiny sliver of the global population is hoarding $100 million each.
“Enormous banking institutions like Deutsche Bank, UBS, the Swiss
private bank Clariden, ING, and ABN Amro have actively worked to set
up tax evasion schemes for their clients in offshore hiding places. JP
Morgan, linked inconclusively by leaked documents to a number of tax
evasion schemes, has 50 subsidiaries in Bermuda, the Bahamas, and
similar ‘treasure islands.’”
Russian companies have a major market share in the CIS “due to linkages already
in place in the Soviet Union as well as a lack of foreign investors from
elsewhere” (the lack of other investors presumably due to unstable domestic
situations in many cases.) Telecom companies as well as energy companies require
“on site” capacity which is perhaps why they are prominent among the holdings of
Russian investors.
[N1] Russia certainly does invest heavily in Central Asia and Eastern Europe.
It’s unclear why this is supposed not to count as finance capital. Naturally,
Russian imperialism has built upon pre-existing “linkages” with its periphery.

But the percentage of Russian investment going to CIS declines sharply as total Russian
ODI grows—from 59% of the total in 1997-99 to 12% in 2004-06.
P 6 Table 12 shows that Russian investment abroad is overwhelmingly concentrated
in oil/gas and metallurgy sectors. The reasons for investing (outlined on p 3 of the
Deutsche Bank paper) include a desire to upgrade technological and managerial
capacity, gain easier access to foreign capital investment, and avoid the political
uncertainty and “difficult business and institutional environment” at home. Such
considerations do not normally shape investment decisions by imperialist
corporations based in North America, the EU and Japan.
[O1] The question of why Russian corporations invest abroad is a complex issue,
and there is no consensus. The DB report provides a summary on page 2: “The
bulk of Russia’s foreign investment is accounted for by private companies and it
mainly reflects economic considerations such as obtaining higher profit
margins, increasing companies’ growth potential and securing access to raw
materials. Foreign engagement also allows access to new technologies, thereby
helping to modernise the Russian economy. In addition, foreign activities,
especially in developed markets, force Russian companies to increase
transparency and to improve their corporate governance structures.”
[O2] A more recent study drew a very different (and indeed contradictory)
conclusion by noting “the changing strategies of outward investing Russian
firms: in the early 1990s, they were mostly privately owned TNCs, seeking for
‘safety nests’ abroad to protect themselves from domestic uncertainty; these

days, State-owned or -influenced TNCs dominate Russian capital exports,
motivated by a desire to control the value chain of their products.” (Kalman
Kalotay and Astrit Sulstarova, “Modelling Russian outward FDI,” http://
[O3] The UNCTAD report echoes this analysis, adding that Russia’s profile differs
from that of the other so-called BRIC countries:
“Recently, Russian TNCs have found their way to the BRICS countries,
increasing their stock to US$1.1 billion. In contrast to TNCs from other
BRICS countries, the main aim of Russian TNCs is not simply to secure
the supply of raw materials to their home country, but also to expand
their control over the value chains of their own natural resources, to
build sustainable competitive advantages vis-à-vis other firms, and to
strengthen their market positions in key developing countries. For
example Rosneft formed joint-venture with CNPC (China) to develop oil
extraction projects in the Russian Federation and downstream
operations in China.” (
[O4] Another account adds to the overall picture, and sheds some light on the
role of telecom and financial services companies:

“There are several stimulants driving Russia’s outward investment flows.

First, through OFDI, Russian companies seek to establish additional
control over foreign natural resources in order to complement their
domestic reserves. The Russian natural resource-based multinationals
generally seek upstream investment targets that can be developed more
readily and cost-effectively than untapped domestic resources, which
are often geographically isolated and require vast investments and years
to develop. These resource-seeking investments make up a relatively
modest share of Russia’s total OFDI compared to those of China. Second,
the Russian multinationals increasingly seek downstream assets in order
to build up their value chains internationally and reach end customers.
In particular, this strategy is popular with the natural resource-based
companies that are responsible for the lion’s share of Russia’s OFDI.
Third, Russia’s leading telecommunication and financial service
providers, among others, increasingly are seeking targets for strategic
acquisitions in order to establish control over markets in the former
Soviet republics. Among these strategic acquisitions, one may also
include purchases of assets granting easier access to certain protected
markets, such as the acquisitions by Russian companies in the US steel
and automotive industries. Finally, Russia’s state-owned enterprises
make purchases that seem to serve the purposes of Russia’s foreign
policy rather than commercial logic. While these investments are often
speculative, they generally attract considerable attention.”
- Peeter Vahtra, “Russia’s Outward FDI Rise Amidst the Global Fall,”

[O5] Rising oil prices are related to Russian capital export insofar as they
contributed to allowing Russian corporations to invest more capital abroad,
securing strategic positions in the world economy (including in other “BRIC”
countries). But it has gone well beyond these origins. According to UNCTAD:

“FDI outflows from the transition economies, mainly from the Russian
Federation, reached an all-time record level in 2011. Natural-resource-
based TNCs in transition economies, supported by high commodity
prices and higher stock market valuations, continued their expansion
into emerging markets rich in natural resources. For example, TNK-BP
(Russian Federation) entered the Brazilian oil industry with a $1 billion
acquisition of a 45 per cent stake in 21 oil blocks located in the
Solimoes Basin. At the same time, the company base of outward FDI
continued widening as other firms from various industries also invested.
For example, Sberbank – the largest Russian bank and the third largest
European one in terms of market capitalization – was pursuing major
acquisitions abroad (e.g. in 2011 the bank completed the acquisition of
Volksbank (Austria) affiliates in four transition economies and four new
EU member countries). As corporate customers of Russian banks venture
abroad, they demand that their banks have a local presence in host
countries to help finance their activities there. Russian technology-
based firms also acquired large assets, especially in developed markets
(e.g. Sky Technology acquired 10 per cent of Twitter (United States)).”
- World Investment Report 2012, p.57

[O6] Russia has begun to invest in Africa, though it is still a relatively minor
player (even compared to some non-imperialist countries, particularly China):
“The expansion of Russian TNCs in Africa is fairly recent but rapid,
reaching US$1 billion in 2011. The arrival of Russian TNCs has been
motivated by a desire to enhance raw-material supplies and to expand
to new segments of strategic commodities, as well as a desire to access
local markets. For example Rusal, the world’s largest aluminium
producer, has operations in Angola, Guinea, Nigeria and South Africa.
Russian banks are also moving into Africa. Vneshtorgbank for instance
opened the first foreign majority-owned bank in Angola, and then
moved into Namibia and Côte d’Ivoire, while the Russian Renaissance
Capital owns 25% of the shares in Ecobank, one of the largest Nigerian
banks.” (
[O7] A report by the European Parliament’s Directorate-General for External
Policies of the Union notes:

