Tag Archives: corruption

Three Russias

This week, the American press, and in particular the New York Times, has provided us with three contrasting images of Russia. Let’s take a look at each in turn.

First, the New York Times ran the article which was the subject of my last post – Franz Sedelmayer’s denunciation of Vladimir Putin. I won’t spend much time on this, as it would involve repeating myself. Suffice it to say that the intense focus on the person of the Russian president creates an image of Russia as tightly controlled from the centre. When anything happens – e.g. the arrest of Paul Whelan on spying charges – it’s because Putin ordered it. This, one may say, is ‘image no. 1’ – Russia as autocracy.

Image no. 2 is very different. It’s Russia as chaotic mafia state, and it can be seen in a long article published by the New York Times about the murder of Russian Duma Deputy Denis Voronenkov in Kiev in 2016. The Ukrainian authorities have accused the Russian state of involvement in the murder, the idea being that he was killed on the orders of Vladimir Putin after he fled Russia and gave evidence at the trial of former Ukrainian president Viktor Yanukovich. Indeed, the Ukrainian Prosecutor General Iury Lutsenko called Voronenkov’s death a ‘typical show execution of a witness by the Kremlin’.

So far, this is all very much in keeping with image no. 1 – Moscow’s hand is in everything. The New York Times, however, notes that there is no evidence to support the accusation of Kremlin involvement in Voronenkov’s murder. Rather, it claims that, ‘To the contrary, the story of Denis Voronenkov is about something else entirely: a story of the chaos at the heart of the sistema (i.e. the Russian system).’ So here we have image no. 2 – Russia as chaos.

Voronenkov, says the Times, was a typical ‘adhocrat, someone who moved fluidly between the worlds of intelligence, crime and politics’. To construct this thesis, the newspaper describes Voronenkov’s corrupt activities and how he eventually chose to become a Duma Deputy in order to acquire immunity from prosecution. What eventually did him in was his involvement in a classic piece of Russian reiderstvo (raiding), in which he and his co-conspirators seized control of a building worth $5 million. It seems, however, that Voronenkov cheated his colleagues out of their full share of the profits. When the matter became public, he fled Russia and took refuge in Ukraine.

The article concludes that rather than being murdered by the Kremlin, Voronenkov was most probably killed on the instructions of one of those he cheated in the building ‘raid’. The fact that he was also a member of the Russian parliament indicates the close ties between government and criminals, ties which are so close that the two essentially operate as one. As the Times puts it, ‘Voronenkov’s tale, to those who know contemporary Russia, illuminated the chaos of Putin’s sistema: the personal rivalries, criminals, elites, crooks and clans trying to keep from running afoul of the country’s ever-shifting red lines.’ Instead of being a case of a Kremlin hit, his story instead shows how in Russia ‘criminal activity and state activity’ merge into one.

In a third article, however, the New York Times provides us with yet another image of the Russian state – one which, rather than robbing everybody blind, is investing heavily in improving the country’s infrastructure. In this article, the Times notes that the Russian government has built up massive financial reserves and is set to splurge a large proportion of these in a drive ‘to spend about $100 bn on big infrastructure projects.’ The Kremlin, says the article, is also pressuring wealthy businessmen to display their patriotism by increasing their investments in the Russian economy, and apparently ‘the arm twisting is working.’

So here we have a Russia in which the state is involved in much more than just theft (after all, if the state has built up reserves of over $400 bn, it would appear that most of its revenues aren’t actually being stolen). Moreover, this isn’t a country operating in a state of pure chaos. It may not be as tightly controlled as in image no. 1, but there’s a fair degree of order here, far more than image no. 2 would suggest.

Supplementing this third view of Russia is an article in Bloomberg by Leonid Ragozin. In this Ragozin notes that, ‘Since 2011, the Kremlin has been promoting a multibillion-dollar campaign to modernize Russian cities and towns.’ He describes an urban redevelopment project in the town of Torzhok, near Tver. This has included the opening of a new high speed rail line to Torzhok and the revitalization of the town’s tourism industry, and has been successful in attracting investment and in persuading people to move back into the town. Among the latter are a businesswoman, Tatyana Sokolova, and the new town mayor, Aleksandr Menshchikov, both of whom have played leading roles in redeveloping Torzhok. The two are credited with obtaining funds from international development banks and renovating the town square and key local landmarks, as well as developing a ‘museum and conference space and art residencies.’

