The Arkin Group

July 22, 2021

Russia’s multi-pronged support of Myanmar is a microcosm of its strategy in Southeast Asia. In the months since Myanmar’s February military coup, Russia and China have been the junta’s most powerful allies, but Russia has exploited regional instability to position itself as a third path between China and the West. While China was closer with the former Myanmar government than the military, it was also concerned about the government’s ties with the West and potential interference in its development efforts, particularly its Belt and Road Initiative. Russia, on the other hand, doesn’t depend on stability in Southeast Asia to the same degree as China and can instead take advantage of warring factions. Last month, on his first trip outside of the immediate region since February, Myanmar’s junta leader Min Aung Hlaing went to Moscow to meet with high-level Russian defense officials instead of heading to Beijing. Hlaing has reportedly visited Russia seven times within the past decade and previously stated that over 6,000 Myanmar officers have studied at Russian military academies. According to data from the Stockholm International Peace Research Institute (SIPRI), Russia was responsible for almost 40% of arms sales to Myanmar from 1999-2018, second only to China. SIPRI data further indicates that Russia has been Southeast Asia’s largest arms supplier over the past two decades, counting Vietnam and Laos as top customers. But Russia is offering the region more than arms and has promised Myanmar two million Covid-19 vaccines and assistance in the nation’s own vaccine production efforts. Russia has also been trying to expand free trade agreements between its Eurasian Economic Union (EAEU) and Southeast Asian countries, most recently getting Indonesia to sign on to the deal. Stepping even further into soft power efforts, last week Russia’s foreign minister met with his Bangladeshi counterpart and agreed to encourage Myanmar to engage in dialogue with Bangladesh on the Rohingya crisis.

Leftist, former schoolteacher Pedro Castillo is declared President of a divided Peru, projected economic growth could play in his favor. Peru, like many of its neighbors, has been battling the triple and interwoven threat of Covid-19, social unrest, and severe economic downturn. But for the past several years Peru has also been challenged by sharp divisions between its executive and legislative powers. Last November, Peru’s unicameral legislature voted to impeach then-President Martín Vizcarra, citing mismanagement of the pandemic and corruption, in a move that outraged thousands. The June presidential elections were likewise fraught. Castillo’s right-wing rival Keiko Fujimori, who is also under investigation for corruption, alleged electoral fraud and the Peruvians initiated a six-week long investigation, eventually finding Castillo the rightful victor. The EU, U.S. and 14 electoral missions deemed the elections legitimate, and the U.S. called the election a “model of democracy” for the region. Castillo, who previously worked as an elementary school teacher and has never held public office, will be greeted by a political establishment that is almost entirely against him. Peruvian citizens are also deeply divided, and many urban elites reportedly moved their money overseas out of fear for Castillo’s economic policies. But Castillo’s Peru Libre party holds fewer than 40 of 130 seats in the legislature and Castillo has already recruited several moderate advisors. Further, he has backed away from talk of nationalizing Peru’s lucrative multinational mining, oil, gas, and hydrocarbon companies, instead pledging to raise taxes on mining firms. Prices of copper and gold, two of Peru’s most critical exports, remain high and Covid-related trade obstacles are expected to ease over the coming months. While it is uncertain how effective Castillo will be, or where he will ultimately fall on his policies, positive projections for Peru’s export-based economy will likely play in his favor.

Enjin becomes first blockchain platform to gain acceptance into the United Nations Global Compact, signaling widespread range of corporate sustainability efforts. On Tuesday, Enjin, an innovative blockchain technology company focused on non-fungible tokens (NFTs), became the first such company to join the United Nations Global Compact. Upon admission, Enjin stated that it hopes to use NFTs to promote sustainability and equality in line with the UN pact that encourages businesses and firms worldwide to adopt more environmentally friendly and socially responsible practices. NFTs have surged in popularity in the past two years, and during the first quarter of 2021 NFT sales reportedly exceeded US$2 billion. In essence, an NFT is a way to prove ownership of a unique virtual item. It’s a unit of data that’s stored on a blockchain, or digital ledger, that certifies exclusive ownership of digital files ranging from photos to sports trading cards. Enjin, which is headquartered in Singapore, has focused its NFT efforts on games and apps and is reportedly able to operate with a lower carbon footprint than Bitcoin due to a slimmed-down verification model that requires less energy. This week, the UN Global Compact not only included Enjin as a member, but gave the company its highest membership rank, sending a signal that it’s interested in promoting such an environmental effort by crypto and blockchain entrepreneurs. For its part, Enjin has stated that it wants to employ the technology in carbon capture companies, fighting climate change in the process. The Head of the UN AI and Robotics Center remarked that during the global struggle to recover from the pandemic we should take advantage of new technologies like AI and blockchain to better equip ourselves for the future.