“What is perhaps most striking is Russia’s unusually high ratio of OFDI

[outward FDI] to GDP. Russia’s ratio of OFDI is considerably higher than
nearly all other emerging economies as well as advanced economies like
Japan and Italy. Large Russian enterprises are active in the acquisition of
foreign companies, usually as Russian energy or metals firms acquire
‘downstream’ assets (‘market-seeking’ OFDI), or because of the desire to
acquire foreign technologies or technological capabilities and know-how
(‘technologyseeking’ OFDI).”
- European Parliament, “The Economic Significance of Russia’s Accession
to the WTO,” June 2012

“Russian outward FDI and its policy context”, Columbia FDI Profiles

P 7 Russia’s economic resurgence since 1999 due to “consistently high prices in its
main export products” (particularly oil and gas) resulted in direct investment abroad.
P 8 Russian ODI was $208 billion in 2008; Brazil’s was $162 B; Russian investment in CIS
grew from $.13B in 2000 to $10B in 2008. (But the majority of this went to Belarus, see
Table 4 page 14).
P 9. State companies play “an important role in Russian OFDI” [outward foreign direct
investment]; many Russian capitalists want to avoid domestic political instability by
moving capital abroad. (Not the usual motivation of imperialist investors, beyond tax
avoidance). Note that two-thirds of total ODI flowed to “international financial center
such as Cyprus, the Netherlands, the British Virgin Islands and Gibraltar, which partly
serve as tax havens for Russian firms as well.” (See Table 5, page 14).
P 10 Some former Soviet bloc countries are antagonistic to Russian investment.
P 13 More than three quarters of Russian M&A (merger and acquisitions) involve firms
in “developed countries” rather than neo-colonies, CIS etc. This is similar to the usual
proportion for corporations from the U.S., etc.
P14 Russian investment in CIS countries in 2007 and 2008 was overwhelmingly
concentrated in Belarus, which at that time was a close ally. This implies that
political, rather than economic, calculations were dominant. See Appendix C
“Belarus Bailout Hinges on Russia” in which the author quotes an analyst’s observation
that “Financially, Belarus is becoming another South Ossetia.”

“The growth of Brazil’s direct investment abroad….” Columbia FDI Perspectives

P 17 There are close parallels between Brazilian and Russian FDI—in each country tax
havens account for roughly two-thirds of the total. The remaining investment also
follows similar pattern—predominantly going to “developed” capitalist countries,
presumably for similar reasons.
[P1] A large proportion of global FDI, often a majority, goes to developed
countries, including FDI originating in developed countries. In other words, it
is common for some imperialist countries to mainly invest in other imperialist
countries. In 2011, of the $90 billion in FDI outflow from France, about two-
thirds went to other advanced European economies (
[P2 ] It is true that there was a drop in FDI inflows into developed countries
between 2011 and 2012. In this connection, UNCTAD’s report makes the
following observation, which is useful in judging the analytical significance of
some of the points made in the next section:
“FDI flows fell drastically in developed countries to values last seen
almost ten years ago. Of the global decline of US$300 billion in FDI
inflows, from UD$1.6 trillion in 2011 to an estimated US$1.3 trillion in
2012, almost 90% was accounted for by developed countries. FDI
declined sharply both in Europe and in the United States. In Europe,
Belgium and Germany saw large declines in FDI inflows. In Belgium –
which, with a drop of US$80 billion, accounted for much of the fall –
FDI flows are often volatile or inflated by the transactions of the
special purpose entities (SPE). Germany posted a large decline from
US$40 billion in 2011 to only US$1 billion in 2012, due in part to large
divestments. The decline of inflows to the United States is largely
explained by the fall in cross-border M&A sales; despite the fall the
country remained the largest recipient of FDI flows in the world.
Elsewhere, Japan saw a net divestment for the third successive year.”
“Inward investment in Russia and its policy context,” Columbia FDI Profiles
P 20 Corruption discourages FDI in Russia. What investment there is tends to be in big
urban centers and oil and gas regions.
P 21-2 Much Russian FDI is simply “round-tripping” laundered money; CIS countries
invest in Russia because of preexisting Soviet networks etc.; foreign MNE
(multinational enterprises) help modernize Russian industry with technology transfers.
P23 Russia’s economy was heavily impacted by global financial crisis; “Many of the
largest Russian private companies demonstrated that they could not survive without
state support.” Russia is high on the corruption scale, which is not typical of
imperialist countries, but common among “emerging” economies with large “informal”
P 25 Russia is ranked 63rd in global competitiveness, 143rd in economic freedom: “both
Russian and foreign large investors usually solve their problems with the bureaucracy
in informal ways”, i.e., there is no reliable legal mechanisms for adjudicating property
P 27 There is a fairly close parallel between inward FDI stock in Russia and Brazil.
“Russia’s emerging multinational companies amidst the global economic crisis”
P 34 This list shows only two Russian companies among the top 50 in Europe and only
four in the top 100—all of them oil and gas firms. The next two largest companies on
this list are also oil and gas concerns. If Russia’s population of 140 m makes up roughly
28% of the total population of Europe (including all of Russia) the fact that Russian
companies make up such a small percentage of the top firms (4% of the top 100, 5% of
the top 200, and 6% of the top 500) is indicative of Russia’s relative economic
backwardness. The proportions are doubtless reversed for France, Germany et al (i.e.,
their share of firms in the European top 500 is a multiple, rather than a fraction, of
their percentage of the continent’s total population.)
The dominance of resource [particularly oil and gas] extraction for Russia is of course
more characteristic of “developing” rather than “developed” economies.
P 37 “While the economic crisis has halted the foreign expansion of Russian private
capital, state-owned capital strengthened its position as an investor.” Once again a
phenomenon more commonly associated with “developing” rather than “developed”
capitalist economies.

