The bankruptcy of T-Platforms, once the undisputed leader in Russian supercomputers, wrapped early this past October. The tale of its liquidation and the ruination of its founder, Vsevolod Opanasenko, encapsulates the double-bind confronting Russian tech entrepreneurs today: choose to keep a low profile and never realize your full commercial potential or grow big with government funding on terms that leave you vulnerable to abuse from unscrupulous competitors working with corrupt law enforcement. The history of T-Platforms’ folding illustrates that very real dangers these entrepreneurs face when deciding whether to accept the support of the Russian state.
The circumstances behind T-Platforms’ bankruptcy and Opanasenko’s fall from grace suggest that the prevailing Putinist political economy , which tolerates predation on private business by state officials and private citizens alike in return for political fealty, may undermine the Kremlin’s efforts to attain “digital sovereignty“. The bureaucratic rapacity evidenced in the T-Platforms saga will metastasize: the more resources the Kremlin allocates to maintaining a neglected domestic microelectronics sector beset by punitive US and allied export controls, the greater the feeding frenzy for access to those resources among interested parties both within and without the Russian state. Tech entrepreneurs caught up in this frenzy run a worryingly fair chance of ending up behind bars.
T-Platforms’ story is in many ways the story of its founder, Opanasenko, who began his career under the tutelage of physicist and senior Soviet Academy of Sciences principal Yevgeny Velikhov (perhaps best known as being the man who first brought Japanese computers to the Soviet Union). A perestroika wunderkind, Opanasenko claimed in one undated interview to have received a tape player and a medal from the Soviet government for helping make a graphics library for Japanese video game company Konami.
Opanasenko subsequently studied at the K.E. Tsiolkovsky Russian State Technological University, where he had a profitable side-hustle in the form of a PC import business he named Micronic. So successful was Micronic that by the early 2000s it had managed to buy an entire PC peripherals factory in China. Nonetheless, pricing wars between Micronic and competing peripherals importers made it a less than profitable enterprise. Opanasenko sold off the Chinese plant in 2002 to focus on the supercomputer sector, the competition in Russia for that market being negligible and the profit margins considerable.
Opanasenko parlayed the proceeds from the 2002 sale of Micronic’s Chinese factory to set up T-Platforms that same year. His timing could not have been more perfect, as rising prices over the next decade gradually eased the trauma of Russia’s 1998 financial crisis and stimulated demand among Russian universities and firms for access to supercomputers’ potential to generate unique scientific insights and unlock hitherto hidden business opportunities (which are of course not necessarily mutually exclusive).
T-Platforms first struck big as a participant in “Supercomputer Initiative Feniks” or SKIF, а joint Russo-Belarusian program aimed at providing universities and research in those countries with access to supercomputing platforms. With backing from the Russian Ministry of Industry and Trade (Minpromtorg) and the Belarusian Academy of Sciences, T-Platforms developed the SKIF-1000 supercomputer for a cool $2 million. Opanasenko’s company subsequently built on this success by developing a series of turnkey supercomputers for various Russian universities throughout the 2000s.
T-Platforms scored again in November 2009 with the rollout of the “Lomonosov” supercomputer, which the company developed for use by Moscow State University (MGU). MGU loaned the Lomonosov’s computing power to everyone from pharmaceutical researchers to boffins seeking models capable of forecasting Russia’s socioeconomic development over the next five decades. Such was T-Platforms’ success and appeal that in October 2010 Vneshekonombank obtained a 10% stake in the company, which Opanasenko said would help T-Platforms become a contender in the global supercomputing arena.
By 2012, T-Platforms had launched a chip design business under the name Baikal Electronics, had already managed to secure more than 200 international patents and was opening offices in Hong Kong, Hannover, and Palo Alto – the heart of America’s Silicon Valley. Opanasenko described these ventures to Ъ as being akin to “stepping into the domain of monsters’ – namely, more developed, established software and computer companies in Europe, the United States, and East Asia. Little did Opanasenko realize that other, more immediate concerns awaited him closer to home.
T-Platforms’ downfall began, ironically, with a success: a November 2016 contract to supply Russia’s Interior Ministry (MVD) with computers containing a new chip design by the company’s chip design arm, Baikal Electronics, which had by then attracted VEB and state tech incubator Rosnano as investors. Awarded for RUB 357 million, the contract required T-Platforms (there were no other bidders) to supply 9,348 computers containing Baikal Electronics’ new Baikal T-1 microprocessor for use in MVD-run driver license tests.
The deal proved a disaster. The Nevember 2016 contract required T-Platforms to deliver the 9,348 computers to the MVD by no later than 1 July 2017. The company ended up sourcing just 1,837 computers and, to make matters worse, delivered those units nearly a month after the 1 July deadline. The MVD refused delivery and T-Platforms filed suit to extract payment. T-Platforms asserted that the deal fell through because the MVD withheld advance payment and necessary information, but the claim went nowhere in court.
Weighing in on the matter, Russia’s Federal Anti-monopoly Service (FAS) rejected T-Platforms’ argument that MVD had tanked the contract and started investigating the November 2016 deal along with a separate supercomputer contract awarded to T-Platforms by Rosatom’s Kurchatov Institute. One anonymous Vedomosti IT industry source offered that T-Platforms had been greedy because it had not solicited certain unspecified partners to help implement the contract. Others noted that Russian state customers seldom revise delivery timelines while Russian law enforcement tracks contractual delays closely, a legal liability nightmare replete with potential for civil litigation, if not criminal prosecution.
Although Vedomosti‘s IT industry sources generally agreed that T-Platforms shouldered much of the blame for the contract’s failure, they also concurred that Russia’s federal procurement system exposed contractors to considerable pressure from regulators and federal law enforcement. Public procurement contracts of course merit close monitoring, not least given that the funds disbursed under such contracts ultimately come from the public’s purse. Routine monitoring crosses a line, however, when state monitors fabricate legal and regulatory against companies on behalf of private patrons interested in seizing those companies’ assets. The available evidence, though circumstantial, indicates Opanasenko and T-Platforms might have fallen victim to just such a scenario.
The troubles began in October 2017, when agents with FSB’s M Directorate arrested Andrey Nechaev. According to Ъ, Russia’s Investigative Committee (SK) had taken an interest in certain contracts that Nechaev had approved in his capacity as one of MVD’s lead IT engineers. The FSB reportedly broadcast quite literally Nechaev on the sidelines of a flashy Moscow tech expo, a spectacle that was picked up by Russian state media – a possible sign of the weight assigned to the unfolding case.
Matters escalated decisively on March 27, 2019, when a Moscow court jailed Opanasenko and the then-head of the MVD’s IT department, Alexander Alexandrov. SK reportedly arrested both men on criminal abuse of power charges in connection to the November 2016 driver’s test computer contract. In February 2020, the investigative agency added two fraud charges against Opanasenko on the grounds that he and Baikal Electronics – T-Platforms’ chip design affiliate – had defrauded MVD by delivering computers with subpar processors.
Opanasenko found a prominent advocate early on in Anatoly Chubais, the head of Baikal investor Rosnano. Speaking to Forbes Russiain October 2019, Chubais hailed Opanasenko as one of Russia’s most important innovators and decried his jailing as “a crude violation of the law”. Chubais, who left Russia over Putin’s escalation of the Ukraine conflict in February 2022, is currently under investigation in connection to his tenure as Rosnano chief between 2010 and 2020, during which time the company allegedly accumulated upwards of $3.5 billion in debt. Boris Titov, Putin’s entrepreneur rights tsar, was another of Opanasenko’s supporters. In a December 2020 interview with Vedomosti, Titov maintained that the MVD had mishandled the November 2016 deal and thus compromised – maybe deliberately – T-Platforms’ ability to fulfill its contractual obligations.
T-Platforms’ troubles did not end with Opanasenko’s March 2019 arrest, however, as Russia’s Federal Tax Service (FNS) and several business partners also filed involuntary bankruptcy claims against the company. By December 2019, T-Platforms had lost up to 80% its employees, prompting its press service to decry VEB’s lack of support for the company in the wake of Opanasenko’s jailing. That same month, Vedomosti reported that the Russian government was considering transferring control of T-Platforms to VEB subsidiary NM-Tekh – the very same company that employed Frolov as a general director.
Titov and Chubais stopped short of identifying the person or persons they thought might be responsible for T-Platforms’ and Opanasenko’s legal woes. Insofar as there exists any one person who might have had a stake in Opanasenko’s prosecution, Denis Frolov appears to be the most likely candidate. In late October 2020, Ъ reported that Varton, the CEO of LED light manufacturer Varton, was in talks to purchase a 60% stake in Baikal Electronics. How exactly Frolov and Varton planned to finance the estimated RUB 4 billion transaction was never clear.
VEB – by now аn backer both of T-Platforms and Baikal Electronics – may have positioned Frolov to negotiating this deal on VEB’s behalf. Frolov wore many hats outside of his work for Varton, the most remarkable being his role as the general director of VEB subsidiary NM-Tekh. Varton successfully negotiated a 70% stake in Baikal Electronics in late June 2021. Sources interviewed by Ъ estimated the chip designer’s worth at around RUB 3-6 billion – a valuation, the business paper noted, that was largely reflective of increased demand for import substitution in the microelectronics sector.
These details, while sketchy, show that Frolov, a person affiliated with VEB, took advantage of T-Platforms’ and Opanasenko’s legal troubles to buy a majority stake in Baikal Electronics. This arrangement notionally benefited VEB by placing in charge of Baikal Electronics a known quantity who could help VEB access whatever subsidies the Kremlin might extend to the chip designer. But this is admittedly only a theory.
What is not a theory is that SK agents searched Frolov’s home and brought him in for questioning the following October. Frolov’s attorney claimed that SK had interviewed his client as a witness in an investigation into a separate matter involving a scheme to bribe police into prosecuting Alexander Kalinin, the president of Russian IT giant National Computer Corporation (NKK). Here it’s worth noting that NKK appointed Frolov to Kalinin’s post not long before Varton gained its majority holding in Baikal Electronics. A more thorough accounting of Frolov’s dealings with NKK and Kalinin is, regrettably, beyond the scope of the present summary.
Some commentators, such as The Moscow Post, have obliquely hinted that Frolov’s activities vis-a-vis Baikal Electronics evidenced a Machiavellian contest for control of the Russian microelectronics industry between VEB chief and former deputy PM Igor Shuvalov, on the one side, and Rostec chief Sergey Chemezov and his supposed protégé, Minpromtorg head Denis Manturov, on the other. Such claims are difficult to substantiate – not least given The Moscow Post’s proclivity for running scurrilous rumors about the Kremlin’s liberal technocrat camp – are not wholly implausible. Putin’s subordinates have, after all, waged turf wars over less (see the Three Whales scandal).
Т-Platforms’ prospects were revived briefly in November 2020 when FNS withdrew its involuntary bankruptcy complaint against the company. It even brought on a new general director and embarked on a hiring spree in anticipation of “returning to the market”. No such return ever materialized, however, as several other private creditors continued to push for T-Platforms’ liquidation. Matters finally came to a head in October 2021, when T-Platforms itself filed for voluntary bankruptcy after Minpromtorg filed a claim against the company for RUB 2.76 billion.
Opanasenko was finally freed in January 2022, by which time he had spent 34 months behind bars and under house arrest. In March 2022, CNews.ru, citing anonymous sources, reported that Rostec had hired Opanasenko to “high position”, though none of them agreed on the exact details of his appointment. Yet Opanasenko suffered another personaly setback when, in August 2022, a court ordered him to pay VEB RUB 1.65 billion in fines. The ruling appears to have pushed Opanasenko to file for bankruptcy the following month. The criminal case against Opanasenko and Alexandrovich, meanwhile, remained open in Moscow’s Meshchanskiy Court City Court as of early this past September. Opanasenko’s fate remains in limbo.
Russian tech industry analyst Valeriya Brusnikina neatly summarized the issue behind T-Platforms’ undoing in a January 2022 interview with Skillbox.ru. Commenting on public procurement contracts, Brusnikina observed that “state financing is always accompanied by heightened scrutiny from law enforcement structures and core ministries and agencies”. The “heightened scrutiny” that brought down T-Platforms and Opanasenko will continue to suffuse the Russian tech industry with an atmosphere of distrust where no real risks can be taken and thus no rewards reaped. Those tech entrepreneurs who remain in Russia may do well to remember what happened to Opanasenko before accepting support from the federal government. The Kremlin cannot expect to preserve and expend Russia’s productive technological capacity if it does not afford hi-tech ventures some guarantee of protection from predatory state networks and their commercial accomplices.
A few weeks ago I posted a brief piece detailing the ties between Alexander Yevgen’yevich Udodov — the former brother-in-law of Russian Prime Minister Mikhail Vladimirovich Mishustin, whose younger sister, Nataliya Vladimirovna Stenina, was married to Udodov from 2008 until December 2020 — and Russian businessman Alexander Petrovich Karmanov, a major oil and gas pipeline supplier and reputed associate of longtime Putin confidantes Arkady and Boris Romanovich Rotenberg. I wrote that post as a sort of prologue to the present one, which concerns an obscure legal dispute in which Udodov played a central role. This dispute arose from a promissory note agreement that Udodov concluded on 27 December 2017 with OOO Telefon 365, a low-profile company with a 19.5-percent stake in a Moscow-based broadband provider, OOO Tsifra Odin, which has obtained millions of rubles in contracts from government agencies and state-owned enterprises active in Russia’s national security sphere. These contracts situate Tsifra Odin at the center of the Kremlin’s efforts to digitalize the Russian state and economy – efforts that stand to bring about substantial economic growth while at the same time creating opportunities for new “digital” rents.
The following text presents evidence that Udodov’s lawsuit against Telefon 365 complemented an effort by agencies affiliated with senior government technocrats — including Mishustin — to bring Tsifra Odin under the control of regime insiders trusted to operate the company in line with the Kremlin’s digitalization strategies. The circumstances and outcome of this legal dispute suggest that Udodov took advantage of an investigation into a Tsifra Odin principal by Kazakhstani law enforcement to coerce Telefon 365’s owners into giving up their shares in the latter company, along with its minority stake in Tsifra Odin, to Udodov’s attorney. I argue that while the Kremlin’s tolerance of such practices may ensure the present regime’s control over the pace of Russia’s digitalization in the short run, in the long run it may draw the the formal digital transformation of the Russian state and economy in what Alena Ledeneva describes as the “modernization trap of informality” by permitting members of the Russian political and economic elite to secure digital rents through informal corporate raid tactics of questionable legality.
Corporate raiding has a rich history in post-Soviet Russia, so there exists a special term for the practice in Russian: reiderstvo. The reiderstvo phenomenon first manifested itself during the 1990s against the backdrop of the privatization of the Russian economy. Stirred by the prospect of commercial profits and unconstrained by a Russian state whose law enforcement capacities had seriously deteriorated in the wake of the Soviet collapse, early Russian corporate raiders resorted to corrupt, illegal, and occasionally violent methods to take control of lucrative enterprises or, alternatively, to eliminate their business rivals. Putin’s accession to the Russian presidency brought reiderstvo to heel by permitting its “monopolization” by loyal oligarchs, tolerating the latter’s use of similarly expropriative tactics in exchange for their bringing key sectors of the Russian economy under the Kremlin’s nominal control. Reiderstvo thus is a cyclical phenomenon, that has tended to intensify during periods of significant economic change. That Udodov’s legal dispute with Telefon 365 appears to have culminated in an act of reiderstvo suggests that the broader dispute over Tsifra Odin – of which Telefon 365 is a minority shareholder – may be a bellwether of further upheavals to come in Russia’s digital transformation. Whether this transformation will bring about genuine rule of law is questionable, as Udodov’s apparent use of reiderstvo in the Telefon 365 matter suggests that digitalization, far from being a salve for Russia’s economic stagnation, may turn out to be a poisoned chalice that unleashes a destabilizing contest for digital rents.
I have attempted to corroborate my assessments with reputable open-source materials wherever possible. In many instances, these materials provide at best an incomplete thumbnail of what appears to much bigger picture. To overcome this limitation, I have also organized my findings chronologically into numbered sections to lend a measure of order on what might otherwise appear to be a string of unrelated events. Yet because many of these events overlap with one another, it is difficult to articulate them in a neatly chronological fashion. To overcome this temporal limitation, I frequently refer backwards or forwards to previous or ensuing sections, both to convey certain continuities between ostensibly unrelated events and as a general referential anchor.
UDODOV, TELEFON 365, AND THE TSIFRA ODIN AFFAIR: AN OVERVIEW OF KEY THEMES AND EVENTS
1. RUSSIA’S DIGITAL TRANSFORMATION IN CONTEXT
The Kremlin’s digitalization strategy aims to manage potential internal and external threats posed by the proliferation of digital technologies within the Russian economy and society at large. Underpinning this strategy is the principle of “digital sovereignty”, which Putin himself has defined as the state’s capability to “independently determine the variables for regulating its information space and the corresponding infrastructure”. To this end, the Kremlin has pushed to substitute imported digital technologies with domestic analogues that reduce the country’s reliance on foreign companies, as well as passing legislation that would effectively place the infrastructure behind the Russian segment of the internet under centralized state control.
The implementation of these and other measures relevant to the Kremlin’s digitalization program promises to enrich Russia’s information and communications technology (“ICT”) sector and its participants. For example, on July 2014, Putin signed Federal Law 242, which indirectly subsidizes the Russian data center industry by compelling foreign companies to rent space on Russian servers lest they run afoul of the law’s data localization provisions. The Kremlin also promises to provide direct subsidies to the Russian ICT sector: at the time of this writing, the President’s Council on Strategic Development and National Projects plans to spend a total of RUB 768.5 million (approximately USD 10.1 million) on “information infrastructure” projects by 2024. Businesses already familiar with the intricacies of digital and economic technologies also stand to benefit from the Kremlin’s strategic digitalization efforts in the form of state subsidies. Appearing at the St. Petersburg International Economic Forum in June 2017, Putin avowed that the Kremlin would “support those companies that bring with them developments and competencies in digital technology”.
Russia’s political and business elite also stand to profit from the Kremlin’s digitalization efforts in terms of enhanced political and economic capital through their management of “digital” rents. Moscow State University professors Islam Zelimkhanovich Geliskhanov and Tamara Nikolaevna Yudina conceptualize “digital rent” as a variety of monopolistic rent that accrues to subjects who hold an exclusive right to the use of “unique and valuable information-digital assets”. Minchenko Consulting — a Moscow-based public relations firm that publishes a series of widely–cited annual reports on Russian political and business elites under the title “Politburo 2.0” — assesses in its July 2021 Politburo 2.0 report that the search for digital rents and other non-natural resource rents has taken on a new urgency inside due to instability in global commodity markets, European Union carbon taxes and global decarbonization efforts more generally, and pressure from Western governments. Mishustin himself has described digital data not just as the “oil, gold, and platinum of the 21st century” but also as a means for growing the efficiency of the Russian economy. Mishustin’s comments speak to the significance assigned by the Kremlin to digitalization as the source of a new class of commodity – namely, data – and further implies that the Kremlin intends to make sure that those who stand to profit most from digitalization will place the interests of the Russian state before their own.
To this point, Minchenko Consulting’s July 2021 Politburo 2.0 assesses that Mishustin is one of several members of the Russian political and economic elite who stand to benefit from government support for the Kremlin’s digitalization drive in the form of enhanced regulatory and tax privileges, along with Sberbank CEO German Oskarovich Gref, Rostec CEO Sergey Viktorovich Chemezov, oligarch Alisher Burkhanovich Usmanov, and Deputy Prime Minister Dmitry Nikolaevich Chernyshenko.[i] Mishustin’s former brother-in-law, Udodov, is well ahead of the curve, having invested in a number of projects in the ICT sector that stand to profit from Russia’s digital transformation.
Mishustin enjoys the Kremlin’s imprimatur in managing the digitalization of the Russian government and society. Putin himself has cited Mishustin’s efforts to modernize the FNS as the principal reason for his decision to appoint Mishustin to the premiership. Mishustin’s authority as the Kremlin’s “digitalization tsar” is apparent from his public statements:
On 12 March 2020, Mishustin, speaking at a meeting of deputy chiefs of various federal agencies and ministries, announced his intention to set up a “digital spetsnaz” (“spetsnaz” being the Russian term for special operations forces) to manage the process of digitalizing the work of same state agencies and ministries. Mishustin estimated that this process would take three years.
On 9 July 2020, Mishustin opined in a speech before the plenary session of an IT industry forum in Kazan that the digital transformation of Russia offered the country a chance to attain a higher level of development, adding, that Russia “cannot allow itself to occupy a place among secondary states […] we must move forward and be leaders in this sense”.
