XIII. Manasir is a Jordanian-born businessman who heads Stroygazkonsalting, one of the main contractors of Gazprom. Forbes put his wealth at $2.5 billion as of March 2013, making him number 41 among the wealthiest people in Russia.116
XIV. This was not the first time Manasir was involved in building palaces. Forbes Russia revealed that in 2004 he built a 3,200-square-meter eighteenth-century-style palace on the outskirts of Moscow at the request of Gazprom for use in official and semiofficial events, but after the 2008 crisis it was abandoned and Manasir was left holding the property.118
XV. PPMD chief Kozhin ultimately admitted the Kremlin’s involvement when he said in an interview that his office was contracted by Lirus to carry out the contract for the construction of the palace.121
XVI. One of the projects that Gorelov, Shamalov, Kolesnikov, and Rosinvest were involved in was the establishment of LLC RosModulStroy, founded in December 2006 to participate in the construction of fourteen regional centers for cardiovascular surgery. These centers were to be made of modules produced by the German company Cadolto, imported to Russia, and then assembled there at a plant in Cherepovets in a 1-billion-ruble plant. While reports suggested that a huge amount of money, in this case from federal and regional budgets, was spent, there were no reports of centers opening. After Kolesnikov left the country with documents about “Putin’s Palace,” RosModulStroy’s board, chaired by Shamalov, voted to transfer their assets to another company, called ZERS, and then declared RosModulStroy’s bankruptcy. Gorelov accused his opponents of creating an “artificial” debt and an unjustified initiation of bankruptcy.124 They were then charged with “fraud on a large scale” under Part 4 of Article 159 of the Criminal Code.125 If it is true, as Kolesnikov charged, that Putin himself owned 96 percent of the shares of Rosinvest, then he was able to personally benefit from the award of millions in state contracts.
XVII. The status of honorary consul is governed by the Vienna Convention on Consular Relations of 1963, which lays out a consul’s rights and responsibilities. In Russia businessmen and those around Putin have snatched up these positions because, as outlined on the website of the League of Honorary Consuls in Russia (Honoraryconsul.ru), Russian citizens who serve as honorary consuls are promised great benefits far in excess of the norm: “Consular officers are not subject to arrest or preventive detention. . . . [They have a] diplomatic passport and visa-free travel all over the world, . . . the right to bring three cars to the country without import duty, . . . the right to have a red diplomatic vehicle registration plate. . . . [The status] allows transfer of unlimited sums of money in cash across a border. . . . Luggage is not checked at customs.”127 The League’s cofounders were close Putin associates and Ozero members Viktor Khmarin (who became honorary consul of the Seychelles in St. Petersburg), Sergey Fursenko (Bangladesh), Yuriy Koval’chuk (Thailand), and Taimuraz Bolloev (Brazil), who was head of St. Petersburg’s Baltika brewery before taking over Olympstroy.128
XVIII. Wikileaks cables referenced not only Italy’s strong interest in promoting Russia’s energy interests but also close personal “and mutual commercial interests” between Putin and Berlusconi themselves.130
XIX. Edmund Pope was a retired naval intelligence officer who was arrested in April 2000 in Moscow on charges of trying to obtain the blueprints for the Shkval torpedo (whose explosion evidently sank the Kursk). He was sentenced to twenty years in prison, the first American to be imprisoned in Russia for espionage in forty years. He was pardoned by Putin in December as “a present for the new president,” George W. Bush, according to Vladimir Lukin, the former Russian ambassador to the United States.141
XX. Several writers have noted that Yel’tsin was completely absent from public life after his resignation. Irina Lesnevskaya, a noted television personality, said in an interview in 2007 that Yel’tsin was completely opposed not only to the introduction of the old anthem but also Putin’s moves against the press, but had kept quiet, “perhaps out of a desire not to complicate the lives of his children and grandchildren.”143 Former prime minister Kas’yanov claimed that Putin had deliberately isolated Yel’tsin from his former staff and colleagues when he went into retirement and that he had been put into a “gilded cage.” Initially he had taken an active interest in how things were going in the Kremlin and frequently invited former ministers to his dacha, Gorki-9. Then, according to Kas’yanov, at a meeting of the Security Council, Putin told them all, “ ‘Tell the members of the government not to unnecessarily bother Boris with visits. The doctors get angry, they say after these meetings he is worried, and he needs to rest, he still has a weak heart.’ It was put in the form of a polite request, but in fact it was an order: don’t go see Yel’tsin. . . . The last time I saw him was in the fall of 2006. . . . Boris advised me to constantly change my phones to avoid eavesdropping. ‘Buy a lot of cheap phones. . . . Use one, and immediately dispose of it, take another, and then the next,’ gesticulating excitedly, pretending to throw one from the car window.”144
Chapter Seven
Russia, Putin, and the Future of Kleptocratic Authoritarianism
THE STORY of this book has been the emergence of the Putin cabal that took over Russia in 2000 and its structure, interests, and capabilities. It is by no means the wider story of Russia during that period, against whose background this group emerged. Nor is it the story of the Russian state as a whole, any more than a book about Nixon’s White House can be read as an account of American politics in its entirety. Undoubtedly, however, the extensive and growing power of this group and the corruption that lies at the heart of the Russian state have had a singular effect on Russia’s socioeconomic development and on the nature of the Russian state. These issues and the phases that Putin’s kleptocracy has gone through and its impact on the wider world are the subjects of this last chapter.
