War on Corruption – What to Make of the Latest Scandals?

Update: for the Russian speakers, today Kommersant put up an excellent resource on its website, with an infographic on the latest scandals and corruption generally, and links to articles on everything I cover below. Of particular interest – the total financial losses collectively inflicted by the major scandals amount to RUR 57 billion (roughly USD 1.85 billion), a number that is about equal to the GDP of Liberia.

As Russia observers have probably noticed by now, several high-level corruption scandals have recently emerged in rapid succession, rattling elites and analysts alike. The major scandals are:

  • Anatoly Serdyukov, Minister of Defense: Serdyukov was fired after a dawn raid of a real estate company involved in the privatization of Defense Ministry land near Moscow. The former Head of the MOD Property Department – Evgeniya Vasilyeva – has been been arrested and charged with committing fraud of a high degree as part of a criminal group (she is also reportedly Serdyukov’s mistress). Officials from the various companies involved have also been arrested. Most recently, Serdyukov was forced out of his position as chairman of the board at Rostekhnologii.
  • Rostelekom Boss Raided: the homes of Alexander Provotorov, the chief executive of Rostelekom, and Konstantin Malofeyev, a minority shareholder, were raided in November. It was later reported that Malofeyev is under investigation for illegally receiving – through his company Marshall Capital Partners – $200 mln from VTB credit. Provotorov is only a witness in the case. Later reports, however, suggested that Provotorov and Malofeyev could come under scrutiny for contracts awarded to a ‘favored’ contractor – Infra Engineering – which is in fact beneficially owned by Marshall Capital and top Rostelekom management. These allegations were contained in a complaint to the Federal Antimonopoly Service on November 21 – just two days after the raids on Provotorov and Malofeyev’s homes.
  • Former Minister of Agriculture: the former Minister of Agriculture (2009 – May 2012), Elena Skrynnik was accused at the end of November of involvement in a fraud during her tenure as head of Rosagrolizing (2001-09). The allegations involve three contractors that issued false invoices purporting to have delivered equipment to farms and factories. The money was then transferred to offshore accounts. Another former official – Oleg Donskikh – has also been accused of involvement in the scheme. For her part, Skrynnik has denied the allegations and returned to Russia voluntarily (she was in France when the allegations were released on state-owned TV). Also, others have come forward to her defense, claiming that the alleged losses caused by the false contract scheme did not occur until after Skrynnik had left Rosagrolizing. Her cause, however, was not helped by a series of photos released by Komsomolskaya Pravda, which showed her wearing multiple watches that cost anywhere from EUR 40-50k, and otherwise not looking very much like someone (a) living on a government salary and (b) engaged in serious work on behalf of the Russian people (in her defense, it was her birthday party).
  • St. Petersburg Pipe Scandal: in late-November, a massive operation involving 200 investigators was launched in St. Petersburg against a ‘criminal group’. According to investigators, “tens of officials” from city government committees and municipal entities engaged in a widespread fraud related to the repair of the city’s heat supply system. Contractors hired by the city officials to perform the work procured broken and unqualified pipes for the system, using forged certificates of quality to avoid detection. The monetary damages caused by the fraud are estimated at RUR 3 bln (around USD 97.5 mln). The silver lining to this scandal is that the investigation was personally initiated by the Governor of St. Petersburg, Georgy Poltavchenko. Poltavchenko reportedly even escalated the issue to investigators in Moscow after he was not satisfied with the work of St. Petersburg investigators. Another interesting side-note: one of the individuals arrested in the raid was Andrey Kadkin, the business partner of Arkady Rotenburg, a childhood friend of Pres. Putin whose wealth has grown exponentially during the Putin era.
  • GLONASS Corruption: in early November, the MVD announced a criminal case based on the theft of RUR 6.5 bln (approx. USD 211 mln) related to construction of the Russian GLONASS system (the Russky version of GPS). Subsequently, the General Constructor of the GLONASS system, Yury Urlichich, was fired from his post by Vice-PM Dmitry Rogozin. Interestingly, Head of the Presidential Administration, Sergei Ivanov, told the press that he knew about the issue as far back as 2010, but could not discuss it publicly because he did not want to interfere in the investigation. Fittingly, the latest launch of a GLONASS satellite was cancelled in early December due to “technical problems” with the acceleration unit on the satellite.
  • Chairman of Permsky Krai Administration: the Chairman of the Permsky Krai administration, and former Deputy Head of Ministry of Regional Development, Roman Panov, was arrested in early November for his involvement in a scheme to defraud regional funds amounting to approximately RUR 93.3 mln (approx. USD 3 mln). Panov and his co-conspirators allegedly organized public tenders for engineering and technical maintenance of facilities construction for the upcoming APEC summit. They then ensured that firms controlled by them won the tenders, to which the funds were transferred. The work, however, was never performed and in fact very same contracts had earlier been completed by other companies.

