Putins-Peninsula

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Putins-Peninsula

Putin’s Peninsula:Crimea’s Annexationand DeteriorationRussia Studies CentrePolicy Paper No. 4 (2015)Dr Andrew FoxallThe Henry Jackson SocietyMarch 2015


PUTIN’S PENINSULASummaryRussia’s annexation of Crimea, in March 2014, was the first major land grab in Europesince World War Two. After a pro-Russian government was toppled in Kyiv, Russiantroops – without identifying insignia – began fanning out across Crimea in a covertoperation to seize control of the peninsula. It is a dramatic example of Russia’s ability tocarry out a hybrid war.President Putin has pledged to spend US$18.2 billion (620 billion roubles), through to2020, on developing Crimea. However, Russia’s economic weakness, combined with theWestern sanctions regime and the fall in the global price of oil, means that it is unlikelythat the country can afford such expenditure without compromising long-term fiscalstability.Since Russia’s annexation of Crimea, a whole host of negative developments have beenwitnessed on the peninsula: organised crime has become widespread; paramilitary groupsclosely associated with the authorities have raided myriad private enterprise and forciblyrenationalised property; the banking system has taken a beating; human rights protectionshave been severely curtailed; and, independent media outlets have been closed down.So long as Russia continues its illegal occupation of Crimea, EU and US sanctions mustremain in place. The EU and US must also ensure that Crimea remains high on theinternational agenda and firmly in the public eye.2


PUTIN’S PENINSULA1. IntroductionSince Russia’s annexation of Crimea, in March 2014, the peninsula has changed. SimferopolInternational Airport is international no more, and now services only Russian destinations. Luxurycruise ships no longer dock at Crimea’s ports. Trains, and bus services, that ran from Simferopolto Kyiv and onwards to elsewhere in Ukraine and Europe have been discontinued. Electricity,which comes from a grid on mainland Ukraine, is intermittent, causing long power cuts. Degreesfrom Crimea’s universities are worthless outside of Russia. The North Crimean Canal, the mainirrigation source for the region’s dry steppe lands, is closed, meaning that agriculture – a keyindustry – has been decimated. Nearly a year after Crimea was incorporated into Russia, theKremlin’s actions mean that the peninsula is more isolated than at any point since the Soviet era.For those who supported the annexation, it was not supposed to be this way. President VladimirPutin said that life would be better once Crimea was part of Russia, and that enormous subsidieswould pour into its capital, Simferopol, in an attempt to turn the newly acquired territory into amodel province. In July last year, the Kremlin pledged to spend US$18.2 billion (620 billionroubles), through to 2020, on developing Crimea and connecting it, via a bridge over the KerchStrait, to mainland Russia. 1Later, in October, Russia established a “free economic zone” inCrimea, to attract investment to the peninsula. 2 As the Western sanctions regime bites, and the fallin the global price of oil – Russia’s most important export – hits Russia’s economy, though, itlooks increasingly unlikely that the country can afford such an outlay. 3 In 2014, GDP rose by only0.6 percent (the slowest pace since a contraction in 2009); the Russian Central Bank spent aboutone-fifth of its international reserves, in order to prop up the rouble (which fell 46 percent againstthe dollar); 4 and capital outflow reached a record level of US$151.5 billion. 5 As so often inRussian history, ordinary citizens are suffering because of their leaders’ actions.Yet, for Putin, the case in favour of annexation was always less economic and more emotive andnationalistic. As the slogan “Krym nash” (‘Crimea is Ours’) went viral on English- and Russianlanguagesocial media sites, 6 Putin’s talk of ‘Novorossiya’ – a Tsarist-era region that was controlledfrom St Petersburg and stretched deep into modern-day south-eastern Ukraine – stirrednationalist sentiments across Russia and pumped up his status. 7Back in March 2014, Putindescribed how “Crimea has always been an inseparable part of Russia” in his “people’s hearts andminds”. 8 Later that same year, he said that the Black Sea region was to Russians “like the TempleMount in Jerusalem [is] for the followers of Islam and Judaism”. 9 From a pre-annexation approvalrating of 65 percent in January 2014, Putin’s popularity reached 80 percent in March 2014 and1‘Ministry Sets Crimea Spending at $18 Billion’, The Moscow Times, 01 July 2014, available at: http://www.themoscowtimes.com/article/502765.html.2‘Medvedev Approves Special Economic Zone for Crimea’, The Moscow Times, 30 October 2014, available at:http://www.themoscowtimes.com/business/article/medvedev-approves-special-economic-zone-for-crimea/510383.html.3On Russia’s economy, see: Connolly, R. ‘Trouble Times: Stagnation, Sanctions and the Prospects for Economic Reform in Russia’, Chatham House,February 2015, available at: http://www.chathamhouse.org/sites/files/chathamhouse/field/field_document/20150224TroubledTimesRussiaConnolly.pdf.4Evans, R., ‘Dollar Posts Biggest Gain in a Decade on Fed View; Ruble Sinks’, Bloomberg, 31 December 2014, available at:http://www.bloomberg.com/news/articles/2014-12-31/yen-holds-gains-on-haven-bid-as-dollar-heads-for-historic-rally.5Bush, J., Grove, T., and Alexander Winning, ‘UPDATE 1-Russia’s capital outflows reach record $151.5 bln in 2014 as sanctions, oil slump hit’, Reuters,16 January 2015, available at: http://www.reuters.com/article/2015/01/16/russia-capital-outflows-idUSL6N0UV3S320150116.6Parfitt, T., ‘Seven reasons to explain Vladimir Putin’s popularity cult’, The Telegraph, 27 November 2014, available at:http://www.telegraph.co.uk/news/worldnews/vladimir-putin/11257362/Seven-reasons-to-explain-Vladimir-Putins-popularity-cult.html.7Sonne, P., ‘With “Novorossiya,” Putin Plays the Name Game With Ukraine’, The Wall Street Journal, 01 September 2014, available at:http://www.wsj.com/articles/with-novorossiya-putin-plays-the-name-game-with-ukraine-1409588947.8‘Address by President of the Russian Federation’, kremlin.ru, 18 March 2014, available at: http://eng.kremlin.ru/news/6889.9Tharoor, I., ‘Why Putin says Crimea is Russia’s “Temple Mount”’, The Washington Post, 04 December 2014, available at:http://www.washingtonpost.com/blogs/worldviews/wp/2014/12/04/why-putin-says-crimea-is-russias-temple-mount/.3


