THE KREMLIN PLAYBOOK IN EUROPE The Kremlin Playbook in Europe analyzes the tools and methods used by Russia to exercise its influence on the con- tinent. In particular, it shows how the Kremlin enjoys considerable surrogate power in some countries because of the oligarchization of their governance systems. It also highlights the effect of blinkered national policies which grant Russian capital access to European financial hubs. The report argues for a common transatlantic approach in the face of these threats. The report expands the map of Russia’s footprint built by previous Kremlin Playbooks, which examined Russia’s attempts to capture political and economic decision-making in sixteen European countries, by analyzing Greece and Cyprus. Their strategic location in the southeast of Europe and the eastern Mediterranean, common religious traditions, and historic ties make them an object of influence operations by the Kremlin. Editorial Board: Dr. Ognian Shentov Ruslan Stefanov Martin Vladimirov ISBN: 978-954-477-394-6 © 2020, Center for the Study of Democracy All rights reserved. 5 Alexander Zhendov Str., Sofia 1113 tel.: (+359 2) 971 3000 fax: (+359 2) 971 2233 www.csd.bg, [email protected] ACKNOWLedGEMenTS he comprehensive systematization of the economic data and key policy findings from CSD’s research on Russian influence was the product of the interdisciplinary expertise of CSD’s programs and the meticulous work of Boyko Todorov from the Southeast Europe TLeadership for Development and Integrity (SELDI). The policy analysis in the report has greatly benefitted from the in-depth discussions with Dr. Michael Carpenter, Senior Director of the Penn Biden Center for Diplomacy and Global Engagement, and his participation in the round table on countering state capture risks and Russian influence in Europe held in Sofia in November 2019. The policy framework to counter malign Russian influence in Europe has been deliberated with Damian Murphy, Senior Professional Staff Member on the US Senate’s Foreign Relations Committee and Daniel Silverberg, National Security Advisor to the House Majority Leader at the US House of Representatives. Meetings at the US State Department with Matthew Boyse, Deputy Assistant Secretary, Bureau of European and Eurasian Affairs, Matthew Palmer, Deputy Assistant Secretary, Bureau of European and Eurasian Affairs, Jorgan Andrews, Deputy Assistant Secretary, Bureau of International Narcotics and Law Enforcement Affairs, Brad Freden, Director of the Office of Eastern European Affairs at the Bureau of European and Eurasian Affairs, James Kulikowski, Coordinator for US Assistance to Europe and Eurasia, and Eugene Fishel, Chief of the Foreign Policy and Western Republics Division at the Bureau of Intelligence and Research, helped broaden our grasp of US policy vis-à-vis revanchist Russia. Ambassador Robert Gelbard, former Assistant Secretary of State and Special Envoy to the Balkans, the US Ambassador to Greece Geoffrey Pyatt and the former US Ambassadors to Bulgaria Eric Rubin and Marcie Ries provided important ideas early on during the drafting of this publication. CSD would also like to thank Col. Michael Jackson, Military Fellow at the Council on Foreign Relations, formerly with the US European Command, for his commitment to support CSD’s effort in its critical stages. CSD has continued working closely with the National Endowment for Democracy (NED) and the Center for International Private Enterprise (CIPE) to refine key concepts related to the better understanding of foreign malign influence such as corrosive capital, sharp power and state capture. CSD is especially grateful for the ongoing cooperation on this issue to Ivana Cvetkovic Bajrovic, Associate Director for Europe, Christopher Walker, Vice President for Studies and Analysis, Melissa Aten, Senior Program Officer, and Shanthi Kalathil, Senior Director of NED’s International Forum for Democratic Studies, as well as Andrew Wilson, Managing Director, Martina Hrvolova, Program Officer for Eastern Europe, and Eric Hontz, Program Officer, Eurasia at CIPE. CSD appreciates the insightful discussions with Max Bergmann, Senior Fellow and James Lamond, Fellow at the Center for American Progress. In Europe, CSD has cooperated closely with the Directorate-General for Neighbourhood and Enlargement Negotiations of the European Commission on amplifying the policy impact and firmly anchoring the state capture con- cept in the development of policy responses to foreign malign influence. The report’s policy consistency has thus gained by the discussions and exchange of opinions on the methodology of state capture measurement held in June 2019 in Brussels with the participation of Sabine Zwaenepoel, Team Leader of the Centre of Thematic Expertise at DG