Menshchikov is described as ‘a graduate of the elite Moscow School of the Economy’, and is portrayed as a highly educated, successful, and apparently dedicated official. As such, he’s far removed from the likes of Voronenkov. Nor is he entirely alone. A businessman who came to speak to my students last year told them that back in the 1990s Russian officials were largely ignorant both of law and of how modern economies worked; they produced very poor legislation, full of loopholes for corrupt practices, and were also incompetent when it came to putting plans into practice. Now matters were rather better. This is not universally true, of course. Nevertheless, in a way which wasn’t possible in the 1990s, one can now find hard-working, well-educated, competent, and honest officials with whom can work to do business in Russia effectively.

So, which image best represents the real Russia? The answer, I suspect, is a bit of all three. There’s a state which is theoretically highly centralized, but which in practice oversees some degree of chaos, but which is also able to exert a certain amount of control and enact plans of economic development; there’s a high level of corruption, but also a genuine effort to improve the country’s condition; there are crooked and incompetent officials, but also honest and efficient ones. In short, it’s a thoroughly mixed bag.

As human beings, we like to label things and put them in neat boxes. We also like to contrast them with things they are not, in order more clearly to define them. Thus we come up with simple ways to describe countries – kleptocracy, mafia state, and so on – and we set up simple dichotomies between us and them– democratic v. authoritarian, liberal v. reactionary, etc. But while such devices shows us part of the truth, their oversimplified nature means that they obscure much more than they reveal. If there is any common theme one can extract from these recent articles, it is that reality is far more complex than we are often led to believe.

Dirty money, dirty politics

A week ago, the British House of Commons Select Committee on Foreign Affairs issued a report entitled ‘Moscow’s Gold: Russian Corruption in the UK.’  Given the title, one might imagine that this was all about corruption and the role played by Russian ‘dirty money’ in the British economy. In reality, the report conflates legal and illegal activity, and contains one statement which, in my opinion, verges on the libellous and constitutes an attempt to intimidate British companies from engaging in legitimate business. In this way, it goes beyond the usual criticism of Russia and into altogether more dangerous territory.

The fact that Russians have invested billions of pounds in the British economy is well known. The probability that some of this money comes from corrupt activities within the Russian Federation is also widely accepted. To the extent that the latter is true, this is a matter of proper concern to the British authorities, and it is right that something be done to clamp down on money laundering. The report ‘Moscow’s Gold’ makes much broader claims, however. It says that ‘There is a direct relationship between the oligarchs’ wealth and the ability of President Putin to executive his aggressive foreign policy.’ Supposedly, the ‘dirty’ money invested by ‘oligarchs’ with ties to the Kremlin can be used to undermine British democracy and for other aggressive activities. The report claims that ‘These assets, on which the Kremlin can call at any time, both directly and indirectly support President Putin’s campaign to subvert the international rules-based system.’

The committee fails to support this claim with firm evidence. The best that it can come up with is a statement by Mark Galeotti about what Galeotti calls ‘small-scale stuff’ in the Balkans, such as funding for websites. No evidence of any ‘large-scale stuff’ is produced, and absolutely no evidence to suggest that the Kremlin is in fact using dirty money invested in the UK for the ends claimed by the report. In any case, even if Russian oligarchs are indeed using their money to such ends, no evidence is provided to show that it is actually dirty money rather than legally invested money. In other words, the issue of corruption is conflated with something entire distinct.

The report likewise conflates corruption with perfectly legal business and financial deals, such as the flotation of Russian companies on the London stock exchange (in particular the Russian company EN+ in 2017) and the selling of Russian sovereign bonds in the British financial market. It may be the case, as the report says, that it makes no sense for the UK to permit such actions at a time when it is simultaneously imposing sanctions on Russia, but that is an entirely separate matter from that of corruption and money laundering.

