Deputy prime minister
Rosneft Rosneftgaz INTER RAO UES
Anatoliy Serdyukov
Defense minister (since 2007)
Oboronservis
Igor Shchegolev
Svyazinvest Channel One
Sergey Shmatko
RusHydro Gazprom Zarubezhneft
Yelena Skrynnik
Minister of agriculture
United Grain Company
Viktor Zubkov
First deputy prime minister
Gazprom (as of 2009) Russian Agricultural Bank Rosspirtprom Rosagroleasing
Notes: All the ministers listed here were forced to resign by July 1, 2011, from those companies for which they hold supervisory authority, as named in President Medvedev’s Decree 1999. For a more complete list of government ministers and their board memberships, see Dawisha (2011).
Sources: http://www.gazprom.com/about/management/directors; http://eng.kremlin.ru/persons; http://government.ru/eng/gov/; http://eng.kremlin.ru/acts/1999.
When Medvedev went after Sechin in particular, judged by most at that time to be the person closest to Putin, he won no awards from Putin.72 Soon afterward Putin announced in a way designed to humiliate his partner that he would be running for a third term, eliminating Medvedev’s chances of a second term. Out went Medvedev’s calls for modernization, and in came the redistribution of board memberships and state contracts straight to Putin’s cronies from Dresden and St. Petersburg (see Table 6). Once he was elected, and once he had weathered the storm of protests against election fraud in the 2011 Duma and 2012 presidential elections, Putin moved robustly to implement his third phase: direct control of the economy by his cronies. Of course, they had been getting rich throughout the 2000s, but now they were given public and visible positions controlling the state and the economy. Finally, we had a definitive answer to the question “Who owns Russia?”
When Putin’s allies and cronies were sanctioned by the United States and the European Union following Russia’s annexation of Crimea in spring 2014, Putin expressed first amusement, then shock, as the implications emerged of what had just happened. Banks that were subject to asset seizures, like Bank Rossiya, or owned even partially by those sanctioned could no longer conduct business in dollars. All of the assets of sanctioned individuals would be seized if they could not get them back to the Russian safe haven in time, so foreign assets were liquidated or buried deeper. Putin expressed his loyalty to his friends when speaking at the St. Petersburg Economic Forum in May 2014: “All the sanctions target my friends, people who are close to me personally. These sanctions are designed to bust them, as our intellectuals say, to punish them for God knows what. If I were in such a position I would have taken the matter to court a long time ago because they have nothing to do with the events in Ukraine or Crimea. And whom have they selected? Two Jews and one Ukrainian,VIII can you imagine?”73
Table 6. Who Owns Russia? Direct Control and Ownership of the Economy by Putin’s Cronies, 2014
Connection with Putin/KGB
Full or Partial Ownership, Board Memberships, Directorships 2014
2013 Alleged Net Worth (or annual compensation
Sergey ChemezovI
Dresden KGB with Putin
Aeroflot, Rostekh, AvtoVAZ, Kamaz, Oboronprom, National-Information Computing Systems, Novikombank, Uralkalia, United Aircraft Corporation, United Shipbuilding,I VSMPO-AVISMA
$800m net worth
Andrey FursenkoI
Ozero
Center for Strategic Research Northwest
Unknown
Sergey FursenkoI
Ozero
Lentransgaz, Gazprom Gas-Motor Fuel
Unknown
Yuriy Koval’chukI
Ozero
Bank Rossiya (and its subsidiaries),I Center for Strategic Research Northwest
$1.4b net worth
Aleksey Miller
St. Petersburg government
Gazprom, GazprombankI
$25m annual salary
Arkadiy RotenbergI
St. Petersburg childhood
Stroygazmontazh,I Mostotrest, TPS Avia, SMP Bank,I Mineral Fertilizers InvestCapitalBankI
$4b net worth
Boris RotenbergI
St. Petersburg childhood
Stroygazmontazh,I SMP Bank,I InvestCapitalBankI
$1.6b net worth
Igor SechinI
St. Peterburg government
Rosneft,I United Shipping Corporation
$25m annual salary
Nikolay Shamalov
Ozero
Vyborg Shipyards, Bank Rossiya,I GazprombankI
$500 million net worth
VladimirSmirnov
Ozero, PTK
Tekhsnabeksport (nuclear materials)
Unknown
Gennadiy TimchenkoI
Kinex, St. Petersburg
Gunvor (until spring 2014),I Aquanika,I Volga Group,I Avia Group,I Avia Group Nord,I Sakhatrans,I Stroytransgaz Group,I Transoil,I Novatek,I Russkoye Morye
$15.3b
Nikolay Tokarev
Dresden
Sovcomflot, Transneft
$6m annual salary
Matthias Warnig
Stasi Dresden
Nord Stream, Bank Rossiya,I Gazprom, Rosneft,I Rusal, Transneft, Vneshtorgbank (VTB)I
Unknown
Vladimir YakuninI
Ozero
Russian Railways
$15m annual salary