On 5 February 2021, Mishustin spoke out in favor of the member states of the Eurasia Economic Union (“EAES”) adopting a common digital platform to facilitate economic exchanges with one another, warning that countries which lacked their own digital platforms risked becoming “informationally, politically, and economically dependent upon fоreign digital solutions”.
On 23 June 2021, Mishustin argued before an economic forum in Chuvashia that digitalization was a prerequisite for economic growth, social development, and improvement of the quality of Russian citizens’ lives, adding that he approved of the attention paid by the forum’s organizers to digitalization and digital solutions for companies and information security.
The above citations indicate that Mishustin has staked his political credibility on successfully implementing the digital transformation of Russia’s government and economy. The notion of Mishustin concerning himself with issues of political capital may strike some as novel, as many commentators have depicted Mishustin as a “technocrat” who, because he ostensibly operates outside of “traditional clans”, is thus unconcerned with the palace intrigues among informal Kremlin elites. Yet just because Mishustin is a technocrat does not mean that he is unconcerned with his reputation: multiple sources, including “businesspeople, journalists, publicists, Mishustin’s friends, and other state officials”, reportedly toldMeduza special correspondent Farida Rustamova that Mishustin is “fanatically obsessed with his own reputation and image in the media”.
Mishustin’s concern with his public image in managing the Kremlin’s digitalization agenda may be further compounded by the fact that he owes much of his cachet to his success in digitalizing the work of the Federal Tax Service. (“FNS”) Thus, Mishustin’s professional reputation would suffer considerably were he to mismanage or be perceived to have mismanaged the implementation of the Kremlin’s digitalization agenda, a situation that could open him up to attacks — including, potentially, trumped up charges of corruption — from competition for digital rents by potential rivals within and outside of the Russian elite.
2. UDODOV’S INVESTMENTS IN THE RUSSIAN ICT SECTOR
Udodov is known to have invested in at least three ICT companies. One such company is OOO GDTs Energy Group (“GEG”), which operates a data center, GreenBushDC, near Moscow. GEG was originally incorporated on 17 July 2007, though Udodov’s shares in the company were first registered on 30 June 2014. Several days earlier, on 23 June 2014, Udodov was registered as a 45-perecent shareholder of another data center operator, OOO Inforesurs Sankt-Peterburg, (“ISPB”) which was first incorporated on 24 June 2009. GEG and ISPB were registered in special economic zones (“SEZs”) outside of Moscow and St. Petersburg. This is notable insofar as Mishustin headed the federal agency responsible for overseeing Russia’s SEZs from 2007 to 2008, (see Section 6.1.1) although there is no evidence that Mishustin used this post to provide preferential treatment to either GEG or ISPB.
The timing of Udodov’s entry into GEG and ISPB was fortuitous, as less than a week later the State Duma passed a set of provisions that required Russian as well as foreign companies to use servers located inside the Russian Federation for collecting and processing the personal data of Russian citizens. These provisions — which Putin formally enacted into law on 21 July 2014 — promised to enrich data center companies like GEG and ISPB, which operate colocation facilities that rent out space for servers, networking equipment, and other ICT services to corporate clients.
Though information regarding GEG and ISPB’s clientele is scarce, the available evidence indicates that both companies have secured business from several important SOEs. In November 2020, GEG won a RUB 46.8 million (approximately USD 606,396 per contemporary exchange rates) data center services contract from AO Unified Electronic Trading Platform (“Roseltorg”), of which the Moscow City Government and state-owned PAO VTB Bank are 51.82- and 48.18-percent shareholders, respectively. Media citations indicate that ISPB’s data center project at one time reportedly attracted customers ranging from Gazprom to the partially state-owned telecommunications company Rostelecom.
Even so, neither GEG nor ISPB appear to be particularly successful ventures. Financial records obtained by independent Russian media outlet OpenMedia.io show that GEG lost almost RUB 430 million (approximately USD 6-7 million per contemporary exchange rates) in 2019 alone. Separately, between 2017 and 2018, multiple media citations reported that the St. Petersburg city government (“PSB”) was preparing to pursue civil litigation aimed at ejecting ISPB from the St. Petersburg SEZ after an audit discovered that the company had not performed work in accordance with the terms of its status as an OEZ resident. On 9 January 2018 the PSB’s Committee for Industrial Policy, Innovations, and Trade (“KPPIT”) filed a breach of contract claim seeking RUB 1 million (approximately USD 17,555 per contemporary exchange rates) in damages from ISPB in the Arbitration Court for the City of St. Petersburg and Leningrad Oblast. The court initially ruled against KPPIT, though KPPIT’s claim against ISPB was upheld by the Supreme Court of the Russian Federation following a series of appeals on 19 September 2019.
Despite these issues, Udodov has continued to invest in Russia’s digital development. Multiple media citations report that Udodov has entrusted money with Alexander Vladimirovich Galitsky, a Russian entrepreneur with investments in numerous ICT projects — including a public-private initiative aimed at curtailing the circulation of contraband and counterfeit goods through “smart label” technologies. Separately, Russian corporate records show on 19 February 2021, Udodov obtained a 12.5-percent stake in OOO Prime Group, an IT services company whose clients include Gazprom, Lukoil, PAO Norilsk Nickel, and the Central Bank of the Russian Federation. Notably, Udodov acquired these shares in Prime Group one day after the company secured a RUB 24 million (approximately USD 324,184 per contemporary exchange rates) IT consulting contract from the Ministry of Economic Development. In August 2021, Udodov reportedly sold his 12.5 percent stake in Prime Group to former Deputy Information Technology and Communications Minister Dmitry Alexandrovich Milovantsev, who already held at 25-percent stake in Prime Group.
3. TSIFRA ODIN, NIK RAZVITIE, AND TELEFON 365 — BACKGROUND INFORMATION
One of Udodov’s lesser-known investments is Telefon 365, which, as noted above, is a 19.5-percent shareholder of Tsifra Odin. According to its corporate website, Tsifra Odin is a Moscow-based internet services company that specializes in providing broadband services to corporate clients and households.The remaining 80.5-percent of Tsifra Odin’s shares belong to Eurasia Investments, a closed-end investment fund managed by financial services firm OOO Holding Company NIK Razvitie; the latter company’s beneficiaries include a former Soviet intelligence agent who purportedly served alongside Putin in the KGB and a non-profit fundraiser affiliated with the pro-Putin United Russia party.
3.1. TSIFRA ODIN: A MOSCOW-BASED BROADBAND PROVIDER WITH TIES TO ELITE KAZAKHSTANI BUSINESS AND POLITICAL FIGURES
The front page of Tsifra Odin’s corporate website (cifra1.ru)
Tsifra Odin was incorporated on 30 January 2009. The earliest recorded shareholder of Tsifra Odin is Trivon Communications Ltd., a Cypriot company whose 100-percent stake in Tsifra Odin was registered on 3 February 2016. Information regarding Trivon Communications is scarce, although US law firm Akin Gump claims to have advised Trivon Communications on its acquisition of Tsifra Odin.
On 18 November 2016, Trivon Communications’ shares in Tsifra Odin were transferred to OOO Alma Group and Nadezhda Yur’yevna Ryabchevskaya, who obtained 99.99- and 0.01-percent stakes in Tsifra Odin, respectively. Limited information is available regarding this ownership change; however, ICT market sources interviewed by Russian business news daily Kommersant for a 12 January 2016 article claimed that Alma Group — which had bought a number of other Russian telecommunications companies since 2015 — was affiliated with Kazakhstani cable operator Alma-TV. Alexander Avenirovich Gadalov, the then-general director of Alma Group — after April 2017, of Tsifra Odin — and denied the existence of any formal connection between Alma Group and Alma-TV, asserting that the former was a “strategic partner” of the latter. In June 2016, however, Dmitriy Vladimirovich Pankin, the chairman of the Eurasian Development Bank (“EABR”) — a multilateral development bank affiliated with the Russian-backed Eurasian Economic Union initiative — stated that EABR had provided USD 150 million in financing to support Alma-TV’s acquisition of telecommunications companies in Russia. This suggests that Alma-TV financed Alma Group’s acquisition of Tsifra Odin and other Russian telecommunications firms.
Per Forbes Kazakhstan, Dinmukhamet Appazovich Idrisov – a Kazakhstani millionaire and shareholder of Kazakhstani bank AO Bank RBK, acquired a 100-percent stake in Alma-TV from Dariga Nursultanqyzy Nazarbaeva, the eldest daughter of Kazakhstani President Nursultan Äbishuly Nazarbaev, in May 2014. Kazakhstani businessman Zhomart Zhadygerovich Ertaev, who reputedly managed Dariga Narazabaeva’s assets until 2016, appears to have served as Alma Group’s honorary president. Research did not identify any evidence that Ertaev represented Dariga Nazarbaeva’s fiduciary interests as Alma Group’s honorary president.
3.1.1 TSIFRA ODIN’S WORK FOR ENTITIES INVOLVED IN SENSITIVE NATIONAL SECURITY PROJECTS
According to public procurement data compiled by the Civic Initiatives Committee, a non-profit organization co-founded by Russian Accounts Chamber head and former Finance Minister Alexei Leonidovich Kudrin, Tsifra Odin had obtained at least RUB 742 million (approximately USD 13.3 million per contemporary exchange rates) in ICT-related contracts from federal and local government bodies by January 2018. Many of these contracts were awarded by entities actively in engaged in activities of concern to Russia’s national security, including:
PAO Rostelecom — A publicly-traded telecommunications company of which the Kremlin’s Federal Agency for State Property Management was a 35.91-percent shareholder as of 31 December 2020. According to the Civic Initiatives Committee’s data, Rostelecom has also awarded Tsifra Odin several multimillion-ruble contracts, including a 1 April 2017 deal for the provision of “wired telecommunications systems” worth RUB 1.35 million (approximately USD 23,997 per contemporary exchange rates) and a similar contract for RUB 4 Million (approximately USD 65,496 per contemporary exchange rates) from 23 December 2016. Tsifra Odin’s transactions with Rostelecom are notable to the extent that the latter company plays a major role in Russia’s cybersecurity strategy: in September 2018, Rostelecom signed an agreement with the FSB to cooperate in “identifying, preventing, and liquidating computer attacks”. In December 2019, Mintsifry awarded Rostelecom RUB 364.55 million (approximately USD 5.73 million per contemporary exchange rates) in state subsidies to set up a “cyber proving ground” designed to conduct wargames of cyberattacks on “key sectors of the Russian economy”. Although there is no evidence of Tsifra Odin’s direct involvement in these efforts, Tsifra Odin’s provision of services pertaining to Rostelecom’s telecommunications infrastructure implies that the former had some exposure to the latter’s more sensitive cybersecurity efforts.
N.L All-Russian Scientific Research Institute of Automation (“VNIIA”) – A branch of the state-owned nuclear energy monopoly Rosatom responsible, inter alia, for the design and development of Russia’s nuclear warheads. One such agreement, concluded on 8 December 2017, saw VNIIA award Tsifra Odin RUB 1,440,000 (approximately US 24,357 per contemporary exchange rates) for the creation of a back-up communications channel, presumably for the purpose of ensuring the flow of communications in the event of disruptive event such as a cyberattack; a supplementary contract from 29 December 2018 shows that VNIIA contracted this work to Tsifra Odin.
Chief Military Investigations Department of the Investigative Committee of the Russian Federation (“GVSU-SKRF”) — A section of the Investigative Committee (“SKRF”) — an independent law enforcement agency directly subordinate to the office of the Russian President — responsible for investigating criminal activity within the Russian armed forces. On 16 June 2016, GVSU-SKRF awarded Tsifra Odin a RUB 1,399,406 contract (approximately USD 21,553 per contemporary exchange rates) to service the section’s internet infrastructure.
3.2. NIK RAZVITIE: A DE FACTO AUTONOMOUS SUBSIDIARY OF UNITED RUSSIA-AFFILIATED FUNDRAISING BODY WITH POSSIBLE TIES TO THE RUSSIAN SECURITY SERVICES
On 24 May 2017, Alma Group and Ryabchevskaya’s shares in Tsifra Odin were re-registered under the ownership of Eurasia Investments, a closed-end investment fund managed by NIK Razvitie. 47-percent of NIK Razvitie’s shares belong to OOO National Innovation Company (“NIK”), a wholly owned subsidiary of the National Foundation for Regional Cooperation and Development (“NFPR”), a fundraising body affiliated with the United Russia party, which has historically maintained a close relationship with President Putin. Court records indicate that Eurasia Investments’ investors included Alma Group honorary president Ertaev. (See Section 14)
Russian corporate records identify an entity known as the Interregional Civil Fund for the Support of All-Russia Party “UNITY and FATHERLAND” — United Russia (“MOFP-VRP-EiO-ER”) as the sole beneficiary of NIK Razvitie’s majority shareholder, NIK. A 7 October 2016 United Russia press release indicates that MOFP-VRP-EiO-ER was subsequently renamed to NFPR. NIK’s tax registration documents list MOFP-VRP-EiO-ER’s tax identification number (“TIN”) as 7709312370; research determined that NFPR shares the same TIN as MOFP-VRP-EiO-ER.
According to the Organized Crime and Corruption Reporting Project (“OCCRP”), NFPR collected funds for United Russia until the passage of a law in 2014 that barred outside fundraising for political parties. OCCRP estimates that NFPR contributed RUB 400 million (approximately USD 5.42 million) to Putin’s 2017 presidential re-election campaign. A 0.005-percent stake of NIK Razvitiye’s shares belong to its cofounder, Kirov Oblast governor and former Federation Council representative for the Komi Republic Igor Vladimirovich Vasil’yev. In addition to his gubernatorial role, Vasil’yev currently sits on United Russia Supreme Council. According to his official profile on United Russia’s website, Vasil’yev managed investments on behalf of the party’s Central Executive Committee in 2004. During this period, Vasil’yev reportedly also served as the vice-president of an entity called the Interregional Civil Fund for the Support of United Russia, (“MOFP-ER”) which appears to be a successor of MOFP-VRP-EiO-ER.
Multiple media citations, as well as Vasil’yev’s own website, report that he served alongside Putin in the KGB’s foreign intelligence service during the 1980s. In a 2004 interview with a Komi Republic-based media outlet, Vasil’yev — whom the outlet described as a former intelligence officer — confirmed that he had served in the “same [KGB] directorate” as Putin, adding that their acquaintance was “not one-sided”. A member of the Civil Chamber for the Komi Republic interviewed for a 23 August 2016 Meduza article commented that Vasil’yev may still be associated with the Russian security services, which, if true, would suggest that NIK Razvitie itself is exposed to the influence of same security services.
3.2.1. NIK RAZVITIE AUTONOMOUS OF NFPR
NFPR purportedly exercises limited influence over NIK Razvitie’s commercial operations. Speaking to OCCRP, NFPR President Oleg Viktorovich Polozov maintained that this organization had “not owned commercial companies for a long time”, adding, “It’s possible that the company [NIK] was established at the dawn of the fund’s formation when there was an idea to finance it through participation in business”. Polozov further asserted that NFPR was not controlled by United Russia: however, corporate records reviewed by OCCRP indicate that the fund’s main office is located at the same Moscow address as United Russia’s Central Executive Committee. Polozov also has his own page on United Russia’s website, indicating that Polozov and NFPR are at least superficially affiliated with the party.
3.2.2. EURASIA INVESTMENTS AND ERTAEV OBTAIN STAKES IN TROIKA-D BANK
Several weeks before it integrated Tsifra Odin into its holdings, Eurasia Investments and Ertaev reportedly acquired 46- and 5-percent stakes in AO Troika-D Bank from its owner, Vladimir Movlidovich Akaev. In August 2017, Eurasia Investments expanded its stake in Troika-D to 95-percent. Ertaev, who media reports identified as the chairman of Troika-D’s board of directors, retained his 5-percent stake in the bank.
3.3. TELEFON 365
Telefon 365 was incorporated on 19 June 2015 by an individual named Vasily Sergeyevich Yevseyenko. Third-party aggregators of Russian company data show that on 22 December 2016, Yevseyenko’s shares in Telefon 365 were divided between one Yelena Vladimirovna Scherbakova (a/k/a Yelena Vladimirovna Luzanova), who received a 51-percent stake in the company, with the remaining 49-percent of Telefon 365’s shares being distributed to Konstantin L’vovich Antonevich. Antonevich acquired Scherbakova’s 51-percent stake on 4 June 2019, with his 49-percent block of shares being passed to one Vasily Rinatovich Kutliakhmetov.
Telefon 365 entered the ranks of Tsifra Odin’s shareholders a few months after the latter company announced its intention to partner with Swedish telecoms company Tele2 AB in providing mobile virtual network (“MVN”) services. Russian business news daily Vedomosti attributed this announcement to Alma Group and Tsifra Odin Gadalov in an article published on 28 August 2017. On 9 November 2017, Eurasia Investments ceded a 19.5-percent stake in Tsifra Odin worth RUB 245.65 million (approximately USD 4.14 million per contemporary exchange rates) to Telefon 365. Research was unable to determine whether Telefon 365 was in any way affiliated with Tele2.
NIK Razvitiye may have financed Telefon 365’s stake into Tsifra Odin, as according to a 25 January 2018 article published by The Moscow Post, NIK Razvitiye held a lien on Telefon 365’s shares in the internet services provider. Scrutiny of Telefon 365’s accounting records reveal that the company borrowed RUB 770.16 million (approximately USD 1.11 million per 31 December 2018 exchange rates) between FY 2017-2018. A portion of these funds may have come from NIK Razvitiye; however, research did not turn up any corroborating documentation to this effect.
3.3.1. TELEFON 365 INKS AGREEMENTS WITH NIK RAZVITIE AND UDODOV ON SAME DAY
Court records indicate that on 27 December 2017, Telefon 365 issued a series of promissory notes to Udodov in return for a RUB 556,791,480.50 loan (approxiamtely USD 9.63 million per contemporary exhange rates) . Court records for a separate matter indicate that on that same day, NIK Razvitie signed an agreement with Telefon 365 whereby the latter committed to pay NIK Razvitie a total of RUB 280 million (approximately USD 2.84 million per contemporary exchange rates) in two installments — the first, a RUB 230 million tranche, to be paid within three working days, and the second, for RUB 50 million , to be paid by no later than 14 May 2018 — as a security deposit in exchange for being permitted to conclude a future share purchase agreement for a 18- to 32-percent stake in Tsifra Odin with an unspecified counterparty. This agreement allegedly obliged NIK Razvitie to repay the security deposit to Telefon 365 if the share purchase agreement was not finalized by 28 May 2018.
4. TELEFON 365 CEDES SHARES IN TSIFRA ODIN TO KARMANOV-AFFILIATED MEDIA PRODUCTION COMPANY TWO WEEKS AFTER SIGNING AGREEMENTS WITH UDODOV AND NIK RAZVITIE
On 18 January 2018, a little over two weeks to the day that it signed the aforementioned promissory note and security deposit agreements with Udodov and NIK Razvitie, respectively, Telefon 365 transferred a 12.295-percent stake in Tsifra Odin out of its own shares to OOO Solaris Promo Production. (“SPP”) 62.5-percent of SPP’s shares belong to OOO Eurasian Pipeline Consortium (“ETK”), of which Karmanov is a 95-percent shareholder and general director. Udodov is reportedly a member of ETK’s board of directors. SPP is best known for producingDom-2, a long-running reality show broadcast by the Gazprom-controlled TNT television network.
SPP stood to profit from its stake in Tsifra Odin, which, as noted in Section 3.1.1, had obtained hundreds of millions of rubles in public contracts, including from SOEs and government agencies involved in national security matters. Nonetheless, SPP’s interest in Tsifra Odin proved short-lived, however, as third-party corporate data aggregators indicate that Karmanov’s company returned its shares in Tsifra Odin back to Telefon 365 on 28 June 2018. Although research identified limited information regarding SPP’s rationale for exiting the ranks of Tsifra Odin’s shareholders, examination of contemporary media reports reveals that its withdrawal followed a flurry of law enforcement activity targeting Ertaev, the honorary president of former Tsifra Odin owner Alma Group.
5. Ertaev arrested and extradited to kazakhstan on embezzlement and money laundering charges
Russian police arrested Ertaev in Moscow on 5 May 2018. More than a month later, on 29 June 2018 — the day after Telefon 365 regained its shares in Tsifra Odin from SPP — the Prosecutor General’s Office of Kazakhstan (“PGO-KZ”) announced that it had initiated formal procedures to extradite Ertaev from Russia. Moscow’s Presnensky District Court approved the PGO-KZ’s extradition request in November 2018. On 15 March 2019, PGO-KZ announced that it had finally extradited Ertaev to Kazakhstan.
