Strongman (40 page)

Sometimes, though, it seems that US legislation – the Foreign Corrupt Practices Act – is more effective in uncovering bribery in Russia than anything the Russians do. In 2010
Diebold, the American ATM manufacturer, complied with the FCPA by dismissing five top managers of its Russian subsidiary after it discovered they had given kick-backs to officials to get business.
The German car-maker Daimler was charged under the FCPA with giving bribes worth more than €3 million to secure contracts with Russian government customers for the purchase of vehicles. The
cars were bought mainly by the interior ministry, the defence ministry and the ‘special purposes garage’ which serves the political elite. Daimler paid the money into offshore accounts.
After a long delay, in November 2010, President Medvedev ordered an investigation into the case.
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Corruption goes hand in hand with the lack of an independent judiciary. Little has changed despite Medvedev’s calls for an end to what he termed ‘legal nihilism’. The most
notorious case concerned the young lawyer Sergei Magnitsky, who died in prison in November 2009 after being arrested by the very officials he had accused of fraud. Magnitsky was a lawyer
representing a UK-based firm, Hermitage Capital, the largest foreign portfolio investor in Russia. Its founder, Bill Browder, had done much to attract investors to Russia and was a self-professed
supporter of Vladimir Putin. He had even applauded the arrest of Mikhail Khodorkovsky as an attempt to clean up Russian business. Part of his strategy was to promote good corporate governance and
fight corruption in the Russian companies in which he invested, in order to increase their share price and increase profits. In November 2005, after he had tried to force a secretive oil company,
Surgutneftegaz (which is rumoured to have links to Putin), to disclose its ownership structure, he was blacklisted as a ‘threat to national security’ and barred from Russia.
Hermitage’s Moscow offices were raided in June the following year by – Hermitage claims – corrupt law-enforcement officers who used the tax documents and company seals they stole
to perpetrate a spectacular theft from the Russian state budget. Magnitsky’s investigations revealed that organised criminals working with corrupt officials used the stolen documents to
fraudulently reclaim $230 million of taxes paid by three Hermitage subsidiaries. When Magnitsky officially accused the policemen who had raided the Hermitage offices of fraud, those same policemen
at once arrested him and threw him into Butyrka prison, where he was held without trial for 11 months in squalid conditions. He fell seriously ill, was denied treatment and died on 16 November
2009. There is no medical record for the last hour of his life, and relatives found that he had broken fingers and bruises on his body. According to a report by President Medvedev’s Council
on Human Rights, in his final hours, when he was in need of immediate medical care, Magnitsky was handcuffed and taken to a small room by eight officers, where he was beaten and then left alone for
over an hour until he died, while an ambulance team waiting outside was refused entry.
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The story is a Kafkaesque nightmare of an individual destroyed by a ruthless and impenetrable system, in which the people who should have been upholding the law were breaking it, and the alleged
criminals were able to persecute the man who accused them. Hermitage has since carried out detailed investigations into the case and compiled an impressive dossier of evidence. They discovered
colossal sums of money in foreign bank accounts belonging to one Vladlen Stepanov, the husband of Olga Stepanova, who, as head of Moscow Tax Inspectorate No. 28, had authorised the ‘tax
refund’ to dummy companies. The Stepanovs’ fortune is estimated at $39 million (one thousand times greater than their declared joint income). They have luxury villas on the Persian Gulf
and the Adriatic and one in the Moscow region worth $20 million. Not bad for a mere state tax official. Their alleged accomplices in the tax office and police also have fabulous fortunes. Hermitage
has located assets worth $3 million, for example, acquired by the family of Lieutenant Colonel Artyom Kuznetsov (official salary $10,200) in the years after he arrested Magnitsky.
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In Russia, Hermitage’s accusations have gone unexplored. Following the report by his Council on Human Rights, President Medvedev called Magnitsky’s death a ‘crime’.
Several senior prison officers were fired, and two prison doctors eventually charged with negligence. But the report also found fundamental flaws in the prosecution of Magnitsky (including the fact
that he was investigated by precisely the people against whom he had testified), yet those who allegedly committed the enormous fraud and then framed Magnitsky have gone unpunished. Indeed some of
the investigators were rewarded and promoted for their services. The tax inspector accused by Hermitage, Olga Stepanova, now works at Rosoboronpostavka, the procurement agency of the Ministry of
Defence, whose minister, Anatoly Serdyukov, happens to be a former head of the federal tax office.