TAG anticipates that a wider range of industries will be evaluated and held accountable on sustainability efforts moving forward. While environmental impact is still a key component of sustainability, the broader concept has evolved into the realm of human rights, labor, and anti-corruption among other socially responsible issues. Moreover, shareholders in diverse industries are increasingly demanding proof and measurements of sustainable practices of both the primary company and associated businesses along its supply chain. TAG is available to assist in conducting these valuable self-due diligence assessments on corporate sustainability issues, including assessments of associated second tier businesses.

July 16, 2021

Simmering unrest in Cuba erupts in collective protest, Venezuela watching closely. Last weekend thousands of anti-regime protestors took to the streets across the island nation in some of the largest protests since the Cuban Revolution. In 2020, Cuba’s national GDP dropped by 11% – the worst regression since 1993, and medicine and medical supply shortages are now peaking during the height of the nation’s Covid crisis. On July 11, in a rare moment of collective public outcry, thousands of Cubans mobilized to protest government policies and the increasing lack of food, electricity, and basic goods. Cuban authorities tried to restrict internet access during the protests, a now-common authoritarian tactic to contain live dissent, but rapid social media dissemination of the imagery made denial of the events difficult. Reports from NGOs indicate that at least 100 protestors, activists and independent journalists have been detained nationwide. On Monday, Venezuela, who is a close political ally of Cuba’s and is likewise deep into a humanitarian crisis that it blames on U.S. sanctions, arrested former opposition deputy Freddy Guevara, charged him with terrorism and treason, and surrounded the home of opposition chief Juan Guaido. While Venezuelan officials attribute the actions to self-defense against a purported opposition criminal gang plot, some U.S. politicians have suggested that Venezuela was taking precautionary measures to prevent any spillover effects from Cuba. In late June, the United States, Canada, and the EU promised to review sanctions policies if Venezuela moved towards free elections for its upcoming November race, but Monday’s actions run contrary to this effort.

As ransomware attacks continue at a pricey and rapid clip, cyber insurance is a heated topic of debate. The dramatic uptick in sophisticated ransomware attacks since 2019 has transformed what was once an IT issue into one of business viability. Curbing the greater threat will require some combination of international agreements and industry-specific measures, but in the meantime many companies have opted to purchase cyber insurance to help them manage and recover the losses of cyberattacks. While it may have previously been cheaper just to pay the ransom than to deal with insurance, the ransoms are so high now that for some the calculus has shifted. A recent report on cyber insurance by the Royal United Services Institute (RUSI) argues that cyber insurance could theoretically help prompt policy holders to set up stronger defenses and that implementing “minimal ransomware controls”- such as quickly patching vulnerabilities, requiring multi-factor authentication, segmenting data compartments and access, and saving regular backups, should be a requirement of any insurance coverage. These minimal requirements are also in the interest of the insurance companies whose profitability has been challenged by the exorbitant payouts for ransomware attacks over the past year. But while the idea is hopeful, RUSI finds that so far cyber insurance hasn’t done much to improve cybersecurity practices. Further, criminals try to learn if, and how much, cyber insurance coverage exists before choosing their victims, and criminals are also targeting the insurance companies themselves. The issue of whether cyber insurers will be required by law to halt reimbursements for ransom payments, or if they will even have enough funds to do so, remains to be seen.

India-China border conflict exposes distrust of diplomatic measures. In recent weeks, India moved an additional 50,000 troops and significant military equipment to its Chinese border Line of Actual Control (LAC), bringing the total number of Indian troops to about 200,000. On Wednesday, the Chinese and Indian foreign ministers met and reportedly agreed to work on a mutually acceptable solution, but China and India have never seen eye to eye on their 3,488 km border line, and each nation’s infrastructure projects in the immediate region are increasingly viewed as security threats. A dispute in 2017 was triggered when the Chinese started to build a road within the Doklam region, and in mid-2020, in the most violent confrontation along the border in decades, fighting erupted in the Galwan Valley not long after India was working on a strategic road bridge. Further, Indian defense officials have remarked that the 2020 conflict prompted New Delhi to accelerate the construction of roads, tunnels, and bridges to provide for the quick movement of troops along the border. In addition to better road connectivity with Pakistan and Tibet, regional Chinese infrastructure developments are strongly guided by a desire to secure water access. China is planning to build a mega-dam in Tibet spanning the Brahmaputra River which would have potential environmental and access consequences for downstream countries like India. China has also previously withheld critical water-level data about the Brahmaputra from India during times of political tension. While boosting troops along the LAC is one defensive measure, Indian Prime Minister Modi, who recently slighted China in a rare move by publicly wishing the Dalai Lama happy birthday, is also re-invigorating the Quad Security Dialogue with the U.S. and allies, further indicating that India isn’t counting on a purely diplomatic solution with China moving forward.

