Saturday, May 26, 2012


The Power Vertical

thirtysomething, or Fathers And Children

Putin (left) and Mikhail Fradkov chat while Sergei Ivanov gives a speech in 2006.
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The scandal of the 11 accused Russian “illegals” who were purportedly unregistered agents of the Russian government in the United States (working for the Foreign Intelligence Service or SVR) has certainly generated a lot of chuckling and more than a few bewildered, if bemused, shrugs of the shoulder. No one can quite seem to figure out why the Russians would put so much effort into something that never got near any significant secrets.


The focus of attention has been on Anna Chapman, the sultry, 28-year-old businesswoman who has literally become the face of this scandal. Many observers have had a lot of fun mocking her activities, but it has now come out that her father was a KGB officer who worked under diplomatic cover in Africa as late as 2002. Chapman’s ex-husband has told journalists that he was surprised she was arrested for spying, that her father “controlled everything in her life,” and that she was “very secretive.”


But maybe they are right to focus on her, not because her pictures sell newspapers but because she is the newest addition to this alleged spy ring, which the FBI has reportedly been following for about a decade. She evidently began her spying career no later than 2002 and didn’t arrive on U.S. shores until the beginning of this year.


Maybe the general bewilderment about the alleged spy ring stems from the fact that many observers are looking at the latest case from the perspective of the Cold War. Certainly, sending people out to set up Facebook pages and network in the exciting world of venchur kapital and startupi doesn’t make a lot of sense if you continue looking at Russia as an ideologically motivated empire.


But if you remember that Russia today is probably a lot more accurately described as a clan-based kleptocracy, then maybe the “illegals” network makes more sense.


In a provocative piece on grani.ru, analyst Dmitry Shusharin starts to flesh out the argument that what Russia’s ruling elite is doing now (and I’m not talking about the 25,000 promising young Russians who pay their taxes and now have Nashi’s stamp of approval) is working to legitimize the assets they have gained through massive corruption. And one way of doing that is to funnel state money into banks run by children of the elite, who can then invest it in projects that will be protected and nurtured by the state like, say, the Skolkovo Silicon Valley project.


Shusharin points to a recent study by the Center for Development of the Higher School of Economics (the study apparently is still in draft form and, considering its findings, might well not get any further than that). The researchers determined that at least one-third of the 1.2 trillion rubles ($38.4 billion) that the government spent on “anticrisis” measures in 2009 was wasted. A small part of that – 92 million rubles – was used to “boost demand” by ordering new automobiles for the state and by providing subsidies to Russian Railways. (Russian Railways, by the way, is headed by leading kleptocrat and Putin comrade Vladimir Yakunin. I have always wondered how much Moscow’s willingness to let NATO supply forces in Afghanistan by overland routes across Russia is lubricated by the possibility that the policy lines the pockets of Yakunin and his patron.)


Most of the seemingly wasted money – 360 billion rubles -- was handed out directly to various state-connected financial institutions, particularly Rosselkhozbank, Vneshekonombank, VTB (formerly, Vneshtorgbank), and Rosagrolizing.


Are these just banks? Well, Vneshekonombank is headed by Vladimir Putin. One of its deputy directors is 32-year-old Pyotr Fradkov, the son of former Prime Minister Mikhail Fradkov. Fradkov, an “economist” who worked in the Soviet Embassy in India in the 1970s, is now the head of the SVR, which purportedly ran the U.S. spy ring. Fradkov’s younger son, 28-year-old Pavel, graduated from the FSB’s academy and joined the Foreign Ministry, where he works in the department responsible for ties to the European Union and the G8.


(Vneshekonombank is also the bank that provided the financing for former KGB officer Aleksandr Lebedev to purchase the British daily “The Independent.” It has also been the target of intrepid muckraking minority shareholder Aleksei Navalny: if you speak Russian, watch this video alleging that the bank laundered money through a bogus leasing deal with China.)


Also among the state financial institutions to get “anticrisis” assistance was Rosselkhozbank (the fourth-largest bank in Russia). Rosselkhozbank’s CEO is 32-year-old Dmitry Patrushev, son of kleptocrat and Putin insider Nikolai Patrushev. Patrushev the elder is an “engineer” who joined the KGB in the 1970s and worked his way up to head the FSB from 1999 (preceded by Putin) until 2008. He is now head of the State Security Council.


Kleptocrat and Putin comrade Sergei Ivanov – who joined the KGB in the 1970s and is now first deputy prime minister – has two sons. Until earlier this year, 32-year-old Aleksandr Ivanov worked at Vneshekonombank. Little 29-year-old Sergei Sergeyevich Ivanov is deputy director of Gazprombank.


Sergei Matviyenko
, son of St. Petersburg Governor Valentina Matviyenko, is a vice president of a VTB subsidiary. The 27-year-old son of Rosatom head Sergei Kiriyenko, Vladimir Kiriyenko, is chairman of the board of directors of Sarovbiznesbank (Sarov is closed nuclear-research city in Nizhny Novgorod Oblast, but I’m sure that’s just a coincidence.)


And so on. For a more complete list of where some of Russia’s key thirtysomethings are today, see this article.


The point is that the nexus between corruption earnings, Russia’s security agencies, and Russian state and “private” business is pretty well-established. And it is moving abroad in a way that may or may not be alarming, depending on your point of view.

In my last Power Vertical post, I highlighted a recent report by the main Czech security organization on the activities of Russian intelligence operatives in business ventures in the Czech Republic. I ended that post with a quotation from the report that seems just as appropriate as an ending for this one:


"Such projects are per se quite legitimate and beneficial. However, given there are Russian intelligence officers under diplomatic cover preparing and coordinating the projects, one can question the Russians’ open and sincere approach to the cooperation.”


