The Russia Conundrum

CHAPTER 8

AN ANATOMY OF CORRUPTION

The actions of Putin and his cronies against Yukos were an indication of the criminal nature of the regime he leads, a criminality that has become ever more flagrant in the two decades since. I have no hesitation in saying that Russia today is a mafia state. But I do not want an English-speaking reader to misunderstand what I mean by that. It is a subtle linguistic point, but when a Western person says ‘state’, he or she means all the institutions and state bodies that govern the running of her country. For a Russian speaker, the word ‘state’ means something different. The Russian term for the Western concept of the state would be the judgementally neutral ‘state apparatus’ or the more negatively coloured ‘bureaucracy’. So, when we talk about a mafia state, there is room for misunderstanding between us.

Ordinary Russians, when they are on the receiving end of ill- treatment from dishonest or incompetent local officials, or think of the lack of respect they receive from the healthcare or education systems, may well grumble that ‘the whole state’ is corrupt. But that would be to overstate the case. No one, least of all me, would argue that the whole Russian ‘state apparatus’ – which is manned by something like one or two million people – is a gigantic mafia operation, a sort of Corleone clan expanded to the millionth degree. There is undoubtedly poor governance, corruption and other bad things going on throughout the country. In some places, such as Chechnya or Ulyanovsk, it is quite bad, while in, say, Moscow or Novosibirsk it is less so (I know that might sound surprising, but the Moscow authorities do quite a lot for the people of the city, even if they look after their own interests at the same time). If we talk about the state apparatus as a whole, then I would say it is getting on with things to the best of its ability. Allowing for the shortcomings and inefficiencies endemic in the overall system, it seems to be performing the sort of tasks that are the responsibility of any state apparatus.

It is a very different matter when we come to the top of the state pyramid: to the relatively high ranks of the FSB and the presidential administration, and in particular to Putin’s inner circle. These people rule by whim and coercion. If they take a dislike to someone, if someone won’t knuckle under and do their bidding or, even worse, tries to expose their misdeeds, they get fired, or beaten up, or thrown in jail, or simply eliminated. You don’t even need to fall out with them to be targeted: they can simply take a fancy to your business or your property, or they can destroy you for show, just to demonstrate what they are capable of. And once they have you in their sights, there is no way out. You have no one to turn to, no one to help you – not the law, not the courts, not the media, not your bosses or your neighbours. Your only choice is to give them what they want or the consequences will be dire for you; and not just you – nowadays your family may be victimised, too.

You may ask what interests these Kremlin mafiosi. It’s the same as the regular mafia – they are after your property or your business, as in the case of Bill Browder, the British-American businessman whose Russian company was stolen from him by crooked officials. They will want you to hand over a significant share of your earnings. They will be embroiled in a power conflict with other members of the mafia or their family. They’ll try to force you to collaborate on their projects, such as – crucially – the falsification of election results. Or they will prevent you from using your public position to blow the whistle on their activities, as happened to me, and to the former liberal politician Boris Nemtsov and journalist Anna Politkovskaya, both of whom were eventually assassinated.

How did Russia come to this? As we know, Putin and almost his entire inner circle are former KGB/FSB men, a secretive, closed caste, a tightknit clan that ‘protects its own’ and resolves disputes ‘in house’. The template was already there; but back in Soviet times the KGB was reined in by its subservience to Party control and the demands of communist ideology. In some areas, the KGB was pretty effective, such as its work in intelligence and counterintelligence conducted by ideologically committed people. In other areas, such as the bureau’s regional networks, things weren’t quite so rosy, but in general the system worked. With the difficult perestroika years of the late 1980s, though, the KGB consolidated its links to organised crime. They moved into racketeering and drugs, smuggling illegal goods, seizing people’s property, but they had to be quite careful because the state apparatus was still functioning: the security forces didn’t yet control the institutions of civil society, the courts and the Prosecutor’s Office, so they could still be called to account with serious consequences. But once Putin came to power, they were in clover.

