Putin Passes Law Requiring $3.8B Security Payments From Visa, MasterCard

http://www.themoscowtimes.com/business/article/putin-passes-law-requiring-38bln-security-payments-from-visa-mastercard/499532.html

by cek • 12 years ago

67 56 12 years ago

themoscowtimes.com

pjc502• 12 years ago

Interesting. I wonder whether they'll pay the protection money or choose to leave? I wonder if this will drive Bitcoin adoption in Russia?

Note that the US government is no stranger to strong-arming payment processors into refusing payment to businesses it deems undesirable, not always on a legal basis. For example, donations to wikileaks. The Russian position is that Putin insists on being the one strong-arming opponents. This is not an improvement.

(I wonder if this thread is going to be "yay, someone breaking the payments cartel and going after the banks" or "boo, Putin"?)

bayesianhorse5• 12 years ago

Well "boo, Putin" wouldn't be such a bad attitude. He is, after all, a former KGB officer who runs an authoritarian nation, where the mere notion of free press or due process is ridiculous.

The biggest mistake non-Russians seem to make with regards to interpreting the "West vs Putin" debate is, that they forget that western political systems are hugely more transparent and reliable.

Essentially this means that virtually any "misdeed" on the part of a western government will come out over time, whereas there will be no such evidence or a wider discussion over what Putin is doing.

Given the choice over the U.S. strong-arming payment processors in very few cases, and Putin strong arming them for whatever reasons he sees fit, I'll choose the U.S. any time...

pjc502• 12 years ago

"boo, Putin" is certainly valid and correct, and I'm not asserting general moral equivalence. I'm just saying that actions which erode due process make it much harder to fight this kind of action.

huhtenberg• 12 years ago

That's actually a very reasonable response to what Visa/MC did.

I guess that Visa will now quietly back away from the sanctions and in return Russia will either extend the deadline, reduce the security deposit or allow them to participate in development of the national payment system. Probably latter.

ovi256• 12 years ago

Visa and its competitors cannot back away from the sanctions at will, as they are ordered by the US federal government. As such, Visa et co. are caught between a rock (US ordered sanctions) and a hard place (this Russian law saying "don't dare apply those sanctions to Russian citizens").

gst• 12 years ago

That new law seems to address this: "... and require them to base their processing center in Russia". How would sanctions work with a local subsidiary that does the processing?

bayesianhorse5• 12 years ago

With Russia and Putin, you never really know: Is this move extraordinarily stupid or extraordinarily brilliant? Russia is an authoritarian state, that on the one hand isn't doing terribly bad economically, but on the other hand notoriously corrupt and not getting a foot in the door innovation-wise.

Of course, the "security deposit" isn't for security against these companies failing. The deposit will help with the squeeze Russia is feeling, and on the other hand this whole law would allow the Russian one-party government (which doesn't know any kind of division of power, by the way) to extort Visa and MasterCard.

I don't know if building a state-controlled credit card processor is worth it to risk being cut off from Visa and MasterCard. You would certainly expect foreign businesses to be extremely careful or suspicious toward such an entity...

josefresco• 12 years ago

I'm going to vote for stupid. Money supersedes nationality, and multi-national companies (of which Russia and the US depend on) will be weary of this. Those with money could care less about national pride, they just want/need a good return on their investments and business friendly laws/policies. If Russia messes with this formula they'll be on the outside looking in.

mtrimpe• 12 years ago

It's already clear that Visa/MasterCard will be a key part of US sanctions against Russia so this is partially a pre-emptive strike. I generally doubt it's going to work out though.

My partner is Ukrainian and apparently the Crimeans which were recently annexed and now have to switch are utterly shocked by state of e-banking at their new Russian banks; which doesn't bode well for their efforts...

Silhouette• 12 years ago

I sometimes wish more states would build state-controlled basic financial infrastructure and cut out the established financial services companies from the low end of the market -- whether that is the big card companies or the big banks or the big insurers or the big mortgage lenders. These financial services organisations make staggering amounts of money for providing services that almost everyone depends on to function in society, yet with very little real accountability and rarely serving the little guy well, and with a long track record of fighting against any state-led efforts to improve the situation on either count. I'm not generally a fan of over-centralising government and infrastructure, but in this case I suspect there are now strong arguments for providing basic state-run financial services that look much the arguments for having currency and the lender of last resort run by the state and not for private profit.

