Financial Journal Vol.13 No.4 2021
Ivan N. Timofeev
Meeting the Challenge of Economic Sanctions: Russian Legislative and Institutional Perspective, p. 8-2
The article deals with the Russian experience of countering foreign economic sanctions. It makes a special stress on the legislative and institutional perspectives of the Russian practice. The key point implies that, despite significant innovations, Russian institutional design of counter-sanctions policy still suffers from a number of shortcomings. A tentative list includes a lack of coherence of key concepts, unsophisticated distribution of power among different governmental agencies, legal gaps in terms of civil and criminal liability for violation of the Russian counter-sanctions legislation etc. The article provides insights into key Russian legal documents as well as the practice of their implementation. Besides that, the research aims at filling the gap in sanctions literature, related to the disbalance between studies of initiators’ policies and targets of sanctions: research on the policy of initiator states prevail over that on the target states. Inquiry into the Russian practice may contribute to the studies of target states’ policies under sanctions.
Keywords: economic sanctions, special economic measures, Russian Ministry of Finance, Bank of Russia, institutions
Funding: The article was prepared on the basis of the results of research work carried out within the framework of state assignment 092-00002-20-00 commissioned by the Ministry of Finance of the Russian Federation.
For citation: Timofeev I.N. Meeting the Challenge of Economic Sanctions: Russian Legislative and Institutional Perspective. Financial Journal, 2021, vol. 13, no. 4, pp. 8–23 (In Russ.). https://doi.org/10.31107/2075-1990-2021-4-8-23.
Polina V. Bakulina, Ksenia A. Kuzmina
China’s Policy of Economic Sanctions: Legislation and Enforcement, p. 24-38
This article aims at analyzing the People’s Republic of China’s sanctions policy. The authors put special emphasis on the review of the current Chinese legislation on countering foreign unilateral measures targeting China. The emergence of a legal anti-sanctions framework in China is a development of 2020–2021, driven by the growing number of sanctions against China imposed by the U.S. and its allies against the background of trade war and global strategic competition. At the official level, Beijing remains vocal in condemning unilateral and extraterritorial sanctions by certain countries as violations of international law. Despite that, even before the current large-scale confrontation with the U.S., Chinese policymakers have used restrictive measures against third countries, though they have been traditionally adopted in an informal and opaque manner. Those measures have mostly been used as retaliation for certain acts of other states viewed by China as threats to its sovereignty and territorial integrity, and they have been specifically refined to maximize the impact on the target country while minimizing the damage to the domestic economy. The growing number of anti-China sanctions by the U.S. and its allies based on special legal instruments prompted the PRC to follow suit and create its own framework for introducing countermeasures and blocking mechanisms, although their implementation procedures still largely remain intransparent. China’s first steps were to officially introduce individual restrictions, but the persisting confrontational trends in PRC’s relations with the West might bring about formal or informal broadening of Chinese restrictions to transnational corporations and sectors of economy and promote further formalization of sanctions regimes.
Keywords: sanctions, legal regulations in China, China’s sanctions policy, anti-China sanctions
For citation: Bakulina P.V., Kuzmina K.A. China’s Policy of Economic Sanctions: Legislation and Enforcement. Financial Journal, 2021, vol. 13, no. 4, pp. 24–38 (In Russ.). https://doi.org/10.31107/2075-1990-2021-4-24-38.
Yulia S. Timofeeva
US Sanctions Against Financial Companies: Key Features, p. 39-51
Sanctions constitute one of the most demanded instruments of the U.S. foreign policy agencies in affecting foreign adversaries. The use of sanctions is also a challenge for commercial companies, given the growing use of financial sanctions and enforcement measures by the U.S. government. Banks have been increasingly vulnerable to these risks; they are among the most frequent targets of restrictive and enforcement measures by the U.S. and tend to pay much more in comparison with other sectors in terms of financial penalties. This study is based on the analysis of 54 cases of US financial penalties against banks as well as individual cases of US sectoral and blocking sanctions. The article aims at understanding the reasons why this type of financial organizations is vulnerable to US sanctions, the key features of US sanctions against them, and possible application of US sanctions in this direction in the future. The results of the study demonstrate that the heightened sanctions risks that banks face are attributed to their functional connections with the governments under sanctions, the nature of banking business and some intraorganizational factors. Moreover, the inclination of financial companies pressured by sanctions to accept requirements of the U.S. indicates the effectiveness of application of sanctions against commercial ventures.
Keywords: sanctions, secondary sanctions, banks, sanctions risk, sanctions compliance
For citation: Timofeeva Yu.S. US Sanctions Against Financial Companies: Key Features. Financial Journal, 2021, vol. 13, no. 4, pp. 39–51 (In Russ.). https://doi.org/10.31107/2075-1990-2021-4-39-51.