Putin himself never got very far in his KGB career. He spent his time in middle-ranking posts and even his top job, as director of the Soviet cultural mission in Dresden, was a disappointment. The real shift in his fortunes happened once he had endeared himself to the pro- perestroika mayor of St Petersburg, and under his guidance the city was turned into a stronghold for organised crime, with its historic port acting as the principal gateway for huge volumes of drug-trafficking.

In 1992, Putin was in charge of a deal to trade raw materials for supplies of food that were urgently needed by the hard-pressed St Petersburg population. An official commission of inquiry, led by the St Petersburg deputy Marina Salye, would later discover that the raw materials were duly handed over, with documents bearing Putin’s signature, but that the food did not arrive. The money paid for the raw materials, reportedly $100 million, was never found. The deputies demanded Putin’s resignation and called for him to be brought to justice, but the findings of the investigation were ignored. In 2001, after Putin had become president, Marina Salye fled from St Petersburg to a village 400 kilometres away, explaining that she was leaving because she was ‘in fear for her life’.

Another investigation, closed ‘for lack of evidence’ during Putin’s time as prime minister, involved the activities of a St Petersburg construction company called Twentieth Trust, which appeared to investigators to have been the beneficiary of substantial funds from the city budget, despite being in debt and close to bankruptcy. No explanation was given for why the company received such favourable treatment, but the former Investigator for Serious Crimes in the Fight against Corruption, Lieutenant Colonel Andrei Zykov, later alleged after he had been removed from office that Twentieth Trust had built a dacha for Putin on the outskirts of the city and a villa in Spain. Twentieth Trust is today under different ownership and management.

Many of those involved in the corrupt world of St Petersburg in the 1990s would later rise to prominence in Putin’s Kremlin, following the mafia principle that the family looks after its own. Politicians who were foolish enough to attempt to expose the corruption found themselves threatened.

As president, Putin has not only continued to rely on this model of governance, he has taken it to new levels. He rules through patronage, personal connections, corruption and the brazen manipulation of the state apparatus. So, if you want to get an important post, you have to be anointed into the mafia clan – you have to show that you know how to elicit bribes, how to steal and pass on the cut to the bosses upstairs. And even then, you’re not safe. As soon as they have got what they wanted from you – or if you fail to carry out their orders – you may find yourself arrested on trumped up charges and facing jail.

Of course, Putin’s system of rule through cronyism and personal patronage isn’t new. Tsars as far back as Ivan the Terrible ran Russia as a capricious autocracy, with the tsar at the top, the people at the bottom, and no effective civic institutions to mediate power and justice between them. The tsar simply appointed his favourites – corrupt, often uneducated men, who gained advancement through connections and grift – to positions where they wielded unchecked authority over justice, taxes and daily life. The system was known as kormlenie – literally ‘feeding’ – because the appointee would receive no salary, but he would have the right to enrich himself from the cashflow his position generated, taking his cut from the money raised from the people. It was an unfettered licence to steal from the country and its people, and it fostered resentment and unrest.

Russia today is run by what can best be described as a neo-feudal model where the regional elites, Putin’s placemen, undertake to provide votes and revenue for the centre and in return get a free hand to run the finances of their region as they see fit. To be more precise, these elites have free rein to pursue personal financial incentives and the Kremlin turns a blind eye, so long as it receives its cut. The mechanism goes something like this: 60 per cent of the revenues that are collected from the population go to the centre, which leaves 40 per cent for the region’s spending. But that isn’t enough to keep the regional elite happy, so the centre then funnels them another 10 to 20 per cent of the money (in the case of Ramzan Kadyrov in Chechnya, the figure is more than 90 per cent of the regional budget) in return for their unwavering loyalty and political support.

That’s one mechanism that the Kremlin uses to maintain its grip on the country. Another is to make sure that all officials are forced to take bribes. If you don’t take bribes, the centre simply removes you from power. And if your loyalty at any point starts to waver, they have evidence of the previous bribes so they have a cast-iron criminal charge on which they can lock you up.