А relevant PGO-KZ press release claims that between 2011 and 2017, Ertaev embezzled KET 144.3 billion (approximately USD 330 million per contemporaneous exchange rates.) from Kazakhstani AO Bank RBK, through a series of improper loans approved by complicit members of the bank’s board of directors, to which he was purportedly an advisor. These principals included former Bank RBK board chairman Igor Sharipkanovich Mazhinov, who is the son-in-law of Kazakhstani billionaire and reputed Nazarbaev confidante Vladimir Sergeevich Kim. Per Informburo.kz, Kazakh prosecutors allege that Ertaev appropriated a portion of the money embezzled from Bank RBK to acquire stakes in Tsifra Odin and several other Russian telecoms operators in the Moscow region, as well as in Troika-D.
Ertaev pleaded guilty to embezzlement and money laundering in January 2020. In November of that same year, Almaty’s Almalinsky District Court sentenced Ertaev and Mazhinov to 11- and 8-years’ imprisonment, respectively, for their role in the aforementioned scheme. An Alamty appellate court reportedly reduced Ertaev’s sentence to 10 years in May 2021.
6. russia’s central bank strips troika-d of banking license for violating money laundering laws
On 17 April 2019, Russia’s Central Bank (“TsBR”) revoked Troika-D’s banking license for allegedly violating federal anti-money laundering and terrorism financing regulations. On 4 July 2019, the Arbitration Court for the City of Moscow (“ASGM”) placed Troika-D under involuntary bankruptcy and appointed ASV to act as Troika-D’s bankruptcy custodian at the request of TsBR. Although the Kazakhstani state alleges that Ertaev used funds embezzled from Bank RBK to purchase shares in Troika-D, research did not identify any information indicating that Ertaev laundered any criminal proceeds through Troika-D.
6.1 asv’s institutional ties to tsbr
ASV maintains a close working relationship with TsBR in its capacity as the primary liquidator of financial institutions placed under involuntary bankruptcy by TsBR. This institutional relationship is further evidenced by the fact that TsBR Chairwoman Elvira Sakhipzadovna Nabiullina heads ASV’s board of directors.
6.1.1 tsbr chairwoman nabiullina and mishustin’s prior work for former economic development and trade minister gref
Nabiullina maintains longstanding professional ties to former Minister for Economic Development and Trade and current Sberbank CEO Gref, an economic liberal who worked alongside Putin in the St. Petersburg Mayor’s Office during the early 1990s. Gref headed Russia’s Ministry for Economic Development and Trade (“MERT”) between 2000 and 2007; Nabiullina was First Deputy Minister for Economic Development and Trade from 2000 to 2003. Nabiullina also served under Gref as the Vice-President of the Center for Strategic Research (“TsSR”), a liberal policy think tank, between 1999 and 2000. She succeeded Gref as TsSR President in 2003, remaining in that role until 2005. Nabiullina succeeded Gref as MERT head in 2007. Multiple media sources refer to Nabiullina — somewhat ironically — as Gref’s “righthandman”.
Gref appointed Mishustin to head MERT-affiliated agencies between 2004 and 2008. According to Forbes Russia, Gref personally invited Mishustin to head the MERT’s newly established Federal Agency for Real Estate Cadastre in March 2004. Gref later appointed Mishustin to head another MERT body, the Federal Agency for the Management of Special Economic Zones, (“RosOEZ”) in December 2006. Mishustin appears to have remained in this role after Nabiullina succeeded Gref as MERT’s head in September 2007, ultimately resigning from RosOEZ in February of the following year. Media reports quoted Mishustin as saying that he left RosOEZ voluntarily in order to work for a “major financial investment company”; the company in question appears to be United Financial Group, which reportedly hired Mishustin on unusually generous terms.
7. udodov files civil debt collection claim against telefon 365
Ertaev’s extradition to Kazakhstan in March 2019 preceded the onset of Udodov’s dispute with Telefon 365. The promissory note agreement reached between Udodov and Telefon 365 on 27 December 2017 entitled the former to call in the debt on these notes from the latter on or after 28 March 2019. Court filings state that Udodov called in Telefon 365’s debt a week and one day after that date, on 6 May 2019. Several weeks later, on 31 May 2019, Udodov filed a civil claim requesting that Moscow’s Presnensky District Court order Telefon 365 repay the RUB 556 million that Udodov had loaned the company under the 27 December 2017 promissory note.
7.1. udodov asks court to freeze telefon 365’s stake in tsifra odin
Telefon 365 responded to Udodov’s civil debt collection action over the 27 December 2017 promissory note agreement by filing a counterclaim accusing Udodov of unjust enrichment. Udodov responded with a motion requesting that the court bar Telefon 365 from registering any changes affecting its stake in Tsifra Odin’s share capital, arguing that Telefon 365’s stake in Tsifra Odin was the only asset that it could draw upon to satisfy its debt towards him. Udodov’s motion further alleged that Telefon 365 had attempted to avoid repaying the debt incurred pursuant to the 27 December 2017 promissory note agreeement by secreting its money away under the cover of repaying fictitious debts to shell companies, potentially so as to declare bankruptcy and thereby escape its obligations to Udodov under fraudulent pretexts. Court records do not specify the exact dates on which Telefon 365 and Udodov filed their respective motions; however, these records do indicate that Udodov’s request was denied twice, first by the Presnensky District Court and again by a district appellate judge.
8. udodov prevails in civil debt collection claim, telefon 365 appeals
Despite the failure of his bid to freeze Telefon 365’s shares in Tsifra Odin, the Presnensky District Court on 23 June 2020 ruled in favor of Udodov and ordered Telefon 365 to repay him the RUB 556 million principal plus RUB 2,482,679.82 (approximately USD 36,145 per contemporary exchange rates) in interest. Docket information indicates that Telefon 365 appealed the Presnensky District Court’s ruling on 7 August 2020. Telefon 365 also filed a separate civil claim on 21 July 2020 requesting that Moscow’s Kuntsevsky District Court render an order nullifying a certain unspecified agreement. Relevant court records do not specify whether the agreement under concern was Telefon 365’s 27 December 2017 promissory note agreement with Udodov.
9. asv files debt collection claim against udodov on behalf of troika-d
On 30 December 2019, ASV, acting in its capacity as Troika-D’s bankruptcy trustee, filed a debt claim in Moscow’s Preobrazhensky District Court accusing Udodov of failing to make timely payments towards a credit line which Troika-D Bank had extended to him in 2017. (Relevant court records do not specify the day and month of the credit agreement) The matter was closed on 20 July 2020 after ASV agreed to sell off Troika-D’s claim on Udodov’s debt to an unidentified third party through a descending-price auction starting at RUB 375,020,891.12 (approximately USD 5.25 million per contemporary exchange rates). For more information regarding the resolution of this matter, please refer to Section 11.
9.1. karmanov buYs out troika-d’s debt claim against udodov
Karmanov appears to have bought out Troika-D’s debt claim against Udodov, thus sparing Udodov from further litigation by ASV. Bankruptcy records cached by Google show that Karmanov successfully bid RUB 347,269,345.18 (approximately USD 4.8 million per contemporary exchange rates) to acquire Troika-D’s debt claim on Udodov through an ASV-moderated descending price auction on 28 July 2020. As noted in Section 9, ASV ended its civil debt collection action against Udodov on 20 July 2020 after agreeing to sell off Troika-D’s debt claim against Udodov to an unidentified third party; the available evidence indicates that Karmanov was the third party in question.
Karmanov acquires Troika-D’s debt claim against Udodov in an ASV-brokered bankruptcy auction (Archived from bankrot.fedresurs.ru)
10. court denies telefon 365’s appeal after Tsifra Odin general director gadalov charged with organized fraud
On 12 September 2020, Moscow’s Tagansky District Court charged Alexander Avenirovich Gadalov — the then-general director of Alma Group, Tsifra Odin, and several other telecoms operators affiliated with Ertaev and Alma Group — with organized criminal fraud. Multiple media citations haveinferred that charges against Gadalov were connected to the Ertaev case. Two weeks and three days earlier, on 22 September 2020, the Judicial Collegium for Civil Cases of the Moscow City Court upheld the Presnensky District Court’s 23 June 2020 verdict in favor of Udodov.
10.1. person with name similar to telefon 365 shareholder antonevich charged with organized fraud in connection to Gadalov
On 22 October 2020, the Tagansky District Court arraigned a person identified only as “K.L. Antonevich” on criminal organized fraud charges. Appellate court filings indicate that the same K.L. Antonevich was charged alongside former Alma Group and Tsifra Odin general director Gadalov. The filings further indicate that Gadalov and K.L. Antonevich were both sentenced to house arrest. Limited information is available regarding the substance of the criminal charges against Gadalov and K.L. Antonevich, though, as noted in Section 10, media citations have theorized that Gadalov was charged in connection to the Ertaev embezzlement and money laundering case.
Screenshot of a court filing for an appellate matter concerning the criminal sentences of “A.A. Gadolov” and “K.L. Antonevich” (mos-gorsud.ru)
11. udodov’s attorney assumes ownership of telefon 365
Less than one week after K.L. Antonevich’s arraignment, on 27 October 2020, both Antonevich and Kutliakhmetov’s shares in Telefon 365 were re-registered under the name of one Vyacheslav Ivanovich Yefimenko.Court records show that an “V.I. Yefimenko” acted as Udodov’s counsel in the aforementioned debt collection lawsuit against Telefon 365. All available information points to the “V.I. Yefimenko” who represented Udodov in his legal dispute with Telefon 365 being the same Yefimenko who obtained control of Telefon 365 in the wake of Antonevich’s apparent conviction. The same day that Yefimenko took control of the company, Telefon 365 filed a motion notifying the Kuznetsky District Court that it would withdraw the claim it had filed against Udodov on 21 July 2021.
Screenshot of 23 June 2020 ruling identifying “V.I. Yefimenko” as Udodov’s counsel in his debt collection complaint against Telefon 365 (mos-gorsud.ru)
Media citations depict Yefimenko as an unethical attorney who draws on his association with corrupt law enforcement officials to seize control of companies for the purpose of stripping their assets. According to a now-deleted article published on 11 August 2016 by Russian crime and corruption monitor mzk1.ru, Yefimenko is a lawyer who specializes in “reiderstvo”, an informal practice that British scholar Philip Hanson defines as the “illicit acquisition of a business or part of a business, usually with the assistance of corrupt actions by law-enforcement [sic] officers and courts”. One of Yefimenko’s purported victims has alleged that Yefimenko and his associates are protected by Russian deputy prosecutor general Viktor Yakovlevich Grin’ as well as by various current and former FSB officials.
12. telefon 365 joins claim seeking return of tsifra odin security deposit from nik razvitie, prevails after yefimenko’s takeover
In the autumn of 2020, Telefon 365 intervened in a civil complaint brought against NIK Razvitie by one Dmitry Olegovich Komarov in ASGM. Available court records indicate that Komarov sought to reclaim the RUB 230 million which Telefon 365 had paid NIK Razvitie pursuant to the security deposit agreement formalized between the two parties on 27 December 2017 — the same day that Telefon 365 concluded the promissory note agreement with Udodov. On 9 October 2020, ASGM, approved a petition from NIK Razvitie requesting that ASV and Telefon 365 be involved as third parties. Antonevich and Kutliakhmetov still controlled 51- and 49-percent stakes in Telefon 365 at the time.
Relevant court records provide an abridged history of how Komarov came to obtain Telefon 365’s claim on the RUB 230 million that it paid to NIK Razvitie under the 27 December 2017 security deposit agreement. According to these records, Telefon 365 extended the deadline for concluding the security deposit agreement six times between 28 May 2018 and 15 March 2019. On 2 March 2020, Telefon 365 reportedly ceded its right of claim on the repayment of the RUB 230 million security deposit to one Alexander Alexevich Pan’kov, who in turn transferred same right of claim to Komarov on 1 April 2020.
On 7 December 2020, ASGM ruled in favor of a motion filed by Telefon 365 — which had come under the control of Udodov’s attorney, Yefimenko, the previous October (see Section 11) — requesting to regain the right of claim to the RUB 230 million from Komarov. On 16 April 2021, ASGM ruled in favor of Telefon 365 and ordered NIK Razvitie to repay the latter RUB 230 million.
13. tsifra odin files civil complaint demanding telefon 365 turn over accounting records
On 31 December 2020, Tsifra Odin filed a civil complaint in ASGM accusing Telefon 365 of failing to provide invoice information that would have allowed Tsifra Odin to claim value-added tax (“VAT”) deductions from the Federal Tax Service. (“FNS”) The complaint further requested that ASGM order Telefon 365 to hand over original copies of its accounts for all four quarters of 2017 and 2018 as well as the first three quarters of 2019 to Tsifra Odin. ASGM threw out Tsifra Odin’s complaint on 6 July 2021 and noted in its ruling that FNS was conducting an on-site tax audit of Tsifra Odin after the latter had failed to respond to requests for certain unspecified documents.
14. asv freezes ertaev, nik razvitie and eurasia investments’ assets – including tsifra odin
On 12 April 2021, ASGM ruled in favor of a motion filed by ASV requesting that the court freeze all cash and non-cash assets belonging to Ertaev, NIK Razvitie, Eurasia Investments — including Tsifra Odin, in which, according to ASV, Ertaev maintained a stake through its majority shareholder Eurasia Investments. Justifying its request, ASV asserted that Ertaev, his wife, and certain of his associates were investors in Eurasia Investments and through it had appropriated more than RUB 1.65 billion (approximately USD 21.3 million per contemporary exchange rates) from the fund since 2019 by stripping assets from Tsifra Odin and other telecommunications companies under Eurasia Investments’ control. The motion asserted that Ertaev’s actions legally entitled ASV to foreclose upon Tsifra Odin and other of Eurasia Investments’ telecommunications assets on behalf of Troika-D to satisfy the bank’s creditors and argued that a court-mandated freeze would prevent Ertaev and his associates from taking steps to conceal same assets from ASV.
15. ongoing civil litigation against tsifra odin by udodov and nik razvitie
Research identified several ongoing disputes involving Udodov, Tsifra Odin, Telefon 365, NIK Razvitie:
On 29 June 2021, Udodov filed a civil complaint against Tsifra Odin in Moscow’s Kuntsevsky District Court after the Presnensky District Court declined to hear a separate complaint that he had previously filed against Tsifra Odin earlier that same month. No documents are available for this case at the time of this writing.
On 20 July 2021, Troika-D filed a civil complaint in ASGM seeking to obtain a judgment extracting RUB 36,375,776.25 (approximately USD 488,571 per contemporary exchange rates) from Tsifra Odin and another Eurasia Investments-controlled telecoms company, OOO Company 2KOM. The sole available document for this case does not specify whether Troika-D’s complaint pertains to a breach of contract or an unpaid debt.
On 5 August 2021, NIK Razvitie filed a civil complaint in ASGM against Tsifra Odin and its former general director, Gadalov. As noted in Section 13, Gadalov appears to have been charged with organized fraud alongside former Telefon 365 shareholder Antonevich — potentially in connection to the Kazakhstani investigation into Ertaev. The sole available document for this case, which identifies Udodov and Telefon 365 as third-parties, indicates that NIK Razvitie seeks to obtain a judgment that would nullify a certain unspecified agreement or agreements.
On 16 August 2021, Tsifra Odin filed a civil complaint against Udodov in ASGM. Available docket information identifies NIK Razvitie and Telefon 365 as third parties. The sole available court filing for this matter indicates that Tsifra Odin’s complaint seeks to nullify a surety agreement from 27 December 2017 but does not specify whether the agreement in question is Udodov’s promissory note agreement with Telefon 365, the latter’s security deposit agreement with NIK Razvitie — both of which were signed on 27 December 2017 — or some other agreement concluded between Udodov and Tsifra Odin.
CORPORATE RAIDING GOES DIGITAL? AN ANALYSIS OF THE TSIFRA ODIN AFFAIR
Overview of the Tsifra Odin affair, Udodov’s legal dispute with Telefon 365, and associated events
16. interpreting the the tsifra odin affair as an intraelite power struggl
The legal and regulatory campaign waged against Tsifra Odin and Troika-D by ASV and FNS could betoken an emerging power struggle between modernizing bureaucrats and conservative hardliners for control over Russia’s digital transformation. According to Russian political analyst Tatiana Stanovaya, Mishustin and Nabiullina are central members of the “bureaucratic core of the Putin regime”, a faction that she describes as the “technocrats”. Per Stanovaya, Putin has granted the technocrats “a certain degree of autonomy” in realizing Kremlin digitalization policies and other modernizing reforms, an arrangement that Stanovaya claims has created the conditions for a “long-term clash” with conservative hardliners intent on “protect[ing] the system from both domestic and foreign foes”. These hardliners, whom Stanovaya calls the “protectors”, includes senior members of the Russian security services, better known as the “siloviki”. Stanovaya and other authors emphasize, however, that the siloviki are an ideologically diverse cohort, or as Stanovaya puts it: “not all protectors are siloviki and not all siloviki are protectors”.
Given Mishustin and Nabiullina’s preeminent stature within the technocratic bloc as well as their ties to FNS and ASV, it is possible to interpret the latter entities’ activities around Tsifra Odin, Eurasia Investments, and NIK Razivitie — whose cofounder is reportedly affiliated with the siloviki — as an example of the technocrats’ resorting to reiderstvo tactics to assert their preeminence over the protectors in matters related to digitalization and other modernization initiatives of concern to the Kremlin.NIK Razvitie reportedly operates autonomously of its ostensive beneficiary NFPR, which may be explained by the fact that its cofounder and .005-percent shareholder, Vasil’yev — a veteran of the Soviet KGB — is reputedly affiliated with the siloviki. As such, NIK Razvitie may be using its affiliation with NFPR to conceal that it fronts for the Russian security services. Assuming that this is the case, then NIK Razvitie’s alleged management of Eurasia Investments stake in Tsifra Odin on behalf of Ertaev and his associates presents a reputational risk for the siloviki, not least considering that Tsifra Odin’s clientele includes entities active in the national security sphere. Mishustin and Nabiullina may have exploited this vulnerability to justify seizing control of Tsifra Odin on national security grounds, an act that would simultaneously demonstrate the technocratic camp’s ability to guarantee the security of digitalization programs and other modernization initiatives and undermine the protectors’ credibility in the eyes of the Kremlin.
17. INTERPRETING the tsifra odin affair as an example of “Sistema raiding”
The close timing of Telefon 365 majority shareholder Antonevich’s arrest on organized fraud charges with the takeover of Telefon 365 by Udodov’s attorney, Yefimenko, suggests that Udodov may have orchestrated the criminal charges against Antonevich to coerce him and his business partner, Kutliakhmetov, into giving up their stakes in Telefon 365 along with the latter’s minority position in Tsifra Odin. This scenario is characteristic of “reiderstvo”, a Russian term for the informal practice of using extralegal, often coercive, measures to seize control of or “raid” a company, sometimes with assistance from law enforcement officials and members of the judiciary.According to Thomas Firestone, a former resident legal advisor for the US Department of Justice at the US Embassy in Moscow, typical reiderstvo tactics include filing civil complaints to either gather information about a target company through discovery or to obtain a court order replacing the company’s management, and “commissioning” criminal cases against a target company’s owner as a means of facilitating the takeover of same company. Ledeneva contrasts the conventional model of reiderstvo, wherein “raiders bribe the officials”, with “sistema raiding”,[ii] in which “raiders’ attacks benefit not the raiders but the officials — who are the instigators (zakazchi), the driving force behind raiding”. (Ledeneva 2013, pp 191-192)
Mishustin may have directed Udodov’s apparent takeover of Telefon 365 and its minority stake in Tsifra Odin to facilitate ongoing efforts by ASV and FNS aimed at seizing control of Tsifra Odin over concerns regarding NIK Razvitie’s dealings with Ertaev vis-à-vis majority Tsifra Odin shareholder Eurasia Investments. On 12 April 2021, ASV — whose board of directors is headed by Mishustin’s former MERT colleague, TsBR governor Nabiullina — obtained a court order from ASGM that effectively facilitated the foreclosure of Tsifra Odin and other Russian telecoms controlled by Eurasia Investments on behalf of Ertaev by freezing the assets of Ertaev, NIK Razvitie, and Eurasia Investments. In its 6 July 2021 declination of a civil complaint brought against Telefon 365 by Tsifra Odin, ASGM commented that FNS – whose current head, Daniil Vyacheslavovich Yegorov, was appointed by Mishustin after the latter left FNS to assume the premiership in January 2020 — was conducting an on-site tax audit of Tsifra Odin after the latter had failed to respond to requests for certain unspecified documents. (See Sections 13 — 14)
Placing Telefon 365 and its minority stake in Tsifra Odin under the control of a trusted custodian — namely, Udodov’s attorney Yefimenko — removed the risk of Antonevich and Kutilakhmetov complicating the aforementioned legal and administrative proceedings. Udodov’s legal dispute with Telefon 365 and Yefimenko’s later acquisition of Antonevich and Kutilakhmetov’s shares in Telefon 365 following Antonevich’s arrest may thus be interpreted as a sistema raid in support of the ASV and FNS-led campaign against Tsifra Odin. The ongoing litigation among Udodov, Tsifra Odin, and NIK Razvitie, however, suggests that the outcome of this conjectural raid remains in play. (See Section 15)
18. did udodov “torpedo” telefon 365?