PUTIN’S PENINSULAincreased to 88 percent in October. A year on from annexation, Putin is still savouring thedomestic political upside of his Crimean gambit.This paper details how Crimea has changed in the year since it was annexed, by Russia, in March2014. It shows how Putin has imported his grotesquely corrupt, authoritarian mode of governanceto the peninsula. Since annexation, Crimea has witnessed: an increase in organised crime, as stateofficials and their cronies have engaged in protection racketeering, fraud, and embezzlement;mass property seizures, on a scale not seen since the Bolshevik Revolution of 1917; the growth oflittle-known banks who act as front organisations for larger, more well-known Russian banks, inorder for the latter to sidestep the most serious Western sanctions; the curtailing of human rightsand a concerted discrimination campaign, by the state, against the Crimean Tatars; and theruination of the media landscape, to the extent that almost all outlets are now pro-Kremlin.2. How Russia Annexed CrimeaBeginning in late 2013, a pro-European revolution took hold in Ukraine. In early February 2014,Viktor Yanukovych, the then-Ukrainian president and a strong ally of Vladimir Putin’s, was sweptfrom power, eventually being replaced by Petro Poroshenko, a reform-minded businessmanturned-politician.With Ukraine slipping from what Putin saw as the Kremlin’s orbit, the Russianpresident’s ‘little green men’ – elite Spetsnaz (Special Purposes Forces) commandoes and navalinfantry marines, stripped of their insignia but retaining their discipline and professionalism –appeared in Crimea, on 27 February 2014. This marked the start of a process that culminated inthe first major land grab in Europe since World War Two.Aided by local Berkut riot police, Putin’s ‘little green men’ raised Russian flags over Crimea’sSupreme Council (the regional parliament) and the Council of Ministers (the regional executive)and proceeded to occupy both buildings. 10That same day, the Supreme Council dissolved theCouncil of Ministers and appointed Sergey Aksyonov, leader of the minority Russian Unity party,as Prime Minister. The Supreme Council also voted to hold a referendum as to whether Crimeashould upgrade its autonomy within Ukraine. Initially set for 25 May (which coincided with thedate on which Kyiv planned to hold elections for a new government), the referendum was soonbrought forward to 30 March.On 1 March, Aksyonov declared that his de facto government was in charge of all of Crimea’smilitary and police, and appealed to Putin for help in ensuring peace on the peninsula. 11Putinpromptly received authorisation from Russia’s Federation Council – the upper house of Russia’sparliament – to intervene militarily in Ukraine, “until the normalisation of the socio-politicalsituation in that country.” 12By 2 March, Russian troops – still operating without insignia – hadmoved from their naval base in Sevastopol, where the 25,000-strong Black Sea Fleet washeadquartered, in order to exercise complete control over Crimea.10It was only on 17 April 2014 that Putin finally acknowledged that the Russian military had backed Crimean separatist militias.11‘Ukraine crisis: Crimea leader appeals to Putin for help’, BBC News, 01 March 2014, available at: http://www.bbc.co.uk/news/world-europe-26397323.12‘Ukraine crisis: Text of Putin’s request to use troops’, BBC News, 01 March 2014, available at: http://www.bbc.co.uk/news/world-europe-26399642.4


PUTIN’S PENINSULADays later, on 4 March, Putin claimed that Russia was not considering annexing the peninsula.Instead, he said, “only residents of a given country who have the freedom of will and are incomplete safety can and should determine their future.” 13On 6 March, the Supreme Councilannounced that it considered Crimea to be part of Russia, 14moved the date of the referendumforward to 16 March, and changed the referendum so that it would ask a new question: shouldCrimea accede to Russia, or should Crimea restore its 1992 constitution (which asserted thatCrimea is an independent state and not part of Ukraine)? 15Though the international community condemned Russia’s actions, the vote went ahead asplanned. 16On 16 March, Crimeans voted on their future, surrounded by Putin’s gun-toting ‘littlegreen men’ and in a state, effectively, of martial law. Officially, turnout was 83.1 percent and 96.77percent of voters voted for Crimea’s integration into Russia. 17The ballot boxes had barely closed when the Kremlin began the process of rubber-stamping theannexation. On 18 March, representatives from Crimea and from Russia signed the Treaty on theAccession of the Republic of Crimea to Russia. Three days later, on 21 March, the Treaty wasratified by Russia’s Federal Assembly. On the last day of March, the Kremlin established aMinistry of Crimean Affairs – headed by Putin-loyalist Oleg Savelyev – to oversee the integrationof the peninsula into Russia. 18In little over a month, the Kremlin had stolen Crimea from Ukraine and incorporated it intoRussia.3. How Has Crimea Changed Since Russia’sAnnexation?Russia’s annexation of Crimea has served as a vehicle for Kremlin patronage, fuelling theorganised crime, corruption, and discrimination that is the oxygen of Vladimir Putin’s ‘spoils forthe few’ mode of governance. Crimea’s “self-defence forces” 19– which answer to Prime MinisterSergey Aksyonov, who calls them “the people’s militia” 20 – have raided myriad private enterprises,encouraged the spread of corrupt practices, closed down independent media outlets, seized andforcibly renationalised property, and intimidated those who are not explicitly pro-Russian.13‘Vladimir Putin answered journalists’ questions on the situation in Ukraine’, Kremlin.ru, 04 March 2014, available at:http://eng.kremlin.ru/transcripts/6763.14Traynor, I. and Shaun Walker, ‘Ukraine crisis: Crimea now part of Russia, local parliament declares’, The Guardian, 06 March 2014, available at:http://www.theguardian.com/world/2014/mar/06/ukraine-crisis-crimea-part-of-russia-local-parliament-declares.15Jalabi, R. and Alan Yuhas, ‘Crimea’s referendum to leave Ukraine: how did we get here?’, The Guardian, 13 March 2014, available at:http://www.theguardian.com/world/2014/mar/13/crimea-referendum-explainer-ukraine-russia.16‘Resolution adopted by the General Assembly on 27 March 2014’, United Nations, 27 March 2014, available at:http://www.un.org/en/ga/search/view_doc.asp?symbol=A/RES/68/262.17According to a public-opinion poll conducted by Gallup, in 2013, less than a quarter of Crimeans favoured the peninsula joining Russia. See: Kashi, D.,‘This Gallup Poll Shows Crimeans Had Very Different Ideas About Russia Last Year’, International Business Times, 17 March 2014, available at:http://www.ibtimes.com/gallup-poll-shows-crimeans-had-very-different-ideas-about-russia-last-year-1561821.18‘Executive Order establishing the Ministry of Crimean Affairs and appointing Oleg Savelyev to the post of minister’, kremlin.ru, 31 March 2014,available at: http://eng.kremlin.ru/acts/6945.19Anischchuk, A., ‘Putin admits Russian forces were deployed to Crimea’, Reuters, 17 April 2014, available at:http://uk.reuters.com/article/2014/04/17/russia-putin-crimea-idUKL6N0N921H20140417.20‘Crimean people’s militia to receive official status – PM Aksyonov’, Crimea Inform News Agency, 14 April 2014, available at: http://en.cinform.info/news/id/8625


