In Other News – Russia’s strategy in Southeast Asia, Pedro Castillo is declared President of Peru, & the meaning of the United Nations Global Compact – July 22, 2021

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.

In Other News – Simmering unrest in Cuba, Ransomware Attacks, & More – July 16, 2021

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.

In Other News – Climate change and diversification key factors, Lebanon’s deepening humanitarian crisis, & More – July 9, 2021

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.

In Other News: Iran’s Newly Elected Leader Raisi, New FATF Rulings & More – July 2, 2021

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!

In Other News: U.S. Withdrawal from Afghanistan, Saudi-Pakistan Oil Deal & More – June 25, 2021

June 25, 2021

U.S. withdrawal from Afghanistan presents a challenging opportunity for Turkey. Today, President Biden is scheduled to meet with Afghan President Ashraf Ghani at the White House to discuss the ongoing U.S. troop withdrawal and offer continued humanitarian, diplomatic and economic assistance to Afghanistan. But regardless of the offer it will be difficult to guarantee the nation’s safety without a military foothold. Turkey, who is part of the U.S.-led NATO non-combatant military mission in Afghanistan, has stepped up and volunteered to continue providing security to Kabul’s international airport after the troop withdrawal. Ankara has also requested logistical and financial support from other allied countries and last week floated the idea that Hungary and Pakistan could help. U.S. and Afghan officials support Turkey’s offer which would help ensure greater safety for continued diplomatic missions and international efforts. Over the years, Turkey has struck a fine balance in Afghanistan and is largely respected, but the Taliban is formidable and already condemning the notion of an ongoing Turkish presence. Turkey is reportedly looking to Pakistan and Qatar to help sway the Taliban in its favor, but progress in talks held in Qatar between the Taliban and Afghan officials has been slow and getting Pakistan to cooperate will be complicated. Further, new reporting from UN Security Council asserts that the Taliban is still closely aligned with al-Qaeda, and after the withdrawal of U.S. and NATO troops there will be little to contain this alliance from reemerging.

A new Saudi-Pakistan oil deal will help Pakistan, but it will also help Saudi Arabia put a check on Iranian influence in the region. Tensions between Saudi Arabia and Pakistan had increased in recent years over issues related to Kashmir, the war in Yemen, and arms to Pakistan from Turkey. But Saudi Arabia’s agreement to restart oil aid to Pakistan is evidence that relations between Riyadh and Islamabad are improving, and it could be a strategic move to edge out Saudi’s regional rival Iran. According to Pakistani officials, the deal to restart oil aid is worth at least $1.5 billion annually and would start in July. It is not nearly as much as the previous oil credit of $3.4 billion, which was put on hold last year as relations soured, but it is considered a significant deal for Pakistan considering rising oil prices. Reportedly, Pakistan Prime Minister Imran Khan’s meeting with Saudi Crown Prince Mohammed bin Salman in May helped to facilitate the deal and has paved the way for improved relations between the two countries. The announced deal comes as Saudi Arabia appears to be shifting its diplomatic strategy in the region, including resending its ambassador to Qatar. The Saudi moves also come as Iran voted last week for hardliner Ayatollah Ebrahim Raisi to be the next president. Raisi has the backing of Iran’s supreme leader, Ayatollah Ali Khamenei, signaling Raisi’s alignment with the conservative values of the Islamic Revolution and resistance to social reforms in Iran. Raisi, who is accused of human rights abuses by the United States, said this week that he backs talks to revive the 2015 Iran Nuclear Deal, but he ruled out the possibility of meeting with U.S. President Biden. What Raisi’s election will mean for Saudi-Iranian relations going forward remains unclear. The regional rivals have not had diplomatic relations since 2016, but they began secret talks in January to discuss a range of issues, including the proxy war in Yemen. In reaction to Raisi’s election, Saudi Foreign Minister Prince Faisal bin Farhan Al Saud said they will judge him by “the reality on the ground.”