In July 2011 the US State Department announced a visa ban for Russian state officials it believes are linked to Magnitsky’s death. Rather than investigate the case uncovered by Hermitage,
however, the Kremlin announced it would retaliate by blacklisting certain US citizens.

How high does the trail of Russia’s sleaze, which is so blatant at lower and middle levels of the state, lead? There are simply no verifiable facts about corruption at the very top, only a
wealth of speculation, gossip, accusations and circumstantial evidence. Putin, it is true, does not mind sporting luxury wristwatches that suggest an income far in excess of his government salary.
Neither does Dmitry Medvedev. Several websites show photographs of the men wearing watches that cost as much as they earn in a year.

The allegedly well-connected commentator Stanislav Belkovsky famously claimed that he had ‘evidence’ that Vladimir Putin’s assets amounted to $40 billion. According to
Belkovsky, Putin controlled 37 per cent of the shares of the oil extraction company, Surgutneftegaz, owned 4.5 per cent of Gazprom and held at least 75 per cent of a secretive Swissbased
oil-trading company, Gunvor, founded by a friend, Gennady Timchenko.
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There is simply no way of verifying such claims, and Belkovsky is something of a
self-publicist. Putin himself described the allegations as ‘just rubbish, picked out of someone’s nose and smeared on bits of paper’. A prominent Russian businessman, acquainted
with both Putin and Timchenko, told me the figures were nonsense and that Putin does not even need such huge sums of money because, like a mafia boss, he can simply
have
anything he desires.
It is not ownership but control, and the network of acquaintances, that counts.

It is certainly undeniable that a clique of businessmen close to Putin made immense fortunes during his presidency.
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It would be
surprising if his friends did not feel indebted to him.

According to a list of Russia’s richest people published by
Finans
magazine in February 2011, Gennady Timchenko, with a personal wealth of $8.9 billion, is in 17th place. His
company, Gunvor, has become the world’s third-largest oil trader, shipping one-third of Russia’s exports, including those of the biggest state companies, Rosneft and Gazprom Neft.
Timchenko and Putin have links that go back to the latter’s days working in the mayor’s office in St Petersburg. According to the
Financial Times
, corporate records show that the
two men participated in the early 1990s in a company known as Golden Gates, which was established to build an oil terminal at St Petersburg’s port, but foundered in a clash with organised
crime. Local parliament records show that a Timchenko company was also ‘a beneficiary of a large export quota under a scandal-tainted oil-for-food scheme set up by Putin when he worked as
head of the city administration’s foreign economic relations committee in 1991’. Timchenko is also said to have close ties with Surgutneftegaz, the Kremlin-loyal oil company whose
ownership is undisclosed.
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Arkady and Boris Rotenberg, Putin’s judo partners in his youth, each have assets worth $1.75 billion. One of Arkady’s companies was awarded major contracts in the preparations for
the Sochi Winter Olympics in 2014, another is involved in the construction of the Nord Stream gas pipeline under the Baltic Sea. Together with Gennady Timchenko, the Rotenberg brothers founded the
Yavara-Neva judo club, of which Putin is honorary president (and whose trustees, incidentally, include first deputy prime minister Viktor Zubkov).