PUTIN’S PENINSULAAs part of its efforts to ensure that Crimea’s incorporation into Russia would be fast and palatable,the Kremlin spent 243 billion roubles (US$6.8 billion) in the peninsula, in 2014. 21 Given Russia’seconomic situation, however, Putin was forced to raid Russia’s pension pot – its National WelfareFund – to raise these funds. 22As a result, pay for Crimea’s 140,000 public-sector workers hastripled, and pensions for its 600,000 pensioners have increased to match levels in the rest ofRussia. However, the inflow of subsidies has also provided opportunities for transferring moneyand power to Russia’s Federal Security Service (FSB) and military, and the spoils seized in Crimeahave yielded new resources for Putin to buy the two institutions’ loyalty, at a time when his regimecan no longer count on petrodollars.In contrast to state-sector employment, the dual impact of Western sanctions and the fallingrouble means that private-sector salaries remain low and that tourism, Crimea’s main industry, isin dire straits. 23 Meanwhile, prices of basic commodities and rent have increased substantially –inflation reached 42.5 percent in 2014 – and people’s lives have been thrown into chaos. 24 DimiterKenarov, writing in Foreign Policy, described the situation thus:There are problems with real estate [sic] registries, new legal codes, new taxes, theoverhaul of the educational system, and the issuing of new passports and license plates.Even the simple change of phone numbers, as Ukrainian operators shut down andRussian ones moved in to fill in the vacuum, has proven difficult. Many Crimeans havelost touch with neighbors [sic] and friends they have known for years. It is as if everyonehas suddenly, collectively had their phones stolen. 25The overall impact of Russia’s annexation of Crimea is made clear in the 2015 annual report fromFreedom House. 26On its 1-to-7 ‘Freedom Rating’ scale, which takes into account political-rightsand civil-liberties scores, Crimea is pegged at a dismal 6.5 (with ‘1’ being best and ‘7’ beingworst). 27Reform-minded Ukraine, by contrast, is a 3, while Putin’s Russia is a 6. In the previousyear’s report, Ukraine (including Crimea) was rated 3.5, while Russia was rated 5.5. 28 In short, thelevel of freedom in Crimea is dramatically lower now that the region has been annexed. One canexpect that, under Moscow’s tutelage, Crimea will become even less free and will descend furtherinto authoritarianism.For many Crimeans, Putin’s promise of a better and brighter future is unlikely to materialise, justlike it never did during the Soviet period.21Bush, J. and Katya Golubkova, ‘Factbox - Costs and benefits from Russia’s annexation of Crimea’, Reuters, 08 April 2014, available at:http://uk.reuters.com/article/2014/04/08/uk-ukraine-crisis-crimea-costs-factbox-idUKBREA370NY20140408.22Bershidsky, L., ‘Russian Pensions Paid for Putin’s Crimea Grab’, Bloomberg, 26 June 2014, available at: http://www.bloombergview.com/articles/2014-06-26/russian-pensions-paid-for-putin-s-crimea-grab.23Rudenko, O., ‘Russia’s takeover of Crimea is killing tourism industry’, Kyiv Post, 14 August 2014, available at:http://www.kyivpost.com/content/business/dead-summer-in-russias-crimea-360697.html.24‘Inflation in Russia-Annexed Crimea Hits 42.5 Percent in 2014’, The Moscow Times, 15 January 2015, available at:http://www.themoscowtimes.com/business/article/inflation-in-russia-annexed-crimea-hits-42-5-in-2014/514424.html.25Kenarov, D., ‘Putin’s Peninsula Is a Lonely Island’, Foreign Policy, 06 February 2015, available at: http://foreignpolicy.com/2015/02/06/putin-peninsulalonely-island-crimea-annexation-russia-ukraine/.26‘Freedom in the World 2015’, Freedom House, available at: https://freedomhouse.org/report/freedom-world/freedom-world-2015#.VONmvy5aVWV.27‘Freedom in the World 2015: Table of Country Ratings’, Freedom House, available at: https://freedomhouse.org/report/freedom-world-2015/tablecountry-ratings#.VPb5muFaVWU28‘Freedom in the World 2014’, Freedom House, available at: https://freedomhouse.org/report/freedom-world/freedom-world-2014#.VONnmC5aVWU.6


