Further escalating the crisis in the Caucasus, Russian President Dmitry Medvedev recognized the independence of South Ossetia and Abkhazia last week; their annexation by Russia is likely to follow shortly. Russian promises to withdraw troops to pre-conflict positions ring increasingly hollow. Russian officials have threatened to use nuclear weapons against Poland and Ukraine. All signs point to the Kremlin's decision to launch a new Cold War.
The free world's response has been feeble. Western spokesmen have warned that Russia's aggression will hurt its international “standing.” NATO has suspended formal dialogue, and Russia may be blocked from entering the World Trade Organization. Moscow is clearly unworried by this talk. Europe's dependence on Russian energy, and claims that the West needs Russia's cooperation on many international issues, reinforce its confidence.
Yet the West is in a stronger position than it or Vladimir Putin may realize. A properly managed “soft power” response – such as a law enforcement campaign targeting Russia's ruling elites – could be extremely effective in punishing aggression against Georgia and in deterring future misconduct. Indeed, Russia's governing elites place their personal interests ahead of Moscow's raison d'etat. If enough pain is inflicted, they will demand foreign policy changes or even seek to replace Putin as the power behind the throne.
Private, state interests
The fusion of private business interests and state policy in today's Russia differs from the endemic corruption of Soviet times. Moscow is dominated by a network of ex-KGB siloviks and wealthy Kremlin-friendly tycoons. Despite their gangsteresque behavior – including assassinations of business and political rivals – Russia is a member, albeit a thuggish one, of the global economic system. Bereft of any significant civilian manufacturing, Russia's economy depends on natural resources exports. As a result, Russia, though grotesquely corrupt, is tightly plugged into global financial and commercial networks.
The shady cadre running modern Russia has embraced globalization. These “Chekist oligarchs” – to distinguish them from the Western-oriented robber barons who rose in the 1990s, only to be purged by Putin – increasingly dominate lists of the world's richest individuals. They invest their ill-gotten wealth abroad and maintain opulent residences in London, Paris and the Cote d'Azur. They educate their children at Western universities.
These tycoons bankrolled Putin's rise and are the medium by which he has consolidated control over Russia's vast wealth. Putin and his cronies have used the levers of state power (including trumped-up prosecutions and official intimidation) to enrich themselves and crush rivals. Complex financial mechanisms — often involving major international financial institutions — are in place to launder vast sums for reinvestment abroad. Western banks seeking to profit and curry favor with Russia's rulers have rushed to underwrite the dubious transactions used to place Russia's natural resources under Kremlin control.
The oligarchy's widespread corruption, disrespect for the rule of law and embrace of globalization make it a perfect target for Western “soft power.” Whenever they have jurisdiction to do so – which should be often – U.S. and E.U. regulators should examine the business transactions of people close to Putin's regime for money laundering or for securities, tax and other economic irregularities. Asset tracing and long statutes of limitation should enable Western authorities to examine years' worth of business activities. The U.S. Justice Department should aggressively prosecute any instances of Kremlin-connected market manipulation, fraud, tax evasion and money laundering that fall within its reach.
Bullies can feel pain
Subpoenas, indictments, asset forfeitures, judgments and travel restrictions will hit where even the most callous bullies feel pain: squarely in the wallet. Western governments should also support investors who try to challenge Kremlin-backed thievery. Moscow's blatant manipulation of oil and gas deliveries, often masquerading as technical problems, should be contested by Western customers and substantial penalties sought. Russian efforts to buy additional refineries and pipelines in the West should be challenged on antitrust grounds.
Careful diplomacy could ensure that Europe's energy fears do not lead it to shy away from legal challenges to Putin and his cronies. Crucially, pursuing the oligarchs through the courts would not require the United States or Europe to take a single action “against Russia.” U.S. and allied governments could note that these activities are consistent with overarching Western efforts to curb public and private corruption. Meanwhile, publicizing Western investigations into illegal activity by Moscow businessmen and returning the ill-gotten gains to the Russian people should please even the fiercest Russian nationalists.
The question of what connection, if any, exists between the demise of Russia's democracy and Moscow's renewed imperialism has long dominated Western debates. Clearly, something far more dangerous than mere authoritarianism has arisen in Putin's Russia. A peculiar blend of political autocracy and corruption, seamlessly fusing political, economic and military power, threatens world peace. Challenging this state of affairs is a strategic necessity.