Circumstantial evidence derived from media reports suggests that Udodov has previously acted as a “torpedo”[iii] or undercover informant, raising the possibility that his dealings with Telefon 365 were a pretext for gathering compromising information about the company and its owners in preparation for a raid. On 16 December 2020, independent media outlet OpenMedia.io published an interview with Sergey Vladimirovich Danilochkin, whom Russian prosecutors allege helped organize a scheme to secure RUB 5.1 billion (approximately USD 69 million) through fraudulent VAT refund applications. According to Danilochkin, Udodov played “a significant role” in the scheme but was ultimately questioned by law enforcement not as a suspect but rather as a witness. Separately, officers with the Investigative Committee for the Russian Federation (“SKRF”) raided Udodov’s Moscow apartment on 6 April 2011 pursuant into an investigation into a VAT rebate fraud scheme allegedly organized by St. Petersburg liquor magnate and former Federation Council member Alexander Vital’yevich Sabadash. Investigative materials obtained by OpenMedia.iо purportedly indicate that SKRF investigators interviewed Udodov as a witness in the Sabadash case twice, first on 18 April 2013 and again on 12 December 2013, but took no further action.[iv]
Citing FSB investigative materials in its possession, The Insider on 3 June 2021 published a report alleging that Udodov had had regular contact with a colonel with the MVD’s economic security division, Dmitry Viktorovich Zakharchenko, who in June 2019 was sentenced to 13 years’ imprisonment for soliciting a RUB 3 million (approximately USD 47,411 per contemporary exchange rates) bribe from a Moscow restauranter in exchange for protection from law enforcement scrutiny. The Insider provided limited additional information regarding the substance of Udodov’s meetings with Zakharchenko, though investigative materials obtained by The Insidersuggest that Udodov aided Zakharchenko in helping state-owned OAO Russian Railways avoid a RUB 16 billion (approximately USD 216-217 million) tax bill. Among said materials is a photograph, purportedly taken by an undercover law enforcement officer, of Udodov and Zakharchenko in conversation outside a Moscow hotel on 30 August 2016.
Udodov (right) photographed together with Zakharchenko, an MVD officer who reportedly helped an RZhD contractor evade taxes with Udodov’s assistance. (The Insider)
That Udodov ended up being questioned as a witness in connection to two separate VAT fraud schemes in which he was also said to be a suspect, and appears to have been surreptitiously photographed speaking with an allegedly corrupt FSB officer whom he purportedly helped in facilitating tax evasion, indicates that Udodov may have served acted as an undercover “torpedo” to bring down the authors of said schemes. However, insufficient information is available to determine whether Udodov used his business transactions with Telefon 365 as a cover for collecting evidence with which to incriminate its majority shareholder Antonevich.
TOWARDS AN ASSESSMENT OF UDODOV’S ROLE IN THE TSIFRA ODIN AFFAIR
The information presented in the preceding paragraphs suggests that Udodov’s civil complaint against minority Tsifra Odin shareholder Telefon 365 and the latter’s subsequent takeover by his counsel Yefimenko may have been a sistema raid undertaken in support of efforts by leading technocrats — including Udodov’s former brother-in-law, Prime Minister Mishustin, who sister divorced Udodov in December 2020 (media reports suggest that they separated several years earlier) — to seize control of Tsifra Odin through legal and administrative measures following Ertaev’s arrest in May 2018. Circumstantial evidence indicates that Udodov may have used the 27 December 2017 promissory note as a cover for collecting information with which to incriminate Telefon 365 majority shareholder Antonevich, who was subsequently charged in connection to Ertaev’s alleged scheme to launder funds embezzled from Bank RBK.
These assessments insofar based exclusively on information derived from by media reports, corporate records, court dockets, and other open-source materials. Insufficient information is available to corroborate whether Mishustin, Nabiullina, or any other members of the technocratic bloc directed Udodov and Yefimenko to take over Telefon 365 to facilitate the seizure of Tsifra Odin by ASV and FNS. Moreover, research did not identify any evidence that the 27 December 2017 promissory note agreement that formed the basis of Udodov’s legal dispute with Telefon 365 was designed to ensnare the latter in a web of civil — let alone criminal — liabilities, nor that these liabilities were intended to provide a legal pretense for a reiderstvo takeover. Although this legal dispute culminated in Udodov’s counsel Yefimenko seizing control of Telefon 365 shortly after its majority shareholder Antonevich was arrested on criminal organized fraud charges — charges that appear to have been connected to Ertaev’s embezzlement and money laundering scheme — there is no evidence that Mishustin or Udodov orchestrated the criminal charges against Antonevich on false pretenses in order to pressure him and Kutliakhmetov into giving up their shares in Telefon 365 to Yefimenko. No less conjectural is the notion that Tsifra Odin is the object of an intraelite power struggle between Stanovaya’s putative “technocrat” clique and “protector” cliques.
Despite this paucity of information, the available evidence does show an overlap in the circumstances behind Udodov’s legal dispute with minority Tsifra Odin shareholder Telefon 365, the arrest of Telefon 365’s majority shareholder Antonevich and the ensuing seizure of Telefon 365 by Udodov’s counsel Yefimenko, and ASV’s successful motion to freeze NIK Razvitie and Eurasia Investments’ shares in Tsifra Odin and other Russian telecoms companies that Ertaev allegedly purchased with funds embezzled from Bank RBK. This overlap is most clearly evidenced by the fact that the promissory note agreement between Udodov and Telefon 365 at issue in the aforementioned legal dispute was signed on 27 December 2017, the same day that Telefon 365 concluded a separate agreement with NIK Razvitie to pay the latter a security deposit in exchange for selling off a portion of its own shares in Tsifra Odin to a third-party — most likely Karmanov’s SPP, to which Telefon 365 ceded a 12.295-percent stake in Tsifra Odin on 18 January 2018. Court records indicate that the ownership of shares in Tsifra Odin was implicitly at issue in Udodov’s agreement with Telefon 365 and explicitly at issue in the latter’s security deposit agreement with NIK Razvitie. (See Sections 3.1.1 — 5)
I do not believe that these overlaps are random. Rather, they point to the persistent importance of informal relationships to the realization of Kremlin modernization strategies. Moreover, I argue that the whirlwind of litigation and administrative actions that have emerged around Tsifra Odin and Telefon 365 underscores the contradictory and potentially pernicious effects of relying on informal networks to realize policy.
CONCLUSION: DIGITALIZATION AND THE MODERNIZATION TRAP OF INFORMALITY
All available evidence indicates that Tsifra Odin affair originated in an effort to install a company controlled by a trusted cutout in Karmanov’s SPP as a minority shareholder of Tsifra Odin to ensure the latter’s compliance with the prerogatives of Putin’s digitalization policies in light of Tsifra Odin’s dealings with clients of consequence to Russia’s national security. The authors of this putative effort are unknown: though Karmanov has claimed that he enjoys a personal relationship with Putin confidantes Arkady and Boris Romanovich Rotenberg, research did not identify any evidence of their involvement. Whatever the case, Udodov appears to have brokered SPP’s acquisition of this stake through his 27 December 2017 promissory note agreement with Telefon 365. This agreement may have been intended to finance the security deposit that Telefon 365 agreed to pay NIK Razvitie — which appears to have managed Ertaev’s stake in Tsifra Odin through the Eurasia Investments fund — in exchange for permission to grant SPP a 12.295-percent stake in Tsifra Odin to SPP. Ertaev’s arrest in May 2018 likely provided a justification for jettisoning the contractual veneer of the formal strategy described above in favor of an more forceful approach; namely, employing a combination of formal (ASV and FNS’ legal and administrative measures against Ertaev, NIK Razvitie, and Eurasia investments) and informal tactics (Udodov’s civil complaint against Telefon 365) to effect the sale of Tsifra Odin to parties deemed trustworthy by the Kremlin.
The notion that Udodov’s dealings with Telefon 365 — apparently on behalf of Karmanov’s SPP — vis-à-vis Tsifra Odin and were driven both by profit motives and by considerations of Tsifra Odin’s relevance to Kremlin digitalization agenda is suggestive of the “network policymaking” phenomenon articulated by Vadim Kononenko in his introduction to the 2011 edited volume Russia as a Network State: What Works in Russia When State Institutions Do Not? Writing towards the end of Putin’s second premiership, Kononenko likened contemporary Russia to a “network state” characterized by a “symbiosis between informal groups and formal institutions of the state […] in which the elite groups foster their own special interests by infiltrating institutions, in effect merging with the state, while at the same time maintaining their own position as unaccountable to these institutions”. Kononenko further predicted that these informal elite networks would increasingly implement government policy “in parallel with the formal institutions”, adding that although this arrangement “advances the interests of domestic power groups and networks, both at home and abroad, while adhering to the rhetoric of ‘national interest’ and a strong state’ […] “the ‘national interest’ behind policy initiatives and goals becomes infused with the various ‘special interests’ of the state-private actors’”. (pp. 5-7)
Kononenko’s theories provide a possible narrative through which the circumstances of Udodov’s legal dispute with Telefon 365 might be made slightly less inscrutable. Through this lens, Udodov’s 27 December 2017 promissory note agreement with Telefon 365, which appears to have resulted in the latter granting Karmanov’s SPP a 12.295-percent stake in Tsifra Odin, was an informal exercise in network policymaking intended to bring Tsifra Odin under the watch of a reliable Kremlin insider. This agreement would implicitly serve the additional purpose of locking Tsifra Odin and its digital rents in for the benefit of pro-regime elites and conversely denying same rents to outsiders whose interests do not align with those of Putin’s Kremlin. Taken in this sense, Udodov’s legal dispute with Telefon 365 and its relationship to the Tsifra Odin affair is typical of the contradictory conflation of “special interests” with “national interests” outside of formal institutions.
According to Ledeneva, such contradictions are a feature and not a bug of the Putinist model of governance. In 2013’s Can Russia Modernise? Sistema, Power Networks, and Informal Governance, Ledeneva describes Putin’s system of governance or sistema as a constellation of informal networks populated by government and business elites whom the Kremlin relies upon to manage the execution of policy initiatives and other functions of governance in the absence of effective institutions. By delegating power to informal networks of political and economic elites in furtherance of its modernization agenda, the Kremlin effectively empowers those elites to engage in predatory rent-seeking behaviors that impede said modernization efforts. Ledeneva calls this phenomenon the modernization trap of informality: “Informal tactics for mobilising [sic] elites and allocating resources to insider networks undermine the fundamental principles of the rule of law, the separation of powers, and the security of property rights”. (pp. 252-253) Yet this may be beside the point, for Fiona Hill and Clifford G. Gaddy assert in Mr. Putin: Operative in the Kremlin that allowing elites to personally profit from their work on modernization-related projects may serve to ensure their compliance with Kremlin policy prerogatives — the implication being that non-compliance may result in blackmail-inflicted reputational ruin or criminal prosecution. (pp. 214-215)
Should the Kremlin continue to tolerate the self-serving conduct of affiliated elites in the fashion described by Hill and Gaddy, one may reasonably anticipate that the formal digitalization of Russia’s government and economy will be accompanied by increasingly aggressive informal competition for control of prospective digital rents among elite networks. This competition may not always degrade to level of out-and-out reiderstvo, as appears to have been the case in Yefimenko’s seizure of Telefon 365 following Antonevich’s arrest, the fact that reiderstvo and other informal tactics like it might remain a potential option for aspiring rentiers should cast doubt on digitalization as a viable vehicle for reforming the Russia’s economy and its formal state institutions to make them more accountable to the rule of law.
Professor Vladimir Gel’man of the European University of St. Petersburg asserts that under the prevailing governance model, which has given informal sanction to rent-seeking behaviors by elites in exchange for their shepherding national projects in accordance with the Kremlin’s requirements, Russia’s “digital transformation” will “not only fail to transform ‘bad governance’ into ‘good governance’, but it may also exacerbate the irremediable defects inherent in the current system”. Mishustin has framed digitalization as a means of restoring the perception of the Russian government and its agencies as “reliable helpers acting in good faith”. Yet this sentiment rings hollow considering that Udodov — who was brother-in-law to Mishustin for more than a decade — appears to have resorted to shady methods to seize control of a private company.
ENDNOTES
[i] Chernyshenko appears to have served on the board of directors of a “VIP” hockey tournament hosted in April 2011 by Sportima, a non-profit hockey club co-founded by Udodov and his then-wife Stenina.Mishustin and Udodov personally played in the tournament, as did the then-director of United Russia’s Central Executive Committee, Andrei Yur’yevich Vorob’yov. Chernyshenko’s fellow Sportima board members reportedly included then-Interior Minister and former FSB anti-contraband officer Rashid Gumarovich Nurgaliyev and Presidential Administration Chief of Staff Sergey Yevgen’yevich Naryshkin. Then-Finance Minister Alexei Leonidovich Kudrin handed out medals to the participating players. Sportima’s activities may be construed as a form of “hockey diplomacy”, which Yoshiko M. Herrera and Yuval Weber describe as “an informal practice of utilising amateur ice hockey for the development of personal, business, and governmental relationships in Russia”.
[ii] Ledeneva defines the “sistema” in “sistema raiding” as a “the mix of formal governance (which is the result of official hierarchies and policies) [sic.] and informal networks and influences”. Per Ledeneva, sistema is at the heart of Putin’s system of governance.
[iii] “Torpedo”, as defined by The New Yorker’s Joshua Yaffa, is a Russian term for confidential human sources who cooperate with law enforcement by agreeing to be recorded eliciting incriminating information from other suspects. Yaffa notes that in the Russian context, the use of torpedoes can sometimes “veer toward entrapment”.
[iv] Igor Ivanovich Sechin, the then-deputy prime minister for energy and chairman of state-controlled oil major Rosneft, may have steered SKRF to investigate Udodov as a way of retaliating against then-Finance Minister Kudrin for ending state subsidies to a Rosneft-operated oil and gas field in eastern Siberia. Reputed to be Putin’s “protective gatekeeper and confidant” (Foy), Sechin — reputedly a leading member of the siloviki bloc who current serves as Rosneft’s CEO and President as well as the Chairman of Rosneft’s management board — has allegedly orchestrated criminal cases against government officials and privatebusinessmen alike in order to advance Rosneft’s business interests. Kudrin himself reportedly came under attack by Sechin in November 2007 when SKRF charged Kudrin’s subordinate, deputy finance minister Sergei Anatol’yevich Storchak, with attempted embezzlement of state funds. Sechin and his SKRFallies may have singled out Udodov for investigation because of his relationship with Mishustin, whom Kommersant once described as “Kudrin’s own man”. This theory is corroborated by the timeline of events: on 21 September 2010, less than two weeks before The Moscow Post published the first in a series of articles alleging Udodov’s involvement in VAT rebate fraud, Kudrin publicly refused to consider lowering tariffs on exports from Rosneft’s Vankor oil and gas field. Several months later, on 5 April 2011, online media outlet Republic.ru (formerly Slon), citing Reuters, reported that the government was ending tariff privileges for the Vankor field. The following day, SKRF officers attempted to search Udodov’s home amidst simultaneous raids on Chernichuk’s offices and home.
It’s been more than a year since I last posted on this blog. The reason for this silence is twofold: first, I have remained busy with my non-Russia day job despite the pandemic; second, I have spent most of my free time crafting a long piece concerning Alexander Yevgen’yevich Udodov, who is perhaps best known as the former brother-in-law of Russian Prime Minister Mikhail Vladimirovich Mishustin.
The following text is a teaser from a much longer piece , which I am in the process of finalizing. Specifically, it explores Udodov’s ties to the Khartsyzsk Pipe Factory (“KhTZ”) – a major manufacturer of large-diameter pipelines currently under the control of the Donetsk People’s Republic – and, by extension, to Alexander Petrovich Karmanov, an influential yet shadowy (pun very much intended) businessman who, in addition to reportedly enjoying a monopoly on the supply of pipelines to the Russian oil and gas sector, also claims to enjoy a close relation to members of Putin’s inner circle. Udodov’s relationship with Karmanov has received a measure of attention in various Russian media outlets – some of which are of dubious credibility – yet his ties to KhTZ appear to have gone relatively unnoticed.
Karmanov’s biography is known only in “general outlines”, as a 26 February 2018 Forbes.ru profile puts it. During the late 1990s, Karmanov reportedly ran a Moscow strip club, Daydreams, whose clientele included oligarchs and other high net worth individuals. The Forbes.ru profile submits that Karmanov’s subsequent success as a businessman may have resulted from his access to such “useful acquaintances.” This may be an understatement, as multiple sources report that, in or around the early 2000s, Karmanov was a patron ofYavara Neva, a St. Petersburg judo club co-founded by Putin – who also serves as the club’s honorary president –and several confidantes from his native St. Petersburg, including oil trader Gennadiy Nikolayevich Timchenko and Arkady Romanovich Rotenberg, a childhood friend of Putin’s. Karmanov confirmed that he was “personally acquainted” with Arkady Rotenberg and his brother Boris in a 7 November 2011 interview with Vedomosti, stressing that his sponsorship of Yavara Nevea was the product of a “friendly interest in judo.”[i]
While there is limited information as to how exactly Karmanov became acquainted with these regime insiders, the available evidence suggests that Karmanov gained access to them and other members of the Russian elite through his work for Gazprom, which the late Russian studies scholar Karen Dawisha describes as the locus or “home” of Putin’s system of political power (Dawisha, Putin’s Kleptocracy: Who Owns Russia?, p. 326). A 23 July 2003 Kommersant article identifies Karmanov as a former manager of OOO Gazkomplektimpeks, a Gazprom subsidiary that, according to a contemporary estimate by Ukrainian online newspaper Dsnews.ua, procured approximately 80-percent of all the gas major’s equipment. Dsnews.ua’s reporting further indicates that Gazkomplektimpeks began to outsource its procurement activities to various companies in 2002; among these companies was an entity called OOO Khimservis, which, according to Forbes.ru, became which was one of Gazprom’s main suppliers of large-diameter pipes. Because such pipes were not yet produced in Russia, Khimservis turned to KhTZ, a pipe foundry based in the Donbass region of eastern Ukraine that had reportedly come under the control of Ukrainian oligarch Rinat Leonidovych Akhmetov in July 2003.[ii] According to Forbes.ru and Vedomosti, Karmanov served as Khimservis’ general manager from 2002 until 2003, when Arkady Rotenberg acquired a 25-percent stake in the company. In this way, Karmanov may have built the foundation of his subsequent ventures in the oil and gas pipeline supply industry through his dealings with KhTZ on behalf of Khimservis.
The aforementioned July 2003 Kommersant article reports that, after leaving Khimservis, Karmanov assumed leadership of a company known as OOO Leman Pipe, which, per Vedomosti, was to become the sole supplier of KhTZ-manufactured pipes in Russia. Archived versions of Leman Pipe’s corporate website reference Karmanov as chairman of that company’s board of directors; the website also indicates that Leman Pipe was formed in July 2003 for the purpose of “optimizing partner relationships between KhTZ and Russian pipe consumers” and was KhTZ’s “main partner and the exclusive supplier of [KhTZ]’s products on the territory of the Russian Federation”. Another Kommersant article published on 17 December 2003 references Leman Pipe as a subsidiary of Leman Commodities SA, a Swiss steel trader controlled by Akhmetov’s Cypriot holding company SCM (System Capital Management) Ltd.
Corporate records suggest that Udodov headed the Russian branch of KhTZ, whose commercial partners included companies controlled by Karmanov. Circumstantial evidence indicates that Udodov controlled a KhTZ-affiliated company in Moscow during the late 2000s and early 2010s. Specifically, Russian corporate records show that on 31 October 2005, an entity known as ZAO Khartsyzskiy Pipe Factory(“KhTZ Russia”) was registered in Moscow, with Udodov listed as the company’s sole shareholder; he retained his 100-percent stake in the company throughout its existence. Relevant company registration data denote that KhTZ Russia’s principal line of business was the “wholesale trade of ores and metals,” which may denote the marketing of KhTZ-manufactured pipes. However, research identified limited additional information regarding KhTZ Russia’s commercial activities. As such, there is insufficient evidence to determine whether KhTZ Russia operated as an official branch of KhTZ.