PUTIN’S PENINSULAprovide opportunities for Aksyonov to enrich himself and his cronies, just as the Sochi 2014Winter Olympics and other so-called ‘mega-events’ provided opportunities for Putin to enrich hiscronies.Russian criminal gangs, with the support of the Crimean authorities, have already moved toconsolidate their position on the peninsula as rival groups have been marginalised. 35These sameRussian gangs are also working to transform Sevastopol into the biggest smuggling hub in theBlack Sea region. 36 Sevastopol may currently be under embargo and off regular shipping routes,but it has powerful attractions: military supply convoys are a cheap and secure way to transportillicit goods, and the links between the gangsters and local political leaders are endemic. 373.2 Property SeizureArbitrary enforcement of property rights has long been a characteristic of Putin’s Russia. From thehigh-profile dismantlement of Mikhail Khodorkovsky’s Yukos oil company, beginning in 2003, tothe state-owned VTB Group’s acquisition of the independent Bank of Moscow, in 2011, and therecent renationalisation of Vladimir Yevtushenkov’s Bashneft oil company, in 2014, Putin hasabused property rights as a way to keep individuals in check and demonstrate the reach of hispower. It was only to be expected, therefore, that this process should be carried out in Crimea.Immediately after annexation, Russia swiftly nationalised some Ukrainian state-owned enterprises– ranging from oil and gas producers and pipeline companies, 38 to health spas and vineyards. 39The process did not go wholesale, however, until August 2014, and, by then, the assets of privateindividuals were firmly in the authorities’ sights. It was in August that Crimea’s State Council(formerly the Supreme Council) passed a law granting the government the right to take propertyin order to maintain “vital activity” on the peninsula – a concept, the journalist Neil MacFarquharnotes, “so vague that […] it is invoked to cover virtually anything.” 40While the law states that thegovernment will pay compensation, most owners are struggling to gain legal redress (given that themilitia seized computers and legal documents along with the properties, leaving them withoutrecords and unable to prove ownership). 41In November, the campaign of property seizure wasgiven new impetus after Sergei Tsekov, a politician who represents Crimea in Russia’s parliament,announced that:[a]ll enterprises on the peninsula that operate inefficiently, [or] are on the verge ofbankruptcy or have been abandoned by their owners, will be nationalized. 42Between March 2014 and January 2015, Ukraine’s Justice Ministry estimates that around 4,000enterprises, organisations, and agencies had their real estate and other assets expropriated; 43The35Galeotti, M., ‘“Seilem” i “bashmaki”’, Svoboda.org, 26 October 2014, available at: http://www.svoboda.org/content/article/26656786.html.36Galeotti, M., ‘How the Invasion of Ukraine Is Shaking Up the Global Crime Scene’, Vice, 06 November 2014, available at:http://www.vice.com/read/how-the-invasion-of-ukraine-is-shaking-up-the-global-crime-scene-1106.37Ibid.38‘Crimean roads may be nationalised’, TASS, 25 March 2014, available at: http://tass.ru/en/russia/725137.39Bush, J. and Katya Golubkova, ‘Factbox - Costs and benefits from Russia’s annexation of Crimea’, Reuters, 08 April 2014, available at:http://uk.reuters.com/article/2014/04/08/uk-ukraine-crisis-crimea-costs-factbox-idUKBREA370NY20140408.40MacFarquhar, N., Odynova, A., and Olga Rudenko, ‘Seizing Assets in Crimea, From Shipyard to Film Studio’, The New York Times, 10 January 2015,available at: http://www.nytimes.com/2015/01/11/world/seizing-assets-in-crimea-from-shipyard-to-film-studio.html?_r=0.41‘Change of leadership in Crimea means property grab’, The Associated Press, 02 December 2014, available at:http://www.dailymail.co.uk/wires/ap/article-2857238/Change-leadership-Crimea-means-property-grab.html.42‘Vlasti khotyat natsionalizirovat’ vse neffektivnie predpriyatiya Krima’, 15minut, 13 November 2014, available at: http://15minut.org/article/vlasti-hotjatnacionalizirovat-vse-nejeffektivnye-predprijatija-kryma-2014-11-1-2014-11-13-13-11-00.8


