The Great Debate

The Kremlin’s initial outrage over developments in Cyprus – and the island’s shocking expropriation of billions of dollars held by Russian companies and citizens – has given way to mild indifference. “If somebody gets caught and loses money at the two largest [Cypriot] banks, it’s a shame,” First Deputy Prime Minister Igor Shuvalov recently stated, “but the Russian government isn’t going to do anything about it.”

It turns out that the European Union settlement that left Cyprus’s banking sector in shambles has done Moscow a big favor. Not only did the EU take down a major offshore banking center, it helped President Vladimir Putin’s campaign to return to Russia any money stashed away in offshore bank accounts.

This seemingly technical financial issue also reveals a potential sea change in the rules of the game for Russian business.Instead of seeking shelter abroad, Russian companies and financiers may finally have a stake in fighting to protect their money at home

Putin had first talked about his policy of “de-offshorization” in a December 2012 state-of-the-nation speech. He criticized the lack of transparency of offshore tax havens and complained that Russian companies were escaping domestic law by selecting foreign jurisdictions to settle commercial disputes.

Within two months, Putin proposed a ban on government officials from holding overseas bank accounts and owning foreign-issued stocks or bonds. This draft legislation was followed by an April 2 decree requiring that government employees submit reports on income and expenditures to the presidential administration by the beginning of July  ‑ including all information regarding foreign bank accounts, securities and property. The Russian media immediately speculated that several government officials would resign before this July deadline.

In his State of the Union address on Tuesday, President Barack Obama will reportedly reiterate his interest in reducing the threat of nuclear weapons, though unlikely to announce specifics. The administration is interested in seeking an agreement with Russia, building on the New Strategic Arms Reduction Treaty (START) of 2010 and cutting U.S. strategic nuclear forces by another third in the expectation that Moscow will do the same with its nuclear arsenal.

This would leave each country with roughly 1,000 deployed long-range warheads, plus several thousand more in reserve and in tactical arsenals.

It would be an appropriately modest step toward serious pursuit of Obama’s (and President Ronald Reagan’s) goal of a nuclear-free world. With 1,000 warheads, the U.S. nuclear arsenal would remain more than capable of targeting any reasonable set of military sites abroad. Washington and Moscow would also avoid tempting any medium-size nuclear powers, most notably China, with its 250 or so warheads, to pursue nuclear superpower ranks.

Lawrence Sheets is Caucasus Project Director of the International Crisis Group. The opinions expressed are his own.

The truce that ended last summer's war between Russia and Georgia may be more or less holding for now, but the structures keeping the peace are crumbling due to Russian pressure and Western acquiescence.

Last August, Moscow and Tbilisi fought a short but vicious war over South Ossetia, a region of less than 50,000 people that Moscow now recognizes as an independent state but which the rest of the world regards as part of Georgia. Intense diplomacy was crucial in ending the fighting, as European Union mediation, under the French Presidency, helped compel Russia to put its pen to a truce agreement.