A crackdown in Nicaragua intensifies as November elections draw near. Earlier this week, Nicaragua’s National Police detained a fifth presidential candidate under charges of committing unspecified acts threatening national security. The latest action brings the total number of opposition leaders now detained up to 15. The arrests of presidential candidates, journalists, and political dissidents are an overt effort for Nicaraguan President Daniel Ortega and wife Vice President Rosario María Murillo to thwart political competition and stifle public dissent as the presidential election approaches. Ortega, who led Nicaragua as Junta leader and President from 1979-1990 and resumed office again in 2007, now seeks a fourth consecutive term. The recent detainments have drawn the ire from human rights and democracy advocates worldwide. The Organization of American States (OAS) adopted a resolution last week to condemn the crackdown and call for an immediate release of candidates and political prisoners; 27 countries supported the resolution. On Monday, Mexico and Argentina, who had abstained from the vote, recalled their ambassadors to Nicaragua for consultations in response to the continued arrests. Earlier in June the United States placed sanctions on four senior members of Ortega’s administration, including his daughter and a top army official, for being “complicit in the regime’s repression.” If mounting international pressure cannot contain Ortega’s sprawling and oppressive reach, there is little hope for free elections this November.

“We Need Nothing Short of New Moscow Rules to Wrangle Putin,” Jack Devine, The Daily Beast, June 2021

A 31-year veteran of the CIA with decades of experience with the Russians, TAG President Jack Devine sees ongoing Russian aggression against the United States through an intelligence prism and argues that “now is the time to engage in ‘unseen’ efforts to compel Moscow back to a contained and constrained level of behavior.” According to Jack, author of the recently released book Spymaster’s Prism: The Fight Against Russian Aggression, the United States needs to engage in “intense and consistent sub rosa negotiations on a new set of ‘Moscow Rules.’” For more, check out Jack’s latest OpEd published in The Daily Beast, “We Need Nothing Short of Moscow Rules to Wrangle Putin.”

We Need Nothing Short of New Moscow Rules to Wrangle Putin

In Other News: US-Russia Summit, Nigeria’s Conflict with Twitter & More – June 18, 2021

June 18, 2021

Ahead of the U.S.-Russia summit, Russian President Vladimir Putin claims the Russian economy has now reached pre-pandemic levels. In an attempt to project strength ahead of his meeting with U.S. President Biden in Geneva, Putin announced the recovery of the Russian economy from the pandemic. Putin’s posturing ahead of the summit is no surprise as he seeks to elevate Russian influence on the international stage, and any numbers out of the Kremlin should be cause for skepticism. But the World Bank also recently announced that it expects Russian GDP to grow by 3.2% in 2021 and 2022 thanks to increasing vaccination rates and returning demand. These figures are in line with Russian central bank figures which estimate growth of 3-4% in 2021. The World Bank also reported that the Russian banking sector has been resilient and labor markets are improving, but not to pre-pandemic levels. Russia’s economy contracted 3% in 2020 due to Covid-19 and the drop in oil prices, the worst contraction in Russia in over a decade. Despite a recovery from the pandemic, Russia’s commodity-dependent economy has been in decline for some time due to the lack of investment, economic structural issues, and corruption. Russia’s economy has also been hit by international sanctions which have been in place since 2014 when Russia annexed Crimea. Additional sanctions have been placed on Russia since then, due to its involvement in Ukraine, interference in the U.S. elections, the use of nerve agents against Russian opposition figures, including Alexei Navalny, and most recently, for its role in the SolarWinds hack against U.S. government agencies and private sector companies. But economic concerns and sanctions seemed to take a backseat to the other matters raised at the Biden-Putin summit, including nuclear weapons, cybersecurity, the Arctic, Afghanistan, and human rights. Most issues went unresolved by the end of the short “Strategic Stability Dialogue,” but Biden and Putin did agree to send their ambassadors back to their posts in Moscow and Washington, DC. They also agreed to explore further U.S.-Russian dialogue on strategic stability and cybersecurity. The summit served as a first step to repair the spiraling U.S.-Russian relationship, but working level meetings will be the real key to any future success in easing tensions between the two nations.