PUTIN’S PENINSULANew York Time suggests that the value of these losses was more than US$1 billion. 44Propertyseizures on such a sweeping scale have not occurred since the 1917 Bolshevik Revolution.Crimea’s government refuses to characterise its actions as ‘confiscations’, instead preferring to callthem ‘nationalisations’ – a linguistic trick straight out of Putin’s playbook. By this, Aksyonov andothers frame their actions as the righteous reclaiming of property that they say was ‘stolen’ fromCrimea through ‘illegal’ deals made between officials and their cronies during the past two-and-ahalfdecades. Though this would, theoretically, apply to almost every deal made in the peninsula,in reality, the authorities have targeted businesses which they deem strategically important orfriendly to Kyiv. In August, the headquarters of Zaliv, Crimea’s largest civilian shipbuilder, werestormed by the peninsula’s ‘self-defence forces’, who demanded that the management handover control to a Moscow-based company. 45In November, Krymkhleb, Crimea’s biggest breadand confectionery maker, was nationalised after its owners were accused of laundering money tofinance military operations against pro-Russian rebels in eastern Ukraine. 46Yet, even pro-Russian individuals are not exempt. In October, in one of the most high-profileseizures, armed men stormed into the administration building of Yalta Film Studio. Crimea’sauthorities cite the studio as an example of a “criminal” land sale during the 1990s. 47However,Sergei Arshinov, the Moscow businessman who owns the property, claims that he only bought itbecause the head of Russia’s Federal Agency on Culture and Cinematography (Roskino) askedhim, about 15 years earlier, to rescue the 32-acre site from bankruptcy. The Crimean authoritiessay that they will only pay only about US$100,000 in compensation, even though the Studio wasvalued at at least US$13 million by Ukraine’s tax authority. 483.3 Banking SystemCrimea’s banking system has taken a beating since the peninsula’s annexation by Russia. As partof the broader series of property confiscations and seizures (described above), Crimea’sauthorities have targeted banks for nationalisation – 49in particular, Ukraine’s largest: PrivatBank(which is principally owned by Igor Kolomoisky, currently the vocally pro-Kyiv governor ofDnipropetrovsk). 50At the same time, on 1 June 2014, Crimea’s currency switched from theUkrainian hryvnia to the Russian rouble, 51 and, in March 2014, Kyiv banned all lenders operatingunder Ukrainian law from the peninsula, which led to 41 banks shutting down. 52The resultingeconomic turmoil has shuttered some business and complicated life for the peninsula’s citizens:most transactions are now cash-only, because credit and debit cards no longer work.43‘Change of leadership in Crimea means property grab’, The Associated Press, 02 December 2014, available at:http://www.dailymail.co.uk/wires/ap/article-2857238/Change-leadership-Crimea-means-property-grab.html.44MacFarquhar, N., Odynova, A., and Olga Rudenko, ‘Seizing Assets in Crimea, From Shipyard to Film Studio’, The New York Times, 10 January 2015,available at: http://www.nytimes.com/2015/01/11/world/seizing-assets-in-crimea-from-shipyard-to-film-studio.html?_r=0.45‘JSC “Shipyard Zaliv”’, Zaliv.com, available at: http://www.zaliv.com/en/jsc-shipyard-zaliv.46‘Crimean authorities take control of Krymkhleb nationalized enterprise - Aksyonov’, TASS, 13 November 2014, available at:http://tass.ru/en/economy/759412.47MacFarquhar, N., Odynova, A., and Olga Rudenko, ‘Seizing Assets in Crimea, From Shipyard to Film Studio’, The New York Times, 10 January 2015,available at: http://www.nytimes.com/2015/01/11/world/seizing-assets-in-crimea-from-shipyard-to-film-studio.html?_r=0.48Ibid.49Matlack, C., ‘Russia Delivers a New Shock to Crimean Business: Forced Nationalization’, Bloomberg, 18 November 2014, available at:http://www.bloomberg.com/bw/articles/2014-11-18/crimea-gets-renationalized.50In March, all property belonging to PrivatBank was seized – in total, worth an estimated US$1.1 billion. See: MacFarquhar, N., Odynova, A., and OlgaRudenko, ‘Seizing Assets in Crimea, From Shipyard to Film Studio’, The New York Times, 10 January 2015, available at:http://www.nytimes.com/2015/01/11/world/seizing-assets-in-crimea-from-shipyard-to-film-studio.html?_r=0.51Matlack, C., ‘Now Joined to Russia, Crimea’s Economy Is Sliding Downhill’, Bloomberg, 02 June 2014, available at:http://www.bloomberg.com/bw/articles/2014-06-02/now-joined-to-russia-crimeas-economy-is-sliding-downhill.52As a result of bank closures, ordinary Crimeans were left to apply to Russia’s deposit-insurance agency to get their savings (up to a value of US$20,000)back.9


PUTIN’S PENINSULAAfter the departure of the Ukrainian banks, at least 30 Russian ones began to move in; 53amongthem was the Russian National Commercial Bank (RNCB). For over a decade, RNCB had been alittle-known subsidiary of the Bank of Moscow, a member of the Russian state-owned VTBGroup. At the start of 2014, it was ranked 587 thamong Russian banks, by assets, and had nobusiness or branches in Ukraine. 54Following the takeover of Crimea, however, all of thischanged. RNCB is now not only the biggest retail banker on the peninsula, it also acts as bankerfor the regional authorities and oversees the flow of Russian money into Crimea.On 25 March 2014, Russia’s Kommersant newspaper reported that the Bank of Moscow waslikely to operate in Crimea through RNCB. 55 The following day, though, the Bank announced thesale of its subsidiary. 56 In April, Andrey Kostin, CEO of VTB Group, confirmed that RNCB hadbeen sold to what he called the “legal entities operating in Crimea”, by which he meant Crimea’sBoard of Ministers (which is headed by Aksyonov). 57 Since it was sold, RNCB has become quite asuccess story, and the number of its branches in Crimea has increased from zero in January 2014,to over 200 in January 2015. 58Along the way, it has acquired branches that had previouslybelonged to Kolomoisky’s PrivatBank, the Austrian bank Raiffeisen Bank Aval, and theUkrainian national bank, Oschadbank. 59Although Kostin’s ‘legal entities operating in Crimea’ subsequently sold RNCB to an obscureMoscow-based company called Complex Energy Solutions, in early 2015, the details of RNCB’srise to prominence are instructive. 60While the Bank of Moscow’s sale of RNCB, in March 2014, severed formal ownership linksbetween the two institutions, RNCB continued to front its and VTB Group’s business operationsin Crimea. Senior individuals within the Bank of Moscow – CEO Mikhail Kuzovlev and CFOMikhail Berezov – conducted key negotiations on behalf of RNCB, 61 and staff working for RNCBsaid that its operations were directed by the Bank of Moscow. 62So close was the relationshipbetween the two entities that journalists spoke of RNCB fronting the Bank of Moscow’s activitiesin Crimea as an “open secret”. 63Even the subsequent sale to Complex Energy Solutions,according to Aksyonov, was a “technical exercise” that did not involve any monetary transaction. 64The ownership of RNCB, in short, has not changed, and the path of ownership leads all the waythe Kremlin.The relationship between VTB Group, the Bank of Moscow, and RNCB may seem confusing;but that is because it is meant to be. Although VTB Group and the Bank of Moscow were53Akymenko, O., Piper, E., Nikolaeva, M., Shields, M., Stecklow, S., and Natalia Zinets, ‘Special Report: Crimean savers ask: Where’s our money?’,Reuters, 20 November 2014, available at: http://www.reuters.com/article/2014/11/20/us-ukraine-crisis-banks-specialreport-idUSKCN0J40FJ20141120.54‘Bank of Moscow sells 100% stake in RNCB’, Interfax, 27 March 2014, available at: http://www.interfax.com/newsinf.asp?id=492330.55Dementieva, X., ‘Bank-brosok’, Kommersant.ru, 25 March 2014, available at: http://www.kommersant.ru/doc/2437338.56Dementieva, X., ‘Bank Moskvi distantsirovalsya ot Krima’, Kommersant.ru, 28 March 2014, available at: http://www.kommersant.ru/doc/2439500.57‘Temirgaliev: RNKB prinadlezhit Sovetu ministrov Krima’, Banki.ru, 11 April 2014, available at: http://www.banki.ru/news/lenta/?id=6449226.58‘Crimean Government Cashes in on Rags-to-Riches Bank Sale’, The Moscow Times, 02 February 2015, available at:http://www.themoscowtimes.com/business/article/crimean-government-cashes-in-on-rags-to-riches-bank-sale/515262.html.59Dementieva, X., ‘RNKB rastet kak na drozhzhakh’, Kommersant.ru, 10 April 2014, available at:http://www.kommersant.ru/doc/2448960?isSearch=True.60‘Crimean Government Cashes in on Rags-to-Riches Bank Sale’, The Moscow Times, 02 February 2015, available at:http://www.themoscowtimes.com/article/515262.html.61Dementieva, S. and Xenia Dementieva, ‘Privatbank sdal Krim’, Kommersant.ru, 22 April 2014, available at: http://www.kommersant.ru/doc/2457787.62Aleshkina, T., Levinskaya, A., Sharoyan, S., and Ivan Tkachev, ‘Bankiri iz Rossii: kaka nashi banki pokoryayut Krim’, RBC, 23 May 2014, available at:http://rbcdaily.ru/finance/562949991536958.63Ibid.64‘Aksenov: smena sobstvennika RNKB bila tekhnicheskoy’, RIA Novosti, 03 February 2015, available at:http://ria.ru/crimea_news/20150203/1045718984.html.10


