Based on the uncovered size and patterns of Russian influence in SEE, the following non- exhaustive list of policies[1] could be considered for reducing its negative impact:

 

  • National governments in Southeast Europe should implement robust strategies to counter state capture including the implementation of annual State Capture Assessment Diagnostics (SCAD) that would measure the level of capture (risks) of strategic economic sectors and identify key governance deficits allowing excessive market concentration in favor of private interests.

  • SEE countries should focus on the diversification of foreign capital inflows away from the overreliance on capital from authoritarian countries targeting structurally important sectors through noncompetitive means. Foreign direct investment exposure should be assessed adequately by central banks and financial regulators, which should regularly underestimate the true size and potential impact of capital inflows from Russia.

  • SEE governments need to revamp and strengthen their capacity to counter effectively the instruments of Russian influence in critical sectors of the economy, and in particular in energy. These efforts should be part of their national security strategies and included publicly in annual reporting/threat assessment on Russia, including its economic and energy presence.

  • SEE governments should prioritize the improvement of their countries’ energy security through the following policy measures:

– full natural gas market liberalization in line with the EU energy and competition laws;

– completion of the regional market integration through the construction of pipeline interconnectors, gas storage facilities and underground storages, as well as the diversification of supply routes and sources;

– renegotiation of long-term natural gas contracts with Gazprom in order to abolish destination and take-or-pay clauses, as well as to remove the oil indexation from the pricing methodology.

  • The involvement in the Russia-led large-scale politically driven energy projects such as the Turkish Stream gas pipeline and the Belene nuclear power plant should be reconsidered in light of the impact the projects have in lowering energy security and in reinforcing Russia-backed state capture networks.

  • National tax and anti-trust authorities should increase their efforts to prevent Russian companies from engaging in tax avoidance and abuse of monopoly power by:

– implementing the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations in their bilateral government-tocompany tax negotiations, so as to limit the amount of profits shifted to offshore-registered subsidiaries;

– breaking the existing oligopolistic structure of the fuel distribution markets in the region allowing the Russian oil majors to extract monopolistic rents that could be redirected to finance non-energy activities including indirectly political parties media propaganda, cultural activities and educational programs.

  • Anti-trust authorities, tax inspectorates, financial market regulators and national security agencies should work to clearly establish final beneficial ownership and links with other players on the market, so as to avoid market concentration, and prevent money laundering and the acquisition of critical assets by companies linked to authoritarian states.

  • There is a need to strengthen the governance of privatization and post-privatization procedures, so as to dissuade Russian attempts to take over large-scale strategic companies at below-market value.

  • Political party financing should be more strictly regulated and relevant intelligence bodies should strengthen their monitoring of foreign subversive activities.

  • The independence of national media regulators should be strengthened, so that they can shed light on media ownership to avoid undue market concentration and to uncover under-the-radar online media outlets that serve to spread disinformation and propaganda.

  • The European Union should reinforce its economic and political engagement on the Balkans through the enlargement process for non-EU countries and through its cohesion policy in EU members. It should seek in particular a more active political engagement in the areas of rule of law and anticorruption. It should also stress more assertively to local political leaders that the longterm EU prospects require further reforms on the ground and refusal to engage with non-EU players on exclusive deals outside the framework of open competition and rule of law.

  • The EU, and in particular, France and Germany, should agree on a revamped enlargement policy balancing the political and technical elements of the process. The EU should reassure the Western Balkan countries of their European future, but it should also make clear that the enlargement process is first and foremost a political process aimed at strengthening the democracy and market economy in the region. The EU should re-emphasize the preeminence of achieving a certain threshold of economic development in order to join the union.

  • The EU should also provide an example by introducing a solid rule of law mechanism for the member states based on continuous structural and anti-corruption reforms and linked to cohesion support. • The EU should include the Western Balkans in its Multiannual Financial Framework planning, providing a stronger basis for the integration of the region and encouraging private EU investments. In particular, the EU should aim to engage directly with civil society in SEE, including through Brussels-managed programs on rule of law, justice, etc.

  • The EU should step in much more assertively to develop regional energy cooperation and integration into the EU, including through strategic energy projects and the introduction and verification of EU energy rules and regulations.

  • The EU should improve cooperation with national anti-money laundering institutions to trace illicit financial flows. The European Commission and the European Central Bank should enhance efforts to enforce AML legislation and close loopholes in the corporate ownership and foreign direct investment regulatory frameworks. There is a need to successfully implement the EU decision to form a Beneficial Ownership Registry and make it freely available to the general public.

  • The United States should use more aggressively the Foreign Corrupt Practices Act as well as expand the scope of the Global Magnitsky Act to investigate high-level corruption practices in Europe that enable Russian strategic interests.

[1] These build upon the recommendations provided to the Bulgarian Presidency of the Council of the EU in May 2018. For more details, see: Center for the Study of Democracy. 2018. Policy Brief 77: Making Democracy Deliver in the Western Balkans: Strengthening Governance and Anticorruption.

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