III. Russia & Brazil: Marginal Players in Global ‘Finance Capital’

In terms of institutions of “finance capital” neither Russia nor Brazil play in the first division, as
indicated by the absence of both countries from a list provided by the authors of a 2011 study of
“The Network of Global Corporate Control” by Switzerland’s premier institute for
macroeconomic research, the Eidgenössische Technische Hochschule in Zürich (ETHZ). This
study (posted to DISC on 10 May) powerfully confirms Lenin’s contention regarding the
tendency of capitalism toward monopoly, expressed as the ever increasing domination of the
global economy by “a small tightly-knit core of financial institutions” (p1). Using mathematical
systems modeling to investigate “the architecture of the international ownership network” the
ETHA found a “super-entity” at the center of which “only 737 top holders accumulate 80% of
the control over the value of all TNCs” (transnational corporations). A smaller group of 147
TNCs hold “nearly 4/10ths of the control over the economic value of TNCs in the world” (p 6).

The study lists the top 50 “control holders,” 45 of which are financial institutions. No Russian
(or Brazilian) corporations are included.

[Q1] Also missing from the list: Australia, Austria, Belgium, New Zealand, Norway,
Spain, Switzerland and a few other countries we consider imperialist. The study is
interesting and useful, but the fact that it not only misses these countries but barely
includes Italy (and even Germany only gets 2/50!) is indicative that, for Marxists, it is
probably only telling part of the story.
There are two entrants from the Chinese deformed workers’ state, but all the rest are from
“advanced capitalist” (i.e., imperialist) countries: 24 from the U.S., 8 from Britain, 5 are French,
4 Japanese, 2 each are German, Canadian and Dutch and the remaining one is Italian.

The Swiss study seems considerably more sophisticated than the standard rankings of global
financial institutions, but the pattern is similar. Appendix D, a list of the world’s 35 top banks
based on market capitalization (as of 23 August 2011), includes four Brazilian banks but only
one Russian one. Most of the banks on the list are from the “developed” capitalist world (as well
as six from China) (
picture is essentially the same in ratings of banks by assets. Of the top 50 six are Chinese and the
rest are from “developed” capitalist countries, with the sole exception of Banco do Brasil which
stands in the 49th spot (see Appendix E—
assets-2012). No Russian bank appears on that list.

IV. Russia’s ‘Underdeveloped’ Pariah Capitalism

American authorities issued the following downbeat assessment of Russia’s financial sector in

“Although still small by international standards, the Russian banking sector before the crisis was
growing fast and becoming a larger source of investment funds. To meet a growing demand for
loans, which they were unable to cover with domestic deposits, Russian banks borrowed
heavily abroad in 2007-2008, accounting for 57% of the private-sector capital inflows in
2007. …

“Even with the banking sector’s recent growth, financial intermediation in the overall
economy remains underdeveloped. Contradictory regulations across the banking and
securities markets have hindered efforts to transfer resources from capital-rich sectors,
such as energy, to capital-poor sectors, such as agriculture and manufacturing. The sector is
dominated by large state banks, and concentrated geographically in Moscow and the Moscow
region. Thus financial service providers face little competition for resources and charge relatively
high interest rates for favored, large corporate borrowers.

“This state of affairs makes it difficult for entrepreneurs to raise capital, and banks generally
perceive small and medium commercial lending as risky. Most of the country’s financial
institutions are inexperienced with assessing credit risk, though the situation is improving. The
low level of trust, both between the general public and banks as well as among banks, makes the
system highly susceptible to crises. After an uncertain year in 2009, by spring 2010 Russian
officials announced an end to anti-crisis bank support, and a World Bank report said that ‘a
systemic banking crisis had been averted, the liquidity crunch eased and depositor confidence
reestablished.’ The report cautioned, however, that systemic weaknesses exposed during the
crisis—especially excessive dependence on foreign borrowing and non-performing loans—
still needed to be addressed.”
—U.S. State Department Country Survey on Russia, 16 March 2011, emphasis added

Heavy dependence on foreign borrowing is typical of countries with relatively “underdeveloped”


In Russia, like other BRIC countries, state-owned banks predominate (see: “Banking in BRIC
Countries,” 9 August 2010, Knowledge for Markets (
aug09-2010.pdf). The same report notes that among the BRIC banks “a study of key
performance ratios reveals that ROA (Return on Asset) is the highest for Brazil banks and much
lower for Russia.” According to the European Bank for Reconstruction and Development
Russia’s private sector’s share of GDP shrunk from 70 to 65 percent between 2004 and 2010:

“Despite large-scale privatizations, the seven existing state corporations still play a large role in
the Russian economy. (Note: State corporations are 100% owned by the Russian government and
operate under special legislation. The Russian economy also features thousands of other
companies owned in part or whole by the Russian government that operate under different legal
arrangements, such as unitary enterprises and joint stock companies.) While private enterprises
are technically allowed to compete with state corporations on the same terms and conditions, in
practice, the playing field is tilted. State corporation holding structures and management
arrangements (e.g., state representatives as board members) make it difficult for private
enterprises to compete. Furthermore, specific legal constructions can result in preferential
treatment of state corporations.”
—“2012 Investment Climate Statement – Russia,” U.S. Bureau of Economic and Business Affairs

The level of corruption in Russia has been an enormous drag on economic development:

“Corruption, including bribery, raises the costs and risks of doing business. Corruption has a
corrosive impact on both market opportunities overseas for U.S. companies and the broader
business climate. It deters international investment, stifles economic growth and development,
distorts prices, and undermines the rule of law. Moreover, the NGO Information Science for
Democracy (INDEM) estimated in a 2009 report that bribes and corruption annually cost Russia
the equivalent of one-third of its GDP. In November 2010, President Medvedev announced that
Russia is losing up to a trillion rubles (approximately $33 billion) annually due to corruption in
its state procurement system.”

This reality has inhibited both foreign and domestic investors:

“While Russia's peers in the BRIC group of leading emerging economies are coping with an
inflow of capital, $21 billion fled out of Russia in the first ten months of the year. Unlike foreign
firms such as Pepsi...Russia's private firms are too nervous to invest in their own economy.”
—Economist, 9 December 2010
In 2011, a government development bank, Vnesheconombank, launched a special new fund
designed to lure overseas investment. To reassure skittish capitalists this private equity fund was
headed by a former Goldman Sachs banker and personally backed by then prime minister
Vladimir Putin whose “personal involvement in the fund is intended to reassure investors that
they will not be abused by arbitrary or corrupt lower-ranking officials” (see Appendix F “New
Fund, With Ties to Kremlin, Seeks Foreign Investors”).

But even Putin’s personal guarantee was not enough and Russia’s ailing financial sector has
remained a major problem for the Kremlin. The 2012 U.S. State Department report cited above
stated that “most large Russian companies choose to list their stock in London and elsewhere
abroad in order to obtain higher valuations.”