Screenshot of corporate registration document identifying Udodov as the sole shareholder of ZAO Khartsyskiy Pipe Factory (“KhTZ Russia”)
Equally unclear is how and why Udodov became KhTZ Russia’s sole shareholder in the first place. One possibility is that Karmanov appointed Udodov to run KhTZ as a Leman Pipe affiliate. Multiple citations claim that Udodov first became acquainted with Karmanov during the early 2000s, when the former allegedly joined the latter as a “junior partner” in a scheme to submit fraudulent claims for value-added tax (“VAT”) rebates. The scheme in question, which Mishustin allegedly shielded from law enforcement scrutiny by virtue of his senior position within FNS, reportedly also involved Vitaly Ivanovich Kachur – a reputed smuggler[iii] with ties to the FSB[iv] and the arms trade[v] – who owned shares along with Udodov in a German air freight company known as VG Cargo. The latter entity has reportedly come under scrutiny in Germany as part of an investigation into whether Udodov laundered the proceeds of a massive value-added tax (“VAT”) rebate fraud .
KhTZ Russia wound up operations amidst the armed conflict that erupted in the Donbass between the central Ukrainian government and pro-Russian separatists in the months following the February 2014 ouster of Yanukovych. Russian corporate records show that KhTZ Russia entered liquidation on 4 August 2014. Several days later, SCM issued a press release announcing that KhTZ’s power supply had been severed by “powerful artillery bombardments” of unknown origin. Ukraine’s parliament subsequently recognized Khartsyzsk as one of several “temporarily-occupied” cities outside the control of the central government on 7 November 2014. Nonetheless, Udodov and Karmanov both returned to the pipeline industry in short order: according to his official biography, Udodov joined the board of directors of OOO Eurasian Pipe Consortium (“ETK”) – of which Karmanov is a 95-percent shareholder – in 2015.
Given his ties to Gazprom, as well as his acknowledged familiarity with the Rotenberg brothers and his ties to the Yarva Neva judo club, it is plausible that Karmanov placed Udodov in touch with Mishustin, and other members of Russia’s political and business elite – including senior Russian government auditor and former finance minister Alexei Leonidovich Kudrin, who served in the St. Petersburg mayor’s office alongside Putin during the 1990s (Russian News Agency TASS). Russian corporate records identify one Oleg Evgen’yevich Udodov as a 16.5-percent shareholder of OAO Valentin Yudashkin Group (“VYG”), of which Russian fashion designer Valentin Abramovich Yudashkin is a 25-percent shareholder. The latter individual’s patronymic and surname indicate that he is Udodov’s brother. 38.5-percent of VYG’s shares to OAO Business Technologies Investment Finance Company, of which Karmonov was registered as a 69.9-percent shareholder as of 19 February 2017. Another 10-percent of VYG’s shares belong to Irina Igoryevna Tintyakova; the latter is married to senior Russian government auditor and former finance minister Kudrin.
The available evidence, however circumstantial, indicates that Udodov maintains some sort of business relationship with Karmanov. This is corroborated, for example, by reports published in February 2020 that Udodov sold two Moscow-based luxury shopping malls to Karmanov. Udodov reportedly also sits on the board of directors of Karmanov’s Eurasian Pipeline Consortium (“ETK”). There is insufficient information available to determine whether Udodov acts as an intermediary between Karmanov and Mishustin.
As I mentioned at the beginning of this post, the information laid out in the preceding paragraphs is only a portion of a broader study. My hope is that this study, once complete, will tie together some of the loose ends sticking out from this post. Of course, my interpretation of events is inevitably flawed, being based as it is on potentially biased media reports or overinterpreting contextually-sparse public records. Even so, I feel that it will make a compelling case study of the continued relevance of informal networks of political and economic elites to late-stage Putinism.
Endnotes
[i] Be that as it may, some commentators have construed Karmanov’s sponsorship of Yavara Neva as betraying an affiliation with a clique of longtime Putin insiders from St. Petersburg, including the Rotenbergs, Timchenko, and Gazprom chairman Alexey Borisovich Miller, who served under Putin in the St. Petersburg mayor’s office between 1991 and 1996. On 20 March 2014, the U.S. Department of the Treasury’s Office of Foreign Assets Control placed financial sanctions on Timchenko and the Rotenbergs for “acting for or on behalf of or materially assisting, sponsoring, or providing financial, material, or technological support for, or goods or services to or in support of, a senior official of the Government of the Russian Federation” in furtherance of the Russian intervention in Ukraine.
[ii] A Donbass native, Akhmetov – whom Bloomberg estimates was the richest man in Ukraine as of 2018 – controlled a number of local industrial enterprises, and reportedly parlayed this economic power into financial support for pro-Russian Donbass politician Viktor Fedorovych Yanukovych, who would subsequently attain the Ukrainian presidency in February 2010.
[iii] Kachur appears to have benefited from an FSB smuggling investigation in which he was a person of interest. An October 2004 Novaya Gazetaarticle reported that FSB agents had intercepted six aircraft with falsified paperwork for goods intended for delivery to a warehouse that Kachur operated near Moscow’s Domodedovo International Airport. Although the article does not specify when the referenced FSB operation took place, a pair of FSB press releases from late September 2000 describe actions that include the seizure of aircraft belonging to Domodedovo’s parent company, East Line Group, as well as a raid on an East Line-operated warehouse near Domodedovo. On 7 June 2006, East Line sold its air freight business to Udodov’s former employer, Tesis, of which Kachur was reportedly a principal as of August 2005. East Line general manager Amiran Kurtanidze claimed that the FSB’s investigation into East Line was organized at the behest of individuals who wanted to seize East Line’s air freight business with China. East Line and Tesis were reportedly the only two companies licensed in Russia at the time to conduct cargo flights to and from China; an anonymous source within the security services told Sostav.ru that the FSB investigated East Line because the company “[did] not want to play by the rules”. One uncorroborated internet citation alleges that Kachur was familiar with Sergey Ivanovich Fomenko, an FSB general lieutenant specializing in anti-contraband operations named who resigned in 2006 along with several other FSB officers suspected of shielding persons engaged in the smuggling of Chinese consumer goods and other contraband from criminal prosecution in exchange for kickbacks. This information suggests, but does not prove, that Kachur may have acted as an undercover asset in a sting operation undertaken by corrupt elements of the FSB in order to punish East Line for failing to pay protection money to the security agency, which resulted in East Line selling its air freight business to Tesis – its principal competitor in the Russian market for Chinese air cargo. Moreover, the FSB may have installed Kachur as a partner of Tesis in order to cement the agency’s control over the monopoly on airborne shipments of Chinese contraband following Tesis’ acquisition of East Line’s air freight business.
[iv] According to an anonymous FSKN veteran interviewed by Novaya Gazeta, Kachur was familiar with certain unspecified principals of a smuggling ring run out of Three Whales, a Moscow furniture chain that allegedly belonged to the father of the then-head of the FSB’s economic security department, Yuriy Yevgen’yevich Zaostrovtsev. Notably, the latter’s son reportedly presided over the FSB’s investigation of East Line. According to multiple commentators, in or around 2006, FSKN chief Viktor Vasil’yevich Cherkesov, a former KGB colleague and later law school classmate of Putin’s, took control of an existing customs investigation into the alleged Three Whales smuggling ring in order to undermine the position of Rosneft chief and longtime Putin confidante Igor Ivanovich Sechin, who was reputedly close to then-FSB chief Patrushev. The FSKN’s investigation of the Three Whales smuggling ring and other contraband operations reportedly prompted the dismissal of several senior FSB officers – including reputed Kachur familiar Fomenko – over the course of 2006.
[v] Third-party Russian corporate data aggregators indicate that Kachur held a 20-percent stake in a company known as ZAO Finance-Construction Company “Alliance” from its founding on 23 June 2003 until it entered liquidation on 11 October 2008. Alliance’s shareholder information appears to have disappeared amidst a broader purge of corporate records in late 2020. Aggregator data show that Alliance’s other shareholders include one Sergey Anatol’yevich Bout (“Sergey Bout”), who also held a 20-percent stake in the company. The latter individual appears to be the brother of Viktor Anatol’yevich Bout, who allegedly smuggled arms to conflict zones in Africa and the Middle East using a fleet of old Soviet cargo aircraft based out of Sharjah International Airport in Sharjah Emirate, United Arab Emirates. Reports by Financial Times and Foreign Policy identify a person named Sergey Bout as the older brother of Viktor Bout (Farah and Braun); according to Financial Times, Sergey was involved in the “daily operations” of Air Cess, a UAE-based air freight company that Viktor Bout allegedly used to ferry arms into various African conflict zones during the 1990s. Research indicates that another 20-percent Alliance shareholder, Dmitry Vladimirovich Anishchev, owned an air freight company, ZAO AviationCompany Ilavia, which reportedly enjoyed an exclusive transport contract with the former Russian state-owned arms export monopoly, Rosvooruzheniye. Ilaviya appears to have had a United Arab Emirates (“UAE”)-based subsidiary known as ExpressAvia; third-partycorporate date aggregators reference an entity named Express Avia FZE, which, like Bout’s Air Cess, operated out of the UAE’s Sharjah Emirate. However, research of official UAE corporate records did not identify any information confirming that Express Avia FZE is or was, in fact, a subsidiary of Ilavia.
Translator’s Note: The following text is an approximate translation of a 16 June 2020article written by Proekt.media founder and head editor Roman Badanin. The article is a unique document in that it approaches the COVID-19 epidemic through the lens of a singularly personal tragedy; Badanin’s mother-in-law, Lyudmila, passed away from coronavirus-related complications on 3 June 2020. To maintain the journalistic integrity of Badanin’s account, Proekt.media assigned a separate journalist Daniil Sotnikov, to substantiate certain of Badanin’s claims. – Allen Maggard, 20 June 2020
On June 3rd of this year, at 15:00 hours in the hospital named for Sergei Sergeevich Yudin, someone close to me died – my sons’ grandmother, my former wife’s mother. Proekt.media doesn’t have any other articles written in the first person, but this one will be. However, in order to avoid personal prejudices and professional ethical violations, another Proekt.media author accompanied me throughout the entirety of this text: as a journalist, he spoke with the individuals and institutions that I interacted with as a relative of the deceased.
This story illustrates the many issues facing Russian medicine during the period of the coronavirus pandemic.
Interaction
Lyudmila’s death at 75 years of age resulted from a pair of strokes which occurred during the last year-and-a-half of her life. The most recent one resulted in an emergency hospitalization at the Yudin city clinical hospital – popularly referred to as “Number Seven” – on May 18th. Number Seven is regarded as the best-equipped public rehabilitation clinic in Moscow. Prior to 2019, intensivist Denis Protsenko worked as its main doctor; today he heads the main coronavirus clinic in the country.
Near Number Seven’s main building on Kolomenskiy Lane, there stands a billboard with the words, “Thank you, doctor.” The main entrance to the clinic is nearby. It’s been closed to visitors since mid-March.
For the more than two weeks that Lyudmila was in the hospital, her relatives were unable to speak with the attending physician. They collect messages for the sick at the entrance, but when it comes to speaking with doctors, every department recommends calling by telephone during a specific window of time. For the neurology department, where Lyudmila ended up, the phone number is +74997823501 and is open for calls until 16:00 hours.
Lyudmila’s relatives called this number every day – as did the journalist from Proekt.media – waiting for an answer that never came. Older people might compare this situation with the process of phoning the information desk of Moscow train stations at the peak of the tourist season in Soviet times: the “busy” signal interspersed with long beeps, and so on, ad infinitum.
The best way to find out about a relative in a Russian hospital is to become acquainted with younger medical personnel. A nurse with the neurology department – I won’t reference her by name – was the only person who told the family about Lyudmila’s condition during the 16 days she was in hospital.
At four in the morning on June 3rd, this nurse notified the family about Lyudmila’s death (the attending resuscitation doctor later told relatives that he called the home phone at the deceased’s registered address – no one was there). When the relatives phoned, the doctor on call with the resuscitation unit stated that Lyudmila had “passed away from a cerebral infarction” and delivered his condolences.
Kin without communications
“The situation is unusual, hospitals that previously didn’t work under such conditions have been refitted because of coronavirus,” explained medic and former Moscow deputy mayor for social issues Leonid Pechatnikov. “There are multichannel telephones in several recently-commissioned hospitals, in older ones, such lines are only just now being installed.”
For example, in Moscow’s 52nd hospital, which was refitted for coronavirus, the doctors themselves solved this issue by setting up a call center. Surgeon Alexander Vanukov told Proekt.media: “From the outset, we decided that we cannot work like this, it’s inhumane enough as it is. We did a very simple thing: instead of two people, they put four, then six people on single multichannel telephone number, taught them what to say, how to extract intelligible information from an electronic health record, and wrote down the words you need to say in order translate from medical language to human language. We no longer had any complaints about how it was impossible to contact us.”
As tragic as this was, it would’ve been the end of the story, had a representative from the Federal Service for Surveillance on Consumer Rights Protection and Human Wellbeing (Rospotrebnadzor) not called Lyudmila’s spouse late one night with the news that Lyudmila had tested positive for coronavirus. The Rospotrebnadzor representative did not know any details of where, when, or why this test was administered. So began a different story.
Testing
Neither the doctors nor any other personnel informed Lyudmila’s relatives about the discovery of her infection. The one time during her hospital when the family managed to reach the resuscitation doctor on call, he stated that her “condition was stable, unchanged.” There was no mention of the coronavirus.
Lyudmila was tested for COVID while being admitted to the hospital, and that test came back negative, according to hospital workers who discussed the matter on condition of anonymity. After some time, she began to develop pneumonia in both of her lungs. When reached for comment by Proekt.media, the Moscow Health Department stated that Lyudmila manifested “signs of a respiratory illness” during her hospitalization, so they gave her another “several tests” and a radiological examination, which, again, reportedly turned up nothing. “She sat for a CT scan, which showed no changes in the lungs,” the department claims.
This is strange, according to a doctor who works with coronavirus-infected patients in one Moscow clinic (Translator’s note: this individual is referred to hereinafter as “the Moscow doctor”). Speaking to Proekt.media on condition of anonymity, he explained that a CT scan is almost guaranteed to pick up a coronavirus infection, because the latter has clear-cut radiological attributes (the so-called “ground glass opacity effect” in the lungs).
Only on May 30th, on the 13th day of Lyudmila’s hospitalization, did they give her a test that returned a positive result, according to Rospotrebnadzor.
At the same time, health officials do not acknowledge that Lyudmila contracted coronavirus in the hospital. In response to Proekt.media, the Moscow Health Department claims that, “no cases of hospital-acquired infections have emerged in the Yudin city clinical hospital.”
This is doubtful, considering that in the year prior to my relative’s death, she never left home, and she and her husband had self-isolated for the preceding three months. Coronavirus was not detected in her husband.
Hospital Infections
Reducing the risk of hospital-acquired infections to zero is practically impossible, explains the deputy director of the National Medical Research Center for Phthisiology and Infectious Diseases, Vladimir Chulanov: “the risk can only be minimized by the following activities: controlling temperature, gathering epidemiological histories, and testing incoming patients. But considering that the incubation period is 14 days, a person who is already infected might not exhibit any symptoms.” Proper triage is another approach. Ideally, continues Chulanov, if a patient hasn’t been diagnosed yet, it’s desirable to place him or her in an isolation room.
Quarantine
Even if Lyudmila was infected by the coronavirus on the day of the positive test, May 30th, she lied in open hospital wards for a minimum of five days. She alternated between five beds in the neurology ward and two beds in the intensive care unit. Early on the morning of June 3rd, several hours before her death, Lyudmila was located in the intensive therapy ward of the neurology department: photos taken by another patient at the request of Lyudmila’s family show her wearing an oxygen mask, without an assisted breathing apparatus.
Health Ministry documents stipulate that in cases where a patient show signs of COVID, medical staff are to “transfer the patient to an infection ward by calling for a specialized ambulance team.” The Moscow doctor who works with coronavirus patients confirms that, regardless of the severity of their case, all people confirmed to have coronavirus are required to be transported to a designated “COVID” building or to the clinic on Kolomenskiy Lane if there are no “COVID” beds in the hospital. Number Seven’s main facility, in his words, hardly meets the criteria for a “COVID” in-patient care center with its general ventilation, end-to-end hallways, and lack of airlocks.
The unit for coronavirus patients at Yudin hospital is located in a separate building on 1 Academic Millionshchikova street, nearly two kilometers away from the main facility. They did not send Lyudmila there.
If the hospital received the COVID-19 test only after Lyudmila’s death, then everyone who came into contact with her – patients and personnel – should take a polymerase chain reaction test. One nurse said that personnel regularly take the test, but she did not know about whether other patients are checked.
The Moscow doctor says that the epidemic primarily hit large clinics which were not refitted for the new virus, such as Number Seven’s main facility. The coronavirus penetrated all of these facilities equally, through personnel or patients, but it’s impossible to equip these facilities with airlocks, “red zones,” and turn off their ventilation, and so such hospitals became epicenters of viral spread among doctors and patients. “It was probably worthwhile to regard all pneumonia patients as coronavirus patients and to transport them to special hospitals, but as for how worthwhile this is and whether it’s feasible, nobody can currently tell,” says the doctor.
Statistics
It took an entire day to obtain and cremate the body – even at the end of the day, the queue at the Nikolo-Arkhangel’skiy crematorium consisted of 20 funeral processions. According to the funeral agent, the number of dead in the city has risen substantially over the past two months, and morgues cannot cope with the work. In particular, two funeral agents and one doctor stated that Hospital No. 15 in Vykhino had the busiest morgue in Moscow.
“In nine out of ten cases now, COVID is written on the second line of the death certificate, But never on the first line. My understanding is that it’s good for the hospital to show that a patient has COVID in order to receive money, but it’s not profitable to show increased mortality rates from COVID specifically.” So said one funeral agent, who showed several photographs of death certificates for deceased persons as evidence.
Media outlets has previously written about official death statistics in Russia, The Moscow Times being the first to do so. The same pattern is apparent in Lyudmila’s death certificate, which lists COVID as “an important condition that contributed to her death.”
* * *
Ever since the epidemic began, the Moscow doctor whom we spoke with on condition of anonymity only spends a few hours at home each night. He tells me, “Naturally, you’re looking at the history of COIVD through your own personal tragedy.” And he’s right.
Translator’s Note: The following text is an approximate translation of an 18 December 2019 Proekt article by authors Alexander Sokolov and Roman Badanin.
In the autumn of 2019, the chief justice of the Supreme Court of Russia, Vyacheslav Lebedev, was appointed to another term. He started off with the big “Moscow Case”, a trial over the participants of peaceful protests against abuses in Moscow elections. As was the case seven years ago, when Lebedev was reappointed amidst of the “Bolotnaya Affair”, Russian courts obediently carry out the will of vlast’: when necessary, they severely punish members of the opposition; when asked, they demonstrate a strange leniency.
It is the middle of the naughts. The young chief judge, who is now a retiree and wishes to remain anonymous, attended his first meeting of the Council of Judges — one of the highest organs of judicial authority in the country. Usually convening twice a year, the gathering generally consists of an official portion, with speeches and awards, along an unofficial portion consisting of a party with drinks and snacks. Recalls the former chief judge: “I was shocked when I witnessed the plastered head of a regional court crawl on all fours and, like a dog, grasped onto the legs of Lebedev’s trousers”.
The chief justice of the Supreme Court has commanded Russia’s jurisprudence for 30 years. During this time, four presidents and two Constitutions have changed. Yet the work of the highest judge in the land has remained the same.
Vyacheslav Lebedev was born in 1943. His career developed in a manner typical of many Soviet judges. At 17 years old, he went to work at the Moscow Reinforced Concrete Pipe Factory, during which time he studied law during the evenings at Moscow State University. Lebedev finished his studies in 1968: two years later, at the age of 27, he was selected to serve as a People’s Judge on the Leningrad District Court in Moscow. Several years later, he headed Moscow’s Zheleznodorozhniy District Court, where he served as chief judge until 1984.
His career within the justice system advanced swiftly. In 1984 Lebedev was nominated as the deputy chief judge of the Moscow City Court (Mosgorsud), rising to the post of chief judge just two years later. Three years after that, Lebedev found himself at the helm of the main judicial organ of the Russian Soviet Federative Socialist Republic.
At the start of the 1990s, Soviet President Mikhail Gorbachev offered Lebedev the post of Prosecutor General of the USSR. However, Lebedev declined, explaining: “I’m a judge, not a prosecutor”. In 1993, Lebedev joined the Commission for the Development of the Constitution.
As a youth Lebedev practiced boxing. But the judge is no stranger to art – he loves the theater and jazz, especially the saxophone, and even plays the instrument, according to one former chief judge. There’s even a rumor among lawyers that Mels, the hero of Valeriy Todorovsky’s 2008 film Hipsters, is based on Lebedev; like the chief justice, Mels hails from a simple working family, studies at a university, is a sportsman, listens to jazz, and plays the saxophone.