-- Robert Coalson

This forum has been closed.
Comment Sorting
Comments
     
by: Ray F. from: Lawrence, KS
July 03, 2010 17:38
Sounds like Mr. Coalson has once again ‘discovered America.’ We needed to be reminded as to the extent of corruption within the Russian government. Really bad, and average Russians should be incensed that the rich keep getting richer, while the poor move in the other direction. Mr. Coalson, however, might want to examine who pocketed the bulk of the stimulus spending in this country (hint: folks very close to the DC-Wall Street mafia). Indeed, substituting “U.S.” for “Russia” in the paragraph below makes it equally true.

“The point is that the nexus between corruption earnings, Russia’s security agencies, and Russian state and “private” business is pretty well-established. And it is moving abroad in a way that may or may not be alarming, depending on your point of view.”

Could these spy games be just another part of the elaborate smoke-screen to keep the proles distracted? Remove all the labels, and the methods and bank accounts of the two groups appear strikingly similar. Alas, it’s impossible to distinguish between the pigs and the farmers.
In Response

by: Anonymous from: USA
July 04, 2010 17:33
Yeah, Ray, but our roads are still getting paved unlike Russia's which are worse than some African countries. There are now carmakers like VW that are building special cars for Russian roadways to only be sold in Russia. I think the level of corruption and distrust is much higher in Russia than in USA. After 73 years of people informing on their neighbors and friends in the USSR, old fears and habits die hard. As far the spy case, you seem to be jumping to conclusions. The investigations are still ongoing. There could be more arrests in the future with more serious charges.
In Response

by: BS Buster
July 05, 2010 14:50
On the last point, not much of substance can also happen.

The roads in the city of Moscow are better than what one finds in many American cities.

Yes, Russia has a good deal of catching up to do. Some seem to find glee with this aspect. Despite some difficulty, Russia is advancing whther some like it or not.
In Response

by: Anonymous from: USA
July 06, 2010 16:48
BS-
I DO find glee with a lagging Russia. For decades, the Soviets arrogantly boasted how they would pass America and leave us in the dust. It didn't happen. Remeber Nikita Khruschev words? Remember how the Soviets would wave to us as they passed us by? To be fair, Russia will advance in some ways, but I don't see them surpassing the USA anytime soon. Post-Soviet Russia and USA should not be enemies, but I believe there are elements in the Russian government that never accepted the Soviet collapse and have their minds set on revenge.
In Response

by: BS Buster
July 07, 2010 12:26
"Soviet" didn't just include Russia.

On your premise, one can easily find "glee" with non-Russian parts of the former USSR facing hardship.

Contrary to what you say, many contemporary Russians (including government officials) see the faults/limits of the Soviet era.

Wishing post-Soviet Russia ill will is obtuse in much the same way when expressed towards modern day Germany and Japan.

FYI, the establishment of the USSR involved non-Russians, inclusive of support from some elements in the West.

Blaming Russians for the wrongs of the Communist era is like doing the same with the Jews. Both instances are wrong.

This point gets lost by the way the La Russophobe site is promoted. Consider the outcry if the same was done with a La Judeophobe site.

by: another observer from: there
July 14, 2010 06:47
Well, Gentlemen, your analysis is right, but you suggestively portray it somewhat as a recent discovery. In truth, this normalization of previously tunneled or otherwise effectively stolen(by Western standards) of billions or more probably trillions of $ or € through organized massive corruption and reallocation (what many would consider 'improper allocations' of funds) is a long established process known throughout Central and Eastern Europe and all the way to the Pacific. Strategic policy concerning energy pipelines and price warfare for gas and oil are only a part of the process and are played in the hope that the EU will be too scared to push back. Yes, Russian gas and oil companies are willing to take a bath on payments in exchange for some individuals continuing to occupy the same office chairs. This overall operational transition policy has been in de-facto effect at many levels of the 'old structure' since the early 1990s. Everybody knew which way things could go and the methodology is widely used, even today - and now on much larger scales than ever before. Placement of trusted individuals - be they sons and daughters or the family members and old friends of old structure comrades and the establishment of ostensibly clean Western registered companies to recycle/'clean' previously dubiously acquired extraordinarily rapid fortunes is a time tested process in the East. Similarly, the Chapman & Co exercise of legitimizing Western VC participation in 'their' projects is simply a method for burying the historical data on fraud to date and is yet another method of Westernizing and sanitizing those previous 'gains.' No surprises, here. The idea of a klan based kleptocracy in Russia or the the former Eastern Bloc isn't new, either, by any standard - and its roots and rationale as an effective power grabbing methodology shielded by 'a pleasing public face' in the run-down early 20th Century's largely destroyed and often agrarian economies, post World War I. Then riddled by devastating and demoralizing poverty, these 'crowd control' methodologies, so to speak, date from some of the earliest communist writings in the 19th Century, and from the unseen but very visible and heavy 'hand' of the new Soviet governments from 1918 - at least. Yes, at lower levels the ideology was effective, but at the highest levels, the long term strategic calculations are and were as coldly calculated - and occasionally as far in the future - as they are today in Lt. Col. Putin's private moments. Implementation is assigned to lower level team members in exchange for extraordinary windfall profits, until such time as individuals get 'a little too eager' - and then their planes get stopped at refueling points, for example. "Things are seldom as they seem,..." John Donne wrote, centuries ago. Thank you for helping in documenting what some experts have known for many decades. Please carry on...

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The Power Vertical is a blog written especially for Russia wonks and obsessive Kremlin watchers by Brian Whitmore. It covers emerging and developing trends in Russian politics, shining a spotlight on the high-stakes power struggles, machinations, and clashing interests that shape Kremlin policy today. Check out The Power Vertical Facebook page or

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