The use of card payment schemes as a mechanism for sanctions in this case demonstrates external political influence. Maybe in this specific case some would agree with that, given Russia's recent track record. But just imagine the response if Russia could do the same to the US or the major economies of Western Europe. Or consider a more ethically dubious example, like the UK invoking terrorism legislation to freeze assets when Iceland was in financial difficulty not so long ago. More than the political influence, these measures demonstrate the rather arbitrary nature of the services these big companies provide, or don't provide, particularly across borders. For any first world national economy in the 21st century to remain vulnerable to some big commercial interest getting upset and taking the ball home, whatever the underlying reason, seems unwise on the part of the corresponding government.

SoftwareMaven• 12 years ago

Because the Soviet Union's state-run banks served the little guy so well. The reason the "little guy" gets poor service is because the risk profile is extremely high for the return; however, micro-lending is filling in some of that (see http://kiva.org/, for example).

The use of the financial sector as a political weapon is concerning (but that is more possible with state run financial institutions). I'm not sure how you prevent that without basically allowing mega-corporations to be above any national laws.

What we really need is an international court that can arbitrate these kinds of disputes.

Voley• 12 years ago

Visa already announced that it stays. After all this is ugly practice that Visa chosen to block certain banks for imaginary reasons and customers of that bank suddenly can't use their cards anymore.

jacquesm3• 12 years ago

It's a funny turn of events. I know plenty of companies that were sunk by arbitrary fines from Visa and Mastercard in the past (whole IPSPs tanked because of ridiculous and ill motivated fines).

Sure sucks to be on the receiving side of something like this. The only thing this will do as a result is to slightly increase Visa and Mastercard fees.

One way VISA/MC could strike against this law is by simply cutting off all Russian cc's. That would hurt them as well but they could simply stop doing business there for a week or so. I think that Putin would very quickly recant once it becomes evident how much of the Russian economy is now dependent on such instruments.

The new Russian owned payment system is dead in the water from a non-Russian perspective, the only reason VISA and MC are so popular in Russia is because people do not trust local alternatives, not because they don't have other options.

vetinari2• 12 years ago

One way VISA/MC could strike against this law is by simply cutting off all Russian cc's. That would hurt them as well but they could simply stop doing business there for a week or so. I think that Putin would very quickly recant once it becomes evident how much of the Russian economy is now dependent on such instruments.

They already did that, to Bank Rossiya. This move by Russians is a retaliation for that.

The new Russian owned payment system is dead in the water from a non-Russian perspective, the only reason VISA and MC are so popular in Russia is because people do not trust local alternatives, not because they don't have other options.

The reason why VISA and MC are so popular is because there is nothing else. Not only in Russia, but in other countries too. (Note that Maestro is owned and operated by MC).

jacquesm3• 12 years ago

I mean across the board.

JCB, AMEX, Discover and a bunch of others would disagree.

bayesianhorse5• 12 years ago

The way the U.S. economy is dealing with this is through adoption of other payment processors.

But any entity which fulfills the functions of a bank will pose these problems, especially with high market penetration...

At least in the West there is something like due process, which is enough to put an upper limit on the abuse these companies can dish out.

mike_hearn5• 12 years ago

Due process is a concept that applies (or is supposed to apply) to governments. It does not apply to private financial services companies. Politicians have realised this and are now aggressively and vigorously violating it by stepping outside the regular judicial system and simply scaring banks/card companies into stopping business with anyone said politicians don't like.

It wasn't Russia that started this trend. It was America.

ipsin• 12 years ago

The last paragraph is the heart of the article.

"The law also creates the basis for a new Russian national payment system that hopes to compete with the two U.S. companies."

This seems to achieve several goals at once:

1) Highlight that foreign payment processors are unreliable for Russians.

2) Either edge them out of the market or get a crap-ton of 'insurance' money. I wonder if the companies can even pay this money, according to U.S. authorities?

3) Keep the profit from becoming the de facto payment standard for Russians.