A 20 February 2013 article, entitled “$500,000 Makeover Not Just Cosmetic,” report was
published in Russia Beyond the Headlines, a government-funded “Special Advertising
Supplement” that appears in more than a dozen major international papers, including the Wall
Street Journal, New York Times, and London Telegraph. The article, (see Attachment No. 3)
begins: “In a new image campaign, the Russian government has hired investment bank Goldman
Sachs to persuade investors and ratings agencies of the country’s appeal.” It continues:

“Sberbank Pesident German Gref has complained publicly that Russia is underestimated in the
international rankings. (In terms of financial sector development, Russia lies in 134th place in the
World Economic Forum’s competitiveness ranking, below Albania, Armenia, Botswana, and
Peru.) “
The Goldman Sachs PR team faces a formidable challenge, particularly as Russian capitalists
themselves lack confidence in their future:

“growing numbers of the elite feel that the present political and economic model has been
exhausted and the country is fast approaching a dead end. ‘The problem is not that this regime is
authoritarian, the problem is that it is unfair, corrupt and ineffective,’ says one leading
businessman. ‘Corruption will erode and bring down this system.’ The paradox is that few
Russian government officials disagree with this.”
—Economist, 9 December 2010
This depressing assessment of the predicament of “actually existing” Russian capitalism is
confirmed by a recent report in the New York Times that things have become so grim that
Moscow’s stock exchange has recently been having difficulty competing with Warsaw’s for
regional financial center:

“The midsize companies in neighboring Ukraine or other former Soviet republics are choosing to
go public in Warsaw. They are hardly bothering to look at the carefully laid out welcome mat in

The report continues:

“Mr. Medvedev had named senior Western bank executives to an advisory council for
transforming Moscow’s financial sector. They included Jamie Dimon, the chief executive of
JPMorgan Chase; Vikram S. Pandit, the former chief executive of Citigroup; and Lloyd C.
Blankfein, the chief executive of Goldman Sachs.

“But the Global Financial Center Index, published in March by Z/Yen, a consulting agency,
placed Moscow 65th out of 79 cities studied. London was first, followed by New York and Hong
Kong. The ranking placed Moscow between Bahrain and Mumbai.”
—“Moscow Tries to Reinvent Itself as Financial Hub,” New York Times, 3 April 2013
(reproduced as Appendix G)

The market capitalization of the Moscow’s MICEX/RTS stock market circa January 2012 was
$844 billion, compared to Warsaw’s $157 billion. Brazil’s Sao Palo’s MB&F—the eighth largest
exchange in the world—had a valuation of $1,188 billion (see:

. . .

On balance the evidence indicates that the “actually existing” Russian bourgeoisie is no more
imperialist—in the Leninist “modern [i.e., finance capitalist] sense”—than their Brazilian

Appendix A

In Rebuilding Iraq’s Oil Industry, U.S.

Subcontractors Hold Sway
By ANDREW E. KRAMER June 16, 2011<published in Friday 17 June NYTimes, emphasis added>

MOSCOW — When Iraq auctioned rights to rebuild and expand its oil industry two years ago,
the Russian company Lukoil won a hefty portion — a field holding about 10 percent of Iraq’s
known oil reserves.

It seemed a geopolitical victory for Lukoil. And because only one of the 11 fields that the
Iraqis auctioned off went to an American oil company — Exxon Mobil — it also seemed as if
few petroleum benefits would flow to the country that took the lead role in the war, the
United States.

The auction’s outcome helped defuse criticism in the Arab world that the United States had
invaded Iraq for its oil. “No one, even the United States, can steal the oil,” the Iraqi
government spokesman, Ali al-Dabbagh, said at the time.

But American companies can, apparently, drill for the oil.

In fact, American drilling companies stand to make tens of billions of dollars from the new
petroleum activity in Iraq long before any of the oil producers start seeing any returns on
their investments.

Lukoil and many of the other international oil companies that won fields in the auction
are now subcontracting mostly with the four largely American oil services companies that
are global leaders in their field: Halliburton, Baker Hughes, Weatherford International and
Schlumberger. Those four have won the largest portion of the subcontracts to drill for oil,
build wells and refurbish old equipment.

“Iraq is a huge opportunity for contractors,” Alex Munton, a Middle East analyst for Wood
Mackenzie, a research and consulting firm based in Edinburgh, said by telephone.

Mr. Munton estimated that about half of the $150 billion the international majors are
expected to invest at Iraqi oil fields over the next decade would go to drilling subcontractors
— most of it to the big four operators, which all have ties to the Texas oil industry.

Halliburton and Baker Hughes are based in Houston, as is the drilling unit of Schlumberger,
which is based in Paris. Weatherford, though now incorporated in Switzerland, was founded in
Texas and still has big operations there.

Michael Klare, professor of peace and world security studies at Hampshire College and an
authority on oil and conflict, said that American oil services companies were generally
dominant both in the Middle East and globally because of their advanced drilling
technology. So it is no surprise, he said, they came out on top in Iraq, too — whatever the
initial diplomatic appearances.

United States officials have said that American experts who advised the Iraqi oil ministry
about ways to restore and increase petroleum production did so without seeking any
preferences for American companies.

And immediately after the 2009 auction round won by Lukoil, the United States Embassy
spokesman in Baghdad, Philip Frayne, told Reuters that “the results of the bid round should
lay to rest the old canard that the U.S. intervened in Iraq to secure Iraqi oil for American

But Professor Klare said that the American officials who had advised the Iraqi government on
its contracting decisions almost certainly expected American oil services companies to win a
good portion of the business there, regardless who won the primary contracts.

“There’s no question that they would assume as much,” he said.

The American oil services companies, which have been in Iraq for years on contract with the
United States occupation authorities and military, are expanding their presence even as the
American military prepares to pull out.

For example, Halliburton, once led by former Vice President Dick Cheney, has 600 employees
in Iraq today and said in a statement that it intended to hire several hundred more before the
end of the year. “We continue to win significant contracts in Iraq, and are investing heavily in
our infrastructure,” Halliburton said.

The 11 contracts Iraq signed with oil majors, including the six for the largest fields, are
intended to raise Iraqi output from about 2.5 million barrels of oil a day now to 12 million
barrels daily in 2017. Some of the oil services contracts are for repairing currently productive
fields, others to tap mostly unused sites.

Most outside experts, including those at the International Energy Agency in Paris, are
skeptical of the production targets. The I.E.A. predicts that Iraq will not surpass six million
barrels a day until 2030.