And that leads me onto the thing which really struck me about this document. This was a statement about the British law firm Linklaters, which managed the flotation of EN+. Shortly before this, the report says ‘Both the EN+ IPO [Initial Public Offering] and the sale of Russian debt in London appear to have been carried out in accordance with the relevant rules and regulatory systems, and there is no obvious evidence of impropriety in a legal sense.’ Yet, it then goes on to say the following:

We asked Linklaters to appear before the committee to explain their involvement in the flotation of EN+ … They refused. We regret their unwillingness to engage with our inquiry and must leave others to judge whether their work at ‘the forefront of financial, corporate and commercial developments in Russia’ has left them so entwined in the corruption of the Kremlin and its supporters that they are no longer able to meet the standards expected of a UK-regulated law firm.

This is quite outrageous, and also cowardly. The committee in effect accuses Linklaters of corruption, while avoiding complaints of libel by use of the weasel words ‘we leave to others to judge’ – a way of making an accusation while claiming that one hasn’t. What’s so outrageous about the statement is that comes straight after a confession that the EN+ flotation was completely above board. Linklaters didn’t do anything wrong, and the House of Commons committee knows it. Nevertheless, it sees fit to suggest that the company is ‘no longer able to meet the standards expected of a UK-regulated law firm.’

The implication here is that any company which has extensive dealings with Russian enterprises is ‘entwined in the corruption of the Kremlin’ and so unfit to do business. I cannot interpret this as anything other than an attempt by the committee to threaten British companies and intimidate them into dropping their lawful activities. I consider this disgraceful.

The committee’s attitude can be seen again towards the end of the report, when it writes that ‘instead of participating in the rules-based system, President Putin’s regime uses asymmetric methods to achieve its goals, and others – so-called useful idiots – magnify that effect by supporting its propaganda. So, there you have it. People who do with business with Russia are to be publicly shamed as unworthy of the standards expected of the British people, while those who would dare to point this sort of thing out are to be denounced as ‘useful idiots’. Having any dealings with Russia makes one a Kremlin stooge.

What the British House of Commons ignores is that lots of British citizens have perfectly legitimate reasons to do business with Russia, and do so in an entire legal and proper way. And others also have very good reasons to question public policy regarding Russia. None of them deserved to be insulted in this way by their elected representatives. The authors of this report should be ashamed of themselves.

Why we’re losing

As I noted in a previous post, the failure of the United States and its allies in Afghanistan and elsewhere is in large part a product of a lack of strategic thinking. But there is more to it than that. While Western armies are excellent from a purely tactical point of view – i.e. they can drop bombs and fight engagements very efficiently – both they and their civilian counterparts are staggeringly incompetent in other respects. Even with the best possible strategy, they would still probably fail.

To understand why, I urge you all (as I have done before) to read the reports of the Special Inspector General for Afghanistan Reconstruction (SIGAR). Here is a summary of the latest.  And bear in mind that this is just one small example. The waste identified here has been repeated in scores and scores of other projects. When the history of this campaign is written, the scale of waste, incompetence, and corruption will boggle the mind.

If it weren’t so tragic, you’d have to laugh (OK, I confess that I did).

Can somebody explain to me how they think we can win this war?

— DOD’s [US Department of Defense’s] decision to procure ANA [Afghan National Army] uniforms using a proprietary camouflage pattern was not based on an evaluation of its appropriateness for the Afghan environment.

— Procurement costs to the U.S. government were 40–43 percent [higher] than similar non-proprietary patterned uniforms used by the Afghan National Police (ANP), which potentially added between $26.65 million and $28.23 million to the costs of the ANA uniform procurements since 2008.

— In 2007, responsible DOD officials stated that they “ran across [HyperStealth’s] web site and the Minister [then Minister of Defense Wardak] liked what he saw. He liked the woodland, urban, and temperate patterns.” {This is where I laughed – PR}

— CSTC-A, in consultation with the Afghan MOD, decided to adopt the camouflage pattern containing a “forest” color scheme for ANA uniforms, despite the fact that forests cover only 2.1 percent of Afghanistan’s total land area. {And laughed again – PR}

— Determining the effectiveness of a uniform pattern for a specific environment requires formal testing and evaluation.