For more of Jack Devine’s thoughts on Russia and the ongoing intelligence threat Russia poses to the United States, check out his recent OpEd in The Daily Beast, “We Need Nothing Short of New Moscow Rules to Wrangle Putin.”

Nigeria’s conflict with Twitter is indicative of growing socio-economic unrest. Tension between Twitter and the Nigerian government has been increasing over the past year and came to a climax earlier this month when President Muhammadu Buhari outright banned the social media giant and threatened to prosecute anyone using it. The controversy erupted when President Buhari, who has over 4 million followers on Twitter, made a tweet threatening to punish regional separatists and Twitter deleted it, deeming the message in violation of its abusive behavior policy. Since 2020 Nigeria has been dealing with increasingly challenging political and economic circumstances, including a decrease in oil output amid the Covid pandemic, rampant kidnappings by organized criminal groups, an entrenched violent Islamic extremist element, and increasing unemployment- particularly of its youth. Earlier this year, in a move likely triggering Nigeria, Twitter decided to open its first Africa base in Ghana, describing the nation as “a champion for democracy, a supporter of free speech, online freedom and the Open Internet.” According to estimates by Nigerian thinktank NOI, nearly 40 million Nigerians – mostly in the south, regularly use Twitter to express political dissent or advocate for government accountability on issues ranging from police brutality to infrastructure repair. But Twitter is also commonly used to advertise businesses and search for employment, suggesting that the ban could negatively impact the local economy. President Buhari, one of several global leaders frustrated with Twitter’s governance, might now be looking to support a nationally regulated, tax-paying social media platform as an alternative. Similar efforts worldwide have resulted in the ascent of less robust, more overtly partisan platforms. Nigeria’s ban has met with internal opposition from groups advocating for human and constitutional rights and has been condemned by the U.S. and the European Union among others. While several nations have restrictions on Twitter or have placed a temporary ban on the platform in the past, only three nations have completely banned the platform: China, Iran and North Korea.

El Salvador is the first country to pass legislation recognizing Bitcoin as legal tender, leading to questions of implementation and risk. The U.S. dollar (USD) will remain El Salvador’s official currency, but with Bitcoin (BTC) as a payment option for everything from taxes to food, President Nayib Bukele’s move welcomes cryptocurrency investment at a time when global crypto operations are in flux due to increased regulations stemming from environmental and cybercrime concerns. El Salvador has experimented with a limited, BTC-based economy with outside investors at its rural beach area El Zonte to a debatable degree of success. Details of the new legislation have been largely shared via social media, leading some to assert that Bukele is trying to divert attention from recent corruption scandals that have hurt his public image. Under the new law, the exchange rate between BTC and USD will be dictated by the market, and exchanges in BTC will not be subject to capital gains tax. Businesses without the necessary technology to transact in BTC will not be penalized for refusing the currency at present. Bukele has also touted BTC to facilitate the transfer of remittances, which account for some 20% of El Salvador’s economy. It is notable that Bukele chose to institute BTC as opposed to a national digital currency that the country could better manipulate. But details are scarce, and questions on implementation abound. It takes money to have a smartphone with enough functionality and cell service to make BTC transactions, and many of the unbanked citizens who could benefit the most from access to digital payments will likely remain without access. BTC is also volatile, and a lot of local businesses will want to exchange it for USD as quickly as possible. El Salvador has promised that the government will establish a $150 million fund so that businesses can promptly exchange BTC for USD, but the underlying exchange mechanism for these transactions is unreliable and too opaque according to many industry professionals. The fund could also be readily abused by crypto-bearing criminals looking for an easy place to cash out. In addition, the new law could impact international economic agreements. The IMF, who is currently in the middle of loan negotiations with El Salvador on a $1bn program, has already expressed concerns about the legislation, and the World Bank rejected El Salvador’s request to help with BTC implementation.