NEAR, Bart Scheffers, Program Officer at the Open Society Initiative for Europe, Dr. Lorenzo Segato, Head of Research at RE-ACT, Italy, Valentina Dimulescu, Public Policy Researcher at the Romanian Academic Society, and Dr. Alexander Gerganov, Senior Ana- lyst at CSD’s Economic Program and Assistant Professor at the Social Survey Research Center at the Bulgarian Academy of Sciences. During its work on Тhe Kremlin Playbook in Europe, CSD obtained strategic in- sights from the European Center of Excellence for Countering Hybrid Threats (Hybrid CoE), the Swedish Defense Research Agency, the Wilfried Martens Centre for European Studies, and the East StratCom Task Force of the Euro- pean External Action Service. CSD benefited from high-level discussions at: the NATO Headquarters in Brussels hosted by Radoslava Stefanova, Head of Russia and Ukraine Relations Section, Political Affairs and Security Policy Division; the German Federal Ministry of Foreign Affairs, hosted by Sabine Stöhr, Head of Division for the Western Balkans; the Central European Net- work of the UK Foreign Office hosted by Elizabeth Webb, Russia Policy Lead; and the Analysis, Strategy and Forecasting Centre of the French Ministry of Foreign Affairs, organized by Madeleine Courant and Olivier Tulliez. CSD held workshops and meetings in Nicosia, Limasol and Athens, which helped elucidate the analysis of Russian influence in Cyprus and Greece, re- ceiving numerous contributions from experts, journalists and researchers. Thanassis Koukakis, Financial Editor at CNN Greece contributed to the coun- try analysis with his in-depth investigative work. The comprehensive corporate data mining, analysis and tracking of economic indicators would not have been possible without the involvement of the CSD Economic Program team, including Dr. Todor Galev, Daniela Mineva, Christophe Rolland, Petar Terziev, Dr. Rumena Filipova and Liliya Lyutakova. Tihomir Bezlov, Senior Analyst at CSD’s Security Program and Dr. Alexander Stoyanov, Director of Research at CSD, provided invaluable insights on measuring methodology and the ways state capture mechanisms are used by Russia. The media dimension of the analysis has been greatly strengthened by the innovative analytical viewpoint of Dr. Todor Yalamov, Lecturer and Vice Dean for Research, Innovation, and Projects at the Faculty of Economics and Business Administration of Sofia University. CSD would also like to thank its dedicated team of interns including Iliana Georgieva and Susana Correia, who assisted in preparing background analyses, referencing, and involvement in the relevant policy workshops, as well as Clara Ng for her scrupulous proofreading of the manuscript. CONTenTS Russia in the global power competition: The Playbook is here to stay ..............................................9 The Kremlin’S state capture power ............................. 11 Judo economics: the conduits of Russian influence IN the European economy .................................................. 17 Capture-proofing Europe ...................................................33 The fraying of EU’S outer rim ..........................................39 Greece: Not your orthodox brother ..................... 41 Cyprus: Engulfing the offshore ............................... 67 LisT OF FIGURes Figure 1. The process of the Kremlin’s influence on foreign governments .....................................................................13 Figure 2. The power mix used by the Kremlin ...............................................14 Figure 3. How the Kremlin’s state capture power targets governance vulnerabilities in CEE and the Western Balkans ...................................................................15 Figure 4 Total Russian FDI stocks in Europe, EUR million .........................19 Figure 5. Number of Russian citizens with EU residence .............................21 Figure 6. Transfer pricing scheme through trading shell companies .........23 Figure 7. Corporate footprint (% share of the Russian companies’ revenues out of the total revenues in the economy) ......................24 Figure 8. European banks with large exposure to Russia in 2017 ...............26 Figure 9. Bank exposure to Russia in selected countries (USD million – Q1/2014 versus Q4/2019) .........................................27 Figure 10. Exports of goods to Russia as % share of GDP ..............................28 Figure 11. The effects of Gazprom’s leveraging strategy ................................31 Figure 12. Mineral fuels trade between Greece and Russia ...........................44 Figure 13. Revenues from Russian tourists in Greece .....................................45 Figure 14. Russian inward FDI stocks in Greece ..............................................46