Family
“You hand out illegal and baseless verdicts! You crudely violate the law, and I don’t trust you!”, shouted Viktor Milyekhin, failed candidate for the post of chief justice of the Supreme Court, to the Higher Qualification Collegium of Judges. The former banker, having previously been subjected to criminal prosecution, was now a lawyer and, either in earnest or in jest, had taken aim at the head of Russia’s entire court system. However, due to bad health, Milyekhin did not come to the meeting of the qualification board, and he did not receive a second chance.
Milyekhin was the sole challenger to Lebedev in the last elections. The frivolous nature of his candidacy only underscores the lack of alternatives to Lebedev, who has occupied his post through eight consecutive terms on account of technical reappointments. “Everything’s clear to everyone. It’s shameful to be a clown — who needs it?”, asks well-known attorney Roman Bevzenko. Several years ago, Bevzenko himself tried to become a Supreme Court justice but was removed from the running because Lebedev disliked his candidacy.
At 76 years of age, Lebedev holds three records: he is the oldest judicial chief; the oldest active judge; and the longest-serving head of any Russian court. Still, in 2012, the president signed a law that removed age limits for judges, enabling Lebedev to remain on his own throne for life.
According to a judge familiar with the couple, Lebedev’s wife Tatyana is a relative of a now-deceased Politburo member. Sources attribute Lebedev’s rapid rise during the 1980s to his fortunate marriage. The Lebedevs have lived in an elite Soviet-era dacha community outside Arkhangelsk since the 1990s, says a former judge who regularly visited the couple there. Proekt discovered that other members of the judiciary also own dachas in the same settlement, including the chairman of the Constitutional Court of Russia, Valeriy Zorkin. Levbdev’s niece – his daughter’s daughter – followed in her grandfather’s footsteps and served with the Russian Supreme Arbitration Court, but providently removed herself before the latter institution merged with the Supreme Court in 2014.
Power
“This was not a unification, but a liquidation,” recalls Roman Bevzenko, the former head of the Supreme Arbitration Court’s private law division. Putin came up with the idea of combining the Supreme Arbitration Court and the Supreme Court into a single entity at the start of the 2000s, continues Bevzenko; then-head of the presidential administration, Dmitri Medvedev, also supported the idea. One former Constitutional Court judge quoted him as saying, “We don’t need this three-headed entity […] We need a single Supreme Court, like in the United States”. A relevant bill was written and tabled before the start of Putin’s third term.
“I propose unifying the Supreme Court and the Supreme Arbitration Court, for which it will be necessary to introduce amendments to the Constitution”, explained President Putin at the St. Petersburg Economic Forum in June 2013.
“Everyone expected that this would amount to a smooth merger of the judicial corpus, but when the first bills appeared, everyone was startled,” recalls Bevzenko. The new legislation required all judges to pass through a sieve of qualification boards and presidential administration officials. Most managed to slip past the first stage, but the real problems began with the Presidential Commission on Personnel. Bevzenko describes the latter as being awash with poison pen letters, FSB dossiers, denunciations, and tight-lipped officials. As result only 17 of the 36 candidates from the Supreme Arbitration Court ended up becoming Supreme Court judges.
Some judges were removed for opposing the Supreme Court and defending unpopular judges in the High Disciplinary Judicial Board (HDJB). The latter organ, which was designed to handle complaints against judges, was chaired by six justices – three from the Supreme Court and three from the Supreme Arbitration Court. If there was parity among these six judges, then a judge who had faced criticism would not be stripped of his or her powers. Bevzenko recalls that the HDJB heard many cases about judges who had been baselessly “forced out” for adopting unwelcome rulings. The Supreme Arbitration Court’s representatives on the HDJB often protested against depriving such judges of their status and saved the latter from losing their office.
Concludes Bevzenko, “I think that he [Lebedev] simply wanted to bring the Economic Collegium (Note: the Economic Collegium is the branch of the Supreme Court that assumed the functions of the Supreme Arbitration Court after the latter’s dissolution) under his exclusive control so that he could say, ‘this needs to be done’, and people would act accordingly”.
“Lebedev’s principal motive was to have a vertical hierarchy that was clearly subordinate to him,” says a retired judge personally familiar with Lebedev. Thus, the leader of the Supreme Court spends a great deal of time dealing with matters of staffing. Of particular importance to Lebedev are chief judges, explains former Moscow City Judge Sergey Pashin. Pashin was twice threatened with dismissal for his independence and eventually resigned of his own accord in 2001. He later wanted to become a justice on the Supreme Court, but was rejected.
Lebedev’s former secretary and assistant, Alexei Kharlamov, is a typical protégé. Upon leaving Lebedev’s staff, Kharlamov immediately became a Supreme Court justice. By 2018, Kharlamov, who was then just over forty years old, had already taken the throne as head of the second-most important regional court in the country – the Moscow Oblast Court.
Lebedev looks after his own people, and by that same token, he does not care for those who were appointed against his will, says a retired senior judge familiar with Lebedev.
Lebedev’s control over his own personnel has reached the point where the video cameras inside the Supreme Court surveil his staff, capturing the interactions among judges and court employees. One retired senior judge says that Lebedev sometimes questions his staff after viewing such recordings.
The Kuban
Lebedev sources much of his personnel from Russia’s Kuban region. The Chief Justice maintains a special relationship with Krasnodar Krai. One former judge who worked alongside him says the Lebedev has vacationed there since Soviet times and fell in love with the region years ago. Since the local mindset is characterized by hospitality, the residents of the Kuban always strive to welcome him; as a result, Lebedev has informal ties to a number of natives of the region.
Lebedev’s Kuban protégés have occupied high judicial posts in the Russian capital for many years. One such person is Viktor Momotov. Momotov worked at the Kuban State University for more than 20 years, and never once donned a judge’s robes until 2010, when he suddenly became a justice of the Supreme Court. Now he also serves as the chairman and the plenum secretary of the Supreme Court.
Lebedev’s friend Vasiliy Voloshin worked in the Krasnador court system for 20 years and recently was promoted to the head of the Third Court of Cassation, which was created as a court of instance between regional courts and the Supreme Court. Another judge close to Lebedev, Vasiliy Tarasov, worked in the Tuapse procurator’s office for five years, then led the Tuapse City Court for ten years, and now heads the Voronezh Oblast Court. Lebedev often takes these judges with him on trips abroad.
Anatoliy Bondar, who began his legal career in the famous Krasnador Krai town of Kushchevka (Note: Kushchevka gained national notoriety in 2010 after members of an organized crime group carried out a massacre the local train station) was promoted to high office as the head of the Second Court of Cassation. As soon as this court began operations, it immediately issued personal sanctions against Lebedev’s long-time rival, Mosgorsud chief judge Olga Yegorovaya.
In March 2013, authorities arrested the Kuban entrepreneur and regional United Russia deputy Sergey Zirinov on suspicion of plotting to murder the head of Anapa’s local Cossack community. Described as Anapa’s “master of the night”, Zirinov allegedly set up a gang that murdered businessmen and took over various hot properties in Anapa. Novaya Gazetareported that Lebedev had stayed in a hotel owned by Zirinov during his summer vacation.
A special personnel committee within the presidential administration investigated this incident and confirmed that Lebedev had vacationed at Zirinov’s “Golden Bay” resort, according to one retired senior judge. This same source asserted that the then-chief of the Krasnodar Krai Court, Aleksander Chernov, coordinated Lebedev’s visit to the resort, adding that Lebedev himself was probably not close to Zirinov.
Chernov, who presided over the Kuban judiciary for almost a quarter of a decade, is another member of Lebedev’s cohort, says former judge Dmitriy Novikov. However, scandals surrounding his relative, the “Golden Judge” Yelena Khakhalevaya – her son, who is married to Chernov’s granddaughter, has been accused of criminal corruption by pro-Kremlin media – have seriously weakened Chernov’s standing. Thus, Lebedev was unable to promote Chernov to the post of head of the Fourth Court of Cassation in 2018; his candidacy was killed in the Kremlin.
Lebedev’s ties to the Kuban were widely discussed by another (now-former) confidant of his, Sochi judge Dmitriy Novikov. In 2010, Novikov was arrested and prosecuted for fraud and judicial misconduct. Novikov, in turn, claimed that the true cause of the case against him was his conflict with Chernov, accusing him and several other senior Krasnodar judges of corruption along. Novikov’s opponents maintained that the counter-accusations were a means of defense and emerged after the criminal case was initiated. The conflict was decided in a mutually satisfactory in 2011, with Novikov being released from prison and regaining his status as a judge, while Chernov remained in his own post until 2019
Although Novikov initially refrained from criticizing his old acquaintance, he still remained angry with Lebedev. The former judge started a video blog: now that the case against him is over and he has been freed from punishment, Novikov posts content in which he not only accuses Lebedev of corruption (asserting, for example, that Lebedev flew to Zirinov on a plane onto which he had allegedly loaded USD 300,000) but also complains about Sochi judges are “shaken down” and made to pay for Lebedev’s banquets.
Just
In November 2007, FSB officers arrested Deputy Finance Minister Sergey Storchak on charges of attempted fraud. The case was never closed, as Storchak was released the following year due to a lack of evidence against him. However, while he was sitting in jail, an intense battle raged for his fate, as Putin’s old confidant, Aleksei Kudrin, appealed to the president on Storchak’s behalf. Media sources reported that Kudrin, being Storchak’s boss, was the main target under attack and that the FSB and the Investigative Committee defended their decision to open the investigation.
This was one instance where the president needed Lebedev. Putin was interested in Lebedev’s opinion “as an arbiter unaffiliated with either side”, recalls a high-ranking acquaintance of the chief justice. According to him, Lebedev’s opinion led to Storchak’s release roughly one year after his arrest. “He regularly meets with Putin, who asks for his opinion regarding big issues” – that is, when the interests of various groups within the president’s orbit collide in court. When asked about Lebedev’s role in freeing Storchak, Alexei Kudrin’s press secretary responded: “We know nothing of this practice”. The president’s press secretary, Dmitri Peskov, answered with, “No comment”.
In order to understand the kind of cases in which Lebedev would have intervened, one former court director suggests paying attention to prominent rulings that run counter to established procedural processes. One example is the case of Yevgeniya Vasilyevaya, the lover of ex-defense minister Anatoliy Serdyukov, who at the time of the scandal was the father-in-law of Viktor Zubkov. Zubkov himself was a Putin confidante from the president’s days in St. Petersburg. Vasiliyevaya was placed under house arrest for thieving billions of rubles – such kindness is untypical of courts of common jurisdiction. In 2012, when the case was heard, one was 72 times more like to end up behind bars than under house arrest, according to data compiled by the Judicial Department of the Supreme Court.
Another example is the case of high-ranking detective Dmitriy Dovgiy, who was thought to have been too independent and sparred with his own boss, Putin’s classmate Aleksandr Bastrykin, for which Dovgiy was accused of bribery and sent to prison. The fact of the bribe was corroborated solely by witness testimony; the money itself never materialized. But this didn’t hamper the court from contravening part 4 of Article 302 of the Russian Criminal Code, which requires that guilty verdicts be handed down only on the basis of incontrovertible evidence, and not on the assumption of the investigator’s guilt.
“Lebedev subscribes to the belief that judges are a part of the law enforcement system”, says a retired senior judge. As a result, Lebedev’s system of justice generally issues verdicts that favor the bureaucracy, while in economic cases the Supreme Court takes a “pro-budget position”. This is corroborated by statistics: since 2014, courts have become 19% less likely to make state organs answer for damages, conversely becoming 14% more likely to replenish the treasury with decisions that favor the tax service and other state organs.
The Supreme Court itself is also changing. Over the past five years, the already-low chances of securing a review of a verdict by the high judicial body have fallen two-fold. In 2013, the Supreme Court admitted and reviewed 1 out of every 130 appeals in criminal cases; today, only 1 out of every 340 appeals come across its docket.
The repressive tendency of the Lebedev system assumes tangible form in criminal proceedings. The trial of the serial killer Andrei Chikatilo 1992 marked the first notable case in post-Soviet Russia where the judges and all the participants in the judicial process where a defendant was placed in a cage for trial. Since then, these cages have been installed everywhere, such that all criminal defendants have seemingly been equated with Chikatilo. This is done ostensibly for the security of the judges, although the European Court of Human Rights (ECHR) has deemed the practice to be a human rights violation on multiple occasions.
“For any practicing attorney to say, ‘Let’s go to the general jurisdiction court’— it’s akin to offering to descend into pitch darkness,” opines Bevzenko.
By 2018, Russia had reached a historical minimum of acquittals in criminal cases. As has been previously calculated, whereas jury trials acquit roughly 28% of those sitting opposite the prosecution, district general jurisdiction courts only release 3.6%. Moreover, if a person was previously jailed, the chances of release fall to 0.4%. “The justice system today is a ministry for the production of prisoners for labor camps”, agrees the ex-judge Pashin, who now works as a professor with the judiciary department of the Higher School of Economics.
“Special judges” often conduct politically-charged cases where the authorities are interested in the necessary judgments. During his time as a judge during the 1980s, Lebedev himself presided over such cases. In 1984, he handed down a guilty verdict against the Soviet human rights activist Elena Sannikova. In January 1986, not long after being appointed as the chief justice of the Moscow City Court, Lebedev sentenced dissident Felix Svetov to five years of internal exile for defaming the Soviet system.
Honest
On a warm winter day in January 2019, an Ilyushin Il-96 passenger airplane touched down at an airport near Asuncion, Paraguay. The plane bore tail number 96019; on its fuselage was inscribed “Rossiya”, denoting the Russian state-owned airline to which the plane belonged. The plane itself specialized in transporting government VIPs and had flown from Russian across Senegal. International media reported that the plane was carrying a contingent of armed Russian mercenaries to Venezuela for the defense of President Nicolas Maduro.
Аlso onboard the plane was Lebedev, who had decided to visit Paraguay and Cuba for the purpose of strengthening judicial ties between those countries and Russia.
Plane number 96019 services Lebedev in many of his travels: the aircraft frequently lands at his favorite resort, Sochi, though last year it visited Tenerife in the Canary Islands.
The issue of providing the plane to Lebedev was settled sometime in 2011 or 2012, assets an ex-employee of the judicial apparatus. “He asked the president for a long time, especially after the general jurisdiction courts handed down the necessary verdicts following those massive protests”. Moscow’s judges declined all complaints regarding electoral fraud, but when the police arrested hundreds of people in the wake of the aforementioned protests, they began to hand down real prison terms for the so-called “Balotnaya affair”. The ECHR later deemed these sentences to be illegal.
Besides aviation services, security, and his official dacha in Arkhangelsk, Lebedev possesses still another attribute of the new nomenklatura – namely, valuable personal real estate in the elite district of Podmoskovye. According to his official asset declaration form for 2018, Lebedev owns a 4,100 square meter plot of land and a home with a total area of 583.7 square meters. The only property that matches these parameters is a single dacha in the settlement of Uspenskiye Dachi, which is located near the Moscow suburb of Rublyovka. The current market value of this property is around RUB 127 million (USD 2.08 million), or around RUB 3.1 million (USD 50,802) per 100 square meters of land. Lebedev received the dacha from the state in 2001. One of Lebedev’s neighbors in Uspenskiye Dachi is Prosecutor General Yuriy Chaika; a former high-ranking judge claims that Chaika is the only senior official with whom Lebedev speaks using informal language.
Lebedev also declared owning a 232-square meter apartment. The property is located in a building on Academic Zelinskiy Street in Moscow. President Putin previously owned an apartment in a neighboring facility, claim two sources with access to judicial circles. The president took up residence at 6 Academic Zelinskiy Street after moving from St. Petersburg in the 1990s; this complex was also home to Alexei Kudrin, Anatoly Chubais, and other members of the Putin-era elite.
The former luster of these homes has long since tarnished, and their high-ranking owners hardly visit their apartments anymore. In 2017, residents complained that cracks had appeared in the foundations of the building because of construction taking place next door. Even so, the space at 6 Academic Zelenskiy Street don’t come cheap: the market value of Lebedev’s apartment is approximately RUB 97 million (USD 1.6 million), if the average market price of apartments in neighboring buildings (RUB 420,000 [USD 6,882] per square meter) is any indication.
Lebedev earned RUB 11.4 million (USD 186,822) in 2018, according to his asset declaration form. Naturally, he is one of the top ten highest-paid judges in Russia. However, his salary alone is insufficient to allow him to purchase the combined real estate assets of the Lebedev family at market prices.
Lebedev has owned a number of properties over the past 20 years. In 1999, he became the owner of a 25-acre plot in Barvikha, which he obtained from the Odintsovsky District. A year and a half later he sold this property to a Maxim Moskalev, who in turn transferred it to one Dmitriy Agramakov. Agramakov then sold the plot in 2013 to a Denis Bolotov, who has owned it ever since. Notably, Moskalev and Agramakov were identified as the beneficiaries of multiple banks in the system of “shadow financier” Sergey Magin, who in 2015 was sentenced to serve eight and a half years in a labor colony for conducting illegal financial operations worth nearly RUB 122 billion (approximately USD 2 billion).
The fate of another of Lebedev’s former properties is not less interesting. In September 2002, Lebedev obtained an additional 15 acres of land in Barvikha; the land had become worth USD 2 million by September 2003. The very next day after the one-year anniversary of this transaction, Lebedev transferred ownership of the property to his subordinate, Vladimir Shiryaev, the head of the Supreme Court’s Economic Directorate, according to official cadastral data. Less than two weeks later, this land turned up in the hands of Lidiya Rudenko, the mother-in-law of Odessa criminal boss Valery Tomal. A year and a half passed, and the land came under the control of Toma’s wife Natalya, who remains the owner to this day.
Tomal has previously been investigated by the Ukrainian Ministry of Internal Affairs, and in 2005 he came to the attention of Spanish police for his suspected involvement in money laundering. He is the co-founder of the Moscow-based OOO ATN-Investstroi, which is currently in liquidation. Tomal’s former business partner in ATN-Investstroi, Yevgeny Oras, previously served as the general director of gulagu.net. This website, which sold prisoners insurance covering torture and violent death, was later prosecuted for large-scale embezzlement.
All of the sources who spoke to Proekt agreed that Lebedev does not seek out luxury especially, and is motivated not by money, but rather seeks control over the system that he has built. “Vyacheslav Mikhailovich is of the old Soviet school”, notes Pashin.
A Scholar
On Sunday, 14 September 2013, an important event took place in Ghana. At the invitation of Ghanaian chief justice Georgina Bush, the leader of the Supreme Court of Russia honored the African country with a four-day visit. Some of Lebedev’s Kuban acquaintances accompanied him on the trip, including the then-head of the Moscow Oblast Court, Vasily Voloshin, and the chair of the Saratov Oblast Court, Vasily Tarasov. Local media announced that Lebedev would speak at a gathering of the Ghana Bar Association in the regional capital of Ho on 16 September, after which the assembled Ghanaian and Russian judges would sign a memorandum of understanding. Not addressed was what the judges planned to do over the ensuing weekend.
Russian media paid no attention to this event at the time, as is evidenced by contemporary Google and Yandex metadata.
The day after his arrival, Ghanaian news reported that Lebedev had been involved in a traffic accident while leaving the conference. According to the official version of the accident, a truck had crashed into the convoy carrying the judge. Lebedev was injured, and EMT personnel spent nearly an hour pulling him from the wreckage. The judge was delivered to the intensive care unit of a military hospital in Accra, where his condition stabilized. On 18 September, Lebedev was flown back to Moscow on an airplane belonging to the Russian Ministry of Emergency Situations. Lebedev dislocated his clavicle and sustained bruises to his spine and ribs as a result of the accident.
Lebedev’s visit to Ghana immediately raised many questions. The country’s legal system is essentially different from Russia’s. However, in Ghana there’s a number of beautiful locations where one may hunt elephants and other animals. In recent years, the elephants there have been hunted so intensively that their population has sharply diminished.
It’s possible that Lebedev and his friends were actually interested in a safari since they are avid hunters. Says one retired senior judge familiar with Lebedev: “Lebedev’s been in love with hunting since Soviet times when it was a mark of privilege. He ventured all over Africa and even brought back souvenirs for his colleagues, especially masks”. They would’ve have preferred that their visit to Ghana go unnoticed, continues the former judge, had it not been for the accident and the heavy injuries suffered as a result. The standard elephant safari tour in Africa a decade ago cost USD 80,000 – USD 50,000 for a hunting license and USD 30,000 to organize the hunt itself.
This story, like other ones which paint Lebedev in an unfavorable light, was previously leaked to the press, albeit often in a very distorted form: the issue is that despite the vertical of authority Lebedev has built for himself, he still has opponents who occupy positions of authority inside Russia. The throne upon which the chief justice sits has swayed more than once. At the beginning of the 2000s, there were the reforms of Dmitry Kozak: previously, the head of the Supreme Court had no term limits; after 2001, however, the office of chief justice was to be renewed every six years, thus making the officeholder more dependent on higher authorities.
