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An Offer He Can't Refuse

Yury Luzhkov
Yury Luzhkov
The massive assault on the business empire of former Moscow Mayor Yury Luzhkov and his wife Yelena Baturina is one of those rare instances that gives both main factions of the Russian elite something they want.

It allows President Dmitry Medvedev to pretend that he is serious about his stated goal of strengthening the rule of law in Russia by going after such a big fish as Luzhkov.

It gives the technocratic side of the elite, which has long loathed Luzhkov, the thrill of seeing an old adversary discredited, humiliated -- and possibly prosecuted.

But most importantly, it allows Prime Minister Vladimir Putin and his siloviki allies the opportunity to pick apart and devour that juicy morsel that was Luzhkov and Baturnina's sprawling Moscow business empire.

These factions might have disagreed about removing Luzhkov from office -- Medvedev and the technocrats wanted him out while key siloviki like Deputy Prime Minister Igor Sechin wanted him to stay.

But now, both sides have something to gain from the new situation.

The changing of the guard in Moscow, meanwhile, picked up considerable steam over the week.

On February 16, Prime Minister Vladimir Putin tapped Luzhkov's successor, Mayor Sergei Sobyanin, to head the Moscow branch of the ruling United Russia party. No big surprise there.

Then, the next day, police raided the offices of the property developer Inteko, the flagship business of Luzhkov's wife, Yelena Baturina.

According to press reports, the police held Inteko's staff in a separate building while they conducted their search. They also searched the office of the Bank of Moscow and the homes of its directors.

Investigators say they were looking into the alleged embezzlement of 13 billion rubles ($444.3 million) in public funds from the Bank of Moscow that had turned up in Baturina's personal bank account.

According to investigators, the Bank of Moscow (which is 46.5 percent owned by the city of Moscow and 20.3 percent owned by two Luzhkov cronies, bank CEO Andrei Borodin and senior manager Lev Alaluyev) paid the Inteko an grossly inflated price for some outside Moscow in 2009. The money then ended up in Baturina’s personal bank account.

A day after the Inteko and Bank of Moscow raids, on February 18, the Prosecutor-General's Office called for the Interior Ministry's Investigative Committee to open a criminal case against Dmitry Gayev, the former head of the Moscow Metro.

Prosecutors allege that Gayev, a close Luzhkov ally, "created in the organization of a system of personal enrichment, due to which Moscow's budget has lost more than 100 million rubles."

But while the assault on Luzhkov gives Medvedev a chance to play Elliot Ness and gives the siloviki a new financial-industrial carcass to pick bare (much as they did to Mikhail Khodorkovsky's Yukos after his arrest in 2003), it has left those who truly yearn for the rule of law in Russia a bit cold.

As RFE/RL's Russian Service reports (see Robert Coalson's excellent write-up in English here), opposition politicians see the anti-Luzhkov campaign as little more than a massive shake-down.

Opposition figure Vladimir Milov, a leader of the newly formed Democratic Choice who co-authored two reports with former Deputy Prime Minister Boris Nemtsov on corruption in the Moscow mayor's office thinks Luzhkov will be let off the hook while low-level figures will take the fall:

Unfortunately, looking at how events are unfolding, I suppose that we aren’t really talking about a real investigation into this incredible corruption - enormous sums of money were simply stolen from the Moscow budget. I see that they are trying to blame scapegoats - bank employees who supposedly deceived the leadership. Personally, I am sure that Luzhkov and other Moscow officials and the head of the Bank of Moscow, Borodin, and even the leadership of the Central Bank of Russia knew about this deal and its corrupt roots. But now they want to blame scapegoats. To me, this means they are not really investigating the corruption or seriously trying to find the guilty parties at the highest level.

Likewise, Leonid Gozman, a leader of the opposition Right Cause party, says the goal of the operation is to pressure Luzhkov and Baturina to sell off the assets in their empire cheap -- especially the juiciest morsel, the Bank of Moscow -- or else:

It can’t be excluded that this [the investigations] is connected with something else, that he [Luzhkov] doesn’t want to give something up or only for a good price. But they want to take it from him for cheap or for nothing at all. They are explaining to him and his team: either you give it up or you will go to prison. And if you don’t go to prison, then your friends will.

The conventional wisdom before Luzhkov was ignominiously removed in September was that he was offered the opportunity to go quietly, keep most of his assets, and retire in dignity. He instead chose to hold out and fight -- and he lost.

If Milov and Gozman are correct about what is going on now, the Kremlin is offering Luzhkov another deal: give up your business empire on the cheap, or face prosecution.

It looks like another offer he can't refuse. Will he?

-- Brian Whitmore

About This Blog

The Power Vertical
The Power Vertical

The Power Vertical is a blog written especially for Russia wonks and obsessive Kremlin watchers by Brian Whitmore. It offers Brian's personal take on 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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