In Other News: Iranian Navy Ships Headed to Venezuela, Bangladesh Economic Growth & More – June 11, 2021

June 11, 2021

Reports indicate that two Iranian navy ships are headed to Venezuela with a transshipment of weapons in an apparent arms deal between the two countries. The U.S. government has been monitoring the movement of the ships Makran and Sahand which sailed around the Cape of Good Hope in Africa and are currently heading northwest across the Atlantic. Reportedly, the U.S. government believes the Makran is carrying fast boats in addition to a cache of weapons for sale to Venezuela. Such missile attack boats are used by Iran’s Islamic Revolutionary Guard Corps in the Persian Gulf and can be outfitted with weaponry. Iran has used these boats to provoke commercial and military boats in the past, including U.S. Navy ships in the Gulf. One of the U.S. concerns is the possibility that Venezuela would adopt a similar strategy in the Caribbean. U.S. Defense Secretary Lloyd Austin commented on the situation in Congressional testimony on June 10 about what is perceived as a provocation in the Western Hemisphere. Iranian officials have commented publicly too, saying that Tehran is not in breach of international law by trading with their ally Venezuela. The United States has sanctions on both Iran and Venezuela and has intercepted and seized transshipments of gasoline from Iranian vessels heading to Venezuela in the past year. The ships are not expected to arrive until July, and reportedly, U.S. officials will be monitoring the ships movements, including refueling at ports along the way, while also weighing options for a response. The successful transshipment of Iranian arms to Venezuela would be a significant escalation in tensions between the United States and each of these countries – potentially complicating U.S. President Biden’s negotiations for a return to the Iran Nuclear Deal.

An uptick in high-profile ransomware attacks brings the necessity of proactive cyber hygiene to the forefront. Over the past year, global cyber criminals have conducted an unprecedented number of ransomware attacks with an estimated $400 million paid out via cryptocurrency in 2020. This is attributed in-part to lax cyber security protocol in work from home arrangements and opportune targeting of industries battling Covid-19, but also due to an increase in the sophistication of the attacks themselves. The first documented ransomware attack was in 1989 but the attacks did not increase until about 15 years later when criminals started to use encryption algorithms that were tougher to crack, locking critical files in a way that could only be recovered with a private decryption key held by the attackers and sold for a ransom. Further, some attackers became more strategic, targeting industries like hospitals that depend on immediate access to their files and are more likely to pay. Cyber criminals now use more clever methods of infiltration such as spear-phishing – where an email is tailored or socially engineered for a particular recipient, increasing the likelihood of a click. The evolution of ransomware combined with society’s growing dependence on files and systems access has led to much higher profit margins for the attackers. If companies pay the ransom, most criminals unlock the files and move on to the next victim. Ransomware itself has helped spur numerous business ventures: sophisticated attackers make and sell ransomware toolkits for less tech-savvy criminals, blockchain analytics firms try to trace and recover the cryptocurrency payments, and ransomware negotiators try to lower the price of file recovery. Experts are debating if paying ransom should be illegal, but ransoms are often paid in secret and can be of an urgent nature, like the recent ransom payment by Colonial Pipeline. Regulation of the cryptocurrency industry is also actively evolving, and authorities are getting more aggressive about tracing cryptocurrency, as the recent recovery of Bitcoin from the Colonial Pipeline attack demonstrates. Perhaps most importantly though, cyber hygiene is key and can prevent cyber criminals from getting into computing systems in the first place.