July 9, 2021

Climate change and diversification key factors in UAE-Saudi rivalry. After the UAE and Saudi Arabia failed to reach an agreement last week on boosting oil output, OPEC+ ministers canceled this week’s meetings, and the uncertainty has resulted in volatile trading in oil markets and speculation that the UAE might exit the alliance. During the pandemic, oil producing countries cut way back on production, and now that wealthier nations are resuming pre-Covid spending and travel norms there isn’t enough product. Every member of the OPEC+ consensus-based decision-making body agrees that oil output should increase, but they don’t agree on by how much and for how long. The UAE, who has been saddled with a low baseline of production based on 2018 calculations, is reportedly idling 31% of its capacity, the highest percentage of any OPEC+ members, and even with a shift to the 2020 baseline it will be sitting on substantial reserves. While there are political aspects at play and Saudi and the UAE are no doubt competing for similar investor profiles and status as the leading business hub in the region, it also seems that UAE – who has been diversifying its economy for longer than Saudi, is keenly aware that oil isn’t going to generate a lot of income for much longer. With an increasing demand for clean energy, prices for oil could spike in the short term but then rapidly drop, and if the UAE is forced to save its sales for the late game it will be disproportionately impacted and have fewer petrol dollars to invest in its own economic diversification along the way. Further, if UAE-Saudi tensions continue, there could be far reaching impacts on intelligence, diplomatic, and security issues in the region as diverse as the War in Yemen, the sustainability of the Abraham Accords, opposition to the Iranian nuclear deal, and internal political security within Saudi Arabia.

Lebanon’s deepening humanitarian crisis prompts aid offers from Qatar to Israel. After over 200 people died and 6,500 were injured in a still-unexplained explosion in Beirut’s port last August, Lebanon has spiraled into further political and economic disarray. Prime Minister Hassan Diab resigned in response to the outrage and Prime Minister Designate Saad Hariri still hasn’t been able to put together a new Cabinet. Lebanon, which has been in financial trouble for several years, is now experiencing fuel, medicine, and food shortages and more than half of its population is living in poverty. Despite its high proportion of arable land, Lebanon’s agricultural sector has been underdeveloped and took a further hit in April when Saudi Arabia suspended Lebanese produce imports after a shipment of pomegranates was found to contain millions of contraband Captagon pills. According to the World Bank, the financial crisis is one of the worst since the mid-1800s and could have regional and global effects. On Tuesday, caretaker Prime Minister Diab warned that a “social explosion” is pending as citizens without electricity or access to goods become desperate and fights are erupting at fueling stations and markets. Lebanese Hezbollah leader Hassan Nasrallah has asserted that the fuel shortage could be easily resolved if Lebanon would accept Iranian oil shipments and that if Lebanon doesn’t act fast he will negotiate directly with Tehran to get the oil into the Port of Beirut. Israel, who wants to keep any Iranian oil tankers far from its shores, has offered Lebanon aid, as has Qatar who has promised 70 tonnes of food a month to Lebanese armed forces. The U.S. and France, recognizing the significant role Lebanon plays as a stabilizing force in the region, have also pledged more assistance to the military.

Over the past year China has systematically attacked democratic institutions in Hong Kong and laid a devastating groundwork of fear to contain their return. According to data from the Georgetown Center for Asian Law in Washington, since the Hong Kong national security law was implemented by the Chinese last summer, there have been 130 arrests with about half of those arrested formally charged. While the total number of arrestees might not seem that large given China’s power grab, those targeted represent a wide range of offenders, sending the message that all levels of civil society – universities, media outlets, artists, activists, are vulnerable to punishment. The law is so vague and indiscriminately applied that residents of Hong Kong have remarked to the media that it might be easier to live in Beijing where the line between illegal and legal is more clearly demarcated. Earlier this week, Chinese officials held a forum where they discussed how to further expand the law, and the penalties for protest activity or “conspiracy to commit subversion” will likewise expand. China is even invoking colonial-era law to punish non-violent political dissenters with life sentences. In addition to attacking Hong Kong’s civil liberties, establishments and culture, the law targets Hong Kong’s economic ties to the West, including a significant number of technology companies. International businesses who once trusted Hong Kong’s judicial system to protect commercial rights and local staff are now worried about their safety and are contemplating departure. While China might not face direct military opposition to its sweeping human rights abuses in Hong Kong, there are indicators that countries are actively looking to limit and punish the behavior through other means. For a deeper analysis of Chinese expansion and security and business implications stay tuned for an upcoming TAG Spotlight on China.