PUTIN’S PENINSULAsanctioned by the US and EU, in July 2014, such an opaque ownership arrangement allows bothentities to avoid the harsher sanctions which have already been imposed on other Russian banks –including Bank Rossiya, Sobinbank, and SMP Bank – and individuals who were directly orindirectly sponsoring Russia’s annexation of Crimea. Until the announcement by the US, on 11March 2015 that RNCB would be subject to economic sanctions, it also allowed RNCB tosidestep sanctions altogether. 65Such a situation, to quote The Economist, gives the impressionthat “sanctions are too easy to dodge, undermining their credibility at a time when the West wantsto appear strong.” 663.4 Human RightsThe curtailing of human rights has characterised Putin’s Russia since the early 2000s. Russianauthorities have severely limited free expression, restricted peaceful assembly, and intimidatedand harassed those who oppose the Kremlin.Since its annexation of the peninsula, Russia has exported these same human-rights violations toCrimea. Intimidation and harassment of individuals who opposed Russia’s annexation arewidespread; authorities have turned a blind eye to abuses by paramilitary groups which have beenimplicated in the enforced disappearance of pro-Ukrainian activists; and Crimean residents whowere Ukrainian citizens have been forced to choose either to become Russian citizens or, if theyreject Russian citizenship, to be deemed foreigners on the peninsula. In addition, the UkrainianOrthodox Church, which broke away from Russian Orthodoxy in the early 1990s, has beenforced to close 11 of its 18 parishes, due to pressure from Crimea’s authorities. 67Putin annexed the peninsula, he argued, in order to protect the rights of ethnic Russians livingthere; yet, he has shown scant regard for the rights of the other ethnicities also present. Indeed,the people who have borne the worst of Russia’s annexation of Crimea are the native Tatarpopulation. The most prominent politically-united opposition since the annexation, the Tatars –who comprise about 12 percent of the peninsula’s roughly 2 million population – are seen byboth Moscow and Sevastopol as the biggest security threat to Russian rule.The Tatars’ existence in Crimea has long been precarious. In 1944, Stalin deported the entireSunni Muslim group, en masse, to Uzbekistan, on the pretext that they had collaborated with NaziGermany. After the fall of the Soviet Union, Tatars flocked back to Crimea, only to find their oldhouses occupied by Russian families. Battles over property rights, as well as differences in cultureand religion, limited the group’s reintegration into the ethnic-Russian-dominated peninsula. 68 Evenbefore the annexation of Crimea was complete, discrimination of the Tatars had begun. InFebruary, Aksyonov’s Russian Unity party openly organised attacks on Tatar properties and65The US added RNCB to its list of sanctions on 11 March 2015, see: ‘Ukraine-related Designations: Office of Foreign Assets Control’, US Departmentof the Treasury, 11 March 2015, available at: http://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Pages/20150311.aspx#.VQBNNMqXU8Q.twitter66‘Sanctions against Russia: Fancy footwork’, The Economist, 14 February 2015, available at: http://www.economist.com/news/business/21643122-howbusinesses-linked-blacklisted-oligarchs-avoid-western-sanctions-fancy-footwork.67‘Change of leadership in Crimea means property grab’, The Associated Press, 02 December 2014, available at:http://www.dailymail.co.uk/wires/ap/article-2857238/Change-leadership-Crimea-means-property-grab.html.68‘The integration of formerly deported people in Crimea, Ukraine: Needs assessment’, OSCE (2013), available at:http://www.osce.org/hcnm/104309?download=true.11