But there is little question that production is ramping up. On average in 2002, the year before
the United States invasion, Iraq produced only 1.9 million barrels of oil a day.

Lukoil’s experience in Iraq shows how, while geopolitics steered the primary contracts largely
away from United States oil companies, the process left the subcontracting wide open for
American service providers.

Lukoil was originally granted rights by Saddam Hussein, in 1997, to develop a huge field called
West Qurna 2 — rights that Mr. Hussein rescinded just before the war began in 2003.

After the invasion, Lukoil sensed that its best chances lay in working with the Americans. It
formed a joint venture with the United States company ConocoPhillips, giving Conoco a small
venture in the Russian Arctic and ceding it part of West Qurna 2.

By the time Lukoil was eventually compelled to bid again for the field at the 2009 auction,
sentiment in both the United States and Iraqi governments seemed to have shifted to favoring
non-American companies in awarding the main contracts. But one of Lukoil’s first steps after
securing the West Qurna 2 deal was to subcontract the oil well refurbishment work to Baker

While Baker and its American peers are poised to make significant profits from such work
in Iraq, wafer-thin margins seem to await Lukoil and the other international oil producers
— which include BP of Britain, CNPC of China, ENI of Italy and the Anglo-Dutch company Shell.

Lukoil’s contract, for example, is typical in paying a flat fee of $1.15 for each barrel
produced, regardless of oil’s price.

That means even if Lukoil ramps up West Qurna 2 production from almost nothing now to 1.8
million barrels a day by 2017, as specified in the contract, it will require more than a decade
of subsequent production just to recoup capital costs of about $13 billion. A good portion of
those costs, meanwhile, will have gone to its drilling contractors. Lukoil says it intends to drill
more than 500 wells over six years.

Lukoil and other winners of the 2009 auction are now quietly seeking to renegotiate the deals
by slowing the upfront investment. On Wednesday, Lukoil executives met with Iraq’s oil
minister in Moscow, the company said in a statement. A spokesman declined to provide more

Andrei Kuzyaev, the president of Lukoil Overseas, the company’s subsidiary for foreign
operations, said in an interview that he was choosing oil services contractors in Iraq through
open tenders, as required by the contract. But in fact, Lukoil officials say privately, only
American companies have bid.

“The strategic interest of the United States is in new oil supplies arriving on the world
market, to lower prices,” Mr. Kuzyaev said.

“It is not important that we did not take part in the coalition,” he said, referring to the
military operations in Iraq. “For America, the important thing is open access to reserves. And
that is what is happening in Iraq.”

Appendix B
FORBES 500 entries for capitalist BRIC
economies: Russia, Brazil and India
# 17 Gazprom

“Oil and Gas Operations” Sales $144 B Profits $40.6 B Assets $339.3 B Market Value $111.4 B
# 59 Rosneft
“Oil and Gas Operations” Sales $68.8 B Profits $11.2 B Assets $126.3 B Market Value
$73.2 B
# 61 Sberbank
“Regional Banks” Sales $36.1 B Profits $10.8 B Assets $441.1 B Market Value
$73.3 B
# 64 Lukoil
“Oil and Gas Operations” Sales $116.3 B Profits $11 B Assets $99 B Market Value $55.4 B
# 159 TNK-BP Holdings
“Oil and Gas Operations” Sales $43.3 B Profits $7.6 B Assets $43.3 B Market Value $33 B
# 187 Surgutneftegas
“Oil and Gas Operations” Sales $23.4 B Profits $7.2 B Assets $51.4 B Market Value $33.7 B
# 233 VTB Bank
“Regional Banks” Sales $16.1 B Profits $2.8 B Assets $210 B Market Value
$18.9 B
# 385 Norilsk Nickel
“Diversified Metals and Mining” Sales $12.8 B Profits $3.3 B Assets $18.8 B Market Value $32.9 B
# 484 Tatneft
“Oil and Gas Operations” Sales $13 B Profits $2.1 B Assets $19.5 B Market Value $14.8 B

# 20 Petrobras
“Oil and Gas Operations” Sales $144.1 B Profits $11 B Assets $331.6 B Market Value $120.7 B
# 42 Itau Unibanco Holding
“Major Banks” Sales $70.5 B Profits $6.2 B Assets $453.6 B Market Value $82
# 45 Banco Bradesco
“Regional Banks” Sales $78.3 B Profits $5.6 B Assets $417.5 B Market Value
$71.6 B
# 67 Banco do Brazil
“Regional Banks” Sales $69 B Profits $6 B Assets $552.2 B Market Value $37.9 B
# 87 Vale
“Iron and Steel” Sales $45.7 B Profits $4.8 B Assets $130.4 B Market Value $92.7 B
# 173 Itausa
“Conglomerates”—“Holding company primarily involved in the financial sector”
Sales $27.8 B Profits $2.2 B Assets $172.4 B Market Value $25.4 B

# 121 Reliance Industries
“Oil and Gas Operations” Sales $70.3 B Profits $3.9 B Assets $64.2 B Market Value $50.4 B
# 136 State Bank of India
“Regional Banks” Sales $35.1 B Profits $3 B Assets $359.1 B Market Value
$28.1 B
# 155 ONGC - Oil & Natural Gas
“Oil and Gas Operations” Sales $28.9 B Profits $5.5 B Assets $52.1 B Market Value $50.5 B
# 309 Icici Bank
“Regional Banks” Sales $13.2 B Profits $1.5 B Assets $118 B Market Value $22.8 B
# 334 Tata Motors
“Auto and Truck Manufacturers” Sales $32.6 B Profits $2.7 B Assets $27.6 B Market Value $15.9 B
# 350 Indian Oil
“Oil and Gas Operations” Sales $70.8 B Profits $0.8 B Assets $43.2 B Market Value $14.2 B
# 377 Coal India
“Diversified Metals and Mining” Sales $12.3 B Profits $2.9 B Assets $20.8 B Market Value $37.4 B
# 384 NTPC
“Electric Utilities” Sales $12.8 B Profits $1.9 B Assets $30.5 B Market Value
$22.3 B
# 456 Bharti Airtel
“Telecommunications Services” Sales $14 B Profits $0.8 B Assets $29.8 B Market Value $21.8 B
# 463 HDFC Bank
“Regional Banks” Sales $6.5 B Profits $1 B Assets $66.7 B Market Value
$28.1 B

Appendix C
Belarus Bailout Hinges On Russia
22 April 2011
By Nikolaus von Twickel

<MOSCOW TIMES, emphasis added>

For the second time in two years, Belarus is facing bankruptcy. And for the first time, it seems
that Russia will be mainly alone in picking up the tab.

