Behind the push to freeze Moscow’s foreign cash

“The response from Canada and our allies will be swift and biting,” Freeland vowed after Putin’s forces crossed the border. “This barbaric attack cannot and will not be allowed to succeed.” Freeland was born in Canada to Ukrainian parents – her mother helped draft Ukraine’s constitution.

Before Saturday evening, European leaders had steadily tightened sanctions, but were reluctant to take steps that could cause collateral damage to their own economies. The United States, meanwhile, has rolled out tough sanctions round after round – but, on this most recent package, insisted it was weighing its options as early as Saturday morning, according to the Wall Street Journal.

The Canadian official said Trudeau and British Prime Minister Boris Johnson had advocated, on behalf of Kiev, for the so-called nuclear option against the Russian banking sector.

The gradual increase in penalties imposed by the West has clearly agitated the people of Kiev.

On Friday, Ukraine’s foreign minister called for an immediate increase in those consequences: “Here’s your ‘never again’ test,” he wrote on Twitter. The Canadian official said Freeland had been in frequent contact with President Volodymyr Zelenskyy’s government as she tried to “bring it to consensus” and slap the Kremlin with the significant new sanctions.

The effort would block the Russian central bank’s ability to transact with its foreign exchange reserves, a move that could further weigh on the rouble.

Moscow has about 300 billion dollars in foreign currency hidden around the world. Effectively cutting off the Russian central bank from this money will be crucial in supporting the ruble should it continue to fall.

As economist Adam Tooze wrote in his newsletter in January: “Foreign exchange reserves give the regime the capacity to resist sanctions on the rest of the economy. They can be used to slow down a run on the ruble. They can also be used to offset any currency mismatches in private sector balance sheets.

To exclude the Kremlin from this money required the support of all of Europe and the United States.

While it’s hard to say whether Ottawa’s intervention was primarily responsible for its allies’ reversal – certainly domestic pressure and images of shootings in a major European capital had a substantial impact – the official said that Freeland had made a special appeal to the Americans. in the last days. Ahead of Saturday night’s announcement, President Joe Biden remained coy about the need for tougher action against Russia’s central bank.

Sanctioning the central bank has not received as much attention as another important consequence proposed for Moscow: exile from the SWIFT system.

SWIFT is a secure and reliable messaging system that allows member banks to communicate messages, such as money transfers, with each other. It is used by some 11,000 banks in 200 countries.

The Canadian official said Trudeau also supports a proposal, led by Johnson, to exclude Russia from the SWIFT payment system. The Guardian reported that the British and Canadian Prime Ministers were the only ones around the table to support such severe financial sanctions.

On Saturday, Freeland and Trudeau spoke with Ukrainian Prime Minister Denys Shmyhal to report progress in building consensus on tougher measures.

In the evening, the consensus finally arrived, as the strikes on Kiev intensified for the third day in a row. European Commission President Ursula von der Leyen announced that the EU would support “the imposition of restrictive measures that will prevent the Russian Central Bank from deploying its international reserves in such a way as to undermine the impact of our sanctions”.

Von der Leyen also announced his intention to ensure that “a number of Russian banks are removed from SWIFT”.

Saturday’s announcement, signed by the European Commission, France, Germany, Italy, the United Kingdom, Canada and the United States, appears to be a compromise — cutting only parts of the economy Russian system of financial transactions.

In a call with the president of the European Commission after the decision, Trudeau and von der Leyen “praised the transatlantic cooperation that led to today’s joint statement,” an official reading reports. The sanctions announced by Freeland, they agreed, would mean “the application of additional restrictive measures against Russian banks, companies, officials and elites”.

Obtaining the consensus of European leaders has been difficult. Various European leaders have resisted moves that would limit their ability to sell luxury goods to Russia and feared anything that could block energy shipments to Europe.

The Canadian official said Zelenskyy particularly leaned on Trudeau for help and advice during the crisis. The two have spoken to each other frequently in recent weeks.

Pressure is mounting in Canada, home to the largest Ukrainian diaspora in the world after Russia, to do more. Heritage Minister Pablo Rodriguez tweeted on Saturday that he was considering removing state propaganda outlet RT from the Canadian airwaves. On Sunday morning, Ottawa closed its airspace to Russian planes. The official opposition Conservative Party is calling on Ottawa to push for Russia’s withdrawal from the G-20.

While Canada seeks to ratchet up the pressure, it has significant Russian-owned or controlled assets within its own borders that it could sanction — a fact Freeland is likely familiar with. Long before entering politics, after graduating with a degree in Russian history and literature from Harvard, Freeland joined the Financial Times as Moscow bureau chief. There, she helped identify corruption in Russia’s oligarch class, earning her big break by exposing the malfeasance of oil company Sidanco.

Freeland went on to write “Sale of the Century,” about the massive sale of Soviet assets after the fall of the Berlin Wall: It “remains essential reading for those of us who still care what went wrong. with the best naive intentions for Russia’s forward journey,” wrote former Canadian Ambassador to Moscow Jeremy Kinsman in Politics.

In 2014, when the West imposed sanctions on Moscow for its invasion of Crimea and eastern Ukraine, Freeland herself, then just an opposition member of parliament, was hit with a Russian travel ban in retaliation.

The man who gave him the tip on Sidanco, Bill Browder, has become one of Putin’s fiercest critics, pressuring governments around the world to adopt sanctions regimes targeting corrupt officials. Browder began his crusade in honor of his friend and former lawyer, Sergei Magnitsky, who died in a Russian prison following a politically motivated prosecution.

While her predecessor had shown indifference to a so-called Magnitsky Act, after Freeland became Canada’s foreign minister, she championed legislation, which passed unanimously in the House of Commons.

The law allows Ottawa to sanction any individual or company responsible for or complicit in corruption. There are many assets in Canada belonging to some of Russia’s wealthiest men – who may not be complicit in corruption, but profit from it nationwide.

EVRAZ, a large steel company based in London, has five plants in Canada – its Regina plant is the largest steel mill in Western Canada. Its main sole shareholder is Roman Abramovich who, under pressure, announced on Saturday that it would cede control of Chelsea Football Club.

Buhler Industries, an agricultural equipment factory headquartered in Winnipeg, is majority owned by the Russian agricultural company Rostselmash. In September, Rostselmash paid $12 million to acquire a larger share of the Canadian company: it now owns 97%, according to company filings. Buhler’s board is made up of a number of Russian captains of industry, many of whom outwardly support the Putin regime. Ottawa considered sanctioning the company in 2014 but did not.

Calgary natural gas producer Spartan Delta Corp., meanwhile, recently acquired a third of its shares from Russian oligarch Igor Makarov — another billionaire running in Putin’s circles – according to a report in the Financial Post. His name appeared on a list from the Treasury Department great Russian oligarchs close to Putin.

On Thursday, as she announced Canada’s second round of sanctions, Freeland relayed a message from a former colleague.

“A Russian friend of mine – a Russian economist who actually worked in the government under [Boris] Yeltsin, but also under Putin – emailed me this morning saying he now knows what it is to be a good German in 1939,” Freeland said.

The finance minister said her goal in pushing for these economic sanctions was to “target people who have been Putin’s fellow travelers. People who have been able to become extremely rich, enjoy all the pleasures of the West, of Western democracies, while helping and encouraging Vladimir Putin.

About Darnell Yu

Check Also

SolarEdge Q3: Rangebound ahead of earnings, macro risks weigh in (NASDAQ:SEDG)

nattrass/E+ via Getty Images It’s the last peak week of the earnings season. John Butters, …