If the new payment companies are making money for Putin's government I would not bet against them, using bitcoins or anything else.

higherpurpose• 12 years ago

This has happened in the past (a few decades ago). I remember a story from a business professor about how they forced some companies to make their factories there, and then they just took over them. Putin is quickly moving to turn Russia into another China. Before we know it, I think they'll require every foreign business to give 51 percent ownership to the state, if they want to do business there.

sdm• 12 years ago

How is this "moving to turn Russia into another China"? While China has been pushing the economic reform agenda and cracking down on SOEs -- as was seen at the report of the Third Plenum -- Russia is going in the opposite direction with things like this. In China you don't have to give any ownership to the state. Just setup a WFOE (https://en.wikipedia.org/wiki/Wholly_Foreign-Owned_Enterpris...). Yes, you have to jump through a lot more hoops than setting up a business in the west but, speaking from having done it, it's not that hard. And yes there are certain sectors you can't participate in; but, pretty much every country on the planet has restricted sectors. Even the US: just look at the defence industry. China has been working opening these up while Russia has been been closing these. A good recent example for China is the recent reduction in rice self sufficiency. Plus compared to Russia, China is rather stable, prosperous, and corruption free. It would serve Russia well to become a bit more like China -- but this move is not it.

mike_hearn5• 12 years ago

Putting in place measures to avoid being screwed over by Washington's control of payments infrastructure is not "moving to turn Russia into another China". It's being smart and pragmatic.

Visa and MasterCard have been working in Russia for years, apparently unmolested judging from their joint market share. Now they are being turned into weapons by US politicians .... again. This is a huge, massive trend in US politics: seizing control of power points in the financial system and squeezing them as part of proxy wars against people, countries or classes of businesses they don't like (see Operation Choke Point).

As someone in Europe, I don't see this as Russia becoming communist. I see it as Putin standing up for his country and I wish the EU would do the same, instead of allowing SWIFT to be turned into a tool of the US Treasury.

exelius• 12 years ago

Absolutely -- Russia is an oligarchy where the ruling class are the only ones with a chance at being successful. If anyone else is successful, they use the law as a weapon to either seize their business on the basis of trumped up charges (Yukos?) or to heavily regulate the market such that their ventures are the only ones that can succeed.

Geopolitically, Russia is trying to establish an "alternative" to the US/EU-centric global economy that's basically a free-market version of the Soviet Union. That way they can use their military and intelligence services to pressure their neighbors (Ukraine and others) into participating in this alternate economy where the money flows through Russia instead of the US and EU.

Combine the two and you can see their ambitions: Putin and his allies just want to get rich. And if you live in Russia, they can throw you in jail for pretty much no reason, so I wouldn't mess with them.

acqq3• 12 years ago

You're completely missing the point here. Have you read the article?

"The law on a national payment system, which seeks to guarantee uninterrupted service of payments in Russia by foreign payment systems and prevent them from cutting services to Russian clients, as Visa and MasterCard did in response to U.S. sanctions in March."

Visa and MasterCard cut their local intra-Russian services "because of the U.S: sanctions"(!) Note that both these named Visa and MasterCard aren't "American Visa and MasterCard." The ones operating in Russia had to be registered as Russian companies to provide the services at all. So it's Russian companies (they are daughter companies, but legally independent except for brand, initial investments, connecting to the international infrastructure etc) cutting their own services to Russians because of the external political influences.

It's totally reasonable to adjust the laws to make it harder for such Russian companies to do such things in Russia.

soAsian2• 12 years ago

What you said ain't got nothing to do with what the article is about. Read the fucking article first!

argyle• 12 years ago

Combine the two and you can see their ambitions: Putin and his allies just want to get rich.

When I combine the two I see a Putin who wants freedom from the dependance on a globalized economy that is largely run by western powers. I doubt Putins end goal has anything to do with "just" getting rich.

acqq3• 12 years ago

The Visa and MasterCard named in the article must be Russian-based Visa and the Russian-based MasterCard. They operate under the Russian laws, pay Russian taxes, otherwise wouldn't be able to operate there. They made themselves unreliable by, per article:

"cutting services to Russian clients (...) in response to U.S. sanctions in March."

So it's the opposite of your claim 1). The answer to your claim 2) is that the given money amounts "equivalent to the value of two days of (their) transactions processed in Russia."

Your claim 3) is confusing. Visa and MasterCard are already de-facto standard: they "together service about 90 percent of payments in Russia."