Belarus' currency reserves are running dangerously low, having slid from $6 billion to $3.7
billion over the past six months, according to the web site of the country's central bank.

The situation is reminiscent of summer 2009, when a $2 billion loan from Russia and a $3.5
billion credit from the International Monetary Fund helped Belarus survive the financial crisis.

But this time the political situation is much more volatile.

On Tuesday, the central bank announced that it would allow the Belarussian ruble to float
freely, heightening fears of devaluation and public unrest as people line up outside currency
exchange booths.

President Alexander Lukashenko, the country's authoritarian leader, has few alternatives
to turning eastward for assistance.

A tentative rapprochement with the West was shattered after the presidential election last
December, when police brutally cracked down on the opposition, which complained that
the vote, re-electing Lukashenko to a fourth term, was rigged.

In response, the European Union has frozen assets and restricted visas for the Belarussian

"The EU is frustrated with Lukashenko, [though] they held out an olive branch before
the election," said Fraser Cameron, director of the EU-Russia Center, a Brussels-based think
tank. The poll "turned out to be a complete fraud," he added.

The situation is likely to deteriorate further after Lukashenko implicitly accused the West
of being behind a mystery bombing that hit the Minsk metro on April 11, killing 13
and wounding more than 200.

In his state-of-the-nation address to parliament Thursday, Lukashenko suggested that

the sanctions and bombing were part of a foreign plot against Belarus. "These are all links
of one chain," he said, Interfax reported.

The president added that the blast was possible because the government had allowed too
much "unnecessary" democracy. "We had so much democracy that you and I got sick," he was
quoted as saying.

And while the 27-member European bloc is currently hit by its own financial worries — having
to avert a credit crunch in Greece, Ireland and Portugal — Russia, by contrast, is awash with
cash as rising oil prices promise more than $51 billion in extra budget revenues this year.

Finance Minister Alexei Kudrin said earlier this week that Moscow would finalize talks with
Minsk within a month on terms for a $2.7 billion loan, of which $1.7 billion would be released
from the Russian-led $10 billion anti-crisis Eurasian Cooperation Fund.

The prospect of the Kremlin bailing out Lukashenko with another billion-dollar loan spurned
concerns that Belarus is sliding into even deeper dependence.

"Financially, Belarus is becoming another South Ossetia," said Alexei Malashenko,

an analyst with the Carnegie Moscow Center, referring to the breakaway Georgian region
that is largely bankrolled from Moscow.

Malashenko said the money was largely wasted on Belarus' Soviet-style economy.

Analysts have said the present financial woes stem in large part from a state spending spree
in the run-up to the December presidential election.

But two influential pro-Kremlin State Duma deputies said it was right to support the country's
western neighbor.

"After all, we are not helping Lukashenko personally, but the people of Belarus," said
Konstantin Zatulin, a member of United Russia and long-standing expert on policy toward
former Soviet states.

He added that Russia was morally and politically obliged to help, just as the EU was bailing
out Portugal and Greece. "After all, we have political and economic integration with Minsk,"
he said.

However, Zatulin admitted that the Belarussian leader had been a difficult partner in the

Last year, Lukashenko angered the Kremlin by courting the EU and boycotting institutions like
the Russia-led Collective Security Treaty Organization.

In return, he was mocked by state-controlled NTV television and President Dmitry Medvedev,

who openly accused him of sowing hostility between Moscow and Minsk.

"I cannot say that I like him very much, but show me one other [Belarussian] politician with
whom you can deal responsibly," Zatulin said in a reference to the split Belarussian
opposition, which failed to settle on a single candidate to run against Lukashenko
in December and put forth a whopping nine nominees.

Sergei Markov, another United Russia lawmaker and political pundit, went one step further
by saying Lukashenko's "demonization" in the Western press was unfounded.

"Maybe he is no stable ally, but he is a strong politician who has impressively survived the past
17 years," he told The Moscow Times.

Carnegie Moscow Center's Malashenko was also pessimistic about replacing Lukashenko.
"Maybe they do not like him, but they also fear to lose him," he said about the Russian
government's support for the incumbent Belarussian leader.

He added that, while the Belarussian opposition was too weak and divided, the economic aid
should at least be tied to political conditions to gradually facilitate change. "Sooner or later
Lukashenko will fall," he said.

Finance Minister Kudrin said earlier that the Russian loan would be issued on terms similar
to those of IMF programs.

Sergei Musiyenko, a Minsk-based analyst who works as an adviser to Lukashenko, said

the Belarussian government would meet all requirements for economic reform.

"We have been reforming for three years and we are known to be a sound borrower," he said
by telephone, adding that Belarus was a net donor to the budget during the Soviet Union.
"There is huge potential in our economy," he said.

Musiyenko pointed out that there were other potential creditors. As an example, he named
China, which has promised long-term aid worth some $16 billion.

Analysts have speculated that China could buy a stake in potash miner Belaruskali. They have
said that selling 25 percent of the firm could raise up to $7 billion.

Duma deputy Markov also said Lukashenko should also hope for help from Iran and Venezuela,
which have both established close ties with Belarus in the past years.

Appendix D

The following list shows the world's largest banks based on market capitalization, as of August 23, 2011. China
currently has Three of the Four largest banks in the world. In 2005, China did not have a single bank among the
world's top 50. Now it has four of the top ten.
Rank Bank Country Market cap ($b, 8/2011)
1 Industrial & Commercial Bank of China (ICBC) China 223.4
2 China Construction Bank China 167.1
3 HSBC Holdings UK 150.06
4 Agricultural Bank of China China 134.91
5 JPMorgan Chase & Co. US 130.27
6 Bank of China China 122.16
7 Wells Fargo US 120.86
8 Citigroup US 76.04
9 Commonwealth Bank of Australia Australia 75.24
10 Banco Santander Spain 74.81
11 Itau Unibanco Brazil 70.44
12 Royal Bank Canada Canada 70.38
13 Bank of America US 65.23
14 Mitsubishi UFJ Financial Japan 63.92
15 Toronto-Dominion Bank Canada 63.50
16 Westpac Banking Australia 61.69
17 Sberbank of Russia Russia 61.12
18 Bradesco Brazil 57.76
19 BNP Paribas France 57.06
20 Bank of Nova Scotia Canada 53.85
21 ANZ Banking Australia 52.76
22 Standard Chartered UK 52.16
23 UBS Switzerland 51.39
24 National Australia Bank Australia 50.83
25 Banco do Brasil Brazil 44.85
26 Bank of Communications China 43.91
27 BBVA Spain 41.84
28 Sumitomo Mitsui Financial Japan 40.20
29 China Merchants Bank China 39.64
30 US Bancorp US 39.01
31 Bank of Montreal Canada 36.92
32 Deutsche Bank Germany 36.07
33 Santander Brasil Brazil 34.77
34 Nordea Bank Sweden 34.29
35 Lloyds Banking Group UK 31.92