Yuri Kovalchuk, Putin’s neighbour in the Ozero dacha cooperative back in the 1990s, is the majority owner of Bank Rossiya and the National Media Group, and owns assets worth an estimated
$970 million. In February 2011 his media group, which already controlled two national television channels, RenTV and Channel Five, bought a 25 per cent stake in Russia’s most popular station,
Channel One, from Roman Abramovich for just $150 million. According to an opposition report on corruption, Bank Rossiya’s assets soared from $236 million at the beginning of 2004 to $8.2
billion in October 2010, mainly through its acquisition, at knock-down prices, of key assets of Gazprom.
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Nikolai Shamalov, another dacha neighbour and co-owner of Bank Rossiya, is worth $590 million. His name surfaced at the end of 2010 in connection with sensational rumours that a
‘palace’ was allegedly being built for Putin in the south of Russia, at a place called Gelendzhik, near Sochi. Websites printed photographs of a Versailles-style palace; aerial
photographs showed its position, at the end of a secluded road close to the Black Sea coast. Shamalov turned out to be the nominal owner of the ‘villa’. However, one of his former
business partners, Sergei Kolesnikov, claimed to have proof that the palace was in fact commissioned by the Kremlin property department in 2005 when Putin was president, and was intended for his
personal use.
Novaya gazeta
later printed what it said was an authenticated copy of the original contract for the palace, signed by Vladimir Kozhin, the Kremlin’s property manager.
When investigative reporters tried to visit it they were turned away by government security men, even though the site was allegedly Shamalov’s personal property. The whole story emerged after
Kolesnikov wrote an open letter to President Medvedev asking him to investigate his claims. He said he had been personally involved in the project until 2009 when he was removed for raising
concerns about corruption. He claimed a state construction company was building the palace and that state funds had been illegally diverted to the project. The claims were naturally denied by the
Kremlin and by Putin’s spokesman. In March, apparently to try to put a lid on the scandal, Shamalov sold the palace to another businessman, Alexander Ponomarenko – a partner of Arkady
Rotenberg but not closely connected to Putin.

The network of corruption that gobbles up so much of the country’s wealth touches almost every Russian’s life – from the driver who bribes a traffic cop, or the small shop
owner who passes cash to a public health official for a specious hygiene certificate, to the Kremlin bureaucrat who extorts millions from a foreign trading company.

A Spanish prosecutor, Judge José Grinda Gonzalez, who led a long investigation into Russian organised crime in Spain, resulting in 60 arrests, came to the conclusion that it was
impossible to differentiate between the activities of the government and organised crime groups. According to a cable released by the Wikileaks website, he told American diplomats that Russia had
become a virtual ‘mafia state’ and that there were ‘proven ties between the Russian political parties, organised crime and arms trafficking’. He said that the authorities
used organised crime groups to carry out operations it could not ‘acceptably do as a government’, such as sales of arms to the Kurds to destabilise Turkey. Any crimelords who defied the
FSB could be ‘eliminated’ either by killing them or ‘putting them behind bars to eliminate them as a competitor for influence’.
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Corruption is not just an impediment to investment and a destroyer of the economy, it is also politically explosive. The opposition has successfully branded Vladimir Putin’s United Russia
party as ‘the party of crooks and thieves’ – a slogan now recognised, I am sure, by most Russians, all the more so since United Russia tried to sue its originator, Alexei Navalny,
for slander.

Navalny, in his mid-30s, is a lawyer, businessman and political agitator, who has made it his mission to scrape away layers of filth from the sleazy world of Russian corporate business. He is
the most popular blogger in the Russian internet, and has uncovered corruption of fabulous proportions. Navalny bought shares in state-run companies such as Gazprom, Rosneft and Transneft (which
runs the government’s oil pipelines), and began investigating their finances. Some of his findings have spawned criminal investigations, as well as the ire of the authorities. In one case, he
found that Gazprom was buying gas from a small company, Novatek, through an intermediary, Transinvestgas, though it could have bought it directly for 70 per cent less. The intermediary channelled
at least $10 million of the difference to a fraudulent consulting company. In another case, VTB, a major state bank, bought 30 oil rigs from China – again at a vastly inflated price through
an intermediary, which kept the difference, $150 million. His most sensational claim is that Transneft embezzled ‘at least $4 billion’ during the construction of a 4,000-kilometre oil
pipeline from East Siberia to the Pacific Ocean.
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Navalny publishes his findings on a Russian blog site, Live Journal, and has a large following on Twitter. He recently founded a new website, RosPil.info, ‘to fight against bureaucrats who
use the system of state procurements for their own enrichment’. The site exploits an early decision by President Medvedev to post all state requests for tender online. Navalny asks readers to
send in any that arouse suspicion (‘for example, a 5 million rouble contract to design a government website, with a one-week deadline for applications’), so that experts can analyse
them and follow them up. Faced with such exposure, dozens of dodgy calls to tender have already been cancelled: the website claimed in August 2011 to have thwarted corrupt contracts worth 7 billion
roubles.
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Examples include a regional governor’s request to buy 30 gold-and-diamond wristwatches (‘as gifts to honour teachers’), an
interior ministry order for a hand-carved, gilded bed made of rare wood, and an order from St Petersburg authorities for 2 million roubles’ worth of mink for 700 patients in a psychiatric
institution.
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