PUTIN’S PENINSULAdesecrated graveyards. 69By March, Tatar communities, fearing for their lives, had formed selfdefenceunits that staged night patrols of their neighbourhoods. 70In April, though, two olive branches were extended their way. First, on 11 April, Crimea’s StateCouncil made Crimean Tatar an official language on the peninsula, on a par with Russian andUkrainian. 71Next, on 21 April, Putin attempted to “rehabilitate” the Tatars, calling them victimsof Stalin’s regime. 72 Since then, however, things have deteriorated and, in May, the United Nationsvoiced concern about “alarming developments” in their treatment. 73As with ethnic minorities in Russia, the Kremlin has employed a divide-and-rule tactic, in an effortto dismantle unity and spread discord among the Tatars. According to Human Rights Watch, theCrimean police – together with Russia’s Federal Security Service (FSB) – have conducted anumber of raids on mosques and Islamic schools, in search of drugs, weapons, and extremistliterature, while several Tatar activists have been abducted, some of whom were later foundmurdered. 74 Two of the most prominent Tatar leaders, Mustafa Dzhemilev and Refat Chubarov,were banned from entering Crimea – in April and July, respectively. In May, Crimean authoritiesannounced a temporary ban on demonstrations and fenced off central Simferopol, in an attemptto prevent the Tatars from marking the anniversary of their deportation. 75 In September, Russianofficials seized the headquarters of the Mejlis, the Crimean Tatar representative body, as part ofMoscow’s attempts to marginalise it from Tatar life. 763.5 MediaImmediately after Russia annexed Crimea, the Kremlin took control of the peninsula’s media.Ukrainian TV channels were taken off the air and replaced with Russian ones disseminatingKremlin-approved messages. This echoed the Kremlin’s takeover of independent media in Russia(which began with the targeting of Vladimir Gusinsky’s Media-Most empire, in the summer of2000, and which has been central to Putin’s concentration of power in Russia over the pastdecade and a half).Russia has used a number of tactics to gain, and then consolidate, control over Crimea’s media.Since Russian federal law now applies in Crimea, the Kremlin has forced Crimean media outletsto re-register under Russian law. In doing so, Moscow has used Russia’s vaguely-worded “antiextremist”legislation to deny registration to outlets which criticised Russia’s annexation ofCrimea. 77Russia has also pressured print editors and journalists to toe the Kremlin’s line inreporting ‘news’, which has led many journalists to leave Crimea for Ukraine. 78Between March69Salem, H., ‘Crimea’s Tatars fear the worst as it prepares for referendum’, The Guardian, 13 March 2014, available at:http://www.theguardian.com/world/2014/mar/13/crimea-tatars-fear-worst-prepares-referendum.70Ibid.71‘Crimean Tatar becomes state language along with Russian and Ukrainian’, QHA Crimean News Agency, 11 April 2014, available at:http://qha.com.ua/crimean-tatar-becomes-state-language-along-with-russian-and-ukrainian-131151en.html.72Anishchuk, A., Gutterman, S., and Vladimir Soldatkin, ‘Putin signs decree to rehabilitate Crimea Tatars’, Reuters, 21 April 2014, available at:http://www.reuters.com/article/2014/04/21/us-ukraine-crisis-crimea-tatars-idUSBREA3K0BH20140421.73‘UN Daily News, Issue DH/6654’, United Nations (2014), available at: http://www.un.org/News/dh/pdf/english/2014/16052014.pdf.74‘Rights in Retreat: Abuses in Crimea’, Human Rights Watch (2014), available at: http://www.hrw.org/sites/default/files/reports/crimea1114web.pdf.75Parfitt, T., ‘Despair and euphoria in Crimea six months after Russian annexation’, The Telegraph, 06 October 2014, available at:http://www.telegraph.co.uk/news/worldnews/europe/ukraine/11143864/Despair-and-euphoria-in-Crimea-six-months-after-Russian-annexation.html.76‘Russian Officials Impound Crimean Tatars’ Assembly’, Radio Free Europe/Radio Liberty, 18 September 2014, available at:http://www.rferl.org/content/crimean-tatar-mejlis-russia-impounded/26592606.html.77Rights in Retreat: Abuses in Crimea’, Human Rights Watch (2014), available at: http://www.hrw.org/sites/default/files/reports/crimea1114web.pdf. Seealso: ‘“In Putin’s Russia, It’s Hard for Independent Media. For Crimea, It’s Even Harder.”’, Radio Free Europe/Radio Liberty, 02 October 2014,available at: http://www.rferl.org/content/journalists-in-trouble-independent-media-in-crimea/26617187.html.78Salem, H., ‘Crimea facing exodus of journalists, activists and Tatars’, The Guardian, 24 March 2014, available at:http://www.theguardian.com/world/2014/mar/24/crimea-exodus-journalists-activists-tatars.12


PUTIN’S PENINSULA2014 and June 2014, the Kyiv-based Center for Investigative Journalism recorded 85 incidents ofharassment and censorship against reporters. 79Russia has seized control of TV channels’broadcasting equipment and computers, and shut down and frozen the assets of other outlets.The broadcasts from six main Ukrainian TV channels, including Inter, Channel 5, and 1+1, havebeen cancelled and replaced with Russian stations. 80 In all, the amount of Ukrainian-language TVhas been significantly reduced. Black Sea TV, once the most-popular TV station based in Crimea,is now only available via satellite and the Internet. 81Though many of Crimea’s TV outlets are now controlled by either the Kremlin or Kremlinfriendlyentities, one of the last remaining sources of independent media belongs to the Tatars.In an effort not to excessively antagonise the Tatar community, the Tatar television network,ATR, has been allowed to remain on the air. At various points, however, the channel has beenaccused of “extremism” by the new Crimean authorities. 82A letter sent by the Simferopol-basedanti-extremism department of Crimea’s Interior Ministry, dated 24 September 2014, said thatATR:persistently fosters an idea on alleged repression based on national and ethnic grounds;contributes to developing anti-Russian public sentiment; [and] intentionally incitesCrimean Tatars to distrust of authorities and their actions, which indirectly creates thethreat of extremist activity. 83In January 2015, Russian special-operations forces, armed with Kalashnikovs, raided ATR’sheadquarters and seized equipment and servers with archival footage of a February 2014demonstration against Russia’s annexation of the peninsula. 84As a result of this pressure, the critical political talk shows and investigative news coverage thatcharacterised ATR’s reporting of Russia’s annexation of Crimea are long gone. Instead, thechannel now airs cultural Tatar programs and basic news. In short, ATR has been cowed intosubmission.4. Policy RecommendationsRussia’s annexation of Crimea is a stark reminder of the Kremlin’s long-established role indestabilising its neighbourhood. From Abkhazia and South Ossetia in Georgia to Transnistria inMoldova, the Kremlin has used separatist conflicts as engines for corruption and criminality, andto block progress in reform-minded countries on Russia’s periphery. The same tactics are visible79Hyde, L., ‘In Russian-ruled Crimea, a crackdown on journalists and activists who don’t toe Kremlin line (VIDEO)’, Kyiv Post, 01 June 2014, availableat: http://www.kyivpost.com/content/ukraine/in-russian-ruled-crimea-a-crackdown-on-journalists-and-activists-who-dont-toe-kremlin-line-350047.html.80‘Media freedom under siege in Crimea, Ukraine, says OSCE representative’, OSCE, 08 March 2014, available at: http://www.osce.org/fom/116240.81‘Crimea profile – Media’, BBC News, 19 January 2015, available at: http://www.bbc.co.uk/news/world-europe-18287752.82‘Crimean Tatar broadcaster accused of inciting extremism’, Committee to Protect Journalists, 24 September 2014, available at:https://cpj.org/2014/09/crimean-tatar-broadcaster-accused-of-inciting-extr.php.83‘Krims’kotatars’kiy telekanal ATR zvinuvachuyut’ v ekstremizmi – zhurnalist (onovleno)’, Institut Masovoy Informatsiy, 24 September 2014, available at:http://imi.org.ua/news/45809-krimskotatarskiy-telekanal-atr-zvinuvachuyut-v-ekstremizmi.html.84‘Russian Security Forces Raid Independent Crimean TV Station’, The Associated Press, 26 January 2015, available at:http://www.nytimes.com/aponline/2015/01/26/world/europe/ap-eu-russia-crimea-tvstation.html?_r=1&gwh=918FB6EF18488C62007F0E514E859EC5&gwt=pay.13