Appendix E
Top Banks in the World 2012

The following is a list of the top 10 banks and top 50 banks in world ranked by total assets. Deutsche Bank
(DB) is currently the largest bank in the world with assets of EUR2.186 trillion (US$2.810 trillion). In 2012,
DB was awarded the title of Best Global Investment Bank by Euromoney magazine and won six awards
from Global Finance including Best Corporate Bank, Best Foreign Exchange Bank and Best Credit
Derivatives Provider, Europe. Mitsubishi UFJ Financial Group (MUFG) is the second largest financial
institution in the world with assets of ¥218.641 trillion (US$2.803 trillion). The Bank of Tokyo-Mitsubishi UFJ
is the main banking arm of MUFG. Industrial and Commercial Bank of China (ICBC) is the third largest bank
in the world. ICBC moved up to third place in the new world rankings in September 2012. In December
2011, ICBC occupied only the sixth position. The ten largest banks hold over $25.6 trillion in combined
Rank Bank Country Total Assets, US$b * Balance Sheet
1 Deutsche Bank Germany 2,809.89 30/09/2012
2 Mitsubishi UFJ Financial Group Japan 2,803.42 30/09/2012
3 Industrial & Commercial Bank of China China 2,763.59 30/09/2012
4 HSBC Holdings UK 2,721.06 30/09/2012
5 Barclays PLC UK 2,584.30 30/09/2012
6 BNP Paribas France 2,562.99 30/09/2012
7 Japan Post Bank Japan 2,513.21 30/09/2012
8 JPMorgan Chase & Co. USA 2,321.28 30/09/2012
9 Credit Agricole SA France 2,317.12 30/06/2012
10 Royal Bank of Scotland Group UK 2,225.14 30/09/2012
11 Bank of America USA 2,168.02 30/09/2012
12 Mizuho Financial Group Japan 2,123.32 30/09/2012
13 China Construction Bank Corporation China 2,115.35 30/09/2012
14 Agricultural Bank of China China 2,078.03 30/09/2012
15 Bank of China China 2,027.41 30/09/2012
16 Citigroup Inc USA 1,931.35 30/09/2012
17 Sumitomo Mitsui Financial Group Japan 1,788.23 30/09/2012
18 Banco Santander Spain 1,672.11 30/09/2012
19 Societe Generale France 1,647.51 30/09/2012
20 ING Group Netherlands 1,604.57 30/09/2012
21 Groupe BPCE France 1,531.08 30/09/2012
22 Lloyds Banking Group UK 1,529.12 30/09/2012
23 UBS Switzerland 1,456.45 30/09/2012
24 Wells Fargo USA 1,374.72 30/09/2012
25 UniCredit S.p.A. Italy 1,245.95 30/09/2012
26 Credit Suisse Group Switzerland 1,088.60 30/09/2012
27 China Development Bank China 994.685 31/12/2011
28 Rabobank Group Netherlands 991.075 30/06/2012
29 Norinchukin Bank Japan 949.667 30/09/2012
30 Goldman Sachs USA 949.475 30/09/2012
31 Nordea Bank Sweden 914.056 30/09/2012
32 Commerzbank Germany 868.510 30/09/2012
33 Intesa Sanpaolo Italy 859.643 30/09/2012
34 Royal Bank of Canada Canada 838.216 31/07/2012
35 BBVA (Banco Bilbao Vizcaya Argentaria) Spain 829.794 30/09/2012
36 Bank of Communications China 823.033 30/09/2012
37 Toronto-Dominion Bank Canada 819.802 31/07/2012
38 National Australia Bank Australia 791.899 30/09/2012
39 Morgan Stanley USA 764.985 30/09/2012
40 Commonwealth Bank of Australia Australia 745.345 30/06/2012
41 Natixis France 721.933 30/06/2012
42 Westpac Banking Corporation Australia 700.447 30/09/2012
43 Bank of Nova Scotia (Scotiabank) Canada 681.203 31/07/2012
44 Australia and New Zealand Banking Group Australia 666.370 30/09/2012
45 KfW Bankengruppe Germany 665.818 30/09/2012
46 Standard Chartered UK 624.431 30/06/2012
47 Danske Bank Group Denmark 620.710 30/09/2012
48 Bank of Montreal (BMO) Canada 551.340 31/07/2012
49 Banco do Brasil S.A. Brazil 544.631 30/09/2012
50 Dexia Belgium 528.595 30/06/2012
51 DZ Bank Germany 523.025 30/06/2012
52 Banque Federative du Credit Mutuel (BFCM Group) France 494.723 30/06/2012
53 Landesbank Baden-Wurttemberg (LBBW) Germany 474.134 30/09/2012
* The exchange rate on September 30, 2012 

