The Dilemma of Russia's Anti-Corruption Campaign
Summary
Russian President Vladimir Putin's campaign to wrest control of the
economy away from the oligarchs is moving along briskly, propelled
by a series of corruption investigations. But this campaign is at
least rhetorically rooted in the rule of law and as a result, the
president's efforts may ultimately snare his own allies in the
government. Soon, the Russian president will confront a choice:
temper his campaign or be labeled a fraud.
Analysis
With tax, corruption and embezzlement investigations against top
Russian corporations proceeding at a blistering pace, President
Vladimir Putin is making great strides in his efforts to rein in
Russia's oligarchs. So far, the government has launched
investigations or filed charges - ranging from fraud to tax evasion
- against 13 major business leaders whose companies include Media-
MOST, LUKoil and Gazprom.
However, as these investigations widen, they are beginning to take
in some of Putin's own associates. The president may be dangerously
close to compromising key political allies in his widening
crackdown on the oligarchs. Putin's own prime minister, Mikhail
Kasyanov, has been under scrutiny for alleged ties to organized
crime. If Putin spares allies like Kasyanov, the president will
lose political legitimacy and be branded an autocrat.
On July 12, investigators from the Russian Federal Tax Police
Service (FSNP) announced the launch of a criminal case against auto
giant AvtoVAZ. Vyacheslav Soltaganov, director of the tax police,
told ITAR-Tass that the company, headquartered in the central
Russian city of Togliatti, had concealed hundreds of millions of
dollars from taxation by producing multiple vehicles with the same
serial number - and then reporting the manufacture of a single
automobile.
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With this case, investigators can snare more than a company set on
a bold scheme; they can also snare two of Russia's most powerful
businessmen. One is Boris Berezovsky, director of LogoVAZ,
AvtoVAZ's sales arm, and most recently a detractor of the
president's. Berezovsky has been named in the most recent criminal
charges. The second man, AvtoVAZ Director Vladimir Kadannikov, said
that the company would appeal the decision and the charges would
not impact a joint production deal to be signed with the American
auto giant, General Motors.
The tax police have simultaneously opened criminal charges against
Russian oil giant, LUKOil, and its director, Vagit Alekperov. Tax
Minister Gennadiy Bukayev told Interfax that the company had
concealed revenue in "especially large amounts." Ironically, the
tax minister himself had praised the company in May, handing it an
award for being a conscientious taxpayer. Bukayev told Interfax
that the company had won the award based on its own tax reports.
Evasion was only discovered in a subsequent investigation.
The sweep of the government's investigation is now expanding
exponentially, snagging the largest names in Russian business. The
Media-MOST empire, which owns banking, broadcasting, satellite
communications and banking interests, has been raided repeatedly.
Gazprom, the country's natural gas giant, and its director, Rem
Vyakhirev, are under investigation for questionable loans to Media-
MOST. The director of LUKOil, Vagit Alekperov, the country's
largest oil concern has been charged with tax fraud.
After years of corruption and crony capitalism, Putin is attempting
to regain control of the Russian economy by imposing the rule of
law. Successful investigations will allow the government to recover
assets that were pillaged while at the same time reassuring nervous
foreign investors that there corruption won't be tolerated in the
Russian economy.
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But the success of the crackdown will generate its own logic - and
a dilemma for the president. All the same allegations that are
befalling Berezovsky, Alekperov and Gusinsky could be pinned on
Putin's allies in the Duma. Kasyanov, for one, is under attack in
the Duma for alleged ties to organized crime.
Putin will soon privately grapple to build a firewall between his
allies and his foes. The web of oligarchs extends right to the door
of the president. Putin must now decide whether to let his allies
fall in the name of the law - or protect them and undermine his
campaign and his own authority.
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