For insurance, Lebedev swiftly transformed into an “eminent scholar”: in just two years, he defended his graduate and doctoral dissertations. By April 2014, when the Supreme Court absorbed the Supreme Arbitration Court, Lebedev was already saying goodbye to his colleagues. According to former judge close to him, Lebedev doubted to the end that Putin would choose him. But then everything worked out.
“Vyacheslav Mikhailovich is a very cautious man. He never sticks his neck out”. – Former Moscow City Judge Sergey Pashin on Lebedev’s preference for abstaining from politically-risky issues over issuing dangerous judgments.
* * *
“Constant experience shows us that every man who has power is inclined to abuse it; he goes until he finds limits […] There would be an end of everything, were the same man, or the same body, whether of the nobles or of the people, to exercise those three powers, that of enacting laws, that of executing the public resolutions, and of trying the causes of individuals”. –Montesquieu, as quoted by Lebedev in his monograph, The Formation and Development of Judicial Power in the Russian Federation.
Note: This piece originally appeared in the 15 June 2018 edition of the Bear Market Brief newsletter. If you are interested in learning more about Russian political economy – as well as reading my own occasional scribblings on Russian law – then you can sign up – right here – Allen Maggard
The electrical blackout that blanketed Crimea this past Wednesday underscored the challenges of the effort to integrate the contested peninsula. Crimea has become something of a money pit for the Russian economy over the past four years. Less apparent is how the region’s annexation has paved the way for commercial litigation involving inadvertent breaches of contract resulting from international sanctions. Some of these legal actions have directly jeopardized the very projects that promise to alleviate Crimea’s economic woes – including in the area of electrical supply.
In 2012, VTB Capital plc extended EUR 175 million in financing credit to a group of Simferopol-based solar energy producers under the control of a Cypriot entity known as Aurnia Commercial Ltd. The Aurnia group of solar companies regularly transferred money into three accounts with VTB Capital plc’s Ukrainian branch in order to write off its debt. However, the introduction of sanctions following the annexation of Crimea put a halt to these transactions, prompting VTB Capital plc to demand that the Aurnia group make good on its remaining debt. When these repayments did not materialize, VTB Capital plc filed a legal action against the Aurnia group in the Moscow Arbitration Court (ASgM) on 23 November 2015.
Citing force majeure – a clause freeing parties from their respective contractual responsibilities in the event of unforeseen external developments – the Aurnia group asserted that sanctions had rendered its agreement with VTB Capital plc void. The Aurnia group demonstrated that it had made numerous efforts to transfer funds to VTB Capital plc through other financial services providers, only to run into sanctions-related restrictions with those institutions as well. While the courts agreed that the political and economic effects of the Crimean crisis had left the Aurnia group unable to uphold the terms of its agreement with VTB Capital plc, these circumstances did not nullify the latter’s right as a creditor to reclaim debts.
At the same time, the Aurnia group proved that it had not technically reneged on its debt repayment schedule, since it had made a good faith effort to transfer funds to VTB Capital plc through other banks. The courts thus ruled that Aurnia group did not need to pay any penalties for violating the terms of the original credit agreement, and ordered the debtors to repay the remainder of their interest-adjusted debt. At the request of VTB Capital plc, the Arbitration Court of the Republic of Crimea recognized two companies belonging to Aurnia group as bankrupt on 1 June 2018.
The immediate result of VTB Capital plc’s legal action against the Aurnia group will be to deny other Crimean debtors the option of invoking force majeure vis-à-vis sanctions as a valid protection against creditors. This will certainly reduce the burden on the dockets of regional arbitration courts. However, in fulfilling VTB Capital plc’s claim and impelling the Aurnia group to sell off portions of its generating equipment at liquidation value, the courts have also placed Crimea’s energy supply at risk of further disruptions. As far as tradeoffs go, it’s a shockingly bad one.
Translator’s Note: The following text is an approximate translation of an article published by Pravo.ru on 20 April 2018. The original author is Alexei Malakhovskiy.- Allen Maggard
At the end of 2015, Vladimir Putin, appearing before the Federal Assembly, emphasized that excessive activity by law enforcement organs was disrupting the business climate in Russia. The president noted that only 15% of criminal cases concerning economic offenses in Russia result in sentencing. At the same time, 83% of entrepreneurs subjected to criminal proceedings – an absolute majority – totally or partially lost their business. Said Putin: “That is, they were ‘pressed,’ ‘robbed,’ and released.”
Notaries in the Isolation Unit and Fines instead of Sentences
In order to change this situation and come up with additional guarantees for guaranteeing the rights of businessmen, Putin at the start of 2016 ordered the creation of a working group to monitor and analyze law enforcement practices in the sphere of entrepreneurship. This group included representatives of the presidential administration and security agencies, as well as the heads of four leading business organizations: the Russian Union of Industrialists and Entrepreneurs (RSPP), Delovaya Rossiya, Opora Rossii, and the Chamber of Commerce and Industry of the Russian Federation. To help businesspeople, the new organ drafted a series of amendments to the Criminal Code and the Criminal Procedure Code, which the president signed in the summer of 2016. These amendments included the following measures:
Handing down fines instead of criminal punishment. Businessmen who commit an economic crime for the first time are freed from criminal punishment if they compensate for damages to the federal budget. The list of formulations whereby such leniency may be extended to entrepreneurs is sufficiently wide and stretches from limiting competition and market manipulation to deliberate or fictitious bankruptcy. The volume of reimbursement will be calculated either at two times the sum of the damage or as two times the sum of the expense incurred as a result of the crime. Previously, such rates were calculated on a fivefold basis.
Increasing the amount of damage that qualifies as an “economic” crime. The definition of significant damage was increased from RUB 1.5 million to RUB 2.25 million, while especially significant damage was revised from RUB 6 million to RUB 9 million.
Raising the minimum threshold for initiating a criminal case concerning the non-payment of taxes. The sum of unpaid taxes that would trigger a criminal investigation against an entrepreneur was raised from RUB 2 million to RUB 5 million.
Allowing notaries to visit entrepreneurs held in isolation units. Arrested businessmen are allowed to invite their notaries to visit them in isolation in order to formalize power of attorney for controlling their business interests. Businessmen are allowed to meet their notaries free of restriction with regards to the duration or frequency thereof.
The next assignment was to develop measures for increasing the liability of security officials for unreasonably persecuting businesses. In the autumn of 2016, experts drafted a corresponding bill, which deputies adopted in December of the same year. The document introduced amendments to Article 299 of the Criminal Codex, which concerns the illegal initiation of criminal cases. The maximum period of imprisonment for individuals found guilty of Article 299 offenses was raised from five years to seven years. Furthermore, the amendments classify the unlawful initiation of criminal cases for the purpose of obstructing entrepreneurial activity and the collapse of business due to criminal persecution initiated by investigators for mercenary purposes or personal interest as aggravating circumstances. The punishment for such offenses on the part of law enforcement was raised from five to ten years’ imprisonment.
At the same time, the Supreme Court also provided significant guidance concerning “economic” crimes. The Supreme Court told investigative organs and courts how to distinguish fraudulent entrepreneurial activity from typical business practice. Besides that, the document defended businesspeople from the requalification of “commercial” crimes as “simple” fraud, a technique that law enforcement has used to deprive businesspeople of various legal guarantees and led investigations to “pressure” entrepreneurs.
The enumerated changes were already paying off by the beginning of 2017. Speaking at the Russian Investment Forum in Sochi in February 2017, Presidential Commissioner for Entrepreneurs’ Rights Boris Titov said that the number of criminal cases in Russia initiated against entrepreneurs was beginning to gradually diminish. He pointed out that the number of people being held in isolation for economic offenses also decreased by 23% during the second half of 2016. Yuriy Chaika also noted a positive tendency for businessmen in January 2017: in his words, the number of persons sentenced for economic crimes in Russia contracted fourfold over the past five years.
A Proposal from the Supreme Court
The Supreme Court furthered the policy of liberalizing criminal legislation regarding economic offenses in the autumn of 2017. The plenum of the Supreme Court developed a draft law to assist businesspeople held in custody without cause for an extended period. The current version of the Criminal Procedural Code generally prohibits such preventative measures for economic crimes. In practice, however, investigators reclassify “entrepreneurial” offenses as “general” offenses so as to bypass this, sometimes with agreement from the courts. In order to prevent such “cunning,” the Supreme Court suggested concretizing the recognition of crimes committed in the sphere of economic activity.
The Supreme Court’s Definition of Economic Crimes: “Crimes in the sphere of economic activity are committed by individual entrepreneurs in connection to their implementation of entrepreneurial activity and/or their control of assets for use in entrepreneurial activity, whether as a managing member exercising control of a commercial organization or in connection to the commercial organization’s implementation of entrepreneurial or other economic activities.” (Link)
The Supreme Court’s bill was also designed to break the tendency of suspected and accused persons being held in isolation for months and years on end without specific cause while investigators do not perform active work on their case. In order to extend the period of detention, investigators not only must specify the motives for doing so but must also detail the concrete investigative actions they want to perform. Law enforcement officers will have to report why they did not implement these actions earlier. The State Duma adopted the abovementioned amendments in the first reading.
However, at the start of 2018, experts asserted that the number of criminal cases initiated against entrepreneurs was still climbing. This is evidenced by statistics collected in the report “Criminal Persecution for Economic Matters-2017,” which was prepared by Titov’s team of experts. Even so, the report indicates that less than 20% of such cases end up reaching court. These figures are based on the results of monitoring court practices and the data of the Federal Penitentiary Service of the Ministry of Internal Affairs. The report emphasizes not only the growth of “fraudulent” investigations but also a new tendency wherein more and more businessmen are being subjected to criminal persecution for non-payment of wages (Article 145.1 of the Criminal Codex). Experts consider these cases as a means of pressuring businesses, as sentences for similar crimes are carried out in only 15% of such instances.
Why Liberalization is not Giving Tangible Results
The abovementioned legislative changes have not led to anything in practice, believes criminal law specialist Valery Volokh. According to Volokh, the courts continue to place entrepreneurs under detention, investigators continue to keep objects and documents for several months without recognizing them as material evidence in a timely manner, and law enforcement officers continue to deny detained businessmen from meeting with notaries without reason. Matvey Protasov of Moscow law firm Romanov and Partners explains that the entire liberalization campaign has one major problem: “There is no correlation between the letter of the law and the practice of the law.” Unfortunately, says Protasov, neither law enforcement nor the courts care about entrepreneurial activity, even in the most obvious situations: “As before, requests by law enforcement for the approval of detention are being approved based solely on the gravity of the accusations.”
Valeriy Zenchenko, Managing Partner of law firm Pen&Paper: “The norms for liberalizing criminal economic crime statutes exist, but liberal enforcement is not being observed. Who can fix such a situation or, at the very least, correct it? A lawyer who not only knows the new norms but also knows how law enforcement will try to use them, and also understands how to prevent investigators from doing so.”
As an example, Protasov cites the tricks investigators use in prominent cases to send businessmen behind bars: “Rather than implicating a businessman in committing an Article 159 offense (“Fraud”), they point to signs of an Article 210 violation (“Organization of or Participation in a Criminal Group”), which, in 100% of such cases, allows them to place the accused in an isolation unit.” Kirill Belskiy of Koblev and Partners acknowledges that law enforcement officers often employ “terminological foci” to extract concrete cases out from under the category of “entrepreneurial activity.” Agreeing with his colleagues, Alesksey Gurov, who heads the criminal law practice at Barshchevskiy and Partners, provides another example: according to Article 201 of the Criminal Codex (“Abuse of Authority in Commercial Entities and Other Organizations”), the accused may be detained, although the configuration of this same norm recognizes the possibility of such crimes being committed in the sphere of economic activity. Gurov contends that investigators frequently exploit this legal contradiction.
Artem Chekotkov of Knyazyev and Partners sees far deeper causes of the ineffectiveness of the legal institutions being established for the defense of business: “They consist not in the technical disappointments of the same norms, but in the inability to solve these issues through the creation of a specialized regime for assigning criminal liability to particular group of individuals, viz., entrepreneurs.” Chekotkov points out that there is currently no clear justification as to why businessmen specifically should hold privileges vis-a-vis criminal liability in comparison to other citizens. He further adds that ameliorating the fate of entrepreneurs who have committed offenses is not a task for criminal law.
Other Problems Facing Entrepreneurs Confronting Security Officials
In parallel, business remains in search of ways to “optimize” its own profits – and not always by honest means, says lawyer Svetlana Maltseva of Zabeyd and Partners. On the one hand, law enforcement is trying to stop such actions, but on the other hand, Maltseva adds, they often participate in them. When there is a crisis in the country, and the level of money in the budget is insufficient, then business becomes the sole source for replenishing it, explains Maltseva: “Moreover, businessmen themselves do not pay attention to the ways in which various frauds are being revealed and do not switch over to ‘new set of rails,’ instead continuing to engage in old schemes.” In fact, says Sergey Yegorov of law firm EMPP, entrepreneurs are being punished for using illegal schemes from the (relatively) distant past: “We are talking about actions committed 3 to 5 years ago, and older still.”
That is to say, by applying an ambiguous yet seemingly legal scheme today, an entrepreneur risks being implicated in one or another criminal abuse a few years down the line. Yegerov provides a tangible example from the realm of business: “Today, builders understand that it is not worth accepting budgetary money. And if they do, and they ended suddenly before delivering the object, then they must finish the property at their own expense. Otherwise, they run a high risk of being accused of fraud. Such risks were not perceived several years ago.”
Yegorov believes that when it comes to humanizing legislation, it is worth considering the moment when businessmen stop employing ambiguous schemes for their work and voluntarily refuses to use such options in favor of more conscientious and transparent ones. In some cases, suggests Yegorov, such circumstances should be regarded as mitigating or emerging as a condition for halting the criminal persecution of an entrepreneur, “by paying a judicial fine, for example,”
Denis Saushkin, managing partner of law firm ZKS: “If the court closes its eyes to violations of the law, then why should others use it? What is the sense of changing or introducing legal norms if no one will use them? There are no laws that need changing; what is needed is a systematic approach on the part of the court in performing its own functions.”
Belskiy notes another flaw. According to him, dishonest police officers can still exert pressure with impunity on business without initiating a criminal case: “This takes place through pre-investigation checks and ‘operational-investigative activities,’ wherein law enforcement is allowed to obtain testimony from individuals, to execute searches of properties, and to seize objects and documents.” Only a professional lawyer can distinguish such search and seizure actions from an interrogation: “Yet for the businessman, this is one and the same form of pressure, only without the risk of being imprisoned.”
Yet another serious problem in the interactions between business and the law enforcement system, argues Yegorov, is the selectivity of Russian investigators and justice. According to Yegorov, this factor does not allow for the establishment of a unified “rules of the game” for business and law enforcement. Businessmen often feel entrepreneurs fall prey to criminal proceedings simply because of bad luck, says Yegorov: “After all, his competitors are working according to the same rules.” For this reason, Chekotkov believes that a list of organizational and technical measures – not legislative ones – is needed in order to support the implementation of the current legal reforms.
Kirill Belskiy, partner of Koblev and Associates: “It is necessary to clearly establish that criminal charges cannot be deployed in instances of civil violation. So long as this does not happen, it will be possible for economic operations to be labeled as a criminal offense at the behest of interested parties.”
But Belskiy believes that the only real way out of the abovementioned problems is for the courts to restore real control over law enforcement. Returning various supervisory functions to the prosecutor’s office could also have a positive impact on the situation, he suggests.
Much like this (purported) photo of a Russian mercenary in Syria, the legal status of Russian private military companies is quite blurry.
On 27 March 2018, the Kremlin notified the State Duma that it disapproved of a draft law seeking to regulate Russian private military companies (PMCs). The draft law in question, submitted this past January by deputies associated with the social democratic “A Just Russia” (SR) party, proposes placing the Ministry of Defense (MoD) in charge of licensing PMCs, as well as harmonizing their legal status with relevant provisions of the Russian Constitution and Criminal Code. The bill also mandates that PMCs must be registered as private limited companies, or “obshchestva s ogranichennoj otvetstvennost’yu” (OOO), and must maintain an initial capital of no less than RUB 10 million (approximately USD 174,600).
Articulating the legal basis behind its position, the Kremlin argued that the abovementioned bill violated Article 13.5 of the Russian Constitution, which, among other proscriptions, prohibits the establishment and activity of OOOs engaged in the creation of “armed formations.” Russian media report that the bill is also opposed by the MoD, the Ministry of Finance, the Ministry of Internal Affairs, the Russian Guard, the Federal Security Service, the Investigative Committee of the Russian Federation, the Federal Protective Service, and the General Prosecutor’s Office.
As noted above, the SR draft law on PMCs was introduced in January 2018. That same month, Russian Foreign Minister Sergei Lavrov spoke out in favor of creating a legislative basis for PMC activities after Grigoriy Tsurkan, a Russian mercenary working for the PMC known as“Wagner,” was executed by the Islamic State. A month later, hundreds of Russian contractors affiliated with Wagner were reportedly killed by U.S. aircraft and artillery fire during a joint assault with pro-Assad militiamen on a Kurdish-held oilfield in eastern Syria.
This latter debacle has prompted a great deal of speculation regarding how PMCs like Wagner might factor into Putin’s broader foreign policy stratagem. Some have asserted that the Kremlin uses contractors working for Wagner and other PMCs in order to provide plausible deniability of its ongoing military operation in Syria, which has the additional benefit of watering down the actual number of Russian casualties, thus avoiding irritating domestic audiences already wary of Russia being drawn deeper into the Syrian quagmire. Others maintain that the Kremlin has, in fact, effectively ceded operational control over the activities of Wagner and other PMCs to their respective shareholders, allowing the latter to pursue their own commercial interests — at least, so long as those interests demonstrably coincide with the Kremlin’s own interest in ensuring the survival of the Assad regime.
Indeed, leaked documents indicate that OOO Evro Polis (Tax Identification Number 5024166727) – a Moscow Oblast-based entity affiliated with Wagner principal and Putin ally Yevegeny Prigozhin – was contracted by the Syrian government to secure Syrian oilfields in exchange for a 25% stake in the profits produced by same fields. Prigozhin was reportedly in contact with Putin’s Chief of Staff, Anton Vaino, the day prior to the February incident, the existence of this contract strongly suggests that OOO Evro Polis provides PMC services abroad with the Kremlin’s imprimatur. So much was reflected by the US Treasury Department’s decision to impose sanctions on OOO Evro Polis in January 2018. Yet here it is also worth noting that Treasury imposed separate sanctions on Wagner – identified simply as “PMC Wagner,” with no Tax Identification Number given – back in June 2017. This begs the question: if OOO Evro Polis is understood to constitute a legal entity qua being an OOO distinct from Wagner, then what is Wagner?
One possibility may be that Wagner is the trade name that OOO Evro Polis employs when providing PMC services abroad. Yet per Article 1538 of the Russian Civil Codex, Russian companies are not required to register trade names with state organs; as such, there is no way to verify whether Wagner and OOO Evro Polis are one and the same entity. Corporate records do show that OOO Evro Polis registered a branch office in Damascus on 25 May 2017, but this too does not definitively tie the company to Wagner. Adding to the confusion, some media outlets have conversely characterized OOO Evro Polis as being a front for Wagner, which can be interpreted as meaning that Wagner is behind OOO Evro Polis. Whatever the case, all available information suggests that Wagner does not represent a private military company, at least not in sense of being a corporate entity registered with the Russian Federal Tax Service or any other competent economic authorities.
The fact that Wagner and similar PMC entities all appear to operate on behalf of the Russian state, and not against it, thus undermines the legal argument behind the Kremlin’s opposition to the SR draft law. For all intents and purposes, Wagner and its contemporaries occupy a legal gray zone in Russia. Because they are not legal corporate entities as such, their operations technically do not violate Article 13.5 of the Russian Constitution. Moreover, some Russian legal commentators have interpreted Article 13.5 as applying only to entities (commercial and other) that organize armed activities with the aim of violating Russia’s territorial integrity and/or fomenting internal unrest. Given that the SR bill provides for MoD oversight of PMCs, there ought to be a limited risk of legal status being granted to PMCs bent on overthrowing the Russian government.
For this reason, it is curious that the Kremlin based its opposition to the SR draft law on Article 13.5 of the Russian Constitution, especially considering that Article 359 of the Criminal Code of the Russian Federation explicitly prohibits mercenary activities. Article 359 defines mercenary activities as “the recruitment, training, financing or other material support of a mercenary,” and prescribes punishments ranging from four- to fifteen-year jail terms and/or fines up to RUB 500,000 (approximately USD 8,720). Russian courts have handled cases involving Article 359 offenses on numerous occasions since 2013; however, the majority of these legal actions were undertaken against defendants accused of involvement with Ukrainian nationalist militias or with Syrian militant groups opposed to the Assad regime (see the Slavonic Corps case). In other words, the Russian government’s application of Article 359 may be generously described as selective, if not politically biased.
