‘Italy-Russia deal is equal to one with drug cartels’

'Italy-Russia deal is equal to one with drug cartels'
Russian President Vladimir Putin (L) and Italian PM Enrico Letta announced a €1bn mutual investment fund in November. Photo: Alexander Nemenov/AFP
When Russia signed a €1 billion investment deal with Italy in November, it was seen in some quarters as a welcome boost to the Italian economy, while others raised fears over the Kremlin's growing influence in Europe and possible corruption. The Local takes a look at the pros and cons.

Russian President Vladimir Putin left Italy at the end of November with a €1 billion joint investment deal and a total of 28 agreements signed with Italy.

The state visit was praised by Italian Prime Minister Enrico Letta, who following talks in Trieste, said “Italy has to develop its international market and encourage more direct investments”.

But some see the deal as a short-sighted attempt by Italy to sell its way out of recession, with little thought to the wider implications of doing business with Russia.

Matteo Mecacci, a former MP in Italy, says the deal signals a break away from earlier Italian governments’ approach to Russia.

“What was remarkable in Trieste was to see Letta and Foreign Minister Emma Bonino unable to articulate anything but a call for greater economic cooperation with Russia, as one of the important ways to solve economic problems,” Mecacci tells The Local.

After two years of recession, Italy has more than two trillion euros of public debt. The government has forecast a return to growth next year and is counting on reforms and foreign investment to help it on its way.

SEE ALSO: Pact with Russia will 'stimulate mutual growth'

Russia could offer hope for Italy’s struggling economy: the country’s energy companies Eni and Enel were reportedly involved in the November talks, while shipbuilder Fincantieri signed a deal in Trieste.

The two countries have long been partners; last year trade between Italy and Russia reached €33.8 billion and rose in 2013.

But while earlier Italian governments coupled trade talks with a push for institutional reform in Russia, this part of Italy’s diplomatic strategy “has [now] resulted in a complete failure”, according to Mecacci.

“Replacing the need for a political strategy with money talks is dangerous,” the politician says, and risks “damaging Italy’s political role in Europe”.

By investing in the eurozone’s third largest economy, Russia gains an entry point into the European economy. Bill Browder, CEO of Hermitage Capital Management, an investment fund specializing in Russia, sees this as worrying for both Italy and the EU.

“By Russian investors putting their money into Europe, they’re co-opting Europeans into their oftentimes money laundering exercises,” Browder told The Local.

SEE ALSO: Police crack down on Spain's Russian mafia

Browder has first hand experience of the challenges of doing business with Russia. In 2007 Hermitage lawyers accused Russian authorities of being involved in a $230 million (€166 million) tax fraud; Russia then made a counter-claim that Browder and his team had, in fact, orchestrated the fraud and threw Hermitage lawyer Sergei Magnitsky in prison. 

Magnitsky died under suspicious circumstances in prison in 2009 and was tried posthumously along with Browder in absentia. The guilty verdict passed down in July this year was marred by "unfair procedures and unconvincing evidence", according to Catherine Ashton, the EU's foreign minister.

Following a campaign by Browder, who was banned from Russia before Magnitsky died, US lawmakers in 2012 passed the Magnitsky Act, which froze the assets of Russian officials allegedly involved in the lawyer's death and banned them from the country.

Browder is now campaigning to have the law replicated across the EU.

“Russia is far more corrupt than peoples' even more pessimistic expectations,” says Browder. “Everyone should be worried about the infiltration of Russian mafia money in Europe.”

Last week, Transparency International ranked Russia 127th out of 177 countries in its annual Corruption Perceptions Index, while Italy came in 69th place.

“The majority of Russian money comes from crime,” adds Browder, who alleges the proceeds of fraud uncovered by the Magnitsky case has been traced to 13 European countries.

Well aware that Russia will continue to do deals with Italy and other European countries, Browder urges caution: “It’s very hard for people to stop Russian money coming in but it should be subject to scrutiny, as with other money from dubious sources.”

No matter Italy’s economic woes, the hedge fund manager warns against financial deals with the Kremlin at all: “It’s equivalent to taking money from the Colombian drug cartels.

“How desperate is Italy? What values are they willing to give up?”

Neither the Russian Direct Investment Fund or the Italian Strategic Fund, signatories of the €1 billion deal, were available for comment when contacted by The Local. 

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