MMM 2011 office at Rechnoy Vokzal subway station, Moscow. (RIA Novosti)

The Russian government is considering a set of amendments to the Criminal Code that establish preventive measures against Ponzi schemes, including jail terms for active participants.

The amendments have been drafted by the Finance Ministry and were submitted to the government at the end of last week, Business daily Kommersant reported, claiming its journalists received the full text of the draft.

The document suggests that the Criminal Code is amended with a separate article called “Illegal activity to obtain monetary funds”. Under this article organizers of Ponzi schemes and their active participants (those who attracted over 1.5 million roubles ($46,000)) could face up to seven years in prison. Other participants in the scam and people who promote it could be fined up to 15,000 roubles ($460).

The bill defines a Ponzi scheme (that are called “financial pyramids” in Russian) as “activities to attract monetary funds or other assets from physical persons with repayment of income from earlier attracted funds in cases when organizers are not engaged in investment or any other legal business”.  It also reads that such activity poses a great threat to social stability in the country.

So far, only Russia’s major law enforcement agency – the Investigative Committee – has voiced an objection to the bill saying that it contradicts the current Civil Code that reads that there can be no restrictions for attracting citizens’ means in the form of loans.

Usually Ponzi scheme organizers are charged with fraud, but this could only happen after the scheme crashes and the cheated investors can act as an aggrieved party in court. The new bill allows for preventive measures.

According to law enforcers over 400,000 Russians have been duped by Ponzi schemes since 2008 and the combined losses amount to over 40 billion roubles ($1.25 billion) . The situation was even more dire in the 1990s – back then just one swindler Sergey Mavrodi  managed to defraud 1.5 million people. Mavrodi was put on trial and after a period on the run was put in prison and served a four-and-a-half year term.

He attempted to get back into Ponzi schemes in 2011 and 2012 and this prompted Russian authorities to order a special law preventing such activities.

Currently Mavrodi is again on trial over large-scale fraud, and faces up to 10 years in prison and a fine of up to 1 million roubles (over $31,000).

The Nicaraguan government has an enthusiastic new investor for a project that rivals the Panama Canal and has the potential to completely change transoceanic trade.

Wang Jing, the chairman and owner of Hong Kong-based HNKD, a privately held infrastructure group, said his company has concrete plans for the ambitious project, which, in theory will break ground in 2014 and should be open for business by 2020.

Earlier this month, Nicaragua’s government granted a 50-year concession to Wang’s company for rights to build the canal.

"We don't want it to become an international joke, and we don't want it to turn into an example of Chinese investment failures," Wang said at a news conference Tuesday in Beijing, AP reports.

The Chinese government would have no involvement in the project, as China and Nicaragua at present have no diplomatic relations.

Wang said consultants on the project are US-based McKinsey & Co. and China Railway Construction Corp., China’s largest state-owned construction company.

The Nicaraguan government estimates the project will cost $40 billion, but Wang is confident the return on the investment will be high and enough to ‘make every investor smile broadly’ he said at a news conference on Tuesday in Beijing, AP reports.

The proposed 286-kilometer (178-mile) canal route to be built through Nicaragua. (Reuters)

 The 286 kilometer (178 mile) canal will cut through both land and sea, high and low elevations, and Jing concedes there are ‘a lot of conditions to be met’. There are five different routes being considered, and some variants include a ‘dry-canal’ element, transportation of goods on land between the two waterways.

The Panama Canal, considered one of the 20th century’s greatest engineering feats, is only 77 km in length.

HKND additionally received approval to build a railroad, two ports, an airport and an oil pipeline.

The source of Wang’s wealth is unclear, other than he invested in telecommunications and mining industries. On his company’s website, it says he is the chairman of more than 20 enterprises in 35 countries over the world, including Xinwei Telecom Enterprise Group in China, which is also a mobile phone service provider in Nicaragua.

Some Nicaraguan lawmakers and residents have expressed concern over Wang’s business background, as well as the company, which is only newly formed.

Beating the competition

Businessmen and entrepreneurs have been after this lofty investment for over a century, and the canal would compete with Panama’s almost century-old shipping passage.

Wang’s HNKD group estimates there are 1,150 million tons of global seaborne trade each year.

“World trade has been so developed today that it needs a new canal,” Wang said. “The Panama Canal is not big enough for the trade conducted currently between East and West.”

The canal will offer another passageway to link the Atlantic and Pacific, providing another route to China and the East Coast of the US.

The idea of a canal in Nicaragua via Lake Nicaragua is a century old, and dates back to colonialism. Spain first suggested the idea, and later American businessman Cornelius Vanderbilt successfully operated a trade route between the two oceans, until civil war broke out.

The route reduced the trade route between New York and San Francisco by nearly 800 kilometers.

In 2010, Nicaragua signed a contract with two Korean developers, Dongmyeong Engineering & Architecture Consultants (DMEC) and Ox Investment to construct a deep-water port on the Atlantic coast to improve capacity.

In 2009, Russian President Dmitry Medvedev expressed Russian interest in the canal project, but never pursued it further.

The new credit agency, the Universal Credit Rating Group, has been set up a rival the existing agencies Moody's, S&P and Fitch. It will based in Hong Kong, and provide a check on the big three, whom some analysts say have contributed to the 2008 crisis.

Dagon, RusRating and America's Egan-Jones Ratings will have equal shares in the venture, with an initial investment of $9 million.

The newcomer to the market is intended to provide some balance to the so-called Big Three which have strongly dominated the industry. Though rating agencies are a part and parcel of the global financial system, they were little known before the crisis. After the global turmoil broke out in 2008 Moody's, S&P and Fitch were strongly criticized for over-estimating complex mortgage-backed investments and thus persuading investment in “bad assets” by those who initially didn’t want to take up the risk. It became one of the key triggers to the current economic crisis.

Ratings by the three global agencies have been used as guidelines for investors in their decision making, as they indicate to buyers of debt the probability of the debt being paid back. Universal is to operate under a "dual-rating" system, which means other local agencies would also be involved and issue their own ratings. This will enable investors to "see there is a difference of view and then the investors can make their own mind up," CNN quotes Universal CEO Richard Hainsworth, who is also president of RusRating.

Experts say the move is definitely in the right direction, but it’ll take Universal time to win credibility.

“Anything to introduce greater competition … will encourage everybody to have better discipline. But I think it will take time for this new rating agency to establish itself,” Avonechith Siackhachanh, senior advisor in the Asian Development Bank's Office of Regional Economic Integration, told CNN.

Just a day before the deal Moody’s downgraded the Hong Kong banking sector outlook to negative, referring to negative interest rates and the chances of a Hong Kong property bubble.