One could argue that the Kremlin opposes legalizing PMCs precisely because their indeterminate legal status amounts to a feature, and not a bug, of their utility vis-à-vis creating plausible deniability for Russian military and intelligence operations abroad. There is much to recommend this thesis from a tradecraft perspective. However, there is no less reason to surmise that Putin and certain of his allies fear that placing PMCs under MoD jurisdiction would leave them vulnerable to a shadow coup staged by proxies of the military and national security establishment. At the very least, this would certainly make for a good Tom Clancy thriller.
Whatever the case, SR is by no means the only group in Russia seeking to create a legal basis for PMCs. Interest groups like the Moscow-based Association of Military-Security Companies, for example, have increasingly lobbied the Kremlin to resolve the legal status of PMCs and other armed security firms, arguing that legalizing their activities would be a value-add in terms of Russia’s military and counterterrorism capacities. Even so, the costs of regulating the PMC industry may well outweigh any such benefits, not least being the reputational risk associated with passing legislation contravening the International Convention against the Recruitment, Use, Financing and Training of Mercenaries. Even though Moscow is not a party to this convention, adopting such a measure would only serve to further weaken Russia’s already diminished credibility as a guarantor of international law.
Perhaps Putin, emboldened by his all-too-convincing victory at the polls earlier this month, will test the waters of economic liberalization during the first hundred days of his fourth presidential term by legalizing Wagner and others of its ilk. The fact that no less a hardliner than Foreign Minister Lavrov supports legalizing PMCs over the objections of the Russian security establishment suggests that this particular issue may emerge as a new front in the perennial competition between the siloviki and reformist camps of Politburo 2.0. Or perhaps there is room for compromise – an arrangement where, to paraphrase Mao, market reforms might grow out of the barrel of a gun.
Translator’s Summary and Analysis: The following text is an approximate translation of an interview betweenjournalist Aleksandr Golubev and General Major Andrei Kurnosenko of the Main Department for Economic Security and Anticorruption, an autonomous branch of the Ministry of Internal Affairs responsible for handling instances of financial or “white-collar” crime. The interview in question was originally published by Russian business newspaper Kommersant on 16 March 2018.
As summarized below, Golubev’s conversation with Kurnosenko broadly focuses on the current state of state anticorruption efforts in Russia. Although Kurnosenko cites all manner of statistical evidence to illustrate the Kremlin’s successes in combatting graft, he nevertheless concedes that Russian law enforcement continues to struggle with the complexities inherent in investigations of transnational financial crime. Mindful of this limitation, Kurnosenko explicitly voices his support for proposed measures that would impose additional restrictions on the issuance of licenses to banks and other financial services providers.
No less intriguing is Kurnosenko’s cryptic reference to the development of a “specialized algorithm” ostensibly intended to target the financing of terrorist and “extremist” organizations (suffice it to say that the language of Russia’s Criminal Codex allows for a very loose, very flexible definition of what constitutes “extremism”). Taken as a whole, Kurnosenko’s remarks suggest that the Russian security establishment remains deeply suspicious of liberal economic reforms, and will cloak its vested interest in regulating market entry and restricting genuine market competition in platitudes urging financial transparency for the benefit of national security. – Allen Maggard
Last year, Russian police managed to return more than RUB 100 billion stolen as a result of economic crimes to state coffers. The head of the Interior Ministry’s (MVD) Main Department for Economic Security and Anticorruption (GUEBiPK), General Major Andrei Kurnosenko, spoke to Kommersant about why massive investigations in Dagestan are happening at this particular time, the causes of the sharp decrease in the number of detected instances of bribery, and how the government is cracking down on the financing of terrorist and extremist groups.
— Under the current economic circumstances, defending budgetary funds has become an especially relevant task. How is GUEBiPK working to achieve the objective?
— First of all, we are countering the theft of budgetary funds intended for the realization of state defense orders, federal target programs, and priority national projects. Aside from that, it is important to push back against abuses related to the distribution of tenders for the provision of services, the execution of work, and the rendering of services for state and municipal needs.
Last year, our employees managed to identify more than 70,000 cases of economic crime and corruption, around 45,000 of which were investigated, resulting in criminal charges being brought against approximately 26,000 individuals. The total losses from these crimes totaled RUB 177.5 billion, RUB 100.5 billion of which we managed to reclaim. We uncovered 4,697 crimes affecting state and municipal budgets, of which 2,506 involved corruption. Relevant criminal charges were brought against 1,746 individuals, whose activities resulted in more than RUB 17.7 billion in losses.
Budgetary funds are being stolen through a wide range of schemes. The theft of more than RUB 150 million by Federal Agency for State Property Management (Rosimushchestvo) – which resulted in the arrest of Rosimushchestvo Deputy Head Yelena Patkina – provides a good example. During Patkina’s tenure with Rosimushchestvo’s Moscow Oblast office, several of her employees hatched a scheme. They took advantage of the fact that funds submitted to contractors by customers who provide incorrect information are transferred to a section of the federal budget for outstanding balances. Instead of returning these funds to the settlement accounts of the purchasing parties, the employees of Rosimushchestvo’s Moscow Oblast branch forged and submitted fictitious documents with false information concerning ownership structures and forms of payment to the regional treasurer’s office. Consequently, monetary funds were redistributed into a special account, whereupon the involved parties used a digital signature to set up payment orders transferring the money to dummy organizations, where the money was then stolen.
We are also paying special attention to abuses by officials within the military-industrial complex. Last year, GUEBiPK managed to identify 245 crimes in this sector, about a third more than the year before. We are working on this issue closely with our colleagues from the Federal Security Service (FSB), the General Prosecutor’s Office, and the Investigative Committee of the Russian Federation. The main methods for theft remain the same: unreasonable inflation of prices for material and technical goods and services, as well as the overstatement of executed works. And the main issue remains the extraction of funds through dummy organizations affiliated with the persons responsible for disbursing funds. A classic case of such theft took place during the construction of the Vostochniy cosmodrome, which saw numerous instances of multiple firms receiving contracts for a single project. Naturally, this was done in order to obscure the trace of stolen funds. We are sorting through the evidence, and in any case, we today believe that those not one of the persons who engaged in corruption over the course of the cosmodrome’s construction will escape justice.
That being said, the issues with funding allocation in the defense sector is tied to its being a state secret. We are trying to avoid interfering with production and scientific research, so we are trying to perform our functions in an especially delicate fashion. Our work in this area is being carried out on a systematic basis, though for obvious reasons were cannot discuss the results of this activity.
— Indeed, there is abundant evidence of abuses committed by officials in Dagestan. The GUEBiPK Central Directorate is constantly working as with our operational command for the North Caucasus, and are operating very closely with the FSB. Since the beginning of this year, we have uncovered 59 crimes in relation to officials at various levels of the government of Dagestan, resulting in 39 criminal cases. These included the mayor of Makhachkala being implicated in machinations with parcels of land in and around the capital, as well as the theft of millions of rubles of budgetary funds by the head of the regional Ministry for Construction, Architecture, and Urban Planning and the deputy head of the regional Ministry for Transportation, Energy, and Communications.
Besides that, GUEBiPK is paying attention to decriminalizing the energy sector in Dagestan and in other republics of the North Caucasus Federal District (SKFO). The Central Directorate of GUEBiPK and its regional offices have been working on this problem for two years. We discovered massive and systemic abuses within the energy tariff allocation system, thefts of petroleum products, provision of substandard fuel, massive tax evasion around energy market transactions – billions of rubles lost. These abuses resulted in roughly 500 criminal cases last year. Here it should be noted that the complications arising in relation to the situation in Dagestan have had an extremely negative impact on the moods of people outraged by the non-transparent distribution of energy resources, by an absence of control that led to the lion’s share of operations within the energy market being performed illegally, resulting in a lack of new job opportunities.
But these problems are not unique to Dagestan; one may find analogs throughout the SKFO. Just like I already said, law enforcement organs proceeded in Dagestan on the strength of the accumulated evidence.
—Most of the crimes you mention have an element of corruption to them. According to statistics published by the Prosecutor General’s Office not too long ago, the number of documented cases of bribe-taking has decreased by around 40% over the past year. How do you explain this?
— We have studied this issue. Several factors must be taken into account. First of all, when it comes to state officials and the managers of state institutions that have a stake in budgetary distribution, then it goes without saying that the latest corruption-related processes have had a serious prophylactic impact. These individuals have realized that their positions do not afford them immunity.
When we talk about bribery, the principle of the inevitability of punishment is of greater importance than whether the bribe was large or small. On the other hand, bribery retains a high latency, which not only manifests itself in the reluctance of bribe-givers to report crimes. New conspiratorial methods are emerging, facilitated by remote access technologies, offshore entities, firms owned by third-party affiliates, various electronic payment systems. Another important moment came in June 2016 with the introduction of new penalties for the facilitation of bribery through the use of intermediaries – namely, Articles 291.1 and 204.1. As it turns out, these phenomena, which we are discussing here in simplified terms, are quite widespread. When it comes to large-scale bribery and corrupt schemes resulting in significant losses, we still manage to identify many such crimes. One of the more significant criminal cases instigated by our operations concerned the vice-speaker of the Nizhny Novgorod legislative assembly. He stands accused of a whole range of corrupt activities, including schemes involving property in and around Nizhniy Novgorod.
— Many people say that officials should be made responsible for the outcome of the investment of budgetary funds so as to dissuade them from distributing tenders for kickbacks. Is this idea being realized somehow?
— GUEBiPK’s Central Directorate is carrying out work in this direction. We are constantly uncovering crimes in connection to state contracts, so sometimes it is simpler for us to spot gaps in existing legislation. The situation at the moment is such that criminally liability extends to those who are technically involved in the theft of funds, but to those responsible for allocating those funds. So, when contracts are concluded at an inflated price, the customer shrugs and says that it “just turned out that way.” And he does not answer for anything.
So, I still have not encountered any person being held personally responsible for distributing funds and thus suffering the consequences of the theft thereof or for inviting his or her own partners to take part. We have already proposed introducing some technical options for regulating these processes, for example, by analyzing or verifying real prices over the internet. Aggregators of such data exist. Whatever the product or service, one can always use search engines to check out average market prices, to perform due diligence on all the companies that perform a particular service or that act as intermediaries, to study their pricing models and establish an objective representation of price ahead of the call for bids.
We have suggested that if the bidding price strays from middle market rates by 10%, then the bidding process should restart. Because what usually happens is this: the auction is announced, the participating parties underbid, making it impossible to realize the contract, resulting in the prices undergoing a correction raising the cost of the project, the difference of which gets stolen. I have ordered all the departmental heads of the Central Directorate to analyze the results of representative operational assignments and investigative cases that have gone to court and resulted in sentencing. Moreover, we are directing our territorial detachments to constantly monitor the work of auction committees engaged in the placement of state contract orders. On the basis of this accumulated information, we plan to formulate clear and concrete suggestions for the consumption of lawmakers.
— Financial sector crimes, especially the illegal transfer and non-return of funds abroad, create huge losses for the domestic economy. Such crimes are usually identified once the money has already exited the country and the responsible criminal fiduciaries and their interlocutors have fled Russia. How might this practice be curtailed?
— Last year, GUEBiPK uncovered around 100 crimes falling under Articles 193 and 193.1 of the Criminal Codex involving the illegal withdrawal and non-return of funds beyond the Russian border, resulting in criminal charges being brought against around 30 people. Moreover, in the credit finance sector, we uncovered almost 20,000 crimes, of which more than a thousand were committed by organized groups. More than 5,000 tax crimes were documented. Members of GUEBiPK’s Central Directorate participated in 73 tax audits, resulting in penalties up to RUB 7 billion.
There were other significant developments. Last year, members of the Central Directorate suppressed a criminal group whose members had engaged in the withdrawal of monetary funds derived from the informal economy around Moscow, Saint Petersburg, Krasnodar, Voronezh, Oryol, and Rostov. Between 2014 and 2016, this group withdrew RUB 8 billion derived from legal trade turnover. 15 individuals have been accused in connection to the case. Three of the organizers and active participants of this group have been arrested.
The dynamic is such that the incidence of illegal withdrawal of funds is decreasing, although tens of billions of rubles are still being measured. A great deal of attention is being paid to this issue, and we are constantly in contact with the Central Bank and the Federal Financial Monitoring Service (Rosfinmonitoring) as part of a special interagency commission.
The most urgent schemes involving the withdrawal of monetary funds beyond the border involve transfers performed through fictitious foreign trade contracts, through agreements for the sale and purchase of securities, through the conscious provision of irretrievable loans or the return of credits supposedly received at a prior date, the transfer of funds between Russian organizations and overseas bank accounts controlled by other Russian firms. To this end, forged court rulings or legal decisions based on fictitious loans are used.
— Do you mean that the so-called “Moldovan scheme” is still relevant?
— The scheme you refer to is not unique to Moldova, the term persists only because that particular case resulted in an astronomical loss of money, while the ensuing investigation created a huge stir. Mechanisms for controlling the withdrawal of monetary funds are currently being developed within the banking system and elsewhere. Of course, today we sometimes find ourselves having to sit by idly because of the difficulty of retrieving funds held in accounts abroad. But we cannot just arrive at a bank and say, “You know, we suspect that you want to withdraw funds, so we order you to do this and that.” We are already being accused of exerting pressure on businesses, then they pin the blame us for problems with depositors’ funds.
— Some have suggested introducing procedural limitations, for example, on the overseas travel of bankers whose financial organizations are subject to the scrutiny of the Central Bank.
— This was discussed as an option at one point, but this would mean placing limits on the constitutional rights of citizens. It is a separate issue. We need to come up with precise criteria for when preventative procedural measures are possible: say, in instances of a sharp uptick in the volume of opaque transactions, or a huge volume of transactions involving small sums of money over a concrete time period. But this should be prescribed clearly and precisely, because people regularly work with foreign counteragents, pay contracts, purchase technology and services.
We are currently discussing these issues within the interagency group. This is a very delicate matter, as harsh measures could threaten Russia’s interests, especially with regards to investments in our economy. For example, we discussed a proposal that would “pump the brakes” on suspicious transfers abroad in order to subject them to a detailed audit and thereby examine their soundness. But again, such actions may lead to misunderstanding on the part of the foreign partners of Russian businesspeople and ruin deals.
For this reason, it is important to remember that effectively combatting the illegal withdrawal of funds requires coordination with the competent organs of foreign states. Here, there are many issues.
We soon may see initiatives limiting the issuance of licenses for this or that type of banking activity, especially those that involve funds belonging to individual persons. This is of principal importance, because when thousands of people suffer because of the actions of a single legal entity, which is disproportionate. People sometimes save for their entire life, they keep their money in a bank, and then after the bank collapses they get back a small portion of their own deposit – that is all. So, we support the abovementioned initiative.
— Illegal cross-border financial operations can be used for financing terrorist and extremist organizations. Not long ago, GUEBiPK’s Central Directorate was ordered to combat this type of crime. Are there any results yet?
— In 2017, Russian law enforcement organs uncovered 100 crimes linked to terrorist financing. MVD was responsible for disrupting 72 such plots; GUEBiPK played a role in 32 of these same cases. This is a rather peculiar type of crime, insofar as it typically employs a thoroughly camouflaged mechanism. We have already established an effective working relationship with Rosfinmonitoring that provides us with materials about suspicious operations. There are various options for financing: electronic and digital wallets, targeted transfers of funds from sustainable sources with good financial resources. As of late, cryptocurrencies are being used to transfer funds, so we are critically assessing their ongoing, uncontrolled circulation of these assets. In combatting this kind of criminal financing, it is not only important for us to follow the receipt of funds, but also to document it for the purpose of evidence-gathering. You might say that we are currently in the final stages of developing an algorithm designed to counter the financing of terrorism and extremism.
— What do citizens complain about most to you?
— We recently received a flurry of complaints about public utilities, which account for more than 19% of all grievances. Problems with dacha cooperatives account for 15% of all complaints: often these concern demarcation of property, garbage collection, and other issues not yet fully covered by the law. People don’t know where they should go, so they turn to the police out of habit. Of the 22,800 administrative appeals that we received last year, most concern the failure of specific ministries, agencies, and municipal structures to fulfill their duties.
We are discussing this problem, but I do not think that the decision should be made by the MVD. There is currently a real need to modernize the rules governing how citizens and organizations submit appeals. This may involve establishing a single processing center – perhaps by drawing on the resources of the Multifunctional Center for the Provision of State and Municipal Services (MFTs) – that can competently determine which specific agency should handle the citizen’s problem. In this way, channeling appeals through multifunctional centers and a state services portal will keep citizens from spamming ministerial and agency inboxes.
The problem of establishing the identities of those applying for a tax identification number or an individual insurance account number, for example, is also being resolved. In many cases, people use pseudonyms and throwaway email accounts so as to remain anonymous when reporting false information to the authorities. This adds considerably to the workload of those staff who are responsible for reviewing petitions by citizens, distracting them from appeals actually containing evidence of improprieties that go against the law.
At minimum, there deserves to be a civil conversation incorporating expert opinions about whether there exists an objective premise for requiring those filing complaints to also file a so-called “stamp duty” — say, no more than RUB 100 to RUB 200— which would significantly diminish the numerous documented instances of “abuse of the right to petition” towards state organs.
The adoption of such measures will allow us to bring work on citizen appeals to a qualitatively new level, optimizing the activities of organs of state power.
Translator’s Note: The following text is an approximate translation of a 15 March 2018 article written by the Editorial Board of Vedomosti, a Russian business newspaper. This piece concerns a new poll querying public attitudes toward state anticorruption efforts. The results of the poll in question indicate a possible correlation between a rise in public confidence regarding the Kremlin’s commitment to combatting graft and the surge of popular support for Putin’s government immediately following the annexation of Crimea. Citing this data as evidence, Vedomosti‘s Editorial Board suggests that popular attitudes toward the ruling elite may play a greater role in determining the Russian public’s opinion of state anticorruption efforts than do actual measures taken against officials accused of graft. – Allen Maggard
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The level of corruption in Russia has increased in the eyes of ordinary Russians over the past several years, such that fewer people believe that successfully combatting graft is possible. Investigations carried out by opposition activists against the backdrop of diminishing post-Crimean euphoria are responsible for this phenomenon.
On 13 March 2018, during a meeting with public representatives from Dagestan, Vladimir Putin asserted that the problem of corruption was not limited to the North Caucasus republic. “Unfortunately,” lamented the president, “such things can happen anywhere.” Putin expects that situation will change after a new leader, one unburdened by any “unnecessary obligations,” took charge of Dagestan.
However, such procedures are hardly universal, as the majority of Russian citizens are skeptical of state efforts to combat corruption, according to a new poll released on 14 March 2018 by the “Public Opinion” Foundation. 75% of respondents characterized the level of corruption in Russia today as being “high,” compared to 66% in 2014. The underlying dynamic is not reassuring: at the end of 2014, 22% of respondents indicated they believed that the graft was growing; now, 38% believe that this is the case. The proportion of those who see signs of a contraction in the scale of graft has scarcely improved over this same period, growing from 12% in 2014 to 15% in 2018. Meanwhile, the proportion of those who perceive no change in the level of graft has diminished from 50% in 2014 to 35% in 2018.
The most recent poll results reveal contradictions in popular perceptions of the battle against corruption in Russia. On the one hand, five years ago more than half of Russians had no hope that the situation would improve (compared to 22% who believed it would). Today, the proportion of pessimists has considerably decreased to 45%, while the proportion of those who hold hope for the future has risen to 37%. Even so, poll results indicate that Russians do not expect that corruption will be totally eliminated. In 2012, 45% of respondents believed that such an outcome was impossible, whereas 40% believed the opposite to be true; today, this ratio stands at 56% and 36%, respectively.
31% of respondents believe that the government wishes to reign in corruption, but lacks the means to do so. 29% of respondents indicated that they believed the opposite to be true — namely, the government possesses the wherewithal to subdue corruption but lacks the necessary political will. Every seventh respondent indicated that they did not believe the government would want to crack down on corruption, even if it did possess the capacity to do so.
Argues Transparency International Russian director Anton Pominov, these poll results show that Russians’ perception of successes in the battle against corruption depends less on concrete actions than on their attitudes toward those in power. People did not notice the adoption of anticorruption narratives between 2010 and 2012, but started to believe that the regime was beginning to operate better after Crimea. Once the euphoria subsided, people began to feel that the situation had scarcely changed. Conspicuous, demonstrative processes actions taken against ministers and governors have given some citizens hope for individual successes in the battle against corruption, but lived experience has shown them that there is no worth in expecting a total victory.
Translator’s Note: The following text is an approximate translation of a 16 June 2020 
Note: This piece originally appeared in the 15 June 2018 edition of the 
The Hall of Mirrors - Зеркальный Зал 