Corruption, Society, and the Economy
Russian society has had years of turbulence that produced decreased birth rates and increased mortality rates, especially among Russia’s men. While Putin’s early years brought greater social stability, this has eroded since the mid-2000s, so that by 2012 the 1.7 births per Russian woman, although slightly higher than previously (thanks to numbers from non-Russian republics like Chechnya, Dagestan, and Tuva), was still 20 percent below replacement level. Birth rates are not that different from European norms, but statistics on mortality rates are striking. The lack of adequate medical care produces five times more deaths from cardiovascular disease among women in Russia than in Europe. More Russian women die annually from domestic violence than the number of soldiers the USSR lost in the entire Afghan war. For Russian men, the situation is even grimmer. Poor workplace and road safety standards, plus high rates of suicide and homicide combine with the negative health effects of high alcohol consumption to make life especially precarious for Russian men. According to the World Health Organization, the life expectancy of a fifteen-year-old male is three years lower in Russia than in Haiti.1 Added to these demographic maladies are the millions of Russians, mainly girls, that have been lost to sex trafficking. Russia’s compliance with international conventions on human trafficking declined for nine straight years, and in 2013 the U.S. State Department finally gave Russia’s compliance the lowest ranking possible, below Rwanda.2
These statistics are directly affected by corruption. When the health budget is raided and stolen, funds dry up for neonatal care, medicines to treat cancer, public health campaigns against HIV and drug-resistant tuberculosis, and improved emergency response. Russia committed to building its first eight-bed women’s shelter in St. Petersburg, but by 2013 it still had not opened.3 Despite receiving $1.6 trillion from oil and gas exports from 2000 to 2011, Russia was not able to build a single interstate highway during this time. There is still no interstate highway linking Moscow to the Far East; in contrast, China, another top-down authoritarian regime, has built 4,360 miles of modern highways annually for the last ten years—equivalent to three times around th
e circumference of the earth. The German-Russian Nord Stream (headed by Matthias Warnig, with Gerhard Schröder on the board) gas pipeline agreement signed in 2005 called for the construction of two pipelines linking Russia and Germany via deep-sea routes, bypassing troublesome states in central Europe. When the first pipeline was completed in July 2010, it was revealed that the construction cost was 2.1 million euros per kilometer on the German side and 5.8 million euros—three times higher—on the Russian side.4 More than half of the $50 billion spent on the Sochi Olympics simply disappeared into the pockets of Putin’s cronies, according to detailed analyses by multiple Russian experts.5 Forbes Russia reported that over the two years prior to Sochi, when the Rotenberg brothers (Putin’s childhood friends and judo partners) received 15 percent of all the contracts for the Olympics, the $2.5 billion increase in their personal wealth was achieved at the same time that the state announced it would cut health spending by 8.7 percent in 2013 and up to 17.8 percent by 2015.6
Russia scores high in overall education, but its economy is profoundly hamstrung by the relative lack of technological innovation. Despite the enormous reserve of talent in applied and theoretical sciences, Russia took home only 0.2 percent of the 1.3 million overseas patents awarded since 2000 by the U.S. Patent and Trademark Office, lagging behind the state of Alabama in total annual awards. Under the Patent Cooperation Treaty the number of Russian applications per university graduate was thirty-five times lower than Austria’s.7 The inability of well-trained young graduates to succeed as entrepreneurs and innovators in Russia has stimulated emigration and plans to