Mexico’s ruling MORENA political party has lost its supermajority in Congress in the midterm elections, while Peru’s presidential runoff race remains too close to call but with socialist candidate Pedro Castillo taking a slight lead. Mexican President Andrés Manuel López Obrador’s MORENA and affiliated parties lost its qualified majority in the lower house of Congress in the June 6 elections, which were considered the largest elections in Mexican history. Preliminary results indicate that MORENA captured about 35% of the vote and lost at least 50 seats. Official results are expected next week, but it is likely that Mexico’s ruling party will have to negotiate with other smaller parties to move legislation through Congress. At the state level, MORENA took 11 of the 15 governorships. However, candidates from a new political party called Movimiento Ciudadano won the governorships in the states of Jalisco and Nuevo León. The Mexican election season saw escalated levels of political violence, but so far, candidates, parties, and the president are accepting the results. In Peru, the presidential runoff race held on Sunday, June 6 remains contested, with the right-wing candidate Keiko Fujimori, the daughter of former Peruvian President Alberto Fujimori, alleging fraud. The left-leaning, socialist candidate Pedro Castillo, a former school teacher, appears to have a slight lead with 50.2% of the vote to Fujimori’s 49.8%. Approximately 90% of the votes have been counted, and election observers have not indicated any evidence of fraud. While still too close to call, Castillo from the Peru Libre political party is closing in on the presidency. His ascendency to office reflects a growing resentment of political and economic elites in the country as Peruvians seek a new path coming out of the pandemic. It will likely mark a new chapter for Peru and a possible abandonment of market-friendly economic policies as well as a shift in the political landscape of the region.

Bangladesh’s economic prowess draws increased international attention, but internal policies remain key. Bangladesh has been making a slow and consistent economic rise, and in the 2020-21 fiscal year, reported higher GDP per capita than India. The success is largely attributed to the nation’s deliberate plan to develop and promote its garment industry, with a focus on apparel, which now employs over 4.5 million citizens and serves as a global leader in production. Second to garments, Bangladesh relies heavily on remittances, income that surprised many and continued to come in strongly over the past year despite the pandemic. Bangladesh now finds itself under close view of regional players who are trying to both learn from the success story and determine what the nation’s rise could mean for them. Just last week, Bangladesh helped Sri Lanka via a $200 billion currency swap, marking the first time that Sri Lanka borrowed from a South Asian Association for Regional Cooperation (SAARC) member other than India. International media reporting suggests that Qatar has rerouted a $5 billion investment originally destined to Pakistan for Bangladesh, and Malaysia and Japan are expected to up their ongoing investments as well. China’s also taking note, recently threatening longstanding bilateral relations would be damaged if Bangladesh cozies up with members of the Quadrilateral Security Dialogue (Quad), an informal strategic alliance involving the United States, Japan, India, and Australia. The success of Bangladesh’s garment industry is in part attributable to the integration of women in the labor force where they reportedly participate at 36% compared to India’s 20%, in addition to other social and human development indicators which are also higher. However, the nation faces potential destabilizers like political corruption, violent Islamist extremism, the impacts of climate change, and the difficult situation of the Rohingya refugees – all of which Bangladesh will have to navigate as it continues to grow economically.

In Other News: Mexican Midterm Elections, New Zealand-Australia Joint Declaration & More – June 4, 2021