PUTIN’S PENINSULAin Crimea: the Kremlin has used the annexation to deprive Ukraine of its territorial integrity, toprevent it from joining Western institutions, and to distract it from successfully pursuing reforms.There are a number of policy recommendations which emerge from this paper:EU and US sanctions must remain in place. The West should support Ukraine’s claim tosovereignty over Crimea for as long as Kyiv insists on it. Consequently, Western sanctionsimposed on Russia as a result of its annexation of the peninsula must remain in place foras long as Russia continues its illegal occupation of Crimea, no matter how long this mightbe for. The West must ensure that the implementation of existing sanctions is tightened,so as to close loopholes that allowed companies such as VTB Group (through itssubsidiary, the Bank of Moscow) to operate in Crimea without being subject to allrelevant restrictions and penalties.The EU and US must limit diplomatic co-operation with Russia. The annexation ofCrimea demonstrates that Russia is no longer a strategic partner of the West but, instead,is a strategic adversary. As the West is loath to go to war with Russia, however, it is clearthat any solution to the Ukraine crisis must be diplomatic. While this necessarily requiresa relationship of some sort, the West should, nevertheless, consider suspending Russiafrom international institutions, and Western countries should consider halting bilateralagreements with Moscow (which the Kremlin uses to abuse individual and corporaterights, both in Crimea and elsewhere); such agreements include mutual legal-assistancearrangements, police and prosecutors co-operation, and Interpol membership.Russia’s annexation of Crimea must remain high on the international agenda. As thesituation in Ukraine has evolved, Western diplomacy has focused on trying to stop adeterioration of the situation in south-east Ukraine and to persuade Russia to de-escalatetensions. As a result, Crimea has fallen down the international agenda: it was notmentioned in either the ‘Minsk I’, signed in September 2014, or ‘Minsk II’, signed inFebruary 2015, ceasefire deals. Yet, the West must not lose sight of the most blatantmilitary land-grab in Europe since 1945; it should ensure that Crimea is raised as an issuein all international forums and in all dialogue with Russia, both bilateral and multilateral.The West must make its courts available to Ukraine. For the foreseeable future, there isno plausible scenario in which Ukraine re-establishes sovereignty over Crimea. That doesnot mean, however, that the West should accept what Moscow has done. Western policyshould treat Crimea as an illegally occupied territory – and Russia as the occupying power– unless and until Kyiv decides otherwise. As a result, the US and EU should do whatthey can to ensure that American and European courts are open for legal action by theUkrainian state and its citizens seeking compensation for the Kremlin’s seizure of Crimeaand for any action taken by Russian or foreign companies to exploit the peninsula’sresources.The West should pay greater attention to other states on the ‘frontline’ of Russia’saggression. No matter how unlikely the possibility, the chances of Vladimir Putinpresenting a challenge to European security more serious than his annexation of Crimeahave increased as a result of Western weakness over Ukraine (and, before that, Georgia).14


PUTIN’S PENINSULAThere exist a number of states which are vulnerable to Russia’s advances, including theBaltics, Bulgaria, Georgia, and Moldova. The future of the post-Cold War settlementhangs on their fate. As a result, the West should deepen economic, political, and securitycollaboration with these countries; it is in everybody’s interests that Vladimir Putin is notable to further destabilise countries in Europe.15


PUTIN’S PENINSULAAbout the AuthorDr Andrew Foxall is Director of the Russia Studies Centre at The Henry Jackson Society. Hisresearch focuses on economic, political and security trends in Russia and the Former SovietUnion. Andrew is the author of numerous articles, book chapters, policy papers, reports, andopinion pieces on Russia. His first book, Ethnic Relations in Post-Soviet Russia, was published byRoutledge in October 2014. Andrew holds a DPhil from the University of Oxford.About the Russia Studies CentreThe Russia Studies Centre is a research and advocacy unit operating within The Henry JacksonSociety dedicated to analysing contemporary political developments and promoting human rightsand political liberty in the Russian Federation.About The Henry Jackson SocietyThe Henry Jackson Society is a think tank and policy-shaping force that fights for the principlesand alliances which keep societies free - working across borders and party lines to combatextremism, advance democracy and real human rights, and make a stand in an increasinglyuncertain world.16


The Henry Jackson SocietyMillbank Tower,21-24 Millbank, London, SW1P 4QPTel: 020 7340 4520www.henryjacksonsociety.orgCharity Registration No. 1140489The views expressed in this publication are thoseof the author and are not necessarily indicative ofthose of The Henry Jackson Society or its Trustees© The Henry Jackson Society, 2015All rights reserved

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