Last Modified: December 7, 2012

Appendix F
June 8, 2011, 5:14 am Private Equity <emphasis added>

New Fund, With Ties to Kremlin, Seeks Foreign

4:52 p.m. | Updated
As part of its drive to show foreign investors that Russia is a safe and profitable place to
put their money, a government-owned bank has established a private equity fund with a
former Goldman Sachs banker in charge and Prime Minister Vladimir V. Putin as its
Last month, Mr. Putin met in Moscow with prominent international investors including Stephen
A. Schwarzman, chief executive of the Blackstone Group, and Lou Jiwei, chief executive of
the China Investment Corporation, to try to generate interest in Russia’s direct investment
fund. President Dmitri A. Medvedev plans to announce the fund formally later this month at
the St. Petersburg International Economic Forum.
Over dinner on Wednesday in Vienna with a small group of business people and investors, Kirill
Dmitriev, an alumnus of Goldman Sachs and McKinsey & Company who is chief executive of
the fund, gave details of how it would be structured.
The point of the fund, Mr. Dmitriev emphasized, will be to make money. That is not always
obvious in Russia, where foreign investors have been concerned about corruption, lack of an
impartial court system and the authoritarian tendencies of the government.
“We want to make some returns,” said Mr. Dmitriev, who graduated from Stanford University
and the Harvard Business School. Before Mr. Putin named him to run the fund, Mr. Dmitriev
was president of Icon Private Equity, a fund focused on Russia and the former Soviet Union.
Profitability, rather than government policy goals, will drive the investments, Mr. Dmitriev
promised. While the overall aim is to promote growth and create jobs, investments will be
judged according to the potential return over the typical private equity cycle of five to seven
years, he said.
Russia plans to commit $10 billion to the fund, in installments of $2 billion a year for five
years, via the government development bank Vnesheconombank. But the bank’s stake in
investments will never exceed 50 percent, meaning that foreign investors will retain control,
said Petr Fradkov, deputy chairman of the bank.
At the same time, Mr. Putin’s personal involvement in the fund is intended to reassure
investors that they will not be abused by arbitrary or corrupt lower-ranking officials. “The
investor has implicit comfort,” Mr. Fradkov said.
Mr. Putin met for an hour and a half on May 18 with the foreign investors, a group of about 20
people that also included representatives of the Kuwait Investment Authority, the Abu Dhabi
Investment Authority and private equity fund Permira, Mr. Fradkov and Mr. Dmitriev said.
Investors are not being asked to write blank checks to the fund, but rather to invest in
individual deals, another effort to reassure them that they will have control over how their
money is spent. Mr. Fradkov said that there were projects in the works and that the first deals
should be announced within nine months.

Mr. Fradkov would not give specifics about potential deals, but Mr. Dmitriev said one goal of
the fund would be to invest in companies that could profit from Russia’s rapidly growing
middle class.
Investors may still need to be convinced. The questions put to Mr. Dmitriev and Mr. Fradkov at
the dinner made it clear that many still regarded Russia as risky and unpredictable. When
politicians are involved — and not just in Russia — there is always a risk that money will be
steered to pet projects.
As Mr. Dmitriev points out, the best way to deal with such concerns will be to generate some
big returns in the years to come.

Appendix G
Moscow Tries to Reinvent Itself as Financial Hub
By ANDREW E. KRAMER <New York Times, emphasis added>
Published: April 3, 2013

MOSCOW — Having tried and failed to become a major financial center, Moscow is trying yet
again — only this time it finds itself competing for business with Warsaw, not London, Tokyo
and New York.

Moscow wants companies to list on the Moscow stock exchange. It wants money center banks
to expand here, as well as insurance companies and law firms that deal with securities, to
make Moscow the hub for the former Soviet Union or Eastern Europe.

To do all that, city leaders are inviting business to glittering new skyscrapers, including the
Mercury City Tower, which at 75 stories is the tallest building in Europe.

“The idea is to upgrade the position of Moscow in ratings, to become closer to the leaders of
innovation and to the big boys of international financial centers,” Andrei V. Sharonov, the
deputy mayor for economic affairs, who led a roadshow tour promoting the city in Asia, said
in an interview.

This spring, the city government sent deputy mayors to Tokyo, Singapore, Frankfurt, London,
Boston and New York to tell banks and other financial companies they should take a closer
look at Moscow. The trip was the first concerted effort by the city government to woo
investors as tenants for the new high-rise financial district called Moscow City.

Certainly Moscow has a lot of wooing to do. A city of traffic-clogged highways and sprawling
concrete apartment blocks, Moscow is widely known as a singularly difficult place to do
business. It did attract the big banking houses from New York and London after the fall of
Communism. But cronyism, the lack of transparency and shady accounting gave companies
pause. Weak courts and selective enforcement encouraged companies to conduct business
outside Russia.

Political change in Russia further sapped enthusiasm. Vladimir V. Putin, a skeptic regarding
greater integration with the West, succeeded Dmitri A. Medvedev, who was seen as a
modernizing figure, as president in a switch known as “the castling” for its resemblance to
the chess move.

Mr. Medvedev had named senior Western bank executives to an advisory council for
transforming Moscow’s financial sector. They included Jamie Dimon, the chief executive of
JPMorgan Chase; Vikram S. Pandit, the former chief executive of Citigroup; and Lloyd C.
Blankfein, the chief executive of Goldman Sachs.

But the Global Financial Center Index, published in March by Z/Yen, a consulting agency,
placed Moscow 65th out of 79 cities studied. London was first, followed by New York and
Hong Kong. The ranking placed Moscow between Bahrain and Mumbai. A survey by the
World Bank and the International Finance Corporation even ranked Moscow No. 30 out of 30
Russian cities for ease of doing business.

“Moscow was never going to be an international financial center,” a Western banker working
here, who was not authorized to speak for his employer on the matter, said of the effort.
“That was a joke.”

So Moscow is setting its sights a little lower. Its biggest problem is to be taken seriously even
as a regional center.

The midsize companies in neighboring Ukraine or other former Soviet republics are
choosing to go public in Warsaw. They are hardly bothering to look at the carefully laid
out welcome mat in Russia. Kernel, a Ukrainian corporate farming enterprise, and Coal
Energy, a Ukrainian producer of steam coal, listed in Poland, where a policy of investing
pensions in the stock market helps the local exchange.

The Warsaw stock exchange, in fact, has so many Ukrainian company listings it has a Ukraine
index. Micex, the Russian stock exchange, has no such index because it has so few listings.

Moscow must compete, said Mr. Sharonov, the deputy mayor, because “there are a lot of other
opportunities and competitors all over the world.”

Moscow’s roadshow was intended to illustrate the city’s efforts to become more livable for
foreign executives and residents, Mr. Sharonov said. A new interchange links the financial
district to nearby roads, for example, easing congestion.

Also, under the federal program to promote banking here, Russian financial regulators tied up
loose ends in ways that pleased stock traders and other financial professionals, but have not
been widely noticed.

Russia created a central securities depository, introduced standard accounting rules for
publicly listed companies and is well on the way to consolidating nearly all financial
regulatory authority in the central bank by 2015. And, without much fanfare, the government
now insists that all listed Russian companies report financial results in accordance with
international accounting standards.

“It’s a substantive change,” said Bruce Bower, the managing director of Verno Capital, a
hedge fund that focuses on Russia. “The government realized that by doing a little work, for
the first time, it could make a difference.”

A version of this article appeared in print on April 4, 2013, on page B3 of the New York
edition with the headline: Moscow Tries to Reinvent Itself as Financial Hub.