June 4, 2021

As Mexicans go to the polls on June 6, Mexico’s President Andrés Manuel López Obrador is counting on his high approval rating to hold on to a supermajority in Congress. López Obrador is not on the ballot, but the outcome of these high-stakes midterm races will have a huge impact on the direction Mexico takes in the second half of his six-year term. His National Regeneration Movement (MORENA) political party is expected to capture many of the 15 governorships as well as a large swath of the seats in Congress and state legislatures. The opposition coalition is comprised of Mexico’s three traditional political parties, the PRI, PAN, and PRD, which will compete in these races as Forward for Mexico (Va por México). The PRI once held near total control of Mexican politics and still holds on to many governorships. Polling data indicates that López Obrador’s MORENA and allied parities are likely to do well, but it is unclear if they will hold on to the supermajority in Congress which López Obrador needs to push through his “Fourth Transformation” agenda. This agenda includes constitutional changes for economic reforms that would undo many of the market-friendly reforms made during previous administrations. In addition to his desire for more state control over the economy, López Obrador is also looking to consolidate power in the presidency and redistribute wealth to the poor. His populist style and confrontations with the private sector have made him a champion of the working class and helped garner him a high 63% approval rating in Mexico. But critics say he panders to the poor in an obvious power grab, while weakening the checks and balances on the presidency and undermining Mexico’s democratic institutions. Opposition candidates and the business community also criticize López Obrador for his handling of the economy, the pandemic, and violent crime. Indeed, Mexico’s economy shrank 8.5% in 2020, the country has lost approximately 228,000 lives to Covid-19, and this midterm election cycle is considered the deadliest on record with about 80 politicians killed since September. In most cases, the political violence has been perpetrated by organized crime groups and drug cartels that seek to maintain their influence with incumbents by threatening and/or killing opposition candidates. Polling data by the newspaper El Financiero found that 44% of Mexicans see insecurity as their top concern. These pressing domestic concerns for Mexico coming out of the pandemic make the midterm elections especially significant – and a clear referendum on López Obrador’s administration and the direction in which he wants to take Mexico.

In a show of unity, New Zealand and Australia make a joint declaration noting concerns about human rights abuses in China and affirm their support for an inquiry into the origins of Covid-19. On Monday, New Zealand’s Prime Minister Jacinda Ardern hosted Australian Prime Minister Scott Morrison in a face-to-face meeting resulting in a joint declaration that included concerns about Chinese actions in the South China Sea, Hong Kong, and the Uighur region of Xinjiang. The declaration comes amidst an ongoing trade war between Australia and China that ignited last spring when Australia called for an inquiry into the origins of Covid-19 and China retaliated by imposing trade barriers on a variety of Australian products. Relations became further heated last November when China shared a list of 14 grievances criticizing Australia’s prior decision to ban Huawei from rolling out the 5G network and its outspoken protest of purported Chinese human rights abuses. The conflict, which has seemingly become personal, serves as an evolving case study into what can happen when a smaller nation articulates its view against Chinese policies and China responds by weaponizing its economic influence. Last May, the Chinese levied an 80.5% tariff against Australian barley, claiming that farmers were dumping the grain in China, but widely believed to be a retaliatory measure for Australia’s support of the Covid inquiry. Australians filed a dispute at the World Trade Organization (WTO), which is still ongoing. New Zealand, whose economy is also quite dependent on exports to China, has been less overt in its stance against Beijing, likely witnessing the Australia fallout and attempting to diversify its own customer base as a defensive measure. But New Zealand has reportedly been under pressure to take a stronger stance against China’s human rights abuses, and its recent solidarity statement with Australia sends a message about its position. Already the global market has shifted as Australia and China developed new trading partners over the past year, but it remains to be seen if New Zealand, who has cultivated its own, quieter diplomatic approach with Beijing, will now suffer a similar fate as its neighbor.

WhatsApp and Twitter remain in dispute with the Indian government over implementing new national regulations on encryption and content. The intersection of tech and nation continues to challenge policymakers as the dispute continues. In February, the Modi administration issued a new set of social media regulations, set to take effect in late May, requiring that media and streaming companies appoint compliance officers and respond to takedown requests of unlawful content within 24 hours, among other requirements. The most controversial new rule touches upon an issue that has been debated by law enforcement and tech companies since the advent of popular encrypted apps: traceability. India’s latest regulations require social communications platforms to trace the “first originator” of messages if requested by authorities, defying the end-to-end encryption that users depend on for safety when communicating in regimes unfriendly to political dissent. The tech companies generally make two arguments about traceability: it violates privacy rights, and it also gives their platform a “backdoor” that anyone – not only law enforcement – can use to enter. The government, on the other hand, argues that it needs to be able to identify criminal actors or the initiator of disinformation as a matter of national security. Last week, as the new regulations were taking effect, WhatsApp filed a lawsuit in Delhi High Court alleging that the rules violate Indian users’ privacy rights and could additionally be used for mass surveillance and censorship. WhatsApp is not alone in its concerns about censorship in India. Twitter has had multiple spats with the Modi administration regarding who gets to control the narrative by removing or categorizing certain postings. India is a massive social media market for Twitter and Facebook, and WhatsApp counts its 400 million plus Indian users as its largest group. The traceability ruling is going to be significant not only for social media companies and their Indian clientele, but also to other governments as they shape their own future policy on secure messaging apps and expressive platforms.

