Novaya Gazeta, by Bruce Misamore, former Chief Financial Officer and Vice-President of Yukos.

This week, bankers, analysts, and investors will turn their attention to St Petersburg in an attempt to predict the outcomes of the G20 summit held in Russia. Given the level of corruption, the absence of rule of law or an independent judiciary in Russia, the question should be whether Russia belongs in the G20 at all and, all the more so, whether such an event should take place in Russia. Clearly, Russia should not be a G8 member because the reason for her inclusion more than a decade ago was to promote the reforms in Russian society Boris Yeltsin had initiated and Vladimir Putin has since largely reversed.

In recent months, quite grim projections regarding Russia’s economic health have emerged. According to Transparency International, Russia is the most corrupt G20 member, and Moody’s International Rating Agency has lowered the country’s credit rating recently. Not mincing its words, Moody’s declared clearly in their July statement that Russia’s rating “reflects poor governance, rule of law and transparency.”

The statement Ram Capital made in Geneva was just as categorical: “Foreign investors compare the political situation in Russia with a black box which is a major risk to the country’s future.” The words were echoed in Denmark where Global Evolution AS (a company managing developing markets’ $1bn worth of debt) stated: “…of course, we do not approve of Putin’s conduct with regard to his political opponents, and in the medium- and long-term the line won’t do much to attract foreign direct investment or reverse the capital flight.”

Of course, the Russian Government has itself acknowledged the problem of capital flight which mothers, fathers, students, entrepreneurs and pensioners across Russia are concerned about.  Andrei Klepach, Deputy Minister of Economic Development of the Russian Federation, stated earlier this summer that his team had revised upwards the 2013 capital flight projection by a colossal $50 billion. The figure is similar to the $56.8bn which fled last year and which does not bode well for the last four months of the year.

But even more terrible than the flight of capital is the cause of it, as shown in declining growth.  Russia has lowered its growth projections twice already in recent months due to poor performance during the first half of the year, and its predictions still appear optimistic, probably because the Ministry does not want to vex Putin and Medvedev too much.

Russians who understand the current situation have a right to be afraid for their future. The issue as to how many are not well-informed remains moot. Government-controlled media often distort facts. In an article written for the Russian business daily Vedomosti published jointly with The Wall Street Journal and The Financial Times, Sergei Aleksashenko, Director of Macroeconomic Studies at Moscow’s Higher School of Economics, explains that Russian ministers are afraid to report to President Vladimir Putin the real causes of slow GDP growth in the country. Experts presume ministers are only too well-aware of the true reasons for the slowdown in Russia’s economy – private investment reduced due to a drastic decline in the confidence of Russian businessmen, in the judiciary and in the government of the Russian Federation. Russians do not want to invest in their own country, let alone foreigners.

A decade ago investors in Russia viewed a completely different financial climate. There was a sizable increase in domestic investment. Russian companies such as NK Yukos started meeting high corporate governance, financial reporting, and investor relations standards that were akin to those in other developed countries across the world. Pension funds, international banks and investment companies sought to invest funds in the country which promised high growth rates, a reasonably stable regime and with a more advanced approach to international commercial and political partnership and free trade. Giving Russia the benefit of the doubt following the demise of the Soviet Union not that long before, they were willing to make their investment and take into account risk factors related to corruption and the lack of rule of law and an independent judiciary, not yet realizing the challenges these problems would bring.

And now, a decade on, no matter what Vladimir Putin promises in the long halls of the Konstantinovsky Palace at the G20 summit, few will believe his assurances and, for sure, no one will change their views. Why would they? The time bomb called present-day Russia is made of deception, greed, corruption, conspiracy, and envy and was introduced to the entire world in early 2003 when the Kremlin initiated the expropriation of  the Yukos Oil Company. Vladimir Putin and the Russian government have constantly deceived Russia’s general public regarding the Yukos case, and the claim by Putin’s government that Russia wants to attract foreign investment will be disregarded until the government has dealt with the high level of corruption, the total non-existence of an independent judiciary, and the absolute absence of the rule of law – everything which contributed to the annihilation of Yukos, the plundering of its assets, and the loss of billions of dollars worth of savings and pensions of thousands of Russian teachers, nurses, doctors, mothers, fathers, and grandchildren, not to mention thousands of foreign investors.

As a former Director of the US-Russia Business Council engaged in facilitating US-Russia trade and as the Chief Financial Officer who helped the Yukos Oil Company to become a living embodiment of corporate governance, good practice, every possible transparency measure and a world-class enterprise attractive as an investment to domestic and foreign banks, pension funds, and trading houses, I believe that Mr Putin and the government of Russia should fight corruption harder, delimit clearly the judiciary and the executive, and enhance the standing of judges and the rule of law. They should stop caring only about their own interests and make sure that the country is run people who are truly concerned with the national interests and not just their personal bank account, their overseas property or their art collections.

In my view,  the former US Senator Jon Kyl, wrote a solid report, this summer, in which he proposed a course of action which had the best potential to shake up the G20 summit. He said:  “Improving the climate for foreign investment and combatting corruption are central parts of the agenda. U.S. and European leaders should insist that Russia take concrete steps to improve the rule of law and environment for business in Russia. A necessary first step would be to compensate fully U.S. and European investors who lost billions in the Yukos takeover. Compensating investors in Yukos would send the message that Putin is serious about encouraging foreign investment in Russia and willing to make the reforms necessary to make it happen.”

In the decade since the Yukos expropriation began, Vladimir Putin and the Russian Government have persistently ignored, to their cost, the rest of the world and the Russian economy. The time may have come for the G20 and G8 countries to admit Russia does not belong amongst them until the situation changes.