— Acording to a technical paper prepared for the U.S. Marine Corps and U.S. Army, the spatial characteristics and color palette of a camouflage pattern should be tailored to the specific environment. Matching a camouflage pattern “with background texture, color, and contrast is essential to all levels of visual processing.”

— CSTC-A, however, made the decision to procure 1,364,602 ANA uniforms and 88,010 extra pairs of pants —totaling approximately $94 million—using HyperStealth’s Spec4ce Forest camouflage pattern without conducting any formal testing or evaluation.

— As a result, neither DOD nor the Afghan government knows whether the ANA uniform is appropriate to the Afghan environment, or whether it actually hinders their operations by providing a more clearly visible target to the enemy.

— CSTC-A recommended a sole-source award to HypersStealth but the DOD contracting office believed that, because there were so many available camouflage patterns in the world, a sole-source award would be hard to justify.

— Instead of issuing a sole-source award, DOD issued a local acquisition solicitation that included the requirement that the uniforms use HyperStealth’s proprietary Spec4ce Forest camouflage pattern.

— CSTC-A initially estimated that the new ANA uniform would cost $25–$30 per set. The actual cost ranged from $45.42–$80.39 per set.

— Our analysis found that changing the ANA uniform to a non-proprietary camouflage pattern could save U.S. taxpayers between $68.61 million and $72.21 million over the next 10 years.

— SIGAR suggests that DOD conduct a cost-benefit analysis of the current ANA uniform specification to determine whether there is a more effective alternative, considering both operational environment and cost, available.

 

Some thoughts on the Putin corruption story

The big news today is the publication of millions of pages of leaked documents from the Panamanian law firm Mossack Fonseca, which helps wealthy clients set up offshore companies. The international media is paying special attention to those documents which concern Russian cellist Sergei Roldugin and various strange multi-million dollar business deals involving Roldugin and companies associated with him. Since Roldugin is a close friend of Vladimir Putin, the Western press is using the story to imply that Putin himself is both corrupt and extraordinarily wealthy. Thus the front page headline of Monday’s copy of The Guardian reads: ‘The $2bn dollar trail that leads to Vladimir Putin’.

No doubt these revelations will spark a flurry of vigorous debate about whether the documents really do show that Putin is corrupt. What interests me more, though, is what impact this story is likely to have on Russian-Western relations.

Those in the anti-Putin camp, which includes most of the West, will take the Mossack Fonseca leaks as corroboration of their belief that Putin heads a kleptocratic system, the sole purpose of which is to enrich those governing Russia. They will assume that Roldugin could not have acted without Putin’s knowledge and that his companies are merely fronts which Putin uses to hide his corruptly acquired billions. This image of Putin will strengthen the hand of those who maintain that Western states must take a hard line against the ‘Putin regime’ and work with liberal forces within Russia in order to bring about ‘regime change’.

On the other side, those who support Putin, both in Russia and outside it, will wonder why, when the leaks contain information about scores of prominent figures around the world, the Western media is focusing so relentlessly on Putin when reports say that the documents in question don’t mention him even once. They will point out that Roldugin’s activities have not been shown to be illegal and that any connection with Putin is pure speculation. They may even ask why headlines give such prominence to Putin and not to Ukrainian president Petro Poroshenko, given that the leaked material does mention Poroshenko and says that he went ‘so far as to arguably violate the law twice, misrepresent information and deprive his country of badly needed tax dollars during a time of war.’ No doubt Russians will conclude that the answer is that the Western media is determined to blacken Putin’s name no matter what the facts.

In short, I expect that confirmation bias will ensure that both the pro- and anti-Putin camps (which means to a large degree the West on one side and Russia on the other), will interpret the story in such a way as to reinforce their existing suspicions. The exposure of Mr Roldugin’s business deals is unlikely to have any significant effect on the way the Russian government operates or on the Russian public’s view of Vladimir Putin, but it will make it harder for Russia and the West to see eye-to-eye in the future.