emigrate. In 2011, during the more liberal Medvedev presidency, an online poll of 7,237 Novaya gazeta readers (what one might consider a microcosm of the country’s educated, informed, and opposition-minded elite) found that 62 percent were considering leaving the country, the vast majority being under thirty-five, city dwellers, and fluent in a foreign language—a group that should be regarded as the cream of any country’s population. Commenting on the results, the poll’s author, Dmitriy Oreshkin, stated that this wave of Russian emigration is different from others in the past in that these young people could still come back because they are alienated from the regime, not the country: “If and when Russia will begin to comply with general law, and not only the rules of the KGB corporation, and accordingly there will be opportunities for self-realization, these people will return. They hated to leave. But here, they have nowhere to go, nothing to do, and nothing to hope for. For the last ten years, Russia has become a country only for those who are either the chief or a fool. And the transition from one category to another depends not on personal ability, but exclusively on loyalty.”8 Masha Gessen reported that the 2014 Ukraine events and the tightening of the domestic political noose so impacted educated Muscovites’ sense of hopelessness that the new question was not whether or when to leave but “Which month?”9
This degradation of the socioeconomic situation was created by the political elite. When Transparency International announced in 2013 that Russia ranked 127th out of 177 countries in the level of corruption reported by respondents,10 and when the Russian think tank Indem (Information Science for Democracy Fund) estimated already in 2005 that the amount paid annually in bribes is roughly equal to the size of the Russian budget, at approximately $300 billion,11 it is fair to compare Russia with other super-corrupt countries. Looking only at one other major oil exporter, Nigeria, we see they are both near the bottom in the corruption perception index (see Table 3).
Table 3. Comparison of Russia’s and Nigeria’s Corruption and Human Development Indices
Nigeria
Russia
Corruption Perceptions Index
144/177 Very corrupt
127/177 Very Corrupt
Control of Corruption Score
– .99
–1.07 Control of corruption worse in Russia than Nigeria
Bribe Payers Index
n/a
28/28 Last place among wealthiest countries
Human Development Index (HDI)
153/185 Low
55/185 High
Note: The Corruption Perceptions Index ranks countries based on how corrupt a country’s public sector is perceived to be, based on expert and business surveys. The higher the number, the more corrupt the country is perceived to be by officials and experts in that country. The Control of Corruption score ranges from –2.5 to 2.5. Lower values correspond to worse governance outcomes. The Bribe Payers Index ranks the world’s wealthiest countries according to the likelihood that their own firms will pay bribes abroad. Nigeria was not rich enough to be part of this cohort. Russia finished last. The Human Development Index is a composite measure of indicators along three dimensions: life expectancy, educational attainment, and command over the resources needed for a decent living.
Sources: United Nations, Human Development Report (United Nations Development Programme 2013); Transparency International, Country Reports for Nigeria and Russia (Transparency International 2013).
Both countries also rank low in the control of corruption, although shockingly the UN ranks Nigeria slightly better than Russia at controlling corruption. However, Russia ranks high in the Human Development Index, while Nigeria is low. This suggests that the country’s slide into the abyss cannot be blamed on the Russian population. They have more than sufficient capabilities, as measured by the level of education and other socioeconomic indicators, to make substantial progress, but they are persistently hampered by elite predation that has dragged down economic growth, increased wealth inequality, and inhibited political freedoms.
It is a tragedy for Russia’s talented population that the actions of their leaders have stymied development to the extent that they should be compared with much less developed countries. And average Russians know this. Transparency International’s 2013 survey found that 77 percent of Russian respondents considered their government’s anticorruption policies ineffective or very ineffective; 85 percent said that their government was run by a few big entities acting in their own best interests; 92 percent responded that corruption is a major problem in the public sector; and 89 percent felt that corruption in Russia had either stayed the same or gotten worse in the prior two years.12
When Putin gained the presidency a third time, in 2012, his first actions were not to reach out to those in society who might participate in the modernization of the country. Rather he cracked down on the freedoms required to build a civil society and an economy based on performance, not connections. The nonprofit sector was hit hard, with new laws requiring them to register as “foreign agents”; ordinary middle-class demonstrators with no previous record were imprisoned after the May 2012 Bolotnaya protests against electoral fraud; and new restrictions on the Internet threatened to completely eliminate the press freedoms that had largely already been driven from mainstream newspapers and television.
Perhaps the most surprising of the trends is the increase in the number of entrepreneurs arrested and imprisoned on tax evasion and other charges as part of a large-scale increase in the use of the corrupt criminal justice system as a vehicle for corporate raiding by regime insiders. In the ten years from 2002 to 2012, hundreds of thousands of businessmen were actually imprisoned, not just questioned or arrested, primarily as a result of rivals paying corrupt police, prosecutors, and judges to put away the competition.13 Russian businessmen increasingly kept their money safe abroad, stimulating capital flight. Despite Putin’s appointment of an ombudsman for business rights in 2012, the Kremlin’s decision to proceed with the 2010 second trial of Mikhayl Khodorkovskiy on trumped-up charges that even the head of the Moscow Bar Association said were a “disgrace to justice” only added to this lack of business confidence.14 Efforts by the new ombudsman, Boris Titov, to amnesty the 111,000 entrepreneurs who remained in prison in 2013 foundered on the Duma’s insistence that no one amnestied could go free without paying damages or returning stolen property. But since most of the imprisoned claimed to have been framed and
refused to pay what they said amounted to a further shakedown, all but 2,300 remained there.15
By 2014, as he marched into Crimea, Putin had clearly decided that he could maintain his power by ignoring the independent middle class, entrepreneurial interests, and the cultural elite. Instead he could rely on oil and gas extraction economically and on increased use of propaganda domestically to rally state workers and provincial populations. The main theme of this information war was anti-Americanism, the fight against “fascism” in Ukraine, the renewal of Russian greatness, and the distinctiveness of Russian values—as shown by the campaigns against Pussy Riot (the all-female punk rock band) and gay rights. The Kremlin has persistently portrayed the collapse of the Soviet Union as a defeat imposed on Russia by the West. And state-controlled media frames Putin not as the putative head of the party of “crooks and thieves,” as the opposition politician Aleksey Navalnyy branded the ruling party United Russia prior to the 2011 Duma elections, but as the liberator of Russian lands and the head of a great civilization morally superior to gay-dominated and degraded Western culture.
As he reviewed the troops in Sevastopol, Crimea’s capital, Putin set the tone by declaring that Crimea had seen three pivotal events in its history: its founding by Catherine the Great, its surviving 250 days of Nazi siege, and its rejoining Russia under his rule. In reunifying with Russia, Putin stated, Crimeans had expressed their loyalty to core values of “unity, fairness and togetherness . . . , thus remaining true to the historic truth and to our forefathers’ memory.”16
Putin’s popularity in Russia soared above 80 percent as state-controlled television unleashed tirades against the West; public opinion polls showed that 90 percent of Russians considered the referendum in Crimea to be the result of the free will of the Crimean people,17 despite evidence to the contrary. Putin endorsed the official results, that 83 percent of Crimean citizens turned out to vote and 97 percent voted in favor of annexation. These were the numbers trumpeted in the Russian media, although the president’s own Council for the Development of Civil Society and Human Rights, headed by the human rights activist Mikhayl Fedotov, astonishingly declared that the actual numbers were quite different. The Council estimated that there was only a 30 to 50 percent turnout, and of those only 50 to 60 percent voted in favor of annexation. This provides a midpoint estimate of only 22.5 percent of registered voters favoring annexation. In other words, Putin’s numbers showed 82 percent of Crimeans voting for annexation, while his own Human Rights Council’s results showed only 22.5 percent voting in favor.18 But this disparity did not make the headlines of Russia’s state-controlled media, which was more than content to let the Kremlin simply create facts on the ground.
Putin's Kleptocracy_Who Owns Russia? Page 38