In Other News: China Limits Cryptocurrencies, Anxiety Over Tokyo Olympics & More – May 28, 2021

May 28, 2021

China’s move to limit cryptocurrencies other than its own digital Yuan is a repressive move advertised as a protective measure. Last week, the Chinese Communist Party (CCP) State Council ordered a halt to cryptocurrency trading and mining within its borders, claiming that the ban would better protect its citizens from fraud and lower financial risks and speculative trading. In response to the new policy, the value of Bitcoin and Ethereum – ecosystems heavily dependent on mining activity in China – tumbled and the coins posted their largest one-day loss since the onset of the pandemic last year. But the notion that China designed its policy to reduce criminal activity in the crypto world does not add up. Illicit activity has been shown to only represent a small percentage of all Bitcoin and Ethereum transactions, and law enforcement can have visibility into a number of those transactions via financial regulations, investigative software, and legal process. Further, if the policy is designed to thwart criminal activity, regulations could have targeted privacy coins like Monero which are increasingly used for illicit transactions. With the advent of its own digital Yuan, only the Chinese government will be able to see how its citizens are earning and moving money, and they will be able to track all of it in real time. It has also been suggested that the coins might have expiration dates, allowing the government to provoke national spending during times of economic need. China’s move comes as the latest in a broader effort by the government to surveil and limit the activities of its citizens. It is also possible that China could use its omnipotent control over the coin as leverage against dealings with foreign businesses, preventing the outflow of digital Yuan to companies who protest China’s human rights, environmental, or labor abuses, as the nation is increasingly aggressive against companies who protest against its internal policies.

Anxiety over the Tokyo Olympics is growing, as a major Japanese newspaper and members of the Japanese business community call for the games to be canceled. The Tokyo Olympic games were canceled in 2020 due to the pandemic and rescheduled for July 23 to August 8, 2021, but the timing is now of concern given that the Japanese capital and other parts of the country remain under a state of emergency due to Covid-19. This week, a major newspaper in Japan, the Asahi Shimbun, called for the games to be canceled. The editorial board wrote, “We cannot think it’s rational to host the Olympics in the city this summer.” The business community is also voicing concern. For example, the CEO of SoftBank Group Corp., Masayoshi Son, warned that visitors could bring variants of the virus and a new surge of infections to Japan. In Son’s view, canceling the Olympics would bring financial losses, but going forward would be more dangerous and could lead to additional loss of life, lockdowns, and further economic damage to the country. So far, the International Olympic Committee (IOC) has said that the games will go forward and that 80% of athletes and officials will be vaccinated by then. They also point to strict protocols and restrictions on movement to ensure that the games are safe. However, according to Asahi polling data, more than 80% of the Japanese population would like the Olympics to be canceled. Meanwhile, the U.S. Department of State and Centers for Disease Control and Prevention (CDC) this week warned Americans against traveling to Japan for the summer Olympic games due to concerns for Covid-19 infections and the country’s slow vaccination rate. At this point, it seems unlikely that the games will be canceled. Canceling the games would be a major blow to Japanese Prime Minister Yoshihide Suga and IOC President Thomas Bach, who both insist that the games must go on. But the growing anxiety around the Tokyo Olympics in Japan is evidence that the global concern for Covid-19 remains high and global economic recovery will continue to be hampered by low vaccination rates and the emergence of new, more deadly variants around the world.