And these examples are just what happened in the last month. Indeed, sources from within the investigative agencies claim that they have been given “carte blanche” to go after corrupt bureaucrats, regardless of rank. The MVD sources did not elaborate on the nature of the “signal” they received from the Kremlin – whether it was an implicit approval by omission or an explicit directive to step up the war on corruption (although they are most likely referring to the Serdyukov revelations being made public on the state TV channel Russia 1). Unnamed administration officials confirmed that MVD received a signal that the “administrative resource” would not be used to put any corruption investigations on ice. The case against Skrynnik, however, is cited as an example – apparently the investigation was completed several years ago, at which point it began to “accumulate dust” until the allegations were made public last month. The same principle may apply to the GLONASS case as well, which apparently has been under investigation since at least 2010. Putin himself stated publicly that the corruption investigations will be “pursued to completion in accordance with the law.”

The volume of new scandals in such a short time and the level of the officials involved are unprecedented in the Putin era. Naturally, this caused domestic and foreign observers’ heads to collectively explode in trying to explain what is happening. Here are the main theories:

  • PR Stunt Gone Wrong/Right – the first theory is that the revived war on corruption is really a PR stunt by Putin, perhaps aimed at boosting sagging ratings, which has spiraled out of control as different clans have started taking advantage of it to settle scores and jockey for position. Alternatively, Putin actually wants to “clean house” and is using the war on corruption as a smokescreen. Ordinary Russians, indomitable cynics, agree with this theory (at least with respect to the Serdyukov case). Ironically, 66 percent of Russians also approve of Serdyukov’s firing.
  • Neutralizing Navalny – other observers – especially Russian liberals – have argued that Putin’s new embrace of the war on corruption is designed to co-opt the opposition, which has made corruption a signature issue. Putin’s goal, however, is not to actually fight corruption, according to this school of thought. Rather, they claim that Putin is trying to reconcile the contradictions between his two pillars of support: (i) the Russian people, a majority of which both support him but likewise are outraged at corruption; and (ii) the members of the bureaucracy, who use their positions as both an official and unofficial source of income. In this artful metaphor, if Putin leans too far towards one pillar, the greater the risk that the other pillar will collapse. So Putin needs to appear to be taking serious action against corrupt officials, all while maintaining the support and cooperation of political elites and the bureaucracy.

Meet the New Boss?

One significant fact about these corruption cases – they are all under the still-young tenure of Vladimir Kolokoltsev, the Interior Ministry head who replaced the deeply hated Rashid Nurgaliyev in May of this year during the cabinet reshuffling following Putin’s resumption of the presidency. Kolokoltsev served in the Moscow police from 1982 to 2001, where he spent most of his time fighting organized crime, and then transferred to the Central Federal District. In 2009, Kolokoltsev was promoted to head of Moscow MVD after an off-duty Moscow police officer went on a drunken rampage in a Moscow supermarket.

Before returning to Moscow in 2009, however, Putin appointed Kolokoltsev head of the Orlov Oblast MVD in 2007. Interestingly, while in that position Kolokoltsev brought a number of criminal cases against regional officials – including two vice-Governors – and affiliated businessman, all of whom were thought to be at the bottom of a pyramid that had Orlov Governor – Egor Stroev – sitting on top. As one Orlov City Council Deputy put it, “You could say he threw out the representatives of the criminal world by the ears, as well as the bribe-takers from the team of the former governor.” Indeed, many observers say that the corruption scandals surrounding Stroev hastened his fall from power – he resigned “of his own volition” in February 2009. Shortly after, then-Pres. Medvedev summoned Kolokoltsev back to Moscow, where he served until being tapped to head the Interior Ministry this summer.

Kolokoltsev’s background suggests he does not come from any of the various “clans”, but rather is Putin’s own man because he owes his career to Putin. Indeed, this was the conclusion in a report/presentation released earlier this year entitled  Politburo 2.0  and generated a lot of attention in Russian political circles. Discussing the “new blood” in the current Putin administration, the author of the report stated that Kolokoltsev “personally connects” with Putin, “not with the group of Security Council Secretary Nikolai Petrushev.”

The implication of Kolokoltsev as Putin’s man – not unlike Medvedev – is that the anticorruption drive unfolding at the moment is precisely what Putin wants, regardless of his motives, and contradicts the theory that a clan war has “spun out of control.” If so, does this signal the return of Putin the chess master, and does it validate – from the pragmatic perspective of an authoritarian technocrat – his decision to return to the presidency? Indeed, it is difficult to imagine Dmitry Medvedev ever successfully presiding over the prosecution of such high-level officials.

This entry was posted in bribery, bribes, bureaucracy, clans, corruption, criminal law, Dmitry Medvedev, mvd, Putin, Rostekhnologii, russia, siloviki, Vladimir Putin, war on corruption. Bookmark the permalink.

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