July 2, 2021

Iran’s newly elected Ebrahim Raisi has yet to stray from the hardline path that has led him straight to the top, but his ruthlessness could be his downfall. It was no surprise when Raisi won the rigged Iranian presidential election on June 18 and he is expected to continue his ascent straight to the eventual position of Supreme Leader. Raisi, who was sanctioned by the U.S. in 2019 for human rights violations he has conducted over the past several decades, was effectively appointed President by Iranian Supreme Leader Khamenei who likewise served as Iranian President before taking the Supreme Leader position in 1989. Khamenei entrusted Raisi just as Ayatollah Khomeini before him who tapped Raisi for jobs that required cold efficiency, including overseeing the execution of thousands of leftist prisoners and political opponents in 1988. The so-called “death commission” was debated even among the most conservative religious leaders, but Raisi never wavered in his hardline stance, later praising the achievements of the system to quash dissent and rule by fear. Since then, he has continued his path of repression, notably cracking down on Iran’s Green Movement protestors in 2009 – an indication of how he might respond to the civil unrest that is once again brewing. The economy is in dire condition and domestic grievances are apparent via the lowest voter turnout since the Iranian Revolution. But Raisi will likely follow the Iranian playbook and continue to escalate efforts in the region, such as supporting proxy groups and militias like the ones that just attacked U.S. troops in Syria, and those who will avenge the death of Qasem Soleimani. While Raisi doubles down on hardline politics and external diversions, a new Middle East is unfolding around him and unlikely allies under threat might suddenly find it possible to unite against him.

New FATF rulings highlight both conventional and novel regulatory challenges. Last week, delegates from Paris-based financial crimes watchdog coalition the Financial Action Task Force (FATF) met virtually to discuss the latest financial crime threat areas and evaluate global Anti-Money Laundering (AML) compliance efforts by country. Of note, FATF elevated the risk levels of Malta and the Philippines, downgraded Ghana, and kept Pakistan in the “grey list,” much to its dismay. While FATF rulings have no direct legal repercussions, according to a working paper from the IMF issued in May, investors take heed and negative FATF ratings lead to a statistically significant reduction in capital inflows. Maltese Prime Minister Robert Abela called Malta’s addition to the grey list “unjust,” but the nation has been subject to ongoing international criticism due to its sale of national passports, weak regulations on terrorist financing and money laundering, and lax beneficial ownership requirements. Pakistan, who has been on the grey list for several years, reportedly complied with 26 out of 27 recent demands set out by FATF in 2018 but failed to fully investigate and prosecute senior leaders and commanders of UN-designated terror groups. More broadly, FATF is now looking at how countries regulate Ethnically or Racially Motivated Terrorism Financing and Virtual Asset Service Providers (VASPs), two areas that straddle civil liberties and privacy issues, and will likely challenge nations that already have strong regulatory regimes. Increased attention to Money Laundering from Environmental Crime is also expected to impact nations across the board.

Brazil’s President Jair Bolsonaro is under fire for corruption allegations linked to a Covid-19 vaccine deal with India. The Brazilian opposition is blasting Bolsonaro for allegations of corruption involving a health ministry official, bribery, and a Covid-19 vaccine deal with Indian company Bharat Biotech. Bolsonaro fired the official and Health Minister Marcelo Queiroga said he would investigate. On Wednesday, federal prosecutors launched a criminal investigation into the $324 million Indian vaccine deal. Bolsonaro has suspended the contract, but it may be too little too late as calls for Bolsonaro’s impeachment are growing again. Bolsonaro’s popularity has fallen since the start of the pandemic, as Brazilians have been critical of his handling of the crisis. From the start, Bolsonaro was dismissive of the virus, resisted lockdowns, scoffed at masking, and appeared callous to the rising death toll in the country. Over 500,000 Brazilians have died from Covid-19, and many blame Bolsonaro. He has been criticized for a slow vaccination rollout and not jumping on the opportunity to secure vaccine supplies, like from Pfizer which reportedly offered but received no response from the Brazilian government late last year. At the same time, his main political rival, former Brazilian President Luiz Inacio Lula da Silva, seems to be gaining momentum and support. New polling data by Inteligencia em Pesquisa e Consultoria (IPEC) found that 49% backed Lula compared to 23% for Bolsonaro, meaning that if the 2022 presidential contest were held today, Lula could win a first-round vote. Economically, Brazil is recovering from the last pandemic year and GDP is expected to grow by more than 5% in 2021, but this may not be enough for Bolsonaro in the next election.

Happy 4th of July! Have a safe and happy holiday!