Mercenary issue looms large in the backdrop of a recent U.S. visit to Libya, while support by multiple state actors remains necessary for economic security. In mid-May, Acting U.S. Assistant Secretary for Near Eastern Affairs Joey Hood and Special Envoy for Libya Richard Norland visited Libya in what was reportedly the highest level diplomatic visit to Tripoli since 2014. Libya has been in a volatile position of repeated civil wars ever since longtime leader Muammar Gaddafi was captured and executed in 2011. The most recent conflict began in 2019 when East-based Libyan commander Khalifa Haftar attempted to capture Tripoli and take control over Libya’s Government of National Accord (GNA), then the leading party recognized by the United Nations. Haftar, who was supported by the UAE, Saudi Arabia, Russia, and Egypt, was ultimately taken down in late 2020 when Turkey increased its support of the GNA. Turkey supplied advanced military hardware and deployed thousands of Syrian mercenaries and additional troops. Since then, a fragile ceasefire has held, but the situation remains complicated by the number of mercenaries still on the ground. In December 2020, the UN estimated that there were at least 20,000 foreign fighters and mercenaries in Libya, including Syrians, Russians, Sudanese and Chadians. In March, the majority of opposing state actors formally recognized Libya’s newly unified interim government but they have not done much to move the mercenaries. On May 21, UN special envoy for Libya Jan Kubis warned that the continued presence of mercenaries is a threat to the entire region, adding that last month’s killing of longtime Chadian President Idriss Deby is a reminder of the link between the security situation in Libya and security and stability in the region. Getting the Russian mercenaries out of Libya will be particularly difficult, while Turkey’s ground presence is viewed with more nuance by Libya’s Government of National Unity (GNU). Relations between Turkey and Russia will no doubt impact the degree of security that the government is able to achieve moving forward and presents a diplomatic opportunity for the Biden administration in the months leading up to Libya’s December elections.

An air base under construction on Mayun/Perim Island in the Bab el-Mandeb Strait off the coast of Yemen demonstrates the island’s continued appeal, and is likely part of a larger strategic effort to counter threats from Iran-backed Houthi movement. A May 25 AP report of the recent construction of a “mysterious” air base on Mayun Island, broadly believed to be the work of the UAE, was met with a flurry of responses from Yemeni and Saudi government officials. While Emirati officials in Washington and Abu Dhabi have not taken responsibility, U.S. Senator Chris Murphy called the base “a reminder that the UAE is not actually out of Yemen.” The Saudi state news agency SPA made a statement claiming that all equipment on Mayun Island was under control of the Saudi-led Coalition Command and dismissed the notion of UAE involvement. Mayun Island, which sits at the entrance to the Red Sea in the strategic Bab el-Mandeb Strait, has a storied history of occupation and over the years multiple nations have sought control of the land for geostrategic purposes. But historic attempts to use the location have been fraught with obstacles, as the Island has no sources of fresh water, is brutally hot and dry, and the land mass itself is quite small. The UAE took control of the Island in 2015 after Gulf Arab forces swept in and successfully expelled the Houthi fighters, and the following year the Emiratis proceeded to start construction of a runway. However, the project stalled and three years later, the UAE left the Saudi-led coalition and withdrew its troops. If the UAE is behind the recent construction, it seems part of a broader Emirati strategy to amass maritime control. Last June, UAE-backed Yemeni separatists took control of Socotra, another geostrategic Island in the Gulf of Aden. The Iranian press has recently reported that the UAE brought Israeli tourists to Socotra and is possibly collaborating with the Israelis to establish intelligence bases throughout the Gulf. The Saudis have denied UAE presence or involvement strategic endeavors on Socotra.