I. Under sanction by United States as of August 1, 2014. The chart clearly indicates how targeted U.S. sanctions were on Putin’s group. This table is by no means exhaustive but is meant to give the reader an indication of the material and political fortunes of those closest to Putin who were with him from the beginning. Wealth and compensation figures should be regarded as estimates and probably on the low side, given knowledge about the lifestyles of some of these figures.
Sources: Forbes.ru; Reuters.com; Russian corporate websites; http://www.treasury.gov/press-center/press-releases/Pages/jl23331.aspx; http://www.treasury.gov/ofac/downloads/ssi/ssi.pdf; Gertz (2014).
Russian Corruption and the International Community
When Putin says he would have “taken the matter to court a long time ago,” one assumes he is referring to the European courts, where there are real judges and real judgments. This brings up an important point and the final one of this book: there has been a partner in this kleptocracy, and that partner is the West. Beginning in Yel’tsin’s era, Western banks kept their vaults open for money launderers and scammers from Russia. The reluctance of these banks to bring Russia to account is fueled by the search for bonuses, commissions, bribes, and directorships. And Putin, as a former KGB officer, certainly knows the West’s weak spots. Russian venality has a worthy partner among certain Western elites.
Since the KGB started to move money out of the USSR under Gorbachev, the Russians have had thirty years’ experience, and even more, burying money in the West, using the West’s institutions to their own advantage. This has, if anything, allowed Russia to delay needed reform at home. Russia depends on the public goods produced in the West, including a network of legal obligations and alliances that promote Russia’s state interests and sustain its reputation and authority as a sovereign entity in international affairs. In Europe, for example, signing and appearing to live up to its obligations under the Council of Europe gave Russia the status of a legitimate and democratizing state long after the regime had taken the country in another direction. Its membership in the Parliamentary Assembly of the Council of Europe bought the regime time, at least until it annexed Crimea. Russian elites have long benefited from European public goods (rule of law, civil society, economic stability, property rights, relatively safe streets) while undermining the development of these goods in their own country.
Such free-riding behavior undermines not only Russia’s development but also European societies themselves, which are subjected to behavior designed to extend private g
ain into geographic areas strongly governed by the production of public goods. And the behavior of Russia’s foreign policy establishment abroad—whether in competing to get the Olympics or the World Cup, in contracting with BP in a deal that undermined BP’s other contractual obligations in Russia, or in placing Russian representatives in international organizations like the European Bank for Reconstruction and Development who engage in fraudulent activity74—often shows that the Russian elite is in the business of maximizing short-term private gain, even if it corrupts not only Russian institutions but also international institutions of long-standing. Yet the 300,000 Russians who now reside in London, and those who own property there, depend on the surety that this property, along with the wives and children who live there, will be safeguarded while many of them continue to maraud their home country. In this social order, predatory elites rely on stable Western countries as a space in which to facilitate their own emergence into what Miami University professor Venelin Ganev has termed “a globally mobile, ‘capital-flight’ caste whose ultimate objective is to consume extracted resources in some of the nicer neighborhoods of the global village.”75
Putin sizes up German Chancellor Gerhard Schröder. Berlin, June 2000. Photo by Fritz Reiss, AP
The EU has worked hard to stanch the tide of corrupt behavior from Russia that is finding its way into the very heart of Europe and its institutions, but there are obviously politicians and public officials who are willing to partner with Russia in these transactions. Under its obligation as a member of the Council of Europe, Russia agreed to allow its citizens to appeal to the European Court in Strasbourg and to accept and implement the court’s judgments. As Russian courts have become even more politically controlled, and with nongovernmental organizations and human rights activists increasingly subject to arbitrary arrest and detention, appeals from Russian citizens to Strasbourg have increased. By 2006 one in every five complaints to the court was made against Russian court decisions.