Anastasia B. Likhacheva
On the Strategic Effects of Unilateral Sanctions: Russian Experience, p. 52-66
Much of the academic debate about the consequences of sanctions has been focused on their direct impact or on collateral damage to the bilateral relationship between the issuer of sanctions and the target of sanctions, reflecting the understanding of sanctions as a foreign policy tool. However, an analysis of the Russian experience allows one to raise new questions about the role of sanctions instruments in international affairs. Of course, in the short term, the priority is a policy aimed at minimizing the risks of direct sanctions. Nevertheless, Russia has been under extensive US and EU sanctions for more than seven years, and began to face individual restrictions even earlier. In this regard, the analysis of sanctions reactions can clearly be transferred to the mid- and long-term plane. The analysis of the regulatory legal acts and particular regional and sectoral strategies of Moscow shows that the target countries have been rearranging their international priorities under the threat of further sanctions pressure, both formal and informal. Thus, sanctions are serving not only as a tool of punishment or deterrence, but also as a signaling function in a new meaning — not only demonstrating disapproval of the target country’s policy, but signaling that the planning of long-term development projects is associated with increased risks. Therefore, the complex consequences of sanctions go far beyond the immediate response of the target countries, which is reflected in the industry overview of Russian sanctions pressure adaptation strategies. A particular example of such a transformation, considered in this article, is the sanctions policy in the post-Soviet space—both on the part of individual countries of the region in relation to Russia, and in terms of countermeasures on the part of the Russian Federation.
Keywords: sanctions, Russia, diversification, sanction effects, import substitution
JEL: F01, F20
Acknowledgments: The author expresses gratitude to participants of the HSE student research project 2021 “Sanctions Effects and National Development Strategies: The Example of Russia” Maria Onishchik, Alexander Panferov, Artur Shamkhalov, Maxim Tkach, Karl Tois, and Valeria Yelkina for their assistance in forming the base of sanctions laws and regulations as well as measures to support individual industries.
For citation: Likhacheva A.B. On the Strategic Effects of Unilateral Sanctions: Russian Experience. Financial Journal, 2021, vol. 13, no. 4, pp. 52–66 (In Russ.). https://doi.org/10.31107/2075-1990-2021-4-52-66.
Viktor S. Utkin, Yury V. Kuznetsov
Cellular Companies as a Model of a Mechanism for Reducing Sanctions Risks for Business, p. 67-74
Economic sanctions, including financial ones, will be increasingly used in the practice of international relations in the foreseeable future as an instrument of pressure of some states or interstate associations on others. This creates incentives for the search and implementation of financial innovations aimed at reducing sanctions risks for businesses. The article demonstrates that the impetus for the creation of some important modern financial instruments and infrastructures was the attempts of states to legislatively or administratively regulate the market. The case of sanctions is likely to be no exception. One of the possible models for minimizing sanctions pressure on businesses can be the legal form of a protected cell company. It have been a financial innovation that originally emerged in the captive insurance industry and its objective was, among other things, to reduce the regulatory burden. Structures similar to protected cellular companies can potentially create the possibility to make the operations of national businesses of target countries opaque for external actors (financial regulators and monitoring agencies) that enforce sanctions. In the same time this model preserves the control of the target country’s own jurisdiction and transparency of business for its regulators. In essence, it creates a kind quasi-offshore legal regime, which, unlike traditional internal offshore zones, is designed to mitigate not internal, but external regulatory pressure.
Keywords: economic sanctions, financial sanctions, reducing of the regulatory burden, protected cell company, financial innovation
JEL: F51, F39, G28, G38
For citation: Utkin V.S., Kuznetsov Yu.V. Cellular Companies as a Model of a Mechanism for Reducing Sanctions Risks for Business. Financial Journal, 2021, vol. 13, no. 4, pp. 67–74 (In Russ.). https://doi.org/10.31107/2075-1990-2021-4-67-74.
Julia A. Tarasova, Ekaterina S. Fevraleva
Forecasting of Bankruptcy: Evidence from Insurance Companies in Russia, p. 75-90
This work is devoted to creating a model which could predict bankruptcy of Russian insurance companies. The aim of the study is to build a model based on panel data; its final version should have a good predictive power. Said topic is relevant because the number of revoked licenses has changed a lot over the past few years — this situation may influence both insurance organizations and the population in a negative way. The paper reflects the main characteristics of bankruptcy as well as analyzes the bankruptcy prediction models which have been made by various authors since the 20th century. In the practical part of the study, an econometric analysis of the collected data was carried out and a logit model was built. The model’s predictive power was tested on a sample of insurers. In addition, a random forest algorithm and a binary classification tree algorithm were used. As a result, it was discovered that the volume of insurance premiums to net profit ratio, which could be calculated only for insurers, and financial stability coefficients influence insurance companies’ bankruptcy the most. Further research can be expanded by including new, more sophisticated methods, such as neural networks or boosting.