(all quotes from the article)

godzillabrennus• 12 years ago

Knowing how corrupt the Russian government is I'm certain this new electronic payment system will be... As Borat would say, a great success...

chiph• 12 years ago

I'm sure it will be a great Aladeen.

mike_hearn5• 12 years ago

As opposed to the stagnant duopoly VISA/MasterCard, who routinely manage to find ways to stiff their merchants with fines, fees and who are deeply in bed with US politicians? As opposed to PayPal that routinely seizes funds for no reason at all?

What kind of corruption are you afraid of, that the world doesn't already have to deal with?

adnam• 12 years ago

Max Keiser is going to blow an artery with excitement.

Eye_of_Mordor• 12 years ago

Oh, the US government will just retaliate with sanctions against Russian companies.

bayesianhorse5• 12 years ago

They don't need to. Foreign companies have a hard time trusting a widely state-controlled economy which on top of being utterly corrupt and lacking innovation also breaks its promises left and right.

For that matter even if the U.S. government took back every sanction, private businesses will be wary of the risk.

modeless• 12 years ago

Economic sanctions are counterproductive. Severing economic ties makes war more likely, not less.

CamperBob2• 12 years ago

What should be done about Putin and his neo-Soviet expansionism, then?

hnal943• 12 years ago

How do you suggest the world punish Russia for acting out?

ctdonath2• 12 years ago

Fulfill protection treaties. Either put "boots on the ground" or don't promise to in the first place.

Ukraine gave up deterrent weapons (world's 3rd largest nuke stockpile) on promise that the USA would fill the strategic power gap accordingly. Latter didn't, Russia doesn't care about mere "sanctions" in light of empire-building goals, there's only one thing that stops such "acting out".

mike_hearn5• 12 years ago

"The world" probably doesn't care about punishing Russia. That's the sort of thing that makes Republicans hard but the average guy on the street has bigger things to worry about.

Certainly, westerners being told they can't go on holiday to Russia or buy Russian made software or other things is not going to suddenly make the people in east Ukraine decide they actually love the unelected government they got landed with.

jqm3• 12 years ago

I agree completely.

The US has been too free with sanctions handing them out like detention slips lately. Maybe it's time to remember sanctions are a two way street.

As for those who ask "how do we deal with Russia"? Well, for starters, how about we don't support those trying to overthrow a government on their borders? We wouldn't tolerate that in the US.

I'm not saying Russia is right nor their motives are pure. But neither are those of the West. And frankly, I think the western banking system could use a bit of competition.

AJ007• 12 years ago

If other countries serve as an example, it could mean Putin remains in power for a very long time. War more or less likely? I don't know.

kolev• 12 years ago

... and lead to massive losses of life. "UN Says Sanctions Have Killed Some 500,000 Iraqi Children" - http://www.commondreams.org/headlines/072100-03.htm

soAsian2• 12 years ago

Why so many Visa and MasterCard ass kissing here? It doesn't matter what you guys think of Russia and Putin. Visa and Mastercard ain't innocent here either. They fudged their rate and have been sued multiple time since their existence.

Personally, I don't think any country should rely on Visa or Mastercard since like the article said any countries that face U.S. sanction is basically fucked. This is equivalent of using closed source software to run your govrt.

Russia or any countries for that matter have the rights and should develop their own domestic payment transaction.

nitrogen• 12 years ago

People aren't upset about Russia ensuring independence from US payment networks. They are upset that Russia appears to them to be trending toward isolation from the world while expanding its territory. They worry about that combined isolationism and expansionism resulting in a new global cold war.

jqm3• 12 years ago

Putin could kick it up a notch, nationalize the companies assets in Russia and forgive all dept held by the companies in Russia. What kind of a hit would this cause the shareholders of these companies I wonder?

Now sure, international lenders would be more wary of Russia after that, but when you have the resources Russia does maybe credit is less important? Besides, if lenders are going to be used to destroy your economy why not behave proactively?

I doubt it will come to this level... at least immediately, but some people think only the west has the capability to cause financial chaos and pain. I don't think this is the case. This is why I believe we should be more cautious about hostility, financial or otherwise.

EugeneOZ• 12 years ago

One more reason to leave this stupid country.

Putin Passes Law Requiring $3.8B Security Payments From Visa, MasterCard

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