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

67 points by cek 12y ago

pjc50 12y 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"?)
- bayesianhorse 12y 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...
  - pjc50 12y 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 12y 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 12y 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 12y 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?
    - mike_hearn 12y ago
      The same way the USA has been taking control of the rest of the financial system. They say to American VISA/MC executives, "we require any transactions processed by your subsidiary to comply with US sanctions, or else we're going to tell the whole world that you're a bunch of financial terrorists and throw you in jail". Then the US executives say, OK, then we won't process payments in Russia. And then Russia says ....
      - boobsbr 12y ago
        Feels similar to FATCA requirements: report all transactions that involve even the remotest link to an "American person or company" or you're sancioned from operating in the US and with any "American person or company".
bayesianhorse 12y 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 12y 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 12y 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 12y 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.
Voley 12y 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.
deleted 12y ago
[deleted]
jacquesm 12y 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.
- vetinari 12y 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).
  - jacquesm 12y ago
    I mean across the board. JCB, AMEX, Discover and a bunch of others would disagree.
    - dagw 12y ago
      The level of acceptance of those cards, globally, is tiny compared to Visa/Mastercard.
ipsin 12y 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 12y 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 12y 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_Enterprise 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.
godzillabrennus 12y 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 12y ago
  I'm sure it will be a great Aladeen.
- mike_hearn 12y 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 12y ago
Max Keiser is going to blow an artery with excitement.
Eye_of_Mordor 12y ago
Oh, the US government will just retaliate with sanctions against Russian companies.
- bayesianhorse 12y 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 12y ago
Economic sanctions are counterproductive. Severing economic ties makes war more likely, not less.
- CamperBob2 12y ago
  What should be done about Putin and his neo-Soviet expansionism, then?
- hnal943 12y ago
  How do you suggest the world punish Russia for acting out?
  - ctdonath 12y 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".
    - jqm 12y ago
      The US meanwhile continued to expand NATO and attempted to box Russia in. Contrary to the agreements you mention. Who exactly is building an empire here? Boots on the ground probably will be the answer in the end. And when people see what it produces they may finally come to their senses.
      - ctdonath 12y ago
        Separate interests, perfectly and fairly satisfied, rarely favor everyone involved. NATO and Russian sovereignty & protection interests involve conflicting desire to control border areas, as both are suspicious of the intentions of the other. NATO having all but abandoned Ukraine, Russia is emboldened to re-take that buffer area, putting boots on the ground where answered only by rhetoric.
soAsian 12y 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 12y 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.
jqm 12y 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 12y ago
One more reason to leave this stupid country.

67 points by cek 12y ago

pjc50 12y 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"?)

bayesianhorse 12y 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...
- pjc50 12y 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 12y 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 12y 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 12y 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?
  - mike_hearn 12y ago
    The same way the USA has been taking control of the rest of the financial system. They say to American VISA/MC executives, "we require any transactions processed by your subsidiary to comply with US sanctions, or else we're going to tell the whole world that you're a bunch of financial terrorists and throw you in jail". Then the US executives say, OK, then we won't process payments in Russia. And then Russia says ....
    - boobsbr 12y ago
      Feels similar to FATCA requirements: report all transactions that involve even the remotest link to an "American person or company" or you're sancioned from operating in the US and with any "American person or company".

bayesianhorse 12y 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 12y 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 12y 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 12y 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.

Voley 12y 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.

deleted 12y ago

[deleted]

jacquesm 12y 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.

vetinari 12y 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).
- jacquesm 12y ago
  I mean across the board. JCB, AMEX, Discover and a bunch of others would disagree.
  - dagw 12y ago
    The level of acceptance of those cards, globally, is tiny compared to Visa/Mastercard.

ipsin 12y 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 12y 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 12y 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_Enterprise 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.

godzillabrennus 12y 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 12y ago
I'm sure it will be a great Aladeen.
mike_hearn 12y 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 12y ago

Max Keiser is going to blow an artery with excitement.

Eye_of_Mordor 12y ago

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

bayesianhorse 12y 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 12y ago

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

CamperBob2 12y ago
What should be done about Putin and his neo-Soviet expansionism, then?
hnal943 12y ago
How do you suggest the world punish Russia for acting out?
- ctdonath 12y 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".
  - jqm 12y ago
    The US meanwhile continued to expand NATO and attempted to box Russia in. Contrary to the agreements you mention. Who exactly is building an empire here? Boots on the ground probably will be the answer in the end. And when people see what it produces they may finally come to their senses.
    - ctdonath 12y ago
      Separate interests, perfectly and fairly satisfied, rarely favor everyone involved. NATO and Russian sovereignty & protection interests involve conflicting desire to control border areas, as both are suspicious of the intentions of the other. NATO having all but abandoned Ukraine, Russia is emboldened to re-take that buffer area, putting boots on the ground where answered only by rhetoric.

soAsian 12y 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 12y 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.

jqm 12y 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 12y ago

One more reason to leave this stupid country.