Keywords: bankruptcy, insurance organizations, logit model, binary classification tree algorithm, random forest method
JEL: C51, G22
For citation: Tarasova Ju.A., Fevraleva E.S. Forecasting of Bankruptcy: Evidence from Insurance Companies in Russia. Financial Journal, 2021, vol. 13, no. 4, pp. 75–90 (In Russ.). https://doi.org/10.31107/2075-1990-2021-4-75-90.
Alfiya F. Vasilyeva
Approaches to Modelling Exposure at Default for the Entire Life of the Asset, p. 91-109
This paper is devoted to developing an optimal model for assessing the default requirement (EAD) of assets over the entire life of a financial instrument in accordance with the requirements of IFRS 9 “Financial instruments”. The EAD for the whole life of a financial instrument is a set of estimates of EAD values from the first to the last year during the life of the asset. Two models are used for evaluating EAD under agreements with a set limit (for example, a credit line, overdraft) and under guarantees and letters of credit: the EAD model for balance sheet financial instruments (applied to the balance sheet part) and the credit conversion factor (CCF) model (applied to the off-balance sheet part). The approach to CCF modeling is described in the second part of the study. This model was developed based on a real bank portfolio of assets, using data which were collected at the beginning of the 2017. These days the topic of the paper is highly acute for both commercial banks that has experienced the problem of improving credit risk assessment models due to the requirements that have appeared to them owing to the introduction of IFRS 9 since January 1, 2018, and regulatory authorities as well, etc.
Keywords: IFRS 9, exposure at default, EAD, CCF, expected credit losses, credit risk assessment
JEL: B40, G21, F65
For citation: Vasilyeva A.F. Approaches to Modelling Exposure at Default for the Entire Life of the Asset. Financial Journal, 2021, vol. 13, no. 4, pp. 91–109 (In Russ.). https://doi.org/10.31107/2075-1990-2021-4-91-109.
Vera V. Levina
Problems of Regional Participatory Budgeting Practices, p. 110-121
This paper discusses the various aspects of participatory budgeting as a regional practice. Using Tula region as the example, the author analyzes the problems associated with the selection of projects, the involvement of residents in the process of preparing projects, and the organization of financing. The study has mainly used general scientific methods of systems-structural and structural-functional analysis as well as comparative research. It is established that the consolidation of the participants’ interests is a prerequisite for the preparation and selection of a larger number of participatory projects. Reasons for the prevalence of educational projects and the institutional mechanisms of their preparation are shown. In addition, the article addresses the role of the residents’ interest in the implementation of projects as an intermediate link between their awareness and involvement. Based on the analysis, it is concluded that involvement management and budget planning optimization have a multidirectional effect on the modernization of proactive budgeting mechanisms. As a result, significant amounts of subsidies from regional budgets have been found to have an ambiguous effect on the efficiency of involving residents in the processes of proactive budgeting. Recommendations for improving regional practices of participatory budgeting are formulated; these include control of the number of participants in the preparation of projects and voting, more attention to mechanisms for coordinating the interests of participants in proactive budgeting, and modernization of the mechanism for distributing subsidies. The article proposes the optimal balance of citizen involvement in participatory budgeting and co-financing of their initiatives from municipal and regional budgets.
Keywords: regional budget, local budget, participatory budgeting, subsidies, involvement
JEL: Н72, Н77
For citation: Levina V.V. Problems of Regional Participatory Budgeting Practices. Problems of Regional Participatory Budgeting Practices. Financial Journal, 2021, vol. 13, no. 4, pp. 110–121 (In Russ.). DOI: 10.31107/2075-1990-2021-4-110-121.
Yuriy V. Belousov, Olga I. Timofeeva
Methodological Aspects of Compiling Open Budget Rankings, p. 122-138
Budget transparency is an effective tool in improving the quality of public budget executions. Ranking countries, regions and municipalities based on budget transparency is of interest for scientists and professionals in the whole world, including Russia. Methodologies behind budget transparency are a rather complex tool, the quality of which largely affects the results. This paper analyzes the available and applied ranking methodologies — in particular, the Open Budget Index (OBI) by the International Budget Partnership (IBP), transparency indices of local budgets in Kazakhstan and Croatia, and the ranking of the Russian Federation’s constituent territories by the level of budget data openness. During the analysis we identified the methodological principles of each of the considered approaches, their differences and similarities. Special attention was paid to problematic issues of the International Budget Partnership’s methodology. It is especially important to specify these problems, as the IBP methodology is a model in measuring the level of budget transparency. By using the ranking of Russian regions in terms of budget transparency levels, we demonstrate how to use special techniques and methods targeted at improving the quality of managing public fiscal performance.
Keywords: public finance, regional finance, budget, open (transparent) budget, open budget data, open budget index, budget transparency ranking
JEL: H61, H87, R50
For citation: Belousov Yu.V., Timofeeva O.I. Methodological Aspects of Compiling Open Budget Rankings. Financial Journal, 2021, vol. 13, no. 4, pp. 122–138. https://doi.org/10.31107/2075-1990-2021-4-122-138.