Corruption Watch round-up; Russian crack-down escalates dramatically

(Business New Europe – bne.eu – February 22, 2013)

The Kremlin’s drive to crack down on corruption in the government has escalated dramatically in the last week and moved into a new phase. In addition to several high profile investigations into both government departments and large state-owned companies, senior officials have come out in recent days to indicate that the machinery of finance and the tax authorities are about to pressed into service to help catch grafters and snollygosters.

Central Bank governor Sergei Ignatiev waded into the fight this week, claiming one group was responsible for half of some $50bn that left the country illegally a shockingly high number that represents some 60% of all 2012 capital flight. Although Ignatiev didn’t name the group, it was clearly a thinly veiled allusion to government officials.

Two more heavy hitters joined the campaign on Thursday February 21. The Kremlin’s chief-of-staff and one of Russian President Vladimir Putin’s closest confidents Sergei Ivanov said that the Investigation Committee that is spearheading the drive should work more closely with the tax authorities in its fight against terrorism.

He then broadened out and said: I have to emphasize that we do not have untouchables, at a meeting of Russias Investigative Committee Board.

Like Ignatiev, who referred to drugs and arms trading before specifically including bribes to officials, Ivanov avoided specifically saying the problem was in the government but the allusions were as thinly veiled as is possible. We must act decisively and pay no regard to posts and ranks, Ivanov said to the Investigation Committee.

Clearly the Kremlin is drilling down on official corruption. Prime Minister Dmitry Medvedev said in February that some 50,000 corruption cases are currently being investigated in Russia. And the Yuri Chaika, Russia’s top policeman and General Prosecutor was also out in front of the cameras this week after his office joined with the Investigation Committee on several cases.

Putin has moved fast since his state of the nation speech, where he told deputies that they can no longer have foreign bank accounts or assets abroad. Putin quickly followed through and introduced a bill into the Duma to the same affect on February 12. bne believes this speech was Putin’s second oligarch meeting: he offered the collected governmental elite the same deal that he offered the collected heads of business in 2000 after he first took office: “keep what you have, but stop the stealing.”

The campaign kicked off on November 6 with the sacking of Russian Defence Minister Anatoly Serdyukov as part of a $100m property scandal connected to his ministry.

Serdyukov has not been charged and refused to answer questions at a meeting with representatives of the Investigation Committee this week. But the investigation into the case is expanding rapidly. Authorities are now investigating about 25 separate instances of fraud in Oboronservis, the arms trading agency under the Defence Ministry, involving the illegal sale of the Russian Defence Ministry’s property, Chaika said on Wednesday.

Some 25 separate criminal cases have been opened and combined into one probe, Chaika said at a meeting with Russian lawmakers. The damage from these frauds adds up to about RUB5bn ($166m), he said, adding the total damages from corruption cost the state budget RUB21bn ($690m) last year alone.

Several people have been charged and arrested in the case so far, including the former head of the Defense Ministry’s property department Yevgenia Vasilyeva and reportedly Serdyukovs lover. Yekaterina Smetanova, a former executive at Oboronservis and key suspect in that investigation, was detained on fraud charges in October last year and signed a pretrial plea bargain agreement shortly after her arrest. She has been recently released from custody with travel restrictions after cooperating fully with the investigation.

At the same time the investigation into an embezzlement scam at state-owned power company RusHydro is gathering pace. The company forged documents to create a fictional construction project but dragged its heels when ordered by the Kremlin to investigate. However, this week the management submitted the results from an internal investigation that show up the scam and was demanded by the authorities as the first step into opening a criminal investigation one that should lead to the jailing of some of the company’s management.

Below the radar there were several other investigations. Police raided 12 shipping companies accusing them of running a cartel. And the head of Russia’s fisheries ministry was also called in for questioning this week, again over forged documents used to scam extra pay for top level bureaucrats. .

In general the investigations are becoming a lot more systematic. Chaika also said the number of investigations into corruption against officials is also gathering momentum. In 2012, Russian authorities prosecuted 889 officials, including 244 city mayors and 114 lawmakers of various levels, and 1,159 law enforcement officials on corruption charges.

Medvedev said there were 50,000 corruption cases in 2012, but the IC investigated about 200,000 crimes (not just corruption) last year, with 89,000 cases completed and sent to court, according to the committees chief Alexander Bastrykin commenting earlier this week.

Putin submitted a draft bill to the State Duma last week prohibiting Russian officials from holding bank accounts abroad or owning foreign-issued shares and bonds, while the presidential anti-corruption council proposed additional sanctions against corrupt state officials.

And before this draft has been voted into law it has already claimed its first victim this week. The head of the Duma’s ethics committee and one of the founders of the ruling United Russia party Vladimir Pekhtin gave up his seat on February 20 following the publication of documents by opposition lead Alexei Navalny proving he owned $2m of luxury properties in Florida that he failed to declare.

This noose will only tighten. Ivanov’s and Igantiev’s comments this week are clearly designed as a message to officials that not only is the government going to look at their books, but they are also going to look at their bank accounts for suspicious transactions and the tax authorities (who are good at this bit) will also be pressed into service.

And it won’t stop there. Talk has begun about remaking the whole anti-corruption apparatus as it is scaled up to take on a further reaching fight. Russia’s Security Council head and former FSB head Nikolai Patrushev said on Tuesday February 19 state security and law enforcement agencies, including the Investigation Committee, will retain their investigative functions for now, but a presidential decree is being drafted, that will redistribute investigative functions as part of a comprehensive law enforcement reform package, he said.

The reforms aim to make crime investigations more effective and boost the clear-up rate, improve professional training and make investigations more objective and independent.

Patrushev also said the Investigative Committees functions will be expanded to include investigating crimes that are currently handled by the Interior Ministry and the Federal Drug Control Service.