There is also a third mechanism that Putin uses, which involves the maintenance of a shifting balance of power between groups of officials whose interests may potentially conflict. The central economy continues to be administered by the so-called liberal group – they are by no means liberal, but that’s what it has become accepted practice to call them. On the other side are the Siloviki – the people from the military and enforcement agencies. The Siloviki are constantly in search of money, so Putin plays a game. On the one hand, he instructs the liberal group not to give one kopek more to the Siloviki. On the other hand, he complains, I’m barely holding on to them, these guys are champing at the bit. From time to time the two groups lock horns and the odd one of them is sent to jail. At other times, Putin sets sub-factions within the Siloviki against one another, with similar results.

Putin needs these Machiavellian mechanisms to maintain his grip on the system, to prevent the administrative machine falling apart. He needs to do things this way because Russia under his rule does not have the formal structures and institutions that usually keep societies functioning properly, with civic integrity and the rule of law. Apart from the fact that this makes Russia look like a third world country, it also creates a potentially very dangerous situation. This is because the continued existence of the whole Byzantine apparatus depends exclusively on Putin being there to keep pulling the levers. If one were to remove Putin from the equation, the system would lose its equilibrium and the country would enter a catastrophic state of clan fragmentation. This, of course, is no accident: Putin has arranged things that way with the deliberate intention of making it impossible for him to be removed.

How many people are there in today’s Kremlin mafia? It’s hard to give exact figures, but at the top are Putin’s favoured associates, made up of people like Igor Sechin, Gennady Timchenko, Arkady Rotenberg, the brothers Yuri and Mikhail Kovalchuk, and Nikolai Patrushev. I will say more about most of these in a moment. But there are also further circles, including the ‘overseers’ in the presidential administration, such as Putin’s chief of staff, Anton Vaino, and his deputy, Sergei Kiriyenko; and the top guys in the FSB, Alexander Bortnikov, Sergei Korolev, Ivan Tkachev, Alexei Sedov, whose job it is to persecute the political opposition, and Oleg Feoktistov, who is nominally retired, but is still hard at work. Then there are the regional bosses, men like Alexei Dyumin and Sergei Sobyanin, who do the president’s bidding in big cities and regions; plus, of course, the Kremlin’s ‘oligarchs’, such as Alexei Miller at Gazprom and Andrei Kostin at VTB Bank; and the heads of some courts, certain judges and the directors of the Investigative Committee and the Prosecutor’s Office; and, finally, their henchmen who do the dirty work.

All in all, there are a few thousand people working for the Kremlin mafia, but between them they control a huge proportion of the nation’s wealth. They don’t keep the money in their own names and their own bank accounts – that would be far too obvious – but assign it instead to other people, who are told they need to keep silent or face serious consequences. The men Putin trusts with his money come from a small retinue of old friends, most of whom he now keeps at arm’s length. By maintaining a low profile, they are able to stay out of the spotlight, while holding the vast wealth that Putin can’t keep in his own name. The Panama Papers investigation of 2016 revealed that Sergei Roldugin, a professional cellist whom Putin has known since the 1970s, is the front-man for companies worth in excess of $2 billion, rather more wealth than most classical musicians have access to, with the money widely considered to be part of the cash Putin has plundered from the Russian state. Arkady and Boris Rotenberg, childhood friends of the president (Arkady is his former judo sparring partner), have been handed lucrative contracts from the state energy giant Gazprom and for infrastructure projects such as the bridge connecting Crimea to the Russian mainland. It’s made both of them billionaires and Arkady a ‘Hero of Labour’, an honorary title left over from the Soviet period. Gennady Timchenko, a Russian businessman and long-time ally of Putin who was formerly based in Switzerland but is now back in Russia because of international sanctions, is rumoured to hold billions of dollars on behalf of his old friend. Timchenko’s oil distribution business, Gunvor, served for many years as the conduit for overseas revenue from Russia’s energy sector, with the US Department of the Treasury claiming that ‘Timchenko’s activities in the energy sector have been directly linked to Putin, that Putin has investments in Gunvor and that he may have access to Gunvor funds’. A claim which Guvnor denies.Putin’s cronies all benefit from their association with him. They benefit from the commercial opportunities that he bestows, and they benefit knowingly from the criminal activities of the Kremlin mafia. The Siloviki occupy the commanding heights of power in politics, the economy and national institutions. They have at their disposal all sorts of powerful resources, including the FSB and the GRU, the foreign military intelligence agency. And they support each other as members of the same organisation. Their ideology is best described as nash-ism (‘ours-ism’), because it opposes ‘us’ and ‘ours’ to ‘them’ and ‘theirs’. They are beyond the reach of the law, so they are free to use violence against anyone who challenges them in any field – political, financial, journalistic. Their rule is, ‘if someone touches one of ours, he must suffer’. Because Putin and the Siloviki wield power on a personal and clan basis, public and state institutions have become irrelevant. The civilian oversight and control of the security forces that exists in much of the West is absent in Russia. The Siloviki are far from being a united group, however, and they encompass various cliques and groupings of shifting loyalties.

Of all the Siloviki, one of the closest to Putin – and the one with the most influence over him – has long been Igor Sechin. As Putin’s deputy chief of staff since 2000, Sechin oversaw the recruitment of KGB men to positions in the Kremlin. His position as Putin’s gatekeeper, in charge of the president’s diary, deciding who should be seen who should not, allowed Sechin to influence the direction of the country. He was a pragmatic hardliner who despised the civil liberty, free speech, pro-business policies of the liberals who had run the country under Boris Yeltsin. The Siloviki came from the security services, with a lifetime’s indoctrination that made them instinctively antagonistic towards the West; many of them regarded Yeltsin as a stooge of Washington. Once in power, Sechin’s behind-the-scenes influence helped to persuade Putin to ditch any remaining liberal sympathies and adopt the repressive, nationalistic policies that would come to define his presidency.

Before he became the CEO of Rosneft, Sechin worked for the KGB, notably in the late Cold War hot spots of Mozambique and Angola. As noted above, he consolidated his alliance with Putin during Putin’s time as deputy mayor of St Petersburg, becoming his devoted secretary and bagman, rarely leaving his master. Putin has kept Sechin close to him ever since, making him one of the most trusted representatives of the Siloviki clique. Despised and feared in equal measure, Sechin was instrumental in convincing Putin formally to renationalise firms, including Yukos, that had been privatised under Yeltsin, while in fact putting the whole of the oil and gas sector under the control of his own inner circle. Sechin was described by the former US ambassador, John Beyrle, in confidential cables released by Wikileaks, as the ‘grey cardinal’ of the Kremlin, ‘who has sought to break the power of the oligarchs, confiscate and amalgamate their assets into state companies under Siloviki control and to limit Western influence’. The damage he has inflicted on the Russian economy is incalculable.

Sechin is notoriously territorial, willing to go to great lengths to protect his position as Putin’s chief adviser. His anti-liberal convictions pitched him into conflict with Dmitry Medvedev, once regarded as the leader of a liberalising tendency in the Kremlin. In 2016, Sechin moved against his rival by entrapping Prime Minister Medvedev’s ally and minister of economic development, Alexey Ulyukaev, in a sting operation that led to the latter becoming the first serving minister to be arrested in Russia since the reign of Stalin. The move was a risky powerplay that could have backfired, but Sechin was secure in his position. The men he called upon to make the arrest were operatives from the Sixth Service of the FSB’s Internal Security Department, an elite unit that Sechin himself had created back in 2004 and knew he could count on. He had used them previously to carry out delicate operations, including the arrests of regional governors who refused to toe the Kremlin line. On 14 November 2016, Sechin invited Ulyukaev into his office and presented him with a suitcase that was later found to contain $2 million, as well as ordering a basket of sausages made from fresh game personally shot by himself to be loaded into Ulyukaev’s car. Unaware that Sechin was recording their encounter, Ulyukaev gratefully accepted the gifts, claiming later that he thought the suitcase was full of wine. All this ‘evidence’ would be used to charge him with corruption, backed by a sworn statement from Sechin that the money had been ‘extorted’ from him as a payment for Ulyukaev’s rubber stamping of a deal to transfer the Bashneft oil company to Rosneft.

At his trial, Ulyukaev denied all knowledge of the money and the recording produced by Sechin was remarkably unconvincing. Ulyukaev’s defence lawyers suggested that the prosecution was politically motivated, arising from a disagreement between the two men over the shady dealings of Rosneft. They summonsed Sechin to appear in person to be cross examined, but his office replied that he was too busy. When the court sentenced Ulyukaev to eight years in a strict regime labour camp, he compared the proceedings to the Stalinist show trials of the 1930s.

In all the Kremlin infighting, Putin has feigned the role of the ‘good tsar’, ostensibly holding the ring between his competing courtiers, while in reality he has played them off against each other. In the rivalry between Medvedev and Sechin, Putin has favoured the latter, possibly because of Medvedev’s performance during the time he served as stand-in president between 2008 and 2012. Putin had put him in the post merely to keep the seat warm for his own return to the job, but Medvedev let power go to his head, developing aspirations to hold on to the presidency, an uncalled-for show of ambition that angered Putin. As soon as the two resumed their proper offices in 2012, with Medvedev as prime minister, Putin responded by using Medvedev as a lightning rod against the people’s anger at falling living standards and making him take the blame for unpopular pension reforms. When Medvedev was confronted in 2016 by OAPs demanding pension increases, he made a run for it, muttering, ‘There simply isn’t any money at the moment … Hang on in there, all of you. I wish you all the best and hope you have a nice day…’ His vanishing act inspired a rush of comic songs and sketches viewed by millions on social media.

Sympathy for Medvedev was short-lived. In 2017, Alexei Navalny’s Anti-Corruption Foundation released video evidence that suggested the ‘simpleton’ was also involved in crooked schemes. ‘Even this incompetent,’ Navalny alleged, had been able to pilfer millions of dollars from the country’s coffers. ‘Far from being a simpleton who falls asleep during important events, [Medvedev] is one of our country’s richest people and one of its most corrupt politicians’, Navalny claimed. Money that should have been spent on improving living standards and urgently needed infrastructure projects had gone instead, it was said, to help Medvedev and his associates accumulate real estate at home and abroad, funding luxurious lifestyles unimaginable to the millions forced to survive on threadbare state pensions. ‘They have palaces, residences and country estates, yachts and vineyards in Russia and abroad,’ said Navalny, ‘not to mention smartphones, gadgets and personalised Nike trainers.’ The photos of Medvedev’s interior- designed homes with one-of-a-kind architectural features were accompanied by screenshots of receipts, all of which were printed in someone else’s name, and evidence shown of vast wealth secretly held for him by fake charities and willing pals from his schooldays. Such is the nature of Putin’s inner circle that there is simply no place in it for anyone who is alleged to be mired in corruption.

Despite its devastating effect on his reputation, Medvedev responded to Navalny’s exposé by saying that the corruption evidence was ‘from weird stuff, nonsense and some pieces of paper’.⁷ Others have been less restrained. In 2018, Putin’s bodyguard, Viktor Zolotov, announced that he was challenging Navalny to a duel, with the intention of ‘pounding him into a nice, juicy cutlet’. ‘You know what your problem is?’ Zolotov asked Navalny rhetorically. ‘No one’s ever given you the beating you deserve. But now you’re going to find out! You libelled me in your internet report, so you and I are going to fight it out – in the ring, on the mat or wherever you choose. An officer doesn’t forgive that sort of insult; his honour demands he slap down the scoundrel who insulted him.’

A screengrab of Viktor Zolotov making a speech, during which he threatens Alexei Navalny

Like Sechin and Medvedev, Zolotov’s friendship with Putin began in 1990s St Petersburg. He was serving as a bodyguard to Mayor Sobchak, then transferred his services to Putin, and has accompanied him across the globe ever since. In 2016 it was announced that Zolotov would take charge of a new army unit that would answer directly to the president. The unit, known as Rosgvardiya, has subsequently grown to several hundred thousand troops, meaning that Putin now commands his own Praetorian Guard. When asked about the constitutionality of such an arrangement, the Kremlin maintained that the unit’s purpose is to provide a defence against terrorists – but the real motivation seems to be Putin’s fears for himself. Ever since Ukraine’s Orange Revolution of 2004 and the overthrow of the corrupt Kremlin-ally Viktor Yanukovych a decade later, Putin has fretted that the same fate may lie in store for him. Images of angry demonstrators breaking into Yanukovych’s palatial residence provided a chilling foretaste of what could happen. Videos uploaded by the protestors showed them swarming through Yanukovych’s private golf course, his ostrich farm, the museum he had built for his luxury automobiles and his full-scale mock galleon decorated with marble, crystal and gold leaf. The thought of the Russian public invading the palaces and mansions that Putin and his associates have constructed for themselves at the expense of the Russian people is one he dares not countenance. It is no coincidence that Zolotov’s troops have controversially been given express permission to fire into any crowds that threaten ‘important state facilities’.

The number of top Kremlin officials who are former members of – or have connections with – the KGB has reached alarming proportions. Putin’s close advisers since he came to power in 2000 have included Viktor Ivanov, a former KGB agent and long-time Putin associate; Sergei Ivanov, one of Putin’s oldest friends since their days as KGB officers in Leningrad; Mikhail Fradkov, who reportedly served in the KGB while working at the Soviet embassy in India in the 1970s; Viktor Cherkesov, another former KGB officer who specialised in persecuting Soviet-era dissidents; Sergei Chemezov, who lived in the same KGB apartment block with Putin in Dresden; Alexander Bastrykin, the head of the Investigative Committee and a former Putin classmate; Sergey Naryshkin, the head of the Foreign Intelligence Service and a contemporary of Putin’s at the Dzerzhinsky KGB Higher School; and the career KGB-man, Nikolai Patrushev.

Patrushev is now approaching 50 years in the security services, having begun his KGB career in the 1970s. After succeeding Putin as director of the FSB in 1999, he held the post until 2008, when he was appointed secretary of the Security Council of Russia and makes no secret of his admiration for Putin, whom he described as ‘a true statesman and a representative of the country’s strategic elite, who put national interests above all else.’ Under Patrushev’s watch, the FSB achieved Andropov’s dream of placing its people across all sectors of government and business, with the result that the bureau has been able to play a decisive role in removing politicians who pose a threat to the leadership, strangling the media and neutralising those who push for transparency in public life. Even Patriarch Kirill, the servile head of the Russian Orthodox Church who relentlessly instructs the faithful to support Putin, is rumoured to be a former KGB agent. In return for his unwavering loyalty, Kirill is invited on skiing holidays with the president and has appeared in public wearing bejewelled watches worth tens of thousands of dollars.

Because Putin’s Kremlin today is so stuffed with hardline anti- liberals, it can be tempting to assume it has always been so. But as noted above, when Putin came to power, he inherited Boris Yeltsin’s team of ministers and officials, who were overwhelmingly reformers. Putin’s first government was led by the pro-Western Prime Minister Mikhail Kasyanov and most of its members shared his political views. But the team Putin brought with him from St Petersburg were preponderantly KGB men who coalesced into the Siloviki clique and very soon came into conflict with the Kremlin liberals. The battleground on which they clashed was the economy, specifically the results of Yeltsin’s privatisation programme of the 1990s. Igor Sechin and the other Siloviki argued that the privatised industries should be renationalised as a signal that the era of liberal free enterprise was over and that the state would henceforth call the shots. The liberals, led by Kasyanov, continued to fight for a free market and economic integration with the West; they argued that wealthy businessmen were a natural part of a properly functioning economy. But by 2003, their opponents were gaining the upper hand.

As I would soon find out.