This pattern of verbal support for democracy combined with substantive resistance to it is repeated by Russia in many other European institutions. In 2005 the Parliamentary Assembly of the Council of Europe called for an investigation of the “obstacles encountered by the Russian authorities with regard to the ratification of Council of Europe conventions as, since accession 9 years ago, out of 200 conventions, the Russian Federation has ratified only 46 conventions and signed 15.”76 In 2007–8 PACE announced that because Russia had not provided conditions that would allow successful election monitoring, PACE could not send an observer team, and that Russia’s decision to hold elections without European observers was in violation of its terms of membership. A group of states in the Council of Europe, led by Sweden, sought Russian expulsion after the 2008 invasion of Georgia. The EU at the same time also created the Eastern Partnership of Ukraine, Moldova, Belarus, Azerbaijan, Armenia, and Georgia to shape civil society and parliamentary cooperation with the goal of creating a visa-free regime that would extend the Schengen visa area (allowing free movement among the twenty-five European countries that signed the Schengen Agreement but restricting access to outsiders) to these countries, but pointedly not to Russia.77
Russia’s problems mounted when in December 2010, the Council of Europe’s Group of States against Corruption (GRECO) issued a report saying that Russia failed to implement almost two-thirds of the group’s twenty-six recommendations. Specifically Russia had made no progress in taking action to criminalize corruption or create punishments for offenders. The head of the Duma’s commission to draft anticorruption legislation avoided the issue of the impact of this noncompliance on democracy and on Russia’s image by saying they would see how proposed measures would work in Russia, “taking into account our culture and traditions.”78 Two years later the follow-up compliance report noted that while it was encouraging that the Russians had carried out sociological and other research into the sources and nature of corruption,79 “GRECO remains concerned that a large number of Russian officials continue to enjoy immunity from prosecution, including for corruption crimes. Furthermore, the strengthening of judicial independence—not only in law but also in practice—and of the operational independence of law enforcement agents remains an on-going challenge.”80
In the borderlands between the EU and Russia and in the other newly independent states of the former Soviet Union, Russian money and muscle have their greatest clout. This is particularly noticeable in the energy sector. In 2008 in Serbia, a country 100 percent dependent on Russia for its oil and gas, Gazprom was “able” to purchase a controlling 51 percent stake in NIS, Serbia’s largest oil refinery and its largest company, for 400 million euros, despite a market evaluation value of 2.2 billion euros and a number of higher bids from Austria, Hungary, Poland, and elsewhere. The Russian offer was made more attractive by the nonbinding promise of making Serbia a transit point in any future pipeline connecting Russia’s Black Sea Coast and Western Europe.81
Beginning in Putin’s second term, Russia increasingly used energy wars as a way of taming ungrateful and uncooperative neighbors whenever they sought independence from any line espoused in Moscow. However, quarrels with these states are also spawned by the personal interests of individuals who may hold a state position but who seek private advantage. Ukraine, Moldova, Georgia, and Belarus have all been subjected to the withdrawal or threat of withdrawal of energy deliveries at prices previously agreed upon (albeit lower than global levels). Two factors operate here. One is the state’s interest in maximizing its influence over the domestic and foreign policy orientation of its neighbors; they are buying this influence for the state with subsidized energy. Another is the interest of elites in Gazprom or Rosneft or deputy ministers in foreign trade ministries (sometimes these are the same people) who are willing to negotiate these subsidized oil and gas deals but only in return for huge personal kickbacks through intermediary companies.
In addition to the establishment of intermediary companies, the pattern of using the power of the state to leverage public and private gain is particularly evident in Russian relations in the former Soviet countries. A pattern that has been widely used is Russian state involvement in debt-equity swaps, in which industrial infrastructure is leveraged by Russian state-connected firms at knockdown prices as payment for sovereign debt. Not having sufficient liquid assets to repay their debt to Russia, the debtor states give Russia an equity stake in their economic infrastructure, usually at deeply discounted prices. Russia has shown itself adept at leveraging increased control especially over the energy infrastructure of neighboring states. Russian companies are major beneficiaries: United Energy Systems and Gazprom have purchased gas, pipelines, nuclear facilities, and electricity grids as part of these debt-equity swaps.82 Among many examples is Tajikistan’s payment of its sovereign debt to Moscow with a 75 percent stake in the Sangtuda hydroelectric plant.83 In 2005 United Energy Systems announced that Interenergo, its offshore subsidiary, had purchased 100 percent of the shares of Armenian Electricity Network for $73 million. Elsewhere in Armenia, Russia had already “secured” the Hrazdan thermal power plant, the largest such plant in Armenia, for $31 million.84 Similar deals have been struck with virtually all non-energy-rich states in the Commonwealth of Independent States.85, IX In such negotiations the Russian state is owed the money, but it is often Russian firms close to the state, with Russian officials on their boards of directors, who reap the benefits. The officials suffer no risk for their investment while reaping all the rewards.
To the extent that Russia gets pushed back into its own region, the potential for putting enormous pressure on neighboring countries only increases. The story of the war with Georgia is a case in point. While the Kremlin presented it to the world as a conflict between two sovereign states, one of which was trying to repress its local non-Georgian population and join NATO, the facts about the nature of the local South Ossetian leadership suggest that there is also a parallel narrative. In this version, South Ossetia is seen as a wholly ow
ned subsidiary of mafia-siloviki structures in Russia, who use the territory for offshore Russian counterfeiting and smuggling operations. After Georgian president Mikheil Saakashvili’s election, he moved to stop Ossetia’s use as a center for these operations, which are said to include the massive counterfeiting of $20 million in $100 bills.86 The situation deteriorated, with Russian silovik officers moving to take up positions in South Ossetia’s government.
By mid-2008 Anatoliy Baranov, who used to head the FSB in the Russian Republic of Mordovia, had become head of the local FSB. The new head of the South Ossetian Interior Ministry, Mikhayl Mindzayev, had served in the Interior Ministry of Russia’s North Ossetia. The South Ossetian defense minister, Vasiliy Lunev, used to be military chief in Perm oblast’, and the secretary of South Ossetia’s Security Council, Anatoliy Barankevich, was a former deputy military commissar of Stavropol Krai. This led Yuliya Latynina to observe, “South Ossetia is not a territory, not a country, not a regime. It is a joint venture of siloviki generals and Ossetian bandits for making money in a conflict with Georgia.”87 Other writers pointed to the links between South Ossetia’s president Eduard Kokoity and St. Petersburg criminal elements.88 Freedom House reported that Kokoity had been locked in a political battle with his prime minister, Vadim Brovtsev, a Russian businessman appointed by the Kremlin to oversee reconstruction funds. Analysts point out that much of the embezzlement occurs in Moscow before funds are even transferred, and since a reported 98 percent of the South Ossetian budget is a direct subsidy from Moscow, this extensive corruption is clearly responsible for the continued economic decline in the breakaway region.89
Similar stories could be written about the authorities in Transnistria, Moldova, a breakaway region located between the Dniester River and the eastern Moldovan border with Ukraine. The Russian military base in Transnistria, sitting close to EU borders as it does, has been implicated in protecting officials and criminal forces that have created a haven and launch point for smuggling in nuclear materials, drugs, trafficking in women, and other illicit activities.X
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