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While an international legal forum is hardly the perfect setting for delving deep into the intricacies of economic governance, in Russia’s highly convoluted regulatory environment the exception is quite often the rule. As in many international discussion forums hosted by Russia lately, economic issues loom large at the St. Petersburg International Legal Forum that kicked off on Friday. “We now need to start discussing new advanced standards in banking, finances and accounting, and common corporate governance standards," Russia’s President Dmitry Medvedev told participants in a keynote address on Friday.
The three-day legal forum, organized to discuss the role of law in the innovative and safe development of global peace, was attended by nearly 500 legal experts and politicians that included Thorbjorn Jagland, the secretary general of the Council of Europe, Cecilia Malstrom, EU Home Affairs commissioner and Hans van Loon, secretary general of the Hague Conference on Private International Law. Akira Kawamura, the president of the International Bar Association and former German Chancellor Gerhard Schröder also attended the forum, which was organized at the behest of the Russian president.
One of the lessons of the recent global economic downturn is the increased urgency needed for a new international agreement that embraces a multiplicity of world financial centers and reserve currencies, president Medvedev said. As he has done many times in the past, Medvedev renewed calls for a new international risk-management system not based on the 1944 Bretton Woods agreement – the first fully negotiated monetary order intended to govern monetary relations among independent nation-states. "[Our partners] should bear in mind that even the most tried-and-tested and well-adapted international rules on financial life become outdated with time," the president said. "They need to realize this and understand that though the Bretton Woods system was timely and useful in its day and to some extent still plays a constructive role, we cannot simply cling to it now. We have to develop it, build on it, and on as broad a base as possible," Medvedev said.
But while such international economic nuances may sometimes be critical to the health of Russia’s domestic economy, president Medvedev identified the absence of a consistent rule of law together with high levels of corruption as the main drag on the country's development. "Even the best laws will not work, will remain simple declarations, if judicial institutions don't work, or if the institutional procedures are too flabby or excessive," Medvedev said. "Shortcomings in implementing laws, a lack of respect for courts and corruption are not just the perceptions of society, but they are basically macro-economic factors which restrain the growth of national prosperity." He enjoined senior officials and judges to ensure that property rights were protected and laws were implemented.
Even though he has invested a great deal in liberalizing Russia's economic environment during his three years in office, president Medvedev sees a rocky road ahead. Both domestic and foreign investors continue to see business activity in Russia as a dangerous undertaking due to a sustained spurt in corruption as well as ubiquitous disregard for the rule of law. "Problems with enforcing laws, lack of respect for the courts and corruption are not just issues affecting our public life, but are macroeconomic factors holding back our national wealth growth and putting a brake on our efforts to carry out economic decisions and social initiatives," Medvedev said. Further complicating matters was intractable corruption, one of Russia's perennial problems. "Corruption is a challenge. It exists in every country. In countries that are swiftly developing, like Russia, it is very significant, it is huge," Medvedev said. "The trillions of dollars we pay for such development is an unacceptable price."
The Russian leader said progress has been made in his efforts to establish a rule-of-law state, but added that much remains to be done. "We have moved forward in recent years in creating conditions for the establishment of a law-governed state in the country," Medvedev said. "We have made protection of honest economic actors a priority in our modern legal and court system. It is important that honest businesspeople can be confident about stable legal rules concerning their property title and the assets they have acquired through concluded deals." But in an environment where many big businesses are still either state-controlled or linked to key government ministers, there is a lot of leeway for those willing to shake such confidence. In recent years, multinationals like the Royal Dutch Shell, British Petroleum and IKEA have all claimed that they have been seriously challenged by their experiences in Russia. Since the arrest of Mikhail Khodorkovsky in 2003 – a case many said was politically motivated, investors have been particularly weary of having either their assets seized or being brought to court on trumped up charges. And with the presidential elections coming up in March next year, such political risks are moving to the top of investors’ list of concerns.
The Kremlin's latest moves to give investors a certain amount of protection have done little to assuage these concerns. It took the support of Switzerland to open a money-laundering probe at the request of Hermitage Capital before Moscow even acknowledged the company's five-year anti-corruption campaign against entrenched Russian officials. Bill Browder, who, as the head of Hermitage Capital, was once one of Russia's largest investors, has repeatedly claimed that Russian officials were complicit in a fraud against his firm and the death of lawyer Sergei Magnitsky. Medvedev has promised a full inquiry into the death, saying at a press conference on Wednesday that the results of the probe will be made public in the near future.
But that promise may turn out to be too little, too late. While President Medvedev was outlining priority measures to improve the country’s investment and regulatory climate on Friday, a group of powerful U.S. senators were throwing their weight behind “The Sergei Magnitsky Rule of Law Accountability Act of 2011,” legislation put before Congress on Friday. The legislation is calling for sanctions against Russians allegedly involved in the death of the Hermitage Capital lawyer. The American senators, led by Joe Lieberman and John McCain, are pushing for a law to deny entry into America for "all those who played a role" in the arrest of Magnitsky, his death, and in the alleged cover-up of the corruption he exposed. Political observers say that if passed, the legislation will be another sad footnote to president Medvedev's